Given the interdependent nature of countries and industries today, the economic downturn travelled somewhat like an inverted wave or trough, starting out from the source of the initial disturbance and radiating outwards, bending around industries that enjoyed some form of protection or were sustained by longer term contracts, but eventually affecting even those economies that have boasted the highest cash reserves and growth rates in recent years.
Globalisation – Economic efficiency
The emotive and controversial trend towards global integration of markets has its origin in the classical nineteenth century economic theories of Ricardo and Smith. They observed that global trade enriched all trading nations, by concentrating their national resources of materials, labour and capital on industries where they developed comparative advantage. Given the diversity of skills and resources found in different countries, each managed to develop national industries that achieved greater than average efficiency and therefore lowered their cost of production.
However, these economic models did not anticipate the unrestricted movement of capital or labour across national boundaries as we see happening today. Consequently, workers in most industries no longer compete with rivals in neighbouring towns; or even with competitors operating in other parts of their own country. Ironically it is workers in the developed economies who seem most vulnerable, because their global rivals are satisfied with far lower earnings and view poverty and starvation as threats that they are determined to escape.
Industrial gases the industrial barometer
One of the factors enabling the Industrial Gases industry to continually generate healthy profits is that the demand for gases is based on a very wide range of different end uses. It has seldom occurred during the past century that most of the gas consuming industries have suffered a downturn simultaneously. The worldwide recession that struck most countries in the final quarter of 2008 has highlighted that this is not always going to be the case.
Previous economic downturns were precipitated more often by market imbalances such as sudden shortages of crude oil caused by a war situation, the failure of agricultural production caused by freak weather, or other natural disasters. The trigger for the 2008 crisis however was something that industries depend on so universally, that the collapse in demand was seen to be far wider on this occasion.
Those countries and industries that have recovered most rapidly to pre-recession operating levels are those that were able to access alternative sources of cash. Monitoring the performance of the industrial gases business offers a surprisingly accurate gauge of an economy’s overall state of recovery. Typically the average year-on-year drop in sales of Industrial Gases has been around 17-25% which reflects reduced activity throughout all sectors of industrial activity. In many markets sales results in 2009 were around 10% lower than 2008.
Among the companies hardest hit during this recession are the world’s largest carmakers, especially those in the USA. Clearly buying the latest model car for many people is not currently an option, but this certainly does not imply that people are going without cars; rather it means that many people are planning to continue driving their current cars for longer.
This does of course imply a shift in demand away from the manufacture of new components and car assembly to the maintenance of older vehicles. To some extent the reduced demand for new cars has been offset by increased demand for spare parts, panel beating and other repairs. This trend isn’t unique to the automotive industry but is reflected in most sectors of the manufacturing industry from fabrication of plastics and metals through to electronics.
Fabrication equipment and trends
Plasma cutting technology presents an example of a technology that has been overshadowed by recent advances in Laser Cutting. Restrictions to the availability of capital and credit have compelled industrialists to examine less expensive options.
The reality is that Plasma equipment is a mature and robust alternative, capable of delivering very acceptable quality and high productivity in various applications. Rather than delaying plans until additional credit becomes available many modern metal workshop operators have found that Plasma is within their reach even during these hard times.
Another big shift has been toward outsourcing of work to specialist businesses. Traditionally large fabrication shops would always invest in their own facilities, like profile cutting systems, even when the expected loading would not exceed 50% of capacity. In many economies we find that new service industries have emerged concentrating on Computer Aided Design (CAD), Plasma and / or Laser Cutting, drilling, machining and related tasks. These specialists, because they constantly focus on their particular fields, can justify investing in high-end equipment to maximize cutting efficiency.
Modern innovations in computing can simulate everything from stresses in the product through to the virtual production process itself, which greatly reduces research and development costs whilst enhancing final product quality. Three-dimensional scanning Lasers can create a 3D CAD data file in minutes facilitating the replication of components to amazing accuracy, even at a remote location. Precision engineering no longer depends on supreme human skills but rather is inherent in the production technologies available.
This has opened up a new world of possibility because composite materials ranging from exotic metal alloys to carbon fibre and plastics can be used in the production process. This has enabled moulding and welding procedures to work together allowing for infinitely more creative products whilst enabling increased use of recycled materials, and thus ensuring more environmentally sustainable production.
Automation is a primary advantage of these new technologies and has created some very distinct shifts in the people and skills needed by manufacturing industries. Creative thinkers with computer know-how and an understanding of materials can now take advantage of the exciting new possibilities and grasp the world of wonder ahead of them.