Academic journal article Business Economics

The Global Market for Power Tools

Academic journal article Business Economics

The Global Market for Power Tools

Article excerpt

The global demand for power tools rose from $19.0 billion in 1999 to $22.8 billion by 2004 and is expected to increase to $29.2 billion in 2009. The annual rate of growth was 3.7 percent during 1999-2004; the projected rate during 2004-2009 is 5.0 percent. This reflects accelerating growth in developing regions, with the most promising opportunities occurring in Latin America, Africa/Mid-East, and Asia-Pacific. Electric tools (plug-in and cordless) dominate world demand, comprising three-fourth of shipments in 2004. Commercial users accounted for 70 percent and households for 30 percent of total sales, a ratio that should prevail during the coming years. North America accounted for 40 percent of total demand but for only 30 percent of production, as U.S. firms shifted operations to countries with lower wages. While hundreds of companies offer power tools, only a few firms hold significant market share. The leaders are Black & Decker (United States), Bosch (Germany), TechTronic (Hong-Kong), Makita (Japan), and Hitachi (Japan); together they accounted for 37 percent of global sales in 2004.

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Tools and tool-making have been around since the dawn of civilization but power tools for less than a century. Indeed, they got their impetus only after World War II, with reconstruction efforts and do-it-yourself homemakers leading the way. Today, there is a vast array of power tools (drills, saws, sanders, grinders, hammers, wrenches, etc.) along with a vast variety of accessories and parts. (This paper and the report on which it is based exclude hand tools and machine tools.) Power tools are used in a broad array of commercial or industrial applications. The most significant ones are construction and remodeling, motor vehicle repair, and production of industrial machinery. In addition, power tools are used widely in a myriad of consumer-related settings (i.e., in household tasks of all kinds). The scope of usage is so broad and diverse that aggregate macroeconomic outlook and prospects for gross fixed investment within a country are the fundamental determinants of power tool demand.

When looking at power tool markets and suppliers on a global basis, a distinction has been drawn in the past between industrialized nations and developing countries. The former comprise the large, mature, and highly cyclical markets of North America, Western Europe, and Japan, with most of them showing relatively slow growth. The companies in these regions are technically proficient producers whose industry leaders are multinational firms with substantive market share. The national markets of Asia-Pacific, Africa/Mid-East, and Latin America are smaller and less developed but offer significant growth potential. The suppliers are often local and small and function in a fragmented sector. Of late, however, they actively began to export and to form strategic alliances.

A recent article on German exporters (Economist, 2006) shows how these two groups of nations and the companies therein are becoming more closely linked. "Wurth is a trading company that directly manufactures only five percent of what it sells. Only 60 percent of its goods are made by German companies and only 25 percent of its profits come from Germany." Wurth makes power drills in the Czech Republic, China, and elsewhere; but the brand label is applied only after passing rigid quality controls. The article says that Wurth has 2.8 million customers with nine out of ten being professional craftsmen. It now owns 355 firms in 81 countries and tripled its turnover in the last ten years to [euro]6.9 billion. A similar situation exists with Stihl, a maker of chain saws and drills. The company prides itself on quality control, ergonomics, and safety features. It advertises that it will not sell through Lowe's or Home Depot, two mass merchandisers in the United States. Stihl products are sold in 130 countries by 30,000 independent dealers (8,000 in the United States). …

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