Capital Goods Industry
Industry Analysis: Capital Goods Industry
Executive Summary
Capital goods is a mature industry with a unique opportunity for expansion and growth in the developing markets. While large, diversified conglomerates - the major industry players - have saturated developed markets, population and city growth in developing markets have increased demand for food, natural resources, and infrastructure, thereby growing the demand for capital goods, with over 8.1% growth per year projected over the next 5 years. Companies currently outside the industry face high barriers to entry, making it unattractive for new entrants, and creating a strong competitive environment for the relatively small number of large and current industry players. Individual companies dominate specific sectors of the capital goods market. Rivalry is high, as there is relatively little product diversity within the sector, and firms’ primary opportunity for differentiation is on technological expertise and value-add offerings such as warranties and service. Given these challenges, acquisition is the best growth strategy. With over 250 mergers and acquisitions over the past 3 years, the capital goods markets is rapidly consolidating as large players gain more market share. In addition, acquisitions allow these large conglomerates to enter emerging markets where the long-term future growth exists. In conclusion, capital goods is a moderately attractive industry because of these opportunities for growth. The capital goods industry is extremely broad and comprises two major categories: engines and global machinery, which includes agricultural, construction, and mining machinery (Exhibit 1). The global machinery industry is valued at $182.4 billion , while engines adds another $12.8 billion , representing a total capital goods value of $195.2 billion.
Within the global machinery market, construction and industrial equipment comprise the largest share, with 46.3% of market revenues ($84.5b). The
Executive Summary
Capital goods is a mature industry with a unique opportunity for expansion and growth in the developing markets. While large, diversified conglomerates - the major industry players - have saturated developed markets, population and city growth in developing markets have increased demand for food, natural resources, and infrastructure, thereby growing the demand for capital goods, with over 8.1% growth per year projected over the next 5 years. Companies currently outside the industry face high barriers to entry, making it unattractive for new entrants, and creating a strong competitive environment for the relatively small number of large and current industry players. Individual companies dominate specific sectors of the capital goods market. Rivalry is high, as there is relatively little product diversity within the sector, and firms’ primary opportunity for differentiation is on technological expertise and value-add offerings such as warranties and service. Given these challenges, acquisition is the best growth strategy. With over 250 mergers and acquisitions over the past 3 years, the capital goods markets is rapidly consolidating as large players gain more market share. In addition, acquisitions allow these large conglomerates to enter emerging markets where the long-term future growth exists. In conclusion, capital goods is a moderately attractive industry because of these opportunities for growth. The capital goods industry is extremely broad and comprises two major categories: engines and global machinery, which includes agricultural, construction, and mining machinery (Exhibit 1). The global machinery industry is valued at $182.4 billion , while engines adds another $12.8 billion , representing a total capital goods value of $195.2 billion.
Within the global machinery market, construction and industrial equipment comprise the largest share, with 46.3% of market revenues ($84.5b). The