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| China's Packaging Machinery Industry Ripe for Consolidation |
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The most acute problem in China's packaging machinery industry is the fragmented product structure. Compared to advanced overseas products, China's packaging machines are uncompetitive in almost all aspects, such as product development, performance, quality, reliability and aftermarket services.
In terms of product mix, China currently has more than 1300 types of packaging machines, most of which are incompatible with each other. There are few high precision and large-scale products, hence failure to meet market demand. Many products lack stable performance and reliability, with unattractive design and rough surface. And many parts and components are of low quality, short lifespan and low reliability, directly affecting whole-machine quality. |
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In terms of producers, the industry doesn't have many real leaders, so large-scale or high-end manufacturers are rarely seen. In term of product development, the Chinese packaging machinery industry is still at an imitation stage with weak innovation capability. Research and development expenditure on average accounts for only 1% of sales, while the percentage in their overseas peers can be as high as 8-10%.
Reasons for these issues
Lack of macro planning
Due to the packaging machinery industry's low entry barrier, insufficient historical development and cross-regulator nature, it has difficulty in organised planning and macro guidance. Many producers rushed to invest in the same projects or develop the same new products, resulting in disordered and duplicated competition.
Lack of capital investment
The difficulty of attracting sufficient funding to implement significant technological restructuring is a universal problem in China's machinery industries. The lack of funding has resulted in R&D expenditure in most companies remaining less than 1% of sales. Therefore many companies cannot afford to develop new generation of products while they are still selling the current generation of products. The absence of internal technological reserve and inability to acquire external technologies have resulted in a lack of new products and competitiveness in most packaging machinery companies of China.
Lack of professional staff
The low profitability of the packaging machinery industry is failing to attract outstanding technological talents. This has resulted in varied staffing quality and weak R&D and innovation capability. It's even difficult to imitate similar product lines from foreign producers, thus many Chinese packaging machinery products are still the same after years.
Industry investment risks
Due to the above fragmented situation of the industry, it will inevitably need change. From the above factors, we can see that lending to or investing in the Chinese packaging machinery industry may possess the following risks.
Entry limitation
The low entry barrier and lack of macro planning are the main reasons for the industry's serious construction redundancy. So in the foreseeable future, the industry may be subject to macro control measures from the central government, potentially affecting certain new projects.
Accelerating industry consolidation
Due to the low production capability, low technological content and lack of innovation skills, many small packaging machinery companies will be in a disadvantaged position in market competition. Their low profitability has also led to their weak ability to cope with market risks. So the expected trend in the Chinese packaging machinery industry would be continuous consolidation, and some small players may be facing exit or closure.
IP dispute for imitative companies
The lack of innovative capability in some packaging machinery companies has made imitation an important survival skill for them. But as China is strengthening its intellectual property protection and foreign producers are paying more attention to multinational IP protection, those copycat companies will be facing an increased level of IP disputes.
Produced by China Business Intelligence; Source: www.foodqs.com
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