Failed Chinese model: why is it said that China's machine tools are not able to support Adou?

Once I talked to a friend outside the manufacturing circle, Kan Dashan, I said that I was engaged in machine tools. He asked with a wicked smile, which chicken, which bed? The word machine tool is the industry that the people like to see, and put it together is an extremely professional word, and it is not enough to fool around with articles on the Internet alone.

"Machine tool" is a very broad definition. Machines with completely different "appearances", structures, and uses may all be called machine tools. Even if they belong to the same type of machine tools, due to the different "application scenarios" (to paraphrase the current popular term, manufacturing terms should be called "processing objects"), the internal structure design is also 108,000 miles different. For example, the following two machines, both from the top German machine tool manufacturer Reichenbacher Hamuel GmbH, are five-axis gantry machining centers, with a heavy-duty gantry on the left and a light-duty gantry on the right. Although they are both five-axis gantry machines, the difference between the two is like that of a Tiger Tank and a Porsche, although they are from the same engineer, it is almost impossible to drive on the same road.

A few days ago, I saw the ranking of the machine tool industry forwarded by the WeChat circle of friends, which actually compared TRUMPF and DMG together. The former is a laser cutting machine tool, the latter is a machining machine tool, and the two almost do not constitute a competitive relationship, so this ranking is like putting cars, airplanes, and ships together, and making a "transportation industry" enterprise competitiveness ranking. Therefore, the development of the mainland machine tool industry does not need to listen to the reports of these analytical institutions.

1/ The fundamental logic of manufacturing upgrading

For ordinary products, small profits and quick sales are a generally feasible strategy: merchants can obtain a large number of orders at a low price, gain production experience through mass production, and invest a part of the profit in R&D and upgrading equipment and technology, and then further obtain more orders and higher profits. Meeting this virtuous cycle requires a prerequisite: the market capacity must be large enough, and technological progress must not be too fast.

Only when the market capacity is large enough, small profits can be sold more, and the total profits can be enough to support technology investment; And as long as the speed of technological progress is not too fast, then it is possible for latecomers to gradually catch up. Private manufacturing enterprises in mainland China, such as shoes and hats, toys, home appliances, mobile phones, and even 5G communications (although they cannot be counted as manufacturing, but also conform to this logic) have basically adopted this routine to get the position.

On the contrary, if the catch-up player invests the profits obtained through small profits and quick turnover into R&D, and the technological progress generated still cannot catch up with the technological progress of the industry leader, then it will never be able to catch up in this industry, and even the gap will become wider and wider. The most obvious example is the automobile, where technological progress is fast, and later competitors are also difficult to expand the market and accumulate wealth quickly through small profits, unless disruptive technologies appear, they will always be in a state of keeping up. Although Japanese cars have been "catching up with the United States over the United States" for decades, there is still a gap between them and European auto groups in the field of traditional internal combustion engines. It is the new technology of hybrid power that gives Japanese cars the opportunity to catch up, and now electric vehicles will also be an opportunity for Chinese car companies.

To put it simply, under the premise that there is no revolutionary breakthrough in production technology, the improvement of the manufacturing industry depends on the accumulation of experience: the more products produced and the more experience, the higher the production efficiency, the better the quality and reliability. Most of the rapid development of the mainland's manufacturing industry follows this logic.

However, this logic does not apply to the machine tool industry. The machine tool industry is basically oriented to the professional market, and the more high-end development, the higher the degree of specialization of customers, the more obvious the market segmentation. Even for general-purpose machines, the output is much lower than the products produced by this machine. For example, if the annual output of a part is 100,000 pieces, then perhaps a production cell consisting of 5 machine tools will meet the requirements. Assuming that the annual output value of this machining plant is 1 million yuan and the profit is 10%, they choose 500,000 yuan of processing equipment for investment based on the calculation of 5 years of recovery of investment capital. The quality of the equipment is not bad, and it will be eliminated after 20 years. In the past 20 years, the output value of machining products has been 20 million, while the equipment investment is only 500,000 yuan (not counting the investment in spare parts maintenance services). The market size of production equipment is only 2.5% of the product market size, and this is not counting the crowding out of used and refurbished equipment for new machine production.

In general, the premise of the machine tool industry not shrinking is the expansion of manufacturing capacity. Once the economic growth rate declines, then the machine tool industry will decline. To be precise, it should be that the demand for new machines will fall, while the market activity for used and refurbished machines will rise, as business owners with reduced production orders will sell their existing machines at a discount. For large machine tool brands, these businesses are often undertaken by third-party maintenance service companies; Smaller brand machine tool companies, on the other hand, refurbish and sell old machine tools through their own technical and business teams. As a result, small machine tool factories tend to survive the recession. Despite the lack of new phone projects, these small businesses can survive the harsh winter by relying only on sporadic services such as service, spare parts and second-hand sales, and old refurbishment. This also explains why hundreds of small machine tool factories in Europe have not been eliminated despite the wind and rain.

With the development of China's machine tools to this day, the road ahead is blocked by an insurmountable high wall. Due to the existence of the premise of limited market capacity, small profits cannot be oversold, so the usual strategies of China's manufacturing industry have failed. In other words, in a technology-intensive market with little capacity, there is no late-mover advantage, only a late-mover disadvantage.

2/ This logic is not suitable for the machine tool industry

First, it is difficult to accumulate experience through mass production in machine tool production

Because the market for machine tools is so small, even for general-purpose machine tool manufacturers, if the production of a model exceeds 50 units, it is considered mass production. With such a low output, ordinary enterprises cannot accumulate much experience, let alone accumulate wealth and invest in research and development.

Shenyang Machine Tool's previous approach was to run the volume at a low price, but the total profit did not increase much after the sales went up, and the market was also crowded with low-price competitors. Therefore, there is no situation like home appliances, 3C and other industries, where the head enterprises (continue to use Internet vocabulary) develop rapidly after the price war reshuffle.

For the machine tool industry, the prescription prescribed by the European consulting agency is not small profits but quick turnover, but to take the high-end customized route to obtain high profits. Although it may not be suitable for the mainland's national conditions, at least the strategic direction is clear.

Second, it is impossible to improve product quality through automation

Objectively speaking, the important channels for the improvement of the manufacturing process in the mainland are foreign equipment, tool manufacturers and automation manufacturers. These manufacturers sell their products while also offering turnkey process solutions, which is evident in the automotive industry. For general products, as long as the production equipment is good and the auxiliary tools are good, the product quality can be basically guaranteed.

However, the production of machine tools can not achieve automation and less manpower, so the mainland machine tool manufacturers can not ensure the quality of equipment and tools (even if CNC servo, detection system and parts manufacturers will give us some experience guidance, but it is far from enough to help the entire machine tool industry catch up). It is only the machine bed components that are claimed to achieve flexible automation, and the design, assembly and commissioning are the most important value addition links, and the doorway here is all in human experience. Now the hyped concepts of "intelligent manufacturing" and "industry 4.0" cannot help machine tool manufacturers at all.

The production of machines with machines fully automatic is still far from us, and the production of "machines for production" with machines is even more out of reach.

Third, user stickiness leads to the failure of the low-price strategy

Users in high-end manufacturing are usually sticky, and manufacturers are less likely to change equipment suppliers because of price. Because for parts manufacturers, the money invested in equipment will be amortized to each product as a fixed cost in the end, so as long as the order is stable, the amortization of equipment investment does not account for a large proportion of the total cost. And once the equipment "lies on its stomach", the manufacturer's losses are difficult to estimate. Therefore, the cheaper the equipment, the better, but depends on the production efficiency, operation stability, maintenance cost and other factors.

Therefore, for a stable manufacturing industry, once the equipment is selected, the manufacturer is less likely to replace it easily. Because if a new equipment supplier has a problem, the impact on the entire production can be very large. Therefore, high-end manufacturers prefer to choose devices that have been working for a longer time, are slightly more expensive, and have more stable performance. For example, in the automotive industry, OEMs are extremely demanding on the quality of their suppliers (of course, the amount of orders and profit margins are still guaranteed), so auto suppliers often choose machine tools with higher price and reliability.

Fourth, the low-end market has fallen into a vicious circle

The result of customer stickiness is very similar to "class solidification": unless it is a non-critical component with little technical content, it is difficult for low-end manufacturing to enter the high-end manufacturing club with high added value through low price and hard work. Due to the lack of stable and profitable processing orders, manufacturers are very sensitive to the purchase price of equipment. In order to improve the utilization rate of equipment, manufacturers will also take orders at low prices, resulting in a worse survival state of the industry.

Excluding individual inspirational cases, the upgrading of low-end manufacturing basically requires the changes of the entire industry, and it needs to take advantage of the general situation. For example, the manufacture of mobile phone cases: as early as the era of the melee between Japanese and South Korean mobile phones and MediaTek miscellaneous machines, most of the manufacturers supporting high-end mobile phones will invest in Japanese machine tools such as Fanuc and Brother, while the supporting suppliers of domestic miscellaneous machines are extremely sensitive to equipment prices, and they purchase more domestic machines with lower prices and better services. With Huawei, Xiaomi and other domestic mobile phones gradually dominate the rivers and lakes, the orders of mobile phone case manufacturers have gradually stabilized, and the domestic golden carving machine tool has also replaced the Japanese machine tool to become the necessary equipment for mobile phone case processing.

The industrial upgrading of industrial equipment such as machine tools is improved with the upgrading of the overall manufacturing industry. When the low-end manufacturers who widely use domestic machine tools slowly enter the high-end supplier club, domestic machine tools will naturally be recognized by the industry. Therefore, the revitalization of the mainland machine tool industry, the focus is not on the machine tool itself, but on the manufacturing industry.

Fifth, the labor-intensive industrial attributes of machine tools

To quickly set up a machine tool factory, you don't need any equipment investment: CNC, servo, bed, and other important parts can all be purchased, and even the basic assembly work can be done by entrusting a "light machine" manufacturer. So in general, most of the cost components of machine tools are variable costs: component costs and labor costs.

Domestic machine tools in the high-end equipment market do not have too many price advantages, because most of the domestic high-end equipment parts have to be imported, so domestic equipment can only reduce costs through bed structural parts and exploitation of workers, and there is nothing outstanding in design and function, so it is not surprising that imported machine tools occupy the high-end market.

Since the time and energy of workers are limited, the output of the machine tool is limited under the premise of ensuring the quality of assembly. In addition, the scale of mass production is limited, so it is difficult to allow ordinary workers to carry out assembly line production of machine tools after short-term training through process disassembly. Therefore, machine tools are a "high-tech labor-intensive industry".

The industrial structure can only be developed if it is matched with the quality of local personnel. For example, the production and service of ordinary civilian products such as home appliances, mobile phones, construction, and Internet takeaway need to consume a large number of "migrant worker dividends"; software, semiconductors need "engineer dividends"; High-end industries such as aerospace and nuclear energy need "scientist dividends". Machine tools, testing instruments, production equipment and automation are typical industries that need "technician dividends". Only with a large number of cost-effective senior technicians can the industry flourish.

At present, Europe, Japan, South Korea and Taiwan have a large number of senior technicians. The cost of this type of talent is about 2-50,000 yuan per month. If it is lower than this salary, then the machine tool factory can hardly attract enough talents, and its products can only be maintained at the low-end level; If the income exceeds this range, because the labor cost accounts for too large a proportion of the total cost of the machine tool, then the machine tool industry will gradually move out of this area due to the high cost.

At present, the average income of employees in the machine tool industry in mainland China is far less than 20,000, so it is impossible for high-end talents to engage in machine tools, but to go to the Internet, finance and other multi-gold industries; On the other hand, in Switzerland and the United States, because the wages of engineers and technicians are much higher than this level, the machine tool industry will lose its competitiveness in the market due to high cost. Although the machine tool industry in Switzerland is still strong, its entities have moved heavily to Eastern European countries such as the Czech Republic. The strength of the Swiss Machine Tool Group is reflected in the control of its capital in the high-end machine tool industry in Germany and other parts of Europe, as well as in the research and development of high-end special equipment. In addition to a few special customized equipment groups in the United States, old machine tools such as Cincinna have been acquired by European consortiums early. Of course, this can also be seen as a kind of industrial strategic balance on both sides of the Atlantic.

From a global perspective, the income of machine tool industry practitioners in Europe, Japan, South Korea and Taiwan is basically in this range, and they are also the main suppliers of high-end machine tools. If Continental Machine Tool wants to enter the high-end club, it will first increase the income of employees to more than 20,000 monthly salaries.

Sixth, the industry concentration is low and the degree of specialization of the market segment is high

It is difficult to realize the automated production of machine tools, so the machine tool industry is not suitable for a production base centered on a certain place. In addition, the needs of parts processing enterprises are very different, large processing enterprises often require machine tool manufacturers to design processing units or flexible automated production lines with their technological processes, and higher-end ones will even require customized development of special machines for a part. Therefore, from the perspective of the entire machine tool industry, it is almost impossible to appear such as the Internet and film and television media that "winner takes all" situation, but a hundred flowers bloom, a hundred schools of thought contend.

However, the micro level of the machine tool market also reflects the "winner takes all", as long as the market segment can always find a global hidden champion. For example, WFL, which makes large crankshafts, and Hamuel, which does high-precision super-hard blades and blade repair, are completely incomparable with DMG in terms of scale, but they are very technical characteristics, and they are the hidden champions of their respective high-end markets.

Seventh, it is difficult for capital to drive the upgrading of machine tool technology

The area in which financial capital is most easily effective is essentially resource-based markets, where capital profits by controlling resources locally in time or space. Even if the investment object is technology, capital values the exclusive resources that technology can bring. In the case of machine tools and various process equipment, their technological progress does not bring commercial profits, let alone these technologies are difficult to understand in the eyes of investors outside the industry.

As a rough calculation, the market capacity of machine tools is only equivalent to 2.5% of the market capacity of its production objects, and the real data is probably less than 1%. As a rough estimate, the benefits of technological innovation in ordinary products are about 100 times that of technological innovation in production equipment. In this way, it is not economical to invest in technology related to production equipment such as machine tools compared to direct investment in product technology. Instead of studying the machine itself, it is better to study how to use the machine tool.

This also theoretically illustrates that the revitalization of the machine tool industry requires long-term and strategic investment at any cost, and market forces alone are completely insufficient, and state support is needed. However, the current practice of setting benchmarks and granting land loans to support key enterprises is obviously counterproductive. The more successful capital operation of the machine tool industry is basically the integration of resources in the industry, and the best way to integrate is "no matter": shareholders must first have a deep understanding of technology and industry, generously throw money in the industry recession cycle, help its subsidiaries to tide over difficulties, and obtain excess profits when the industry boom cycle comes.

8. Concentration of forces may not be able to accomplish great things

If it is a scientific and technological battle, then the mainland's scientific researchers are fully capable of building a world-class machine tool. For example, 625 Institute, North One Machine and other large institutes have developed a lot of high-quality equipment. But making a machine tool and doing a machine tool industry are completely different things. Machine tools are fundamentally different from equipment manufacturing such as high-speed rail and nuclear power equipment: the machine tool industry is completely market-oriented, and the will of the state can maintain the operation of several key enterprises at most, but it cannot play a decisive role.

Airbus France will prefer French Line machine tools, and Spain factories will use MTorries equipment. These machine tool factories are not necessarily comfortable to live a very comfortable life, but at least as a security unit will not go bankrupt. A few decades ago, Hamuel built a super-large and super-heavy machine of more than 30 meters, with a full-stroke machining accuracy of up to 0.01mm/m, which is still a technological leader even now. But the cost is also a staggering 3.5 million euros. And in the end, only one model was built, which was used as a working machine for its own use, and there was no market. The relevant technical data was also sold to another machine tool factory not far away, Wad Richcoburg, and more than ten years later, the company was acquired by Beiyi Machine.

If you do your best at any cost, then domestic machine tool manufacturers are capable of creating a super sophisticated machine tool, which is nothing more than scraping little by little, measuring little by little, and then throwing away and screwing. It is this spirit and feelings that are preached in "The Craftsman of the Great Country". However, the cost and delivery time of this kind of dry equipment can also be imagined, and the pilot project created at any cost can be used as a major country to guarantee the military industry, but it is not competitive when put into the market.

3/ Conclusion

"Machine tools are the pain of the mainland's manufacturing industry", this is true. The embarrassing situation of the machine tool industry is actually a microcosm of the development bottleneck faced by China's manufacturing industry. The road ahead to high-end manufacturing is full of thorns and dangers, but it is depicted as a broad road by the current hype of "intelligent manufacturing" and "Industry 4.0". Industries similar to machine tools, such as all kinds of industrial testing equipment, sensors, process equipment, industrial control equipment and all kinds of software supporting it, are sore spots.

For example, the title of this article "China's model is ineffective for the machine tool industry", by extension, it can be said that the previous development model of the manufacturing industry can not continue to adapt to high-end manufacturing. In the process of China's manufacturing from the low-end to the high-end, enterprises, governments and capital should change their thinking and support our manufacturing and machine tool industries with a more pragmatic attitude and a more professional way.