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Recent key developments in MAKE│NZ
• Since this will be the last Tuesday Top-Up for the year, there won’t be a GuessMasters® question – it wouldn’t be fair for you to have to wait for so long to find out who won …
We’ll be back with our first edition of the new year on Tuesday, February 4th! From the MAKE│NZ team, we send you our best wishes for Christmas and the New Year and hope you’ll get a decent break over summer!
• MAKE│NZ will hold its last Production Managers’ Working Group meeting on Dec. 4th, and its last Fireside Chat / Christmas Function on Dec. 9. These events will start again in February of 2025.
• Dieter will present at the Simuserv Lunch and Learn event in Auckland on Dec. 11. The topic will be The Theory of Constraints, applied to New Zealand’s manufacturing sector – External and internal barriers to growth. If you are interested to attend the event, please send an email to dieter@makenz.org .
Oh no, not another survey?! We are aware of the widespread survey fatigue, and this one isn’t even a quick one – 50-odd questions, and it’ll take 15-20 minutes of your valuable time. However, we suggest this one is worth looking at. The research, locally undertaken by the University of Canterbury, explores how government policies can best support businesses to survive future disasters or major disruptions. The study looks at the COVID-19 pandemic to find out how policies can support businesses to recover and adapt, so that they are better prepared for other types of future shocks, including natural hazard events.
The local study is part of a wider international research project covering a number of locations around the world. To contribute, please follow this link: https://canterbury.qualtrics.com/jfe/form/SV_5vAEbuhQi9LlXsq – cut-off will be 5 p.m. on Friday, Dec. 20. It would be useful if you could let us know, too, that you are willing to participate: dieter@makenz.org
Recent key developments in New Zealand
• A couple of weeks ago the government released the terms of reference for its Review of electricity market performance (https://www.beehive.govt.nz/release/government-launches-review-ensure-electricity-market-fit-purpose ): “The review is to advise on the impact of market structure, market design, and market rules … on electricity market performance, and on options to improve market performance in terms of the Government’s objectives … The review should identify and explore improvements to current market arrangements, including any alternative market models or market designs which would support the performance objectives of markets.” Reading that, and without regard for ‘weasel words’ (naïve, I know …), this could potentially include a recommendation of breaking up the gentailers?!
Regarding gentailers, we had very recent reports from manufacturers with a sizeable electricity demand that, approaching the end of their current contracts, contacted gentailers regarding a new contract. As it turned out, a number of those who were approached showed no interest in responding to RFPs sent out by these manufacturers. If this happened to you, or you know of other circumstances where this occurred, we’d be really keen to know!
Please contact dieter@makenz.org
• In the international section down below, we talk about the (perceived) threat of de-industrialisation on a significant scale in Europe – but what about closer to home? Below are the changes year-on-year in labourforce numbers across sectors of our economy:
That means manufacturing labour force has contracted by about 2.3% over the twelve months to September – not huge in the greater scheme of things. We keep getting reports from the manufacturers we talk to that continue to range from “it’s a bit quieter right now” to “nah, we’re still all go!”
Recent key developments in the World
• “A spectre is haunting Europe — the spectre of de-industrialisation” (with apologies to Karl Marx …). But is it really that bad?!
We’ll paint a detailed picture below, but if you want the answer in a nutshell, here it is:
So, the answer is – yes, it is serious, and there is plenty of detail below on how serious it is. But why? The answers to that question are manyfold and the subject of endless debate – as you can imagine – in Germany. The main ‘culprits’ people can agree on are comparatively high costs for energy and labour, and a higher ‘bureaucratic load’ than other countries. We’ve also looked at some of the specific factors in the auto industry a little while ago (Tuesday Top-Up #13).
Of more interest to New Zealand manufacturers than the specifics of German industrial policy will be something else, and more fundamental – the fact that a strong competitive position in (global) markets, as it had been enjoyed by the Germany car industry, usually doesn’t last. To illustrate that, lets look at the concept of local and global optima, a mathematical concept used in areas like evolutionary biology, but also the design of deep learning algorithms, for example.
Local and global optima are important concepts in optimisation theory, particularly in mathematics, computer science, and various applied fields like machine learning and economics.
A global optimum is the absolute best solution within an entire search space, representing the point where a function reaches its maximum or minimum value across all possible inputs. In contrast, a local optimum is a point that is the best solution within a limited neighbourhood or region, but not necessarily the best when considering the entire problem space.
To illustrate this concept, imagine a landscape with hills and valleys. A local optimum would be like finding the highest point in a small area, but there might be an even higher peak somewhere else in the landscape. The global optimum would be the absolute highest point in the entire landscape.
When we apply the concept to a competitive marketplace, we need to think of it as a system of ‘shifting grounds’ – the ability of a particular company to scale and defend a position at a local optimum may persist, but around it other, higher peaks develop and are occupied by competitors over time. With regard to the image above, and by example, think of the costs of energy, and labour, respectively, as Parameters 1 and 2, and the ability to produce a competitive product under a set of parameter values as the Quality. The concept applies to individual companies as well as to whole industries in a given country. Remember when the Japanese consumer electronics industry was world-leading? In the 1980s, Japan was the world’s top television producer, shipping 13.4 million colour televisions in 1985, compared to only 3.5 million in 1994.
In evolutionary biology, the above is called the ‘adaptive landscape’, an environment that changes constantly over time – sometimes and some places very fast, sometimes much more slowly. In order to survive, species must forever change and adapt to ensure that they retain their position at a local optimum. The mathematical concept of a global optimum has little practical relevance either in market competition, or in evolutionary biology.
For manufacturers (as for other businesses), the concept of using existing strengths to expand into adjacent markets can be a key adaptive tool. Take the sheet metal machinery manufacturer Trumpf, for example, who over the years developed deep expertise in laser technology for cutting sheet metal. They then developed that technology for the use in semiconductor manufacturing and other electronics applications. And last year (FY2023), Trumpf’s Machine Tool Division recorded sales of €3 bn, compared to their Laser Technology divisionwith €2.1 bn, of which €971 m were contributed by their EUV Business (semi-conductors) and €546m by their Electronics Division.
• Back to the question of how serious concerns about de-industrialisation in Europe, and in particular Germany, really are:
– On November 18, French tyre company Michelin, founded 135 years ago, announced the closure of its Cholet and Vannes sites in western France by early 2026, with the loss of 1,254 jobs. It cited high costs and cheap Asian competition
– Austrian KTM, Europe’s largest motorcycle manufacturer, is facing insolvency and will apply for restructuring in accordance with the Austrian Insolvency Act. …More than 700 KTM staff have already lost their jobs this year, with a further 1,000 set to lose their jobs, even if bankruptcy can be avoided
– At the end of July, ZF Friedrichshafen announced that “the number of employees in Germany is to be successively reduced by 11,000 to 14,000 from the current level of around 54,000 by 2028, depending on the further development of the markets and the general conditions at the respective locations”. Due to strong competition, cost pressure and weak demand for electric vehicles, the restructuring will focus on the Electrified Powertrain Technologies division. Also, the move is due to the fact that the shift towards electromobility will lead to a decline in the volume of transmissions for conventional and hybrid vehicles, segments where ZF is quite strong
– On Nov. 20, Ford Europe announced that it plans to axe around 4,000 jobs in Europe until the end of 2027. This will affect mainly sites in Germany and the UK, Ford writes. According to press reports, 2,900 jobs will be lost in Germany, 800 in the UK and 300 in other countries. Its main plant in Cologne employs 11,500 people and will lose approximately one quarter of staff. Ford explains that its passenger car segment has been making losses for years. It also points to the weakness of its e-cars portfolio and cites weak demand for its new Explorer and Capri [electric car] models
– German auto parts and machinery maker Schaeffler AG is to cut 4,700 jobs in Europe, demonstrating that the struggle of Volkswagen and other big European car makers has begun affecting further down-the-line companies in the supply chain
– VW is facing a sales and cost crisis, with global deliveries expected to drop to 9 million units this year, down from 9.24 million in 2023. In line with that, VW’s third-quarter profit dropped 42%, its lowest level in three years. The company is considering closing factories in Germany for the first time in its 87-year history and laying off tens of thousands of staff
– Mercedes-Benz is rolling out a sweeping cost-cutting program, planning to take out costs of several billion euros each year, following a disappointing third quarter when profits in its passenger car segment fell by two-thirds and its margin fell to just 4.7 percent.
– Overall, employment in the German car industry is expected to be reduced by at least around 130,000 jobs
Unfortunately, the story doesn’t get much better when we look at other key manufacturing industries in Germany – in this case machinery and equipment:
Other sources paint an even bleaker picture in terms of capacity utilisation for the month of July 2024 (compared to July 2023): 77.5% (-5.5%) for manufacturing overall; 79% (-9.4%) for machinery and equipment manufacturing, and 79% (-8.6%) for automotive.
BASF, the world’s largest chemical company, has seen a decline in sales and profits in 2023. Sales were €68,902 million, a decrease of €18,424 million from the previous year; gross profit on sales declined by €272 million to €2,762 million and income from operations decreased by €68 million to -€2,064 million.
Not a good picture, then. On top of that, these are the November survey results from ifo, Germany’s pre-eminent economics research institute:
Sentiment only? Unfortunately, actual output figures show the same trend:
The final word goes to ifo president Clemens Fuest. In a recent speech, he pointed out that a decline in private investment levels of between 10% and 15% compared to pre-pandemic levels, and negative demographic trends, almost certainly mean that the output potential of German manufacturing will continue to decline.
And the correct answer to last week’s GuessMaster® question is – 830 bags of milk powder (after re-doing the calculations, it turns out a full load is only 830 bags, not 838 bags)
Was it a ‘trick question’? In a way – yes. All of the detail, the calculations involving the number of bags, is irrelevant. The correct answer can be derived quickly from the information on the container door without using a calculator: 33.2 m3 of water (ignoring the sea water bit) weigh 33.2 t. The container, loaded to its weight limit, weighs 30,5 t – so it will always float.
Maybe the take-away message could be: Don’t be dazzled or misled by an abundance of irrelevant information …
In real life, containers will ultimately sink (reefers take a bit longer, because they are better-sealed). Water will enter through the vents, and the door seals aren’t 100% water-tight. The only exception are containers loaded with freight of low specific gravity. A container loaded with table-tennis balls will never sink … As a matter of fact, our milk powder container may never sink, if the bags are completely water-tight: It is unlikely that the space around and between is load is more than 10.9 m3, which would be the space required to be filled with sea water before the container would sink.
Back to real life: The World Shipping Council (WSC) estimates that on average, a total of 1,566 containers were lost at sea each year over a 15-year period from 2008 to 2022 (https://mb.cision.com/Public/20134/3772700/9f81b7bcd3582277.pdf ). However, actual figures may be much higher, as the WSC’s data does not encompass the entire shipping sector, and there are no repercussions for failing to disclose losses. There are no confirmed reports of lives lost at sea from collisions with floating containers, but there are occasional reports of mostly sailing yachts having to be abandoned after collisions with what was suspected to be a floating container.
And the winner for last week’s GuessMasters® challenge is: Paul Dryden, General Manager of Kovacs Design Furniture – Congratulations!
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