Moving beyond basic survival in the marketplace is key to the success of any manufacturer. To help get your head around how success in the manufacturing market can be achieved, it makes sense to look at how a small motor manufacturer can not just survive, but compete effectively in a demanding space such as the North American motors market.
Since I’ve been covering the industrial motors market, I’m often asked by Tier 2 and Tier 3 motor manufacturers for an effective way to enter the North American market for integral horsepower industrial purpose motors and how to compete effectively with the stalwarts: the WEGs, the Siemens, the ABBs, the Regal Beloits and the GEs that dominate the market. In large, mature markets such as the U.S. and Canada, which boast the highest minimum energy efficiency regulations in the world, what steps would a smallish motor manufacturer have to take to get its foot in the door in this estimated $4.1 billion dollar market?
IEC v. NEMA
The United States, Canada and Mexico are primarily NEMA-centric markets, while South America is mostly an IEC-centric market. Competing with the big boys, head-to-head, against the established strengths of their respective NEMA product lines is a daunting task. However, smaller, more agile motor manufacturers have some distinct advantages entering the North American market. Ironically, this strategy is absent of a NEMA product line of industrial motors.
There is a thriving IEC motor market in North America, primarily in the U.S. and Canadian end-user markets. The IEC motor market is thriving in a NEMA-centric market because of the vast amount of metric-based machinery manufactured in either Europe or Asia operating in the current installed base. This is especially true for offshore oil and gas in midstream and upstream pumping applications. This dynamic has created a growing need for replacement IEC machinery, spurring what has become a more than $120 million/year market. The oil and gas renaissance in North America is a direct result of ‘fracking’ operations in the shale gas regions, where fossil fuels from previously hard-to-reach areas are being harvested. So, creating a competitive IEC product line to address the replacement motor market for motors in this sector during this oil and gas boom is paramount for not only entering this market, but competing effectively.
End-users in a High Efficiency Motor Market
Relative to the discrete sector (machine builders/OEMs), end-users are more concerned with energy efficiency and the total cost of ownership of a low voltage motor. Ninety-five percent or more of the lifetime cost of the motor is for electricity bills, a major expense that end-users must directly incur. The U.S. Congress passed EISA regulations in 2007 regulating energy efficiency in low voltage, industrial-purpose motors and implemented them in late 2010, with Canada’s National Research Council (NRC) following suit with similar policies in early 2012. These two countries host substantial oil and gas and mining process sectors, or end-user markets. The fledgling IE4 Super Premium Efficiency market is poised for strong growth, especially with budget-conscious end-users. However, this market is still in its infancy with new entrants throwing their respective hats into the ring to compete.
Lafert North America, a small but established supplier of IEC motors is unique in that its IE4 IEC-based product line addresses the lower powered motor market under 10HP (7.46kW), which constitutes 90 percent of the units in the North American market. Manufacturers such as Hyundai Heavy Industries and Hyosung Corporation are ready to gain a foothold in this market with IEC-based IE4 products. Hyundai Heavy Industries is targeting the oil and gas sector; while Hyosung Corporation unveiled its API certified IE4 motors at the 2013 EASA Convention in Las Vegas. US-based NovaTorque, with its unique IE4 offering (a DC brushless motor that achieves the IE4 level of efficiency) is gaining traction in sectors with continuous (S1) duty cycles, namely fans. Baldor is the only major player in North America with a line of higher-powered IE4 motors, and has little competition. ABB has not introduced its IE4 SynRM machine in North America, presumably to not cannibalize the newly acquired Baldor’s high-powered IE4 product line. Nidec (formerly U.S. Emerson) does have an IE4 product based on switched reluctance (SR) technology. However, there are a few drawbacks to SR technology including torque ripple, which causes noise, and extra capacitors that are needed that may make these motors unsuitable for some of the common pump, fan and compressor applications. These three applications easily constitute 75 percent of the market in terms of revenues. The key takeaway from all of this is that the market share leaders in the North American market do not have an extensive, general purpose IE4 product line on the market at this time that focuses on the ‘sweet spot’ of the market.
The DC Installed Base is Ready for Turnover
Remnants of the United States’ once dominant position in the global steel industry remain in the form of the largest integral horsepower DC motor installed base in the world. Although in a slow free-fall, the pulp and paper industry is also heavily concentrated in DC-centric topographies. The continuing trend of AC induction systems replacing older DC topographies, mainly in the “mill motor” segments, is occurring at a rapid pace all over the world. China, now the world’s leading steel producer, has converted most of its DC installed base in its steel rolling mills to AC induction. Japan has also been very proactive in transitioning its “mill motor” sectors to AC induction. Baldor and GE are the “kings of DC” in the United States, but they too realize the DC market is slowly eroding as the years pass.
Some smaller motor manufacturers have been adept in dealing with this market opportunity by introducing ‘drop-in’ AC induction motors designed with the existing DC motor specification. These motors are specifically constructed to be easily retro-fitted, hence the term ‘drop-in’. The DC motor market in the United States is still substantial as a legacy replacement market, but its best years are in the past. Providing a cost-practical AC induction solution within an ongoing trend to AC induction just makes sense, and there is legitimate potential to generate significant revenues for the medium- and long-term in the US mill motor markets.
So, in conclusion: How can a small motor manufacturer compete head-to-head with the big boys in an established, mature market?
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Capitalize on the newly invigorated oil and gas boom by producing IEC machinery in the low and medium power ranges.
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Target end-users, primarily in continuous duty applications in the mining and petroleum industry, with motors that achieve IE4 levels of efficiency.
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Take advantage of the ongoing trend to AC induction motors by specifically targeting the large DC motor installed base in the mill motor market with AC induction motors that easily switch-out with older, obsolete DC motors.
These are three ideas for a business model that could bear fruit for a motor manufacturer willing to take a risk, and none of them involve replicating the home market’s bread and butter scheme of producing NEMA-based machinery.
Mark Meza is Principal Analyst at IHS.
