Price-based competition from imports is hampering growth for Canadian firms
Los Angeles, CA (PRWEB) June 15, 2013
At more than 60.0% of revenue, exports drive the Heating and Air Conditioning Equipment Manufacturing industry. Unfortunately for industry participants, imports as a share of domestic demand outpace exports as a share of revenue. This trade deficit stems from the ability of US manufacturers to produce goods at a larger scale, which lowers the per-unit cost of products such as heaters, air conditioners and ventilation products. Further, producers in other countries, especially in Asia, produce relatively cheaper goods using low-cost labour and operate with less regulatory oversight. Consequently, savings realized during production are passed on to the consumer and make imports more affordable for Canadian buyers. “Domestic operators are then forced to compete on price, which pressures profitability,” says IBISWorld industry analyst Josh McBee. “Similarly, the price of steel as a production input determines manufacturers' cost structures.” This commodity's price decreased in 2012 due to lingering economic uncertainty, but will nonetheless remain elevated in 2013, further pressuring profit margins.
In addition to the structural shift common to the manufacturing sector as a whole, in which the manufacturing process is being moved overseas or outsourced to foreign third parties, the US housing crisis and subsequent recession decimated demand from commercial and residential building markets. “Because the United States consistently accounts for the vast majority of export demand, movements within that economy have direct implications for this industry,” adds McBee. Outside of exports, downstream residential and nonresidential building construction form the bulk of Heating and Air Conditioning Equipment Manufacturing industry demand. Once the US recession crept into the Canadian economy during 2010, demand for Canadian heating, ventilation, air-conditioning and refrigeration (HVACR) products fell further. Consequently, IBISWorld expects industry revenue to decrease at an annualized rate of 9.2% during the five years to 2013, including a 7.8% drop to $2.1 billion in 2013 alone.
Companies have been exiting the industry because of the intense price-based competition from imports. In turn, the potential pool of revenue generation has shrunk proportionally. Concentration in this industry is low; the top two companies, including major player Nortek Inc., do not account for a large percentage of industry revenue. Almost one-third of all establishments are owner-operated nonemployers, while just under half of all locations employ fewer than 20 people. The industry's low concentration signals a high degree of competition, as small manufacturers compete for market share on a local or regional basis. This competition limits the ability of any one player to garner significant market share.
As the industry struggles amid an ongoing decline phase, revenue will likely continue to dwindle as the realities of the global economy make large-scale Canadian-based production of HVACR goods uneconomical. For more information, visit IBISWorld’s Heating and Air Conditioning Equipment Manufacturing in Canada industry report page.
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IBISWorld industry Report Key Topics
This industry manufactures heating equipment, commercial refrigeration equipment, air conditioners, commercial and industrial fans, blowers, air purification equipment, and electric and non-electric heating and refrigeration equipment. Marine and motor vehicle systems are excluded, as are industrial process furnaces and small household appliances.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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