ET ‘04 May 18-21, 2004 Orlando, Florida B. Ruettimann, Alcan Automotive

ET ‘04 May 18-21, 2004 Orlando, Florida B. Ruettimann, Alcan Automotive


The Effects of Globalization on the

Aluminum Extrusion Industry

The Effects of Globalization on the

Aluminum Extrusion Industry

Bruno G. Rüttimann, Alcan Singen GmbHBruno G. Rüttimann, Alcan Singen GmbH

8th International Aluminum Extrusion Technology Seminar ET‘04 May 18-21, 2004 Orlando, Florida8th International Aluminum Extrusion Technology Seminar ET‘04 May 18-21, 2004 Orlando, Florida

Part 2: ImplicationsPart 2: Implications


Mergers & Acquisitions

Mergers & Acquisitions


Trade Deregulation

Trade Deregulation


Increasing Competition

Increasing Competition


Price PressurePrice Pressure


Flow of Information

Flow of Information


Interlinked MarketsInterlinked Markets


World-wide StrategiesWorld-wide Strategies


Reduced Growth RatesReduced Growth Rates


OvercapacityOvercapacity


Un-employmentUn-employment





Summary Part 1: Theoretical Considerations

The Dimension of Globalization

The Emerging New Paradigm

The 10 Extrusion Postulates of Globalization

Restrictions and Strategic Options for Extruders

Summary Part 1: Theoretical Considerations

The Dimension of Globalization

The Emerging New Paradigm

The 10 Extrusion Postulates of Globalization

Restrictions and Strategic Options for Extruders

CONTENTCONTENTPart 2 (General Session): ImplicationsPart 2 (General Session): Implications

..


Deriving Typologies of GlobalizationDeriving Typologies of GlobalizationBasic classification of business typesBasic classification of business types

MarketstructureMarket

structureProductcharacteristicsProductcharacteristics

OperatingconfigurationOperatingconfiguration

BusinessclassificationBusinessclassification

Type of globalizationType of globalization















PR

OD

UC

T C

HA

RA

CT

ER

IST

ICS

no

n d

iffe

ren

tia

ted

d

iffe

ren

tia

ted








PR

OD

UC

T C

HA

RA

CT

ER

IST

ICS

no

n d

iffe

ren

tia

ted

d

iffe

ren

tia

ted

polypolistic oligopolisticMARKET STRUCTURE

Commodity

Speciality

Standards

Convenience


Deriving Typologies of GlobalizationDeriving Typologies of Globalization2 main types 2 main types


PR

OD

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T C

HA

RA

CT

ER

IST

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no

n d

iffe

ren

tia

ted

d

iffe

ren

tia

ted

Type IIType II






Type IType I

Type 1: material G. (physical)

Type 2: immaterial G. (financial)


Deriving Typologies of GlobalizationDeriving Typologies of Globalization2 main types 2 main types







PR

OD

UC

T C

HA

RA

CT

ER

IST

ICS

no

n d

iffe

ren

tia

ted

d

iffe

ren

tia

ted

Type IbType Ib

Type IaType Ia

Type IIType IIType IcType Ic

Type 1: material G. (physical)

Type 2: immaterial G. (financial)


Bauxit mining,

alumina production

,

Primary smelter, casting,

Rolling, extruding,

die casting, forging ,...

, ,

,

Components, ,

finished products

Usa

ge

Recycling

Usa

ge

Scrap,

waste

Remelters, foundries

, Scrap,

waste

Deriving Typologies of GlobalizationDeriving Typologies of GlobalizationAluminium industry structure and globalization typeAluminium industry structure and globalization type


PR

OD

UC

T C

HA

RA

CT

ER

IST

ICS

no

n d

iffe

ren

tiat

ed

dif

fere

nti

ated

Type IbType Ib

Type IaType Ia

Type IIType II


Bauxit mining,

alumina production

,


Rolling, extruding,


, ,

,

Components, ,

finished products

Usa

ge

Recycling

Usa

ge

Scrap,

waste


, Scrap,

waste



PR

OD

UC

T C

HA

RA

CT

ER

IST

ICS

no

n d

iffe

ren

tiat

ed

dif

fere

nti

ated

Type IbType Ib

Type IaType Ia

Type IIType II


Bauxit mining,

alumina production

,


Rolling, extruding,


, ,

,

Components, ,

finished products

Usa

ge

Recycling

Usa

ge

Scrap,

waste


, Scrap,

waste



PR

OD

UC

T C

HA

RA

CT

ER

IST

ICS

no

n d

iffe

ren

tiat

ed

dif

fere

nti

ated

Type IbType Ib

Type IaType Ia

Type IIType II Rolling, extruding,


, ,

,

Rolling, extruding,


, ,

,

Rolling, extruding,


, ,

,

Rolling, extruding,


, ,

,

Rolling, extruding,


, ,

,

Rolling, extruding,


, ,

,

Rolling, extruding,


, ,

,

Rolling, extruding,


, ,

,

Rolling, extruding,


, ,

,


... a Big Change is Occurring... a Big Change is OccurringEuropean price evolution of rolled and extruded products European price evolution of rolled and extruded products

0

1000

2000

3000

4000

5000

1980 1984 1988 1992 1996 2000

LM

E D

M/T

on

5

6

7

8

9

10

DM

/kg

LME

Rolling

Extrusion

Opening of Eastern EU

?


The Dimension of GlobalizationThe Dimension of GlobalizationGlobal view of extrusion production in 2001 Global view of extrusion production in 2001

L. America675

N. America1770

West Europe2400

E. EU300

CIS650

Japan1020

China1300

Asia1197Africa

450


The Dimension of GlobalizationThe Dimension of GlobalizationGlobal view of extrusion flows in 2001 Global view of extrusion flows in 2001

L. America675

N. America1770

West Europe2400

E. EU300

CIS650

Japan1020

China1300

Asia1197Africa

450

27

13

93

14

171

2443

16151

38

5439 55

66

23


The Dimension of GlobalizationThe Dimension of GlobalizationGeographical distribution of selected group plants Geographical distribution of selected group plants

Group TOTAL N-AmericaL-AmericaW-EuropeE-Europe CIS China Japan Asia Africa

Alcan 5 4 1Alcoa 45 17 11 14 1 1 1Bonnell 7 7Capral 6 6Corus 5 4 1Hydro 40 10 2 23 1 1 3Indalex 15 15Kaiser 7 7Pechiney 9 9Sapa 14 2 11 1YKK 6 1 4 1

Source DIAC





Source DIAC





Source DIAC





Source DIAC


The Emerging New ParadigmThe Emerging New ParadigmDynamics of paradigm change in fragmented marketsDynamics of paradigm change in fragmented markets

Strategy to growglobally for K

+

GlobalizationType 2

Take overin Z

+

Propensity for globalization(Type 1c)

+

Strategy to growglobally for Z

+

GlobalizationType 1c

Export (Z K)+

Domesticdemand K

+

-

Domesticdemand Z

-

-

+

-

Shake outin K

+

+

+

+

-

-


The Emerging New ParadigmThe Emerging New ParadigmDynamics of paradigm change in fragmented marketsDynamics of paradigm change in fragmented markets


+

GlobalizationType 2

Take overin Z

+


+


+


Export (Z K)+

Domesticdemand K

+

- -

Domesticdemand Z

-

+

-

Shake outin K

+

+

+

+

-

-


The 10 Extrusion Postulates of GlobalizationThe 10 Extrusion Postulates of GlobalizationPostulate 1

Type 2 globalization will not change the fragmented market structure and its related market rationale.

Postulate 1

Type 2 globalization will not change the fragmented market structure and its related market rationale.


PR

OD

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T C

HA

RA

CT

ER

IST

ICS

no

n d

iffe

ren

tiat

ed

dif

fere

nti

ated

Type IbType Ib

Type IaType Ia

Type IIType II

MarketstructureMarketstructure

ProductcharacteristicsProductcharacteristics


BusinesstypeBusinesstype


MarketstructureMarketstructure

ProductcharacteristicsProductcharacteristics


BusinesstypeBusinesstype




Family-owned independent SME will continue to exist in concomitance of group integrated extruders.

Postulate 2

Family-owned independent SME will continue to exist in concomitance of group integrated extruders.

25.03.2004

1900 20001950

20overall aluminium consumption 25 Mt

10

5

Independent 56%

Integrated 44%

INDEPENDENTS VS INTEGRATEDS WORLD ALU USERELATIVE SHARE

Mt



The new opportunity of internet bidding can create the preconditions for a new world market price.

Postulate 3

The new opportunity of internet bidding can create the preconditions for a new world market price.

Saturation in existing

end markets

Saturation in existing

end markets

World-wide communication

network

World-wide communication

network

Searching for optimization potential

Searching for optimization potential

Searching for geographical expansion

Searching for geographical expansion

Searching for diversification opportunities

Searching for diversification opportunities

M&AM&A

Opening of a global market

with new competitive environment

and new world market

price

Opening of a global market

with new competitive environment

and new world market

price

+PricePrice//margin pressure margin pressure PricePrice//margin pressure margin pressure

Change of competitive system

Change of competitive system

Shake-outShake-out

Concentration processConcentration processConcentration process



Price difference in different economies will generate a propensity for type 1c globalization.

Postulate 4

Price difference in different economies will generate a propensity for type 1c globalization.

Volume

Price

FDI

C

HB G

AEpA

pK

Price spanof similareconomies

Demand ZOffer Z

ZpZ

Transactioncost cZK

Globalizationpropensity(pK-pZ-cZK)

0

100

200

300

400

500

V ZK

Glo

bal

izat

ion

vo

lum

e (k

ton

)

0 0 ,5 1 1 ,5 2

P ro pens ity (E uro /kg)

0

0 ,1

0 ,2

0 ,3

0 ,4

0 ,5

0 ,6

0 ,7

0 ,8

0 ,9

1

Ela

stic

ity

P ro p e n s ity fu n c tio n E la s tic ity fo r g lo b a liz a tio n

0p

L K

ZKZK

ZK

pp

s

KZK eLV 0

ZK

ZK

ZK

ZK

ZK

pp

VV



A new eclectic market type is potentially arising with a still fragmented market structure but type 1c world price characteristics.

Postulate 5

A new eclectic market type is potentially arising with a still fragmented market structure but type 1c world price characteristics.


PR

OD

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T C

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CTE

RIS

TIC

Snon d

iffe

rentiat

ed d

iffe

rentiat

ed

TypeType Ib Ib

TypeType Ia Ia

Type IIType IIType Type IcIc



This type 1c is unstable, and has only transient character because of growing overseas demand and shrinking propensity.

Postulate 6

This type 1c is unstable, and has only transient character because of growing overseas demand and shrinking propensity.


+

GlobalizationType 2

Take overin Z

+


+


+


Export (Z K)+

Domesticdemand K

+

- -

Domesticdemand Z

-

+

-

Shake outin K

+

+

+

+

-

-



Price level in high-price economies will drop temporarily as long as price differences will exist.

Postulate 7

Price level in high-price economies will drop temporarily as long as price differences will exist.

Volume

PriceDemand K Offer K

pK

VK

initialequilibrium

Offer Z

pZ

VZ

price drop ofdomestic supplies

volumeincrease

pdom

VK‘

Offer K‘

finalequilibrium

shake out

remaining domestic

supplies Vdom

import

supplies VZK

0

1000

2000

3000

4000

5000

1980 1984 1988 1992 1996 2000

LM

E D

M/T

on

5

6

7

8

9

10

DM

/kg

LME Rolling Extrusion

Opening of Eastern EU



Shake-out of less competitive extruders is foreseeable.

Postulate 8

Shake-out of less competitive extruders is foreseeable.

Volume


pK

VK

initialequilibrium

Offer Z

pZ

VZ


volumeincrease

pdom

VK‘

Offer K‘

finalequilibrium

shake out

remaining domestic

supplies Vdom

import

supplies VZK



Demand will increase due to lower price level and open the access to new applications.

Postulate 9

Demand will increase due to lower price level and open the access to new applications.

Volume


pK

VK

initialequilibrium

Offer Z

pZ

VZ


volumeincrease

pdom

VK‘

Offer K‘

finalequilibrium

shake out

remaining domestic

supplies Vdom

import

supplies VZK


How to RespondHow to RespondRestrictions and strategic options for extrudersRestrictions and strategic options for extruders

CO

MP

AN

Y

TY

PE

Gro

up

In

teg

rate

dS

ME

In

dep

end

ent

BASIC STRATEGY ORIENTATION Defend Export Type 2

Concentrateon service

(cost remains an issue)

Idem

Technology orsolution driven

Idem, but exploitspecialization

within the network

X

Take over / JVin economy Z



Extruders situated in high-price economies will have to further concentrate their offer on service or technology based performance.

Postulate 10

Extruders situated in high-price economies will have to further concentrate their offer on service or technology based performance.




Documents

ET ‘04 May 18-21, 2004 Orlando, Florida B. Ruettimann, Alcan Automotive