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Machine Tooling

Market Analysis Summary

Overview U.S. machine tool industry (Provided by Standard & Poor’s)
The U.S. machine tool industry is in a period of relative stability, although industry size, employment, and revenues typically fluctuate in response to swings in the business cycle. The number of industry establishments stands at approximately 600, according to U.S. Census Bureau data. These producers are concentrated in several midwestern and northeastern states: Ohio, Michigan, and Illinois have the greatest concentration of industry establishments.

The composition of the industry has changed since the beginning of the 1990s as a result of consolidation and foreign investment. A spate of buyouts and acquisitions occurred in the early to middle 1990s, and a number of privately-held companies became publicly owned. A wave of investment by the European automotive industry spurred similar investments by continental machine-tool producers, which established U.S. production facilities to supply their primary customer group. Japanese investment also picked up in the first half of the decade, driven by the strong yen. The newcomers joined a contingent of Japanese machine-tool manufacturers that had established U.S. production facilities in the 1980s in response to U.S. import restrictions that have since been lifted.

A strong commitment to exporting and the sustained expansion of the U.S. economy are key elements in the machine tool industry’s newfound stability. Changes in the automotive sector are also important. The automotive industry is far less cyclical than it was in the past. Auto makers are undertaking more frequent and less extensive design changes and are becoming globalized, tailoring their products to individual markets. This has led to ongoing investment programs rather than concentrated purchasing cycles. The increasing globalization of the automotive sector is encouraging a similar trend among machine tool suppliers. U.S. machine tool companies are increasing their worldwide presence, often through joint ventures, cooperative agreements, and strategic alliances. The countries that have attracted the largest industry investment to date are Mexico, Brazil, India, and China.

4.1 Market Segmentation

The company’s target customers:

  1. Automobile seating manufacturers. These customers require customized machine tools to better serve their clients.
  2. Fine blanking and stamping manufacturers. These customers have a strong need for specialized manufacturing services.
  3. Manufacturers of complete product lines. Value adding assembly is most required by this customer segment.

The table and chart below outline the total market potential and estimated growth rates for the type of products manufactured by Machine Tooling.

Machine tooling business plan, market analysis summary chart image

Market Analysis
2000 2001 2002 2003 2004
Potential Customers Growth CAGR
Automobile Seating 2% 300 306 312 318 324 1.94%
Fine Blanking & Stamping 1% 150 152 154 156 158 1.31%
Complete Product Lines 1% 200 202 204 206 208 0.99%
Other 0% 100 100 100 100 100 0.00%
Total 1.31% 750 760 770 780 790 1.31%

4.2 Target Market Segment Strategy

Machine Tooling will focus our market offerings on three major customer groups:

  1. Automobile seating manufacturers.
  2. Fine blanking and stamping manufacturers.
  3. Manufactures of complete product lines.

Our market research shows that these customer segments are the most demanding in terms of the engineering, technical service support, and automated design. Machine Tooling is particularly strong in these areas and will utilize our capacities to serve these clients. The company will seek customers who require production of components used in upper-end product lines. This will provide a further possibility for Machine Tooling to offer our value-added engineering services.

4.2.1 Market Needs

Each of the served segment’s market needs are shaped by the desire to procure quality products at reasonable prices. Machine Tooling is in the position to offer just that to our clientele, and we understand that our products must help our clients to better add value to their own end customers.

4.2.2 Market Growth

Annual U.S. machine tool product shipments have grown for the last four years, topping $46.5 billion in 1997. This trend was expected to hold with 1998 shipments on track to exceed $7.1 billion, an increase of nine percent in current dollars (seven percent in constant dollars). Industry exports reflect a similar pattern of growth. U.S. machine tool exports reflect a similar pattern of growth. U.S. machine tool exports climbed to over $2.8 billion in 1997 and were expected to rise four percent in 1998 to more than $3 billion. With continued growth projected for the U.S. economy, U.S. machine tool producers have reason to be optimistic. Machine tools purchases historically are driven by economic prosperity. The industry’s upward trend is expected to continue for several more years, in parallel with the domestic economy’s projected sustained growth. Product shipments of machine tools, expressed in constant dollars, are forecast to increase two percent in 1999.

U.S. machine tool manufacturers can expect moderate growth in shipments during the period of 1999-2003. Projections call for annual increases of approximately four percent. The rising demand for capital equipment will be driven by manufacturers’ need to improve productivity, increase capacity, and cut labor costs. Price increases will be virtually nonexistent as manufacturers continue to place strong price pressure on machine tool suppliers. The metal cutting sector is expected to be somewhat stronger than the metal forming sector.

The most active customer markets for U.S. machine tool builders in the near future will be the aerospace, appliance, automotive, farm machinery, and job shop industries. Demand will be particularly robust among job shops. The nation’s tool and die businesses are in a retooling mode, investing in a range of new, high-technology equipment to improve quality and precision. Job shops are increasing and widening their machining capabilities, particularly in areas such as high-speed cutting and laser, waterjet, and rapid prototyping technologies. The trend toward outsourcing by a range of producers, most notably the automotive industry, will further increase this sector’s demand.

Prospects for export markets are less secure. Key markets that are expected to be soft in the near future include the weakened Pacific Rim region and the European Union, where the introduction of a common European currency in select countries is creating uncertainty. As a result, slower growth in exports is likely, as well as an increase in the U.S. machine tool trade deficit. Machine tool exports are expected to grow by three percent annually in the period 1999-2003. The strongest markets for U.S. machine tool exporters will be Canada, Mexico, Chile, Argentina, and Brazil.

4.3 Industry Analysis

Market 1 – Metal cutting tools
In 1997, shipments from production machinery industries totaled nearly $82 billion. The largest subsectors, in constant-dollar terms, were air conditioning, refrigeration and heating (31.8%), construction machinery (27.2%), and farm machinery (17.1%).

Industry: Metalworking machinery, nec.

Establishments that are primarily engaged in manufacturing metalworking machinery, not elsewhere classified.

Market Size Statistics

Estimated number of U.S. establishments 674
Number of people employed in this industry 15,596
Total annual sales in this industry $2,044.4 million
Average employees per establishment 25
Average sales per establishment $3.6 million

Market 2 – Construction machinery
Construction machinery (SIC 3531) consists of earthmoving equipment (bulldozers, shovel loaders, and excavators), off-highway trucks, power cranes, crawlers, draglines, and trenchers. However, if the industry can capitalize on new technologies and expand into developing markets, growth is expected to average nearly three percent from 1999 to 2002. An important factor in the future growth of this subsector could be the National Ambient Air Quality Standards, issued by the EPA in July, 1997. Firms are in the process of assessing the impact of the change in ozone standards on their production processes.

Establishments that are primarily engaged in manufacturing heavy machinery and equipment, such as bulldozers, concrete mixers, and cranes.

Market Size Statistics

Estimated number of U.S. establishments 2,266
Number of people employed in this industry 125,081
Total annual sales in this industry $58,196.9 million
Average employees per establishment 57
Average sales per establishment $34.3 million

Market 3 – Food products machinery
U.S. manufacturers of food products machinery benefit from the huge domestic market. According to the U.S. Department of Agriculture, the processed food industry is the largest manufacturing and distribution sector in the U.S. economy, accounting for more than one-sixth of the nation’s industrial activity. In addition, the United States is a major player in the global food industry, manufacturing approximately one-fourth of the world’s processed foods. In 1997 U.S. shipments of processed foods and beverages were estimated at approximately $471 billion. Six of the 10 largest, and 21 of the top 50 food processing companies in the world are headquartered in the United States. In addition to providing a large and viable home market for domestic machinery manufacturers and process technologists, the United States is a magnet market for advanced foreign high-technology machinery suppliers and for direct investment in the food industry.

Market 4 – Electrical equipment
Between 1992 and 1996, electrical equipment industry shipments boomed, increasing five percent in real terms. This growth ended a negative period in 1990 and 1991, during which shipments declined more than nine percent. The most important factor underlying those boom years was significant investment by firms in terms of both expansion and upgrading of their capital base. Low interest rates, technological improvements, and a healthy export climate stimulated this capital spending. The relays and industrial controls subsector, and the motors and generators subsector, historically have had the largest shipment values; during the period 1992-1996, both subsectors experienced the most vigorous growth, with average annual increases in shipments approximating seven percent each.

Market 5 – Turbines
The bulk of electricity production in the United States comes from steam turbines because of their efficiency and large capacity. However, gas turbines, which are also call combustion turbines, are accounting for the bulk of new manufacturing capacity in the turbine-producing subsector, particularly for peak load times and emergency and reserve power. Of the increase in generating capacity at U.S. electric utilities between 1992 and 1996, the Energy Information Administration estimates that over 60 percent can be attributed to newly-installed gas turbines. More than three-quarters of the planned capacity additions at these utilities, from 1997 to 2006, are expected to use gas as the primary energy source.

Market 6 – Motors and Generators
This subsector includes the production of electric motors (other than engine starting motors) and power generators, motor generator sets, railway motors and control equipment, and motors, generators, and control equipment for gasoline, electric, and oil-electric buses and trucks.

Other Markets
Industry: Power transmission equipment, nec.
Establishments that are primarily engaged in manufacturing mechanical power transmission equipment and parts, for industrial machinery.

Market Size Statistics

Estimated number of U.S. establishments

Number of people employed in this industry 427
Total annual sales in this industry $3,338 million
Average employees per establishment 47
Average sales per establishment $10.9 million

4.3.1 Industry Participants

Competitive threats come from machine shops who perform similar types of machining, as well as design firms that have established relationships with a large customer base. Their machinery, tooling, fixturing, and inspection equipment is tailored to accommodate specific customer products. Their weaknesses, however, are lack of engineering ability, process control, expertise to develop and combine processes, to synchronously combine operations, and an inability to design and build automatic load and unload systems for internal use.

4.3.2 Competition and Buying Patterns

Machine Tooling believes that our customers choose our products based on the following criteria:

  • Price.
  • Performance.
  • Customer service and support.