my industry · 3 foreword in may 2011, ing published ‘my industry 2030: holland’s going to make...

My Industry

Growth ambitions of Dutch technology industry

2

Colophon

AuthorJurjen Witteveen ING Economics Department [email protected]

Editorial CommitteePeter van den Bergh ING Corporate Clients [email protected] Joosten ING Business Banking Oost-Brabant [email protected] Koning ING Sector Management [email protected]é Nieuwenhuis ING Business Banking Oost-Nederland [email protected] Noomen ING Risk Management [email protected] Peek ING Economics Department [email protected] de Reuver ING Business Banking Rotterdam [email protected] Schouten ING Business Banking Zuid-Holland [email protected] Walraven ING Corporate Clients [email protected] Wennink ING Lease [email protected] Woltheus ING Sector Management [email protected]

3

Foreword

In May 2011, ING published ‘My Industry 2030: Holland’s going to make it’, a report that described the strength of Dutch technology industry and its opportunities for global growth in the long term. The report also expressed the following ambition: that technology industry should be capable of doubling the added value it delivers within 20 years.

Three years on, the Dutch economy has gone through a difficult period. Only exports, of which industry accounts for a large share, have generated growth. So what is the outlook for growth in the coming years? What are the ambitions of industrial companies themselves in term of growth? Where do we stand now, and where might we be in around five years’ time? Those are the questions addressed in this report, which is based in part on the results of a survey of more than 300 companies in the technology industry and interviews with various companies and representatives in the sector.

ING adopts a sectoral approach. By specialising in industry, also at the regional level, our aim is to remain close to parties operating in the sector. This study has helped us to deepen our knowledge and develop a greater understanding of the sector and so enable us to tailor our service as closely as possible to the needs of industry.

This report is an initiative of ING, but could not have been written without the cooperation of and input from a great many companies and institutions in the sector. We would like to thank everyone who agreed to give interviews. We would particularly like to thank VNU Exhibitions, the organiser of ESEF / Techni-Show, for its assistance throughout the course of the study.

I hope that this report provides you with new insights, helps you with your strategy and contributes to the strengthening of the manufacturing industry in the Netherlands.

Annerie Vreugdenhil,Director, ING Business Banking

4

Contents

Summary and conclusions 5

1. Introduction: industry is back on the map 9

2. Technology industry: facts and figures 15

3. Ambitions for international growth 19

4. Strategy and investment 31

5. Analysis of the identified challenges 38

Round up: route to 2030 43

5

Summary and conclusions

Positive signals for and from manufacturing industry

Increasing sales and R&D activities are top priorities for investment

Route to 2030: more intensive cooperation

6* Survey of 311 companies in manufacturing industry at the end of 2013, conducted in association with VNU Exhibitions

Industry is back on the mapAwareness of industry’s importance has grown again in the last few years. Rightly so, since industry is the largest sector not only in terms of exports (60% of the total), but also procurement (annual purchases of approximately € 60 billion in the Netherlands), on which other sectors depend. With anticipated growth of 2% in 2014, the sector will have grown faster than the economy as a whole in four of the last five years. In the coming years, Dutch industry will have to become even stronger to lift the Dutch economy to a higher growth path.

Growing importance of technology industryIn the last ten years, the added value generated by technology industry has grown faster than that of industry as a whole. A contributing factor has been the higher R&D intensity, especially in the mechanical and electrical engineering industries. In a European context, the sector is performing well: in a benchmark of eight countries in the euro-zone, the Netherlands ranked third in terms of growth of industrial production in the last ten years.

Outlook is positive, but also depends on the growth ambitions of businessesDutch technology industry develops and produces high-value, and often complex, products that are sold around the world. This success in the global market, in combination with the growing worldwide demand, gives hope for the future. Whether the opportunities will be seized depends on the ambition and strategy of the companies in the sector. Among the companies surveyed for this report, 84% of those that have formulated a strategic plan have also specified a target for growth:* 20% of them plan to realise further growth exclusively abroad, 25% exclusively in the Netherlands, and 55% both at home and abroad. Companies that already operate abroad are also focusing more specifically on other countries to achieve further growth.


Positive signals for and from manufacturing industry

62%€63

Share of exportsIndustry is largest exporter

Annual procurement in NetherlandsIndustry is largest purchaser

84% of the companies with a strategic plan have also formulated a growth target.

In a benchmark of eight euro countries and the UK, the Dutch technonlogy industry ranked in the top three in terms of growth of production

bil-lion

12

3

7


Increasing sales and R&D activities are top priorities for investment

Europe important for suppliers, OEMs looking further afieldEurope is still the dominant region for Dutch manufacturers. Among suppliers, 97% want to secure growth in this region. Original Equipment Manufacturers (OEMs) see opportunities further afield. One in three OEMs intend to pursue growth in North America, Latin America, China and other Asian countries. A further 22% want to increase sales in Africa. A quarter of the companies that want to generate growth outside the Netherlands intend to increase production abroad. On balance, this will be at the expense of production in the Netherlands.

Source of concern: many companies do not have a strategic planForty-four percent of companies in the technology industry do not have a strategic plan. This is a worrying finding, since operating on the basis of a documented plan offers a company stability and assurance. Furthermore, effective management and reporting to stakeholders are practically impossible without a strategic plan. Nevertheless, there are companies that have been successful without one. Often, these are companies with a Director/Major Shareholder who maintains tight control and has a sharp focus, which is clearly conveyed to the employees. A distinctive feature of these companies is their ability to respond quickly to market developments.

Investment priorities: sales, R&D, machines, personnelGrowth is impossible without investment. Evident priorities for technology industry in the coming years are to increase the level of R&D and sales activities. Investment in new machines and training and recruitment of personeel are also high in the agenda. Among the larger suppliers, 30% intend to increase investment in robots. These are the appropriate investments for achieving the growth ambitions, which is a hopeful sign. Only 7% of companies said they are not in a position to raise the level of investment.

Companies plan to increase investment mainly in R&D and sales

44% of companies have no strategic plan

Of the companies that plan to pursue growth abroad, 92% will focus on Europe

8


Route to 2030: more intensive cooperation

Progress has been made, challenges in the chainThe 2011 report My Industry 2030 made the argument that it should be possible to double the added value of technology industry in twenty years. It identified four challenges that need to be addressed: availability of staff, the quality of the R&D programme, greater flexibility in operations and access to raw materials. Some progress has been made in each of these areas in the last three years. The number of graduates in technical subjects has risen, for example, although there are still widespread concerns about the labour supply at lower and secondary vocational education level. Meanwhile, spending on R&D has risen. Almost 60% of OEMs plan to increase R&D expenditure further in the coming years. Suppliers in the SME sector face the challenge of meeting the steadily increasing demands of the OEMs (in relation to product development, for example).

Technology industry needs to grow even strongerDoubling the added value in twenty year is no easy challenge. It calls for annual (nominal) growth of 3.5%. After two lean years (2012-2013), annual growth of 4.7% up to 2018 will be required to get back on track. Regardless of the precise growth rates, technology industry will have to become even stronger during this period. Further industrial growth can only come from top-rate knowledge of (products and markets, high-quality production, automation, flexibility and efficient use of energy and materials.

The availability of skilled people will have to remain a key objective of companies, schools and the government. In terms of R&D, the manufacturing sector in the Netherlands is not per se outshone by its counterparts in other countries. There is also nothing amiss with the industry’s ambitions for growth. Many companies, even in the traditionally domestically-oriented metal sector, intend to look abroad for growth. The important thing now is to put those plans into practice, and that will require intensive cooperation.

Added value: route to 2030

0

5.000

10.000

15.000

20.000

25.000

30.000

35.000

40.000

20302025202020152010

0

5.000

10.000

15.000

20.000

25.000

30.000

35.000

40.000

20302025202020152010

Annual growth 3.5%

Annual growthneeded4.7%

■ Added value_ Added value: route to 2030

Annual growth 3.5%



9

1. Introduction: industry is back on the map

Key role for industry in economic growth

Industry is largest purchaser and exporter

Dutch technology industry has many outstanding companies

Ambition for 2030: Doubling of added value

10

Industry is back on the mapThe economic crisis has demonstrated the importance of industry. The belief that the services sector would generate sustained, long-term growth has proved utopian; the actual development and production of goods is an important pillar of an economy. Although industry suffered the severest blows in the recession of 2009, it has recovered strongly since then. While the economy remained weak in 2012/2013, industry performed reasonably well. In 2014, industrial production is forecast to grow faster (+2%) than GDP (+0.5%), in which case industry will have grown faster than the economy as a whole in four of the last five years.

Looking back: number of jobs has fallen, production has risenLooking back a few decades, the value of industrial production and the sector’s added value have clearly been rising steadily. Partly due to price effects, the long-term growth of the total economy has been stronger, and industry’s share in the economy has therefore declined. The increase in industrial production has been achieved with a steadily declining number of people working in the sector.

The increase in labour productivity has been greatest in industry, making the sector a driving force of economic growth.

Source: CBS, ING Economics Department

1 Introduction

Key role for industry in economic growth

More production with fewer workers Labour productivity on the basis of added value in 5 sectors, 1995-2012 (index, 1995=100)

_ Size of industry (added value, index 1970=100) _ Size of economy (nom. index, 1970=100) _ Number of working persons (x 1,000, left-hand axis)_ Share of industry in GDP (excl. water/energy, right-hand axis)

0

200

400

600

800

1000

1200

1400

198019751970

0

200

400

600

800

1000

1200

1400

0%

5%

10%

15%

20%

25%

30%

35%

Aantal werkzame personen (x 1.000, L-as)

Aandeel industrie in BBP (excl water/energie, R-as)

Omvang economie (nom., index, 1970=100)

Omvang industrie (toegevoegde waarde, index 1970=100)

201020052000199519901985198019751970

_ Industry _ Agriculture _ Trade, hospitality and transport _ Construction _ Business services

80

90

100

110

120

130

140

150

160

Zakelijke dienstverlening

Bouw

Handel, horeca en vervoer

Landbouw

Industrie

_ Industrie _ Landbouw _ Handel, horeca en vervoer _ Bouw _ Zakelijke dienstverlening

80

90

100

110

120

130

140

150

160

Zakelijke dienstverlening

Bouw

Handel, horeca en vervoer

Landbouw

Industrie

201120092007200520032001199919971995

'12'11'10'09'08'07'06'05'04'03'02'01'00'99'98'97'96'95

11Source: CBS, ING Economics Department, figures for 2012, procurement for regular activities

1 Introduction

Industry is largest purchaser and exporter

Industry drives exports and is important for other sectorsIndustry’s declining share in the last few decades masks the sector’s relevance for the economy. Industry is crucial for exports, as well as creating business activity in other sectors. For example, industrial companies require various service activities that have been outsourced over the years, such as transport, ICT and facility management. Due to regulation, other sectors also owe their existence in part to industrial companies, including consultants and accountants. Consequently, industry is the largest purchaser of goods and services from other sectors.

Shares of sectors in direct exports How much does one sector buy from other sectors in the Netherlands?

0% 10% 20% 30% 40% 50% 60% 70%

Other

Agriculture

Mining

Financial services

Business services

Trade and transport

Industry

0

10

20

30

40

50

60

70

MiningAgri-culture

UtilitiesCon-struction

Businessservices

Govern-ment,

education,care

Trade andtransport

Industry

€ bn.

63

54

39

33

22

13 12

3

12

Vanderlande Industries in Veghel supplies automated material-handling systems and associated services for rapid, reliable and labour-saving goods handling in distribution centres and sorting facilities. Another important market is baggage handling systems for airports. The company has 1,200 employees in Veghel, who are mainly engaged in the development, design and testing of new systems. The systems are produced in the US, China, the Czech Republic and Spain and then assembled at the customer’s location. The company’s turnover has risen from 610 million euro in 2008 to 741 million euro in 2013. Vanderlande owes its growth, or success, to its constant focus on innovation and delivering customer value.

Source: CBS, EIM, ING Economics Department

1 Introduction

Dutch technology industry has many outstanding companies

Top 3% of largest companies generate 60% of technology industry’s production value

0%

20%

40%

60%

80%

100%

100 en meer werkz. pers.

49 tot 100 werkz. pers.



zzp-ers

% van totale productie (ca. € 80 mld.)% van totaal aantal bedrijven (ca. 19.000)

■ zzp-ers ■ 0 tot 49 werkz. pers.

■ 2 tot 10 werkz. pers. ■ 100 en meer werkz. pers.

■ 49 tot 100 werkz. pers

0%

20%

40%

60%

80%

100%

100 en meer werkz. pers.




zzp-ers

% of total production(approx. € 78 bn.)

% of total numberof companies

(approx. 18,000)

■ Self-employed

■ 2 to 10 working persons

■ 10-49 working persons

■ 49 to 100 working persons

■ 100 and more working persons

Dutch-Shape in Borne designs and manufactures tools for producing complex composite parts for the aerospace industry, including wings, tails and engine housing. Dutch-Shape has helped to build almost all of the world’s large planes. Founded in 2006, the company has more than doubled its annual turnover from just under four million to eight million euro in the last two years.

HGG is a global player that manufactures a wide range of innovative and top-of-the-range CNC cutting machines. The machines are used to profile complex (bevelled) edges and 3D profiles, such as pipes, beams, hollow sections and various other profiles. HGG designs all of its own systems, and the machines are all fully modular in terms of mechanics, electrical engineering and software. The production is located in Wieringerwerf in the Netherlands and Davao in the Philippines. Since 2010, HGG has doubled its turnover to 24 million euro and its workforce from 50 to 100.

AWL-Techniek manufactures state-of-the-art automated welding equipment. Its primary target group is suppliers to the automotive industry, for whom high volumes, speed and quality are crucial requirements. AWL currently has production facilities in the Netherlands, the Czech Republic and China. It has also formed a strategic partnership with JR Automation in America. AWL-Techniek has 350 employees, including 50 outside the Netherlands. Creativity, open communication and expertise in every regular welding process allow AWL to pursue a strategy aimed at annual growth of 15%.

13Bron: CBS, ING Economisch Bureau, Times Higher Education Ranking

1 Introduction

Ambition for 2030: Doubling of added value

Manufacturing industry key to achieving growthThe domestically-oriented (service) sectors are under pressure. Industry is by nature more closely connected to international economies and can achieve stronger growth through exports. Manufacturing plays an important role in industry’s ability to exploit these (export) opportunities and is therefore crucial for the Netherlands’ healthy economic future.

In this report, manufacturing industry comprises the following sectors: rubber and plastics, metal, electrical engineering, mechanical engineering and transport equipment.

Ambition for 2030: Doubling of added valueThe Dutch technology industry is a knowledge-intensive sector with an extensive supply network. The industry in the Netherlands includes numerous prestigious companies (some of which were mentioned on the previous page) and there are a number of top-class knowledge institutes in the country. The challenges facing the world in the fields of energy, raw materials, health care, mobility and food scarcity, in combination with the growing global population, provide opportunities for Dutch industry (through collaboration within and between sectors) to develop and sell new products.

Dutch technology industry has considerable potential. In the report My Industry 2030 (May 2011), it was argued that it should be possible to double the added

value of manufacturing industry by 2030. To achieve this ambition, companies, public authorities and research institutes (the so-called triple helix) will have to address the most important challenges actively and jointly. Three years ago, the major challenges were defined as follows :• Availability of first-rate staff• Top-quality research and development• More flexible operations• Access to raw materials

On the way to 2030, this report considers the period 2014-2018. In addition to addressing the challenges set out above, growth in the sector will also depend on the ambition of entrepreneurs. More than 300 manufacturing companies were asked about their growth ambitions and investment plans in the coming years. That survey forms the core of this report.

The next chapter presents some key facts and figures about Dutch manufacturing industry and trends in the last 10 years. Chapters 3 and 4 then discuss the growth plans of industrial companies. Where do companies plan to seek growth, and how?

Chapter 5 briefly analyses the steps that have been taken to address the four challenges mentioned above and presents some conclusions. What shape is the sector in and can it achieve its growth ambitions?

14

1 Introduction

Ambition 2030

A corridor of high-tech industry running from Brainport (Eindhoven) via Science Port Holland (Delft) to Kennispark Twente forms the basis of the Dutch economy.

2030

15

2. Technology industry: facts and figures

Added value of technology industry rises as share of production declines

Dutch technology industry is relatively small, but growth rate is above average

Growth comes from abroad

16Source: CBS, ING Economics Department

2 Technology industry: facts and figures

Added value of technology industry rises as share of production declines

Production of technology industry is € 78 billionIn 2013, the output of Dutch technology industry came to € 78 billion and it generated added value of approximately € 20 billion. Technology therefore accounted for more than a quarter of industrial production in the Netherlands. That share has declined slightly in the last ten years. On the other hand, the added value (wages and profits) of technology companies is rising faster than that of industry as a whole. This has been due mainly to the growth of profits in the last decade.

Mechanical engineering leads the wayThe driving force behind the growth of technology industry has been mechanical engineering, which is currently the most important segment of the industry with a share of 27% (and a share of 33% of added value). It is closely followed by the suppliers to the metal sector. The growth of the electrical engineering sector has been more stable, but its profitability is under pressure. The rubber and plastics industry accounts for 10% of technology output, while production in the transport equipment industry has fluctuated severely.

Production of technology industry (=total procurement + added value) and share in manufacturing industry

Development of production volume in five sectors of technology industry and share of the total value of technology output

70

80

90

100

110

120

130

140

Transportmiddelenindustrie

Machinebouw

Elektrotechnische industrie

Metaalbewerking

Rubber- en kunststof

Industrie totaal

2014*20132012201120102009200820072006200520042003

Share

27%

24%

23%

10%

17%

Machinery

Metal

Electricalengineering

R&P

Transport equipment

Index 2003=100

Industry -total

0

20

40

60

80

100

10%

15%

20%

25%

30%

35%

Toegevoegde waarde aandeel maakindustrie in totale industrie (R-as)

Productieaandeel maakindustrie in totale industrie (R-as)

Totale inkoop

Toegevoegde waarde

20132012201120102009200820072006200520042003

■ Total procurement ■ Added value _ Share of technology in total industrial production (right-hand axis) _ Share of technology in total added value of industry (right-hand axis)

17

The Netherlands is a small player in EuropeWith production of € 78 billion (2013), Dutch technology industry is a small player in the EU. Its share of European output is less than 3%. The Netherlands is of course a small country, but the role of technology industry in the Dutch economy is also smaller than in many other countries in the euro-zone. The generally acknowledged absolute leader in terms of technology industry is Germany, with output of almost € 1,000 billion, which represents a third of the EU’s production and accounts for 13.5% of the added value of Germany’s economy.

Growth of production among the highest in the euro-zoneUntil 2011, the growth rate of the Dutch technology industry did not lag far behind that of Germany. The gap with Germany has only widened in the last two years. However, in a benchmark of eight euro-zone countries (see the figure below), the Netherlands still ranks in the top three. In terms of growth, the star performer in the last ten years has been Austria, where the technology industry has been helped in part by the strong growth of car production, mechanical engineering and electrical engineering in Bavaria.

The Netherlands’ strength lies in the diversity of manufacturing industry, with technology industry as one of the pillarsThe strength of Dutch industry (and exports) lies in the sector’s diversity. The Netherlands has three substantial sectors in manufacturing (technology, chemicals, food)

whereas other countries rely more on one or two of these sectors. Especially in the case of technology industry, this can cause major fluctuations in the economy. Finland, for example, relies more on technology industry and its economy is less diverse. Consequently, the country enjoyed high growth in the period 2003-2008, but in the crisis in 2009 the economy contracted by 8.5% (partly due to the downturn at Nokia). Because of Dutch industry’s more diversified structure, this country’s GDP contracted by just 3.7% in 2009, which was also significantly less than in Germany (-5.1%).

Source: Oxford Economics, CBS, ING Economics Department


Dutch technology industry is relatively small, but growth rate is above average

Development of volume of technology industry production in eight euro countries, 2003-2013 (index)

80

90

100

110

120

130

140

150

160

170

VK

Italië

Frankrijk

Spanje

Nederland

Oostenrijk

Finland

België

Duitsland

20132012201120102009200820072006200520042003

80

90

100

110

120

130

140

150

160

170

VK

Italië

Frankrijk

Spanje

Nederland

Oostenrijk

Finland

België

Duitsland

20132012201120102009200820072006200520042003

€ 31 bn. 7,2%

€ 78 bn. 4,4%

€ 190 bn. 5,0%

€ 56 bn. 4,9%

€ 305 bn. 4,3%

€ 340 bn.6,8%

€ 87 bn.10,3%

€ 995 bn.13,5%

€ 175 bn.4,5%

Technology industry: production (2013) and share of national economy (added value) in eight euro countries

18

Export share at level of ten years agoIt is often said that “growth has to come from abroad”. This is largely true, and certainly applies for technology industry given the lengthy period of low invest-ment in the Netherlands. However, exports have only been the driving force behind manufacturing for a relatively short time. Although they had been growing slightly faster up until 2007, it was exports that collapsed in the great recession of 2009. It is only since then that the gap in the growth rate between domestic and foreign sales has really widened. The share of exports in total sales is still not higher than it was around ten years ago. The metal and mechanical engineering sectors have been the fastest growers in terms of export volume in the last few years. Exports of transport equipment are still slightly lower than ten years ago and significantly lower than the peak year of 2007.Exports are expected to account for a large share of turnover in the coming years, but that will depend in part on the export ambitions of Dutch industrial compa-nies, including SMEs. For this study, 311 companies in technology industry were asked about their plans for achieving growth.

Source: CBS, ING Economics Department


Growth comes from abroad

Technology industry: development of exports and production volume 2003-2013, index

Export volumes of five sectors of technology industry, index 2003=100

_ Export volume _ Production volume

90

95

100

105

110

115

120

125

130

Productievolume

Exportvolume

20132012201120102009200820072006200520042003

90

95

100

105

110

115

120

125

130

Productievolume

Exportvolume

20132012201120102009200820072006200520042003

_ Exportvolume _ Productievolume

Exports and domestic sales of technology industry

_ Elektrotechniek _ Rubber en kunststof _ Metaal _ Machinebouw _ Transportmiddelen

60

80

100

120

140

160

180

Transportmiddelen

Machinebouw

Metaal

Rubber en kunststof

Elektrotechniek

2013201220112010200920082007

_ Electrical engineering _ Rubber and plastics

_ Metal _ Mechanical engineering

_ Transport equipment

60

80

100

120

140

160

180Transportmiddelen

Machinebouw

Metaal

Rubber en kunststof

Elektrotechniek

2013201220112010200920082007

60

80

100

120

140

160

180

Transportmiddelen

Machinebouw

Metaal

Rubber en kunststof

Elektrotechniek

20132012201120102009200820072006200520042003

■ Exports ■ Domestic sales

0

20

40

60

80

100

Binnenlandse afzet

Export

20132012201120102009200820072006200520042003

■ Export ■ Binnenlandse afzet

0

20.000

40.000

60.000

80.000

100.000

Binnenlandse afzet

Export

20132012201120102009200820072006200520042003

x € bn.

19

3. Ambitions for international growth

Structural growth requires a strategic plan, but 44% of companies don’t have one

Plans for growth in the Netherlands and abroad

Almost 30% of companies with sales only in the Netherlands want to expand into other countries in the coming years

Focus on Europa, but OEMs looking further afield

Market growth in Europe is modest, but so are the business risks

More than 40% of companies want to secure growth in foreign markets entirely from production locations in the Netherlands

US important export market; Asia calls for more production in the region

Dutch technology industry can build on its position in relation to neighbouring countries

Production returning to the Netherlands, or is it leaving?

Shift to skilled work in the Netherlands is continuing

20Source: Survey by ING Economics Department / VNU Exhibitions

3 Ambitions for international growth

Survey of 311 manufacturing companies at the end of 2013

Ambitions of manufacturing industryTo establish the growth ambitions of Dutch manufacturing companies, a survey was conducted among just over 300 companies at the end of 2013. They were asked about their strategy, their plans for achieving growth abroad and their investments. The characteristics of the respondents are described on this page. The results are presented in the rest of this chapter and the next one.

Sector: Reasonably representative of the actual situation Share in Share in reality survey

Rubber and plastics 7% 8%Metalworking 57% 58%Electrical engineering 14% 12%Mechanical engineering 16% 20%Transport equipment 6% 3%

Size: On average, companies in the survey are larger companies* Share in Share in reality survey

Self-employed 52% 16%2-4 employees 17% 16%5-9 employees 9% 11%10-49 employees 16% 33%50 and more employees 6% 24%

* The large number of self-employed in the statistics includes some who are economically inactive

N.B. 311 companies (out of a population of 18,000 companies in technology industry) represents a margin

of error of 5.5% with a reliability of 95% for the questions that were answered by all the companies.

International sales: 1/3 none, 1/3 up to 30%, 1/3 > 30%

Position in the chain: Substantial proportion regard themselves as OEM / end manufacturer

Respondents: Directors and management

0%

10%

20%

30%

40%

50%

60%

70%

80% % of turnover from abroad

0%

10%

20%

30%

40%

50%

60%

70%

80%

30% or moreUp to 30%None

33%34%32%

0%

10%

20%

30%

40%

50%

60%

70%

80%

0%

10%

20%

30%

40%

50%

60%

70%

80%

30% of meerTot 30%Geen

Not knownSupplierOEMs/end manufacturer

7%

62%

31%

0%

10%

20%

30%

40%

50%

60%

70%

80%

0%

10%

20%

30%

40%

50%

60%

70%

80%


OtherManagementposition

Other boardposition

Director-LargeShareholder/

Managing Director

3%10%

72%

15%

21

Remarkably large number of companies have no strategic planA company that wants to grow needs a plan, especially in the current climate. The first noteworthy finding from the survey is that 44% of the respondents said their company has not formulated a strategic plan. A strategic plan is defined here as “a written plan setting out objectives and, at least in outline, a roadmap for achieving those objectives”. While the absence of a structural plan does not mean that a company lacks vision, the large number of companies without one is certainly remarkable.

The recipe for a good corporate strategy includes a number of ingredients, including a mission statement (why does the company exist?), a vision (what does the company want to achieve?) and goals and objectives (tangible results). A strategic plan, which does not have to be a lengthy document, describes how those objectives will be achieved.

The strategic plan should in any case contain a description of the business chain and developments in it and how the company is reacting to the changing circumstances. A plan that is not imposed from above, but is formulated from the bottom up, will generate wider support within the organisation, and will enhance the company’s reputation among customers and other shareholders and have a positive effect on labour productivity.

A large majority of self-employed entrepreneurs and companies with ten or fewer employees, in particular, do not have a strategic plan, possibly because in these challenging times their focus has been exclusively on securing orders of any kind in order to generate at least some turnover and income.

A substantial number of the slightly larger companies (up to 50 employees) covered by the survey also have no strategic plan. It is possible that in these cases a Director/Major Shareholder maintains tight control and knows precisely where he wants to go with the company. However, that is impossible without clear communication and delegation to employees, and a strategic plan is essential for that.

Source: Survey by VNU/ING Economics Department, visie-strategie.nl


Structural growth requires a strategic plan, but 44% of companies don’t have one

“Having a strategic plan is reassuring,

especially in difficult periods”

“Without a strategic

plan, effective management and reporting

to stakeholders are practically impossible”

My company does not have a strategic plan, by size of company

Overall percentage: 44%

0%

10%

20%

30%

40%

50%

60%

70%

80%


11%

73%

65%

0%

10%

20%

30%

40%

50%

60%

70%

80%

50 or moreemployees

10-49employees

2-9employees

Self-employed

37%

22Source: Survey by VNU/ING Economics Department, * measurement in Nov/Dec 2013


Plans for growth in the Netherlands and abroad

75% of companies with a strategic plan intend to secure at least part of their growth abroadOf the 168 companies that have drawn up a strategic plan, 84% have specified a target for growth. More than half (55%) want to achieve growth both in the

Netherlands and abroad. One in five companies are concentrating exclusively on international growth, while a quarter will only pursue growth in the Dutch market.

Survey of 311 companies in Dutch technology industry

Time horizon of strategic plan*

&

Where will they grow? 25% exclusively in the Netherlands

20% exclusively abroad

55% in the Netherlands and abroad

54% have a strategic plan

84% of these have adopted a target for growth

0% 5% 10% 15% 20% 25% 30%

2018 and beyond

2017

2016

2015

2014

23


Almost 30% of companies with sales only in the Netherlands want to expand into other countries in the coming years

Growth initially through exportsTo gauge the level of ambition of Dutch manufacturers, it is interesting to explore the extent to which companies that currently earn money exclusively in the Netherlands intend to start exporting in the coming years. Seven percent of these companies (companies that do have a strategic plan and a growth target) plan to generate growth exclusively abroad and a further 21% intend to do so in the Netherlands and abroad. Scarcely any companies mentioned plans to start their own production abroad. In other words, they will initially export to these markets.

Mainly companies with existing links to other countries want to secure further growth thereCompanies that are looking to other countries for future growth are the companies that already generate turnover in those countries. Of the companies that already secure more than 30% of their turnover abroad, a third will pursue growth exclusively in those countries and no longer in the Netherlands. Almost a quarter of this group of companies intend to increase production abroad.*

56% of the companies that secure more than 30% of their turnover abroad and have their

own production location in another country plan to expand that production capacity in the

coming years.

Where do companies want to grow? (broken down by existing share of foreign turnvoer)

* This question was only answered by companies with a strategic plan that includes a growth target (total 141: 29 with no turnover abroad, 50 with up to 30% and 62 with more than 30%),

which means the results are indicative for the sector

Where will turnover be increased?*

Only in Only Netherlands % of companies that Netherlands abroad and abroad intend to start or expand production abroad

No turnover abroad 72% 7% 21% 2%Up to 30% of turnover abroad 22% 10% 68% 19%30% or more of turnover abroad 5% 34% 61% 24%

24


Focus on Europa, but OEMs looking further afield

Gap in ambition between OEMs and suppliers lies mainly in relation to emerging marketsAlmost all of the companies that want to increase their foreign sales are targeting Europe. This is particularly true of manufacturers that see themselves as suppliers, 97% of whom want to secure their envisaged growth on the European continent. Almost a quarter feel there are opportunities for suppliers in North America. OEMs clearly see a larger market and feel that there are still plenty of opportunities in the faster-growing economies with the manufacture of products, generally more complex and made to the customer’s specifications, such as machines and installations, in smaller volumes.

Roughly a third of the OEMs feel there are opportunities for growth in North and Latin America as well as China and elsewhere in Asia. A further 22% want to increase sales in Africa in the coming years. A growing number of companies are gaining a foothold in the continent with perhaps the greatest potential, but also the most risks. Nor are the companies planning to establish production capacity in Africa (see page 22), but are focusing entirely on exports.

Where does your company want to increase turnover?

Region Manufacturing OEMs Suppliers industry as a whole

Europe 92% 83% 97%China 21% 32% 14%Rest of Asia 24% 32% 19%US/Canada 27% 34% 23%Africa 11% 22% 5%Latin America 19% 34% 9%Oceania 7% 15% 2%

25Source: EIU, Unctad, ING Economics Department


Market growth in Europe is modest, but so are the business risks

Countries with high growth rates generally have higher operational risksThe fact that most manufacturing companies will seek growth in the ‘slow-growth’ region of Europe is not necessarily negative, but most companies will be faced with modest growth of the market and will often have to win market share in order to grow.

On a positive note, there are relatively few political, financial, economic or security risks attached to doing business in most European countries. It is also easier to maintain control of the business when activities are less widely dispersed geographically, especially for smaller companies.

Expected import growth 2014-2018

0% 5% 10% 15% 20%

Expected import growth 2014-2018

Low

Hig

h

Op

era

tion

al

risk

s (E

IU)

Size of the circle represents volume of imports (2013)

GermanyUnited States

France

Belgium

Spain

South Africa

MexicoTurkey

Brazil

Malaysia

Czech Republic

South Korea

Taiwan

United Kingdom

Singapore

Argentina

Indonesia

VietnamThailand

China

Egypt

IndiaRussia

Italië

Poland

26Source: ING Economics Department/VNU


More than 40% of companies want to secure growth in foreign markets entirely from production locations in the Netherlands

Proximity to the customer and lower costs are the main reasons for increasing production capacity abroadMore than half of the companies that want to increase their turnover abroad do not expect to need additional production capacity abroad to do so (53%, third column in the figure), while 43% currently have no international production capacity and will therefore have to generate the planned growth entirely through exports. Success with the growth plans will therefore be beneficial for the scale of production and for employment in the Netherlands.

Obviously, more companies that intend to pursue growth will establish production facilities abroad. Of the companies that intend to seek growth outside Europe, 43% say they want to increase production in other countries. Asia is most frequently mentioned as the region where these companies will expand production. North America, where more companies want to increase sales, is mentioned less frequently as a region where companies plan to start or expand production.

Where will extra production be located?Europe: 30%China: 30%Rest of Asia: 50%Africa: 0%US/Canada: 25%Latin America: 45%Oceania: 0%

Start-up / expansion of company’s own foreign production within five years?

0%

20%

40%

60%

80%

100%

Weet niet

Nee

Ja

Plans for growthoutside Europe(15% of total)

Plans for growthoutside the Netherlands(34% of total)

Companies withstrategic plan and

growth target(45% of total)

Total manufacturingindustry

(311 respondents)

43%

31%25%

15%

38%53%62%

76%

19%16%13%9%

■ Yes ■ No ■ Don’t know

27Source, ING Economics Department


US important export market; Asia calls for more production in the region

Local establishment increasingly necessary to realise growth outside EuropeForty-three percent of the companies whose strategy is wholly or partially based on achieving growth outside Europe say they plan to expand their own production abroad, while a further 19% see it as an option. Suppliers, on the other hand, will pursue growth closer to home. The impression is that, particularly in Asia, production is

increasingly being established within the region for the regional market. Looking at imports of technological products by the largest economies, all outside Europe, what stands out is the relatively small volume of imports by China and Japan, countries where a lot is produced for the domestic market. Most of what is imported is produced in the region.

In contrast, the US does import a lot and for years the bulk of the imports, particularly of electronics, have come from Asia. The US is a particularly interesting growth market for Dutch manufacturers. It is a large market with healthy prospects for growth and limited risks in terms of doing business and it is favourably situated for exports. Trade could be further boosted if a free trade treaty is concluded between the US and the EU.

For years, half of the technological products imported by the US have come from Asia

Relatively modest imports: a lot of what is made in China is for China

Japan produces a lot itself or imports from neighbouring countries

Source of imports of technological products by US, China, Japan, 1995-2012

0%

10%

20%

30%

40%

50%

60%

70%

0%

10%

20%

30%

40%

50%

60%

70%

CanadaLatamMidden-Oosten en AfrikaAziëOpkomend EuropaWest-Europa

■ 1995

■ 2000

■ 2005

■ 2010

■ 2011

■ 2012

US, imports 2012: € 793 bn.GDP: € 12,630 bn.

1995

2000

2005

2010

2011

2012

US/CanadaLatinAmerica

Middle East/North Africa

AsiaEmergingEurope

WesternEurope

0%

10%

20%

30%

40%

50%

60%

70%


0%

10%

20%

30%

40%

50%

60%

70% ■ 1995

■ 2000

■ 2005

■ 2010

■ 2011

■ 2012

China, imports 2012: € 77 bn.GDP: € 6,392 bn.

1995

2000

2005

2010

2011

2012



AsiaEmergingEurope

WesternEurope

0%

10%

20%

30%

40%

50%

60%

70%


0%

10%

20%

30%

40%

50%

60%

70% ■ 1995

■ 2000

■ 2005

■ 2010

■ 2011

■ 2012

Japan, imports 2012: € 179 bn.GDP: € 4,634 bn.

1995

2000

2005

2010

2011

2012



AsiaEmergingEurope

WesternEurope

28Source, ING Economics Department, fDi, European cities and regions of the future


Dutch manufacturing industry can build on its position in relation to neighbouring countries

German technology industry has developed supply chain in Eastern EuropeIt is mainly the emerging countries in Central and Eastern Europe that have gained in importance for the large European economies, particularly Germany. This has been largely at the expense of Western Europe and North America. Asia’s share has also grown, but Asia is significantly less important for Europe than for the US. But here too, the situation seems to be stabilising, and there has even been a slight decline in Asia’s share of Germany’s imports of technological products.

Netherlands accounts for a substantial share of UK imports and its share in the large economies outside Europe is stable at around 0.5%Dutch industry’s share of the imports of the large markets has declined over the years. This is an automatic consequence of the emergence of Central and Eastern Europe and Asia as production regions. More importantly, however, Dutch industry has continued to grow and to profit directly and indirectly from the emerging markets. Looking at the position of Dutch manufacturing industry in relation to its neighbours

to the east and the west, Germany and the United Kingdom import a substantial proportion of their technological products from the Netherlands. There are still opportunities for suppliers in the high-tech segment in Germany, as well as in Switzerland, where there are a relatively large number of OEMs, and in Austria. And the market in Germany is not confined to the south of the country: North Rhine-Westphalia was voted the most promising region in Europe this year.

East European growing as supplier to Germany at the expense of Western Europe

Western Europe accounts for more than half of the UK’s ‘technological’ imports

The Netherlands’ share of ‘technological’ imports of five large economies, 1995-2012

Source of imports of technological products by Germany, United Kingdom, 1995-2012

0%

10%

20%

30%

40%

50%

60%

70%


0%

10%

20%

30%

40%

50%

60%

70%



AsiaEmergingEurope

WesternEurope

■ 1995

■ 2000

■ 2005

■ 2010

■ 2011

■ 2012

Germany, imports 2012: € 352 bn.GDP: € 2,666 bn.

1995

2000

2005

2010

2011

2012

0%

10%

20%

30%

40%

50%

60%

70%


0%

10%

20%

30%

40%

50%

60%

70%



AsiaEmergingEurope

WesternEurope

■ 1995

■ 2000

■ 2005

■ 2010

■ 2011

■ 2012

UK, imports 2012: € 176 bn.GDP: € 1,926 bn.

1995

2000

2005

2010

2011

2012

0%

10%

20%

30%

40%

50%

60%

70%


0%

1%

2%

3%

4%

5%

6%

7%

8%

VK

Duitsland

China

Japan

VS

0%

1%

2%

3%

4%

5%

6%

7%

8%

201220102008200620042002200019981996

_ US _ Japan _ China _ Germany _ UK

201220102008200620042002200019981996

29


Production returning to the Netherlands, or is it leaving?

Asia and Latin America important regions as production locationFifteen percent of the companies in the survey expressed the intention of starting (6%) or expanding (9%) production abroad within five years. A further 9% said they did not know, the vast majority of whom were companies that do not yet have production facilities abroad. After Europe, Asia was the most frequently mentioned region for an increase in production, but Latin America was also mentioned relatively often (23%). The main explanation for this will be the often heavy import duties that many South American countries impose, which often makes local production essential if a company is to remain competitive in that market.

Expansion of foreign production at the expense of production in the NetherlandsOn balance, the expansion of production will still be at the expense of production in the Netherlands. For one in three companies that intend to start/expand production abroad, the decision will mean less production in the Netherlands. Expansion of foreign production can also generate additional work for establishments in the Netherlands, but that only applies for 13% of the companies surveyed.

Reports of reshoring not confirmedAlthough expansion of production abroad will be at the expense of production in the Netherlands, there have been some reports of production returning from other countries, particularly in Asia, where wage costs are rising quickly, the quality is not always good and transport costs and delivery times are also factors. On that basis, production might also resume in the Netherlands.

This seems to be a case of wishful thinking. Ten percent of companies that have production facilities in Asia are considering recalling production from Asia

within five years, but none of these companies mentioned the Netherlands as a production location, but rather other regions in Europe. These results are only indicative, since the number of companies in the survey is small, but it does show that we should not expect too much from ‘reshoring’. Growth will have to come from exports, a recovery of the domestic economy and the strengthening of Dutch industrial companies through production centres in other countries.

Relocation of production: MCi and InalfaThe substantial investments made by Dutch suppliers in Asia, Eastern Europe and the US could have consequences for employment in the Netherlands. Some less-skilled production work, in any case, is moving to other parts of the world. For example, several years ago the economic crisis forced Mirror Controls International (MCi), a supplier in Woerden, to carry out a major reorganisation and shut down production in the Netherlands entirely. A new plant was opened in China in 2009 and the remaining production work moved to Ireland (for the European market) and Mexico (for the North American market). Only research and development remained in the Netherlands.

At Inalfa, a manufacturer of sliding roof systems for cars, the expansion of production capacity in Eastern Europe and Asia means the activities in the Netherlands will increasingly focus on skilled work. Venray in Limburg will be the centre of future R&D, with all new roof systems for European clients being developed and tested there. New products will be made in Venray for testing, but assembly will gradually move to Eastern Europe or Asia.

Source: Financieele Dagblad, 20 December 2013

30Source: BLS, PWC, survey by VNU/ING Economics Department


Shift to skilled work in the Netherlands is continuing

Companies looking mainly to Eastern Europe to reduce costsHalf of the companies that want to start or expand their own production abroad are doing so mainly to be closer to their customers, but the costs are still the main factor for a substantial number (a third). Proximity to customers is the main reason for expanding production outside Europe, while relatively often starting or expanding production in Europe is driven by cost considerations. In that case, Eastern Europe is the most popular region, while parts of central Europe (including the Czech Republic) have developed a strong infrastructure with high-grade, increasingly automated plants.

Personnel costs constituting around 20% of turnover, must be reduced furtherAs shown on the previous page, production will continue to expand outside the Netherlands in the coming years. Although the differences in wage costs will narrow steadily in the course of the decade, the gap is expected to remain wide. Naturally, setting up production in Eastern Europe with a view to personnel costs is only interesting for a labour-intensive process, such as the assembly of small parts in the electrical engineering industry. Nowadays, personnel costs (including the buffer of flexible workers) in manufacturing industry come to roughly 20% of turnover. That figure will have to be reduced by several more percentage-points in the coming years through automation, particularly in the metal industry. This will be offset to some extent by higher personnel costs in relation to R&D, quality control and service.

Average hourly wage costs in industry, 2012, euros

0

5

10

15

20

25

30

35

40

45

50

PhilChnMexPolHunTaiEstBraCzeGreKorSingSpaUKItaJapUSNLFraAutFinGerBelCH

225677899

151619

2124

27272831313233

36

4145

Forecast nominal 14% 12% 13% 12% 13% 14% 16% 33% 38% 39% 38% 56% 48%increase in wages up to 2018

31

4. Strategy and investment

Product development a priority for many companies

Additional investment in R&D and sales

Type of financing tailored to investment situation

New reality calls for more intensive cooperation

Suppliers focusing more on machines and robots

Great potential in additive manufacturing, but still a long way to go


4 Strategy and investment

Product development a priority for many companies

More than half of the companies want to secure growth with new productsAs already mentioned, a great many companies in the technology industry do not have a strategic plan. Almost all of the companies that do follow a documented plan have set themselves a growth target, and many of them intend to seek that growth abroad. Europe remains the most important region in that respect, but many companies still see opportunities for growth in North America and Asia.

To achieve this growth, the largest group of companies (38%) plan to develop new products for the markets in which they are already operating. Entering new markets with existing products will be the principal growth strategy for more than a quarter of the companies.

Growing in new markets and/or with new products requires an intensive effort and investment, especially in an industry like manufacturing, which is characterised by global competition and rapid technological advances. The priority areas for investment in the coming year according to manufacturers themselves are sales and R&D.

Growth matrix: how do companies plan to achieve their growth targets?

Products

Market

New

New

Existing

Existing

Product development

Market development

Market penetration

Diversi�cation

16% 27%

38% 20%

33Source: ING Economics Department/VNU, respondents could select up to three categories


Additional investment in R&D and sales

Almost 60% of OEMs plan to increase R&D spendingFour items stand out when it comes to planned additional investment by manufacturing companies in the coming years: sales, R&D, machinery and the training and recruitment of staff. These are four key areas for achieving growth and the high percentages among some groups of businesses are a hopeful sign. For example, almost 60% of the OEMs say they intend to spend more on R&D. More than half of the OEMs also mention sales as one of the three priority

areas for additional investment. Following the slump in demand in the autumn of 2008, there was a period when companies turned inwards and concentrated heavily on managing their costs. Many companies are now operating on a sound financial footing and have their costs under control, and are now looking outwards again, for potential clients. The heavy focus on sales by many companies confirms this, and should lead to growth of orders.

In what is Dutch manufacturing industry going to increase investment in the coming years? = 1 = 2 =3

Total Companies with growth target

1 to 10 employees

10 or more employees

OEMs Suppliers

Sales 46% 60% 41% 49% 52% 45%

R&D 37% 49% 27% 45% 59% 31%

New machines 37% 32% 36% 37% 35% 37%

Training/werving personeel 31% 34% 24% 36% 20% 35%

Robots 19% 24% 8% 27% 16% 22%

Premises 14% 13% 18% 11% 8% 16%

New production technology (not 3D) 13% 16% 10% 15% 14% 14%

ICT 11% 11% 3% 16% 11% 12%

Automation of logistics 8% 11% 2% 12% 7% 9%

No capacity for additional investment 7% 3% 12% 3% 5% 6%

3D-printing / additive manufacturing 6% 5% 5% 6% 5% 7%

34


Type of financing tailored to investment situation

Lending follows economic cyclesInvestments have to be financed, for example by the bank. Since the outbreak of the financial crisis in 2008, there has been a lot of fuss about the level of lending by banks, which had declined in the ensuing period due in part to the recession. When things picked up, however, investment, the demand for credit and lending increased again.

Lion’s share of manufacturing companies see room for investmentLooking specifically at manufacturing industry, 7% of the companies in the survey said they had no room for additional investment. This applies in particular for smaller companies, one in eight of which said they did not have sufficient resources. Among larger companies, 97% said they have sufficient resources to increase investment.

Bank financing generally at a later phase of a businessThe financial landscape is changing. New suppliers are appearing all the time, which is a welcome development because of the need to ensure there is sufficient capital for business in the Netherlands. New financial concepts are also emerging, such as supply chain finance. There are major differences between the suppliers. Some financiers – like the bank – offer credit, while others provide capital. In general, the distinction corresponds with the level of risk. Capital providers generally accept more risk because they contribute equity or subordinated loans. They will also demand a higher return commensurate with the greater risk.

Development of business investment and business credit Financing: business phase and risks

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

2013201220112010200920082007200620052004

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

2013201220112010200920082007200620052004

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

_ Production of business credit (gross, % year-on-year), left _ Volume of business investment (% year-on-year), right

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

Risk

Business phase

Bank credit

Leasing / Factoring

Subordinated loans / Mezzanine

Personal savingsRisk capital

preperation Start Growth Expansion Consolidation

Investment fund

Innovatiekrediet

Low

High

35Source: CBS, ING Economics Department,* most recent available figures

Cooperation in salesIncreasing effectiveness of investment calls for more cooperationIn many areas of investment, a company needs to cooperate to become more successful. Additional investment in sales, for example, is more than just a question of hiring an extra sales representative or an agent in another country. It also involves looking for partners, perhaps immediately before or after the company in the chain, with whom it can cooperate. An example might be a metalworking company that seeks cooperating with a specialist in finishing. There is still a trend among manufacturers of end products to delegate more and more of the production and development process to suppliers. They also have higher expectations and make stricter demands on the quality provided by their suppliers. Cooperation in relation to sales, for example, could generate extra business by enabling suppliers to offer a product that better matches the demands of the end customer.

Cooperation in R&DClearly felt need for greater R&D effortDutch manufacturing industry is characterised by a relatively high R&D intensity and the sector therefore makes a substantial contribution to the quality of the Dutch knowledge economy. First and foremost, however, R&D is crucial for the company’s own survival. OEMs in particular feel the need to increase R&D investment in order to remain at the forefront in terms of product quality in what is now often a global competitive struggle, and 59% intend to increase their investments in the coming years. However, it is not just about investment itself; the process of innovation is also changing and calls for more intensive cooperation between parties in the chain. This is discussed in more detail on page 40.

R&D expenditure as percentage of added value, 2011*

0%

5%

10%

15%

20%

25%

30%

35%

R&D-uitgaven, % van toegevoegde waarde

Food,drink and tobacco

Infor-mation

and com-munication

Rubberand

plastics

Oilindustry

ChemicalsBasicmetal

Transportequip-ment

Me-chanical

engineering

PharmaElectricalengineering

31%

22%

10%7% 5% 5% 4% 4% 3% 2%


New reality calls for more intensive cooperation



Suppliers focusing more on machines and robots

This machine from AWL welds body part for the automobile industry. The high level of automation guarantees that large volumes can be produced to a consistently high standard.

Sample chain in manufacturing industry and focus in innovation

OEM Car Manufacturer: BMWCustomer: consumer

System integrator

Sub-assembly

Components

Productinnovation

Processinnovation

Complete roof systemManufacturer: EdschaCustomer: BMW

Hydraulic systemManufacturer: Power-PackerCustomer: Edscha

MetalworkingManufacturer: Brinks Metaal Customer: Power-Packer

Investment in robots a priority for 30% of the larger suppliersEspecially the larger suppliers (> 10 employees) plan to invest more in robots. It is one of the top three investment categories for 30% of these companies, compared with 10% among small suppliers. The smaller suppliers are more inclined to invest in machines. However, this creates the risk for small companies of falling even further behind because the use of robots increases the efficiency of the entire manufacturing process. This is all the more urgent because the (larger) end manufacturers still want to delegate more production to the chain and want to use fewer, but larger, suppliers. Smaller SMEs will obviously have to find their role in the chain (appropriate to the business’s ambition) and gear their strategy to that. Important questions are: what is my customer doing, and my customer’s customer? How can I ensure that I can still sell my product in five years’ time? And what will be my unique selling point in five years’ time?

Process innovation is crucial for competiveness of suppliers to metal industryThe further down the chain a company’s position, the less it needs to concentrate on (product-oriented) R&D. System suppliers in the high-tech segment will still have to focus on product development, not least because of the demand from OEMs, but suppliers of components can afford to devote less attention to product development. This is also evident if we look at the focus of the investments planned by the various parties in the manufacturing chain. Suppliers mention R&D far less often, while referring more often to expansion of machinery and robots more often.

37Source photo: Additive Industries AddLab


Great potential in additive manufacturing, but still a long way to go

Additive manufacturing in the spotlight3D printing is receiving a lot of publicity, not least in the media. The ‘industrial’ synonym for this is additive manufacturing (AM). With this process, a product is constructed layer by layer, in contrast to traditional techniques such as milling, where material is removed to produce a useable product. The AM process not only saves on materials, more importantly the method can be used to manufacture products that cannot be made with other techniques (see photograph).

High on the agenda in the aviation sectorAM has really taken off in the manufacture of plastic products in the last few years, in particular for the production of prototypes and consumer goods. However, rapid advances are now also being made in the high-tech manufacturing industry, which is the field that Dutch industry should focus on. The aviation sector is leading the way in this respect, with companies like GE Aviation betting heavily on AM - for example, it acquired a company specialising in AM, not only to acquire its expertise but also to keep it out of the hands of competitors. By 2020, GE Aviation expects to be producing 100,000 components

using AM and estimates that it will reduce the weight of a plane engine by around 450 kilos.

It will be years before AM is widely used in the sectorFurther advances will be needed in terms of the speed, accuracy and reproducability before the process can be used more widely in the metal industry. Specifically, with the current generation of machines, changing the type of metal powder causes considerable delay. A high degree of accuracy is required in the high-tech segment, which means the efficiency of the post-production control process (via 3D scanning) will have to improve. Six percent of the companies in the survey said they want to invest more in 3D printing/AM in the coming years. Although this is a small percentage, it does not necessarily mean that the Dutch manufacturing industry will miss the boat.

As already mentioned, the machines and the production technique will have to be developed further. However, companies would be well-advised to study the technology more closely and investigate how they could benefit from it in the future. Some companies in the metal sector have installed a relatively simple home printer to give their employees the opportunity to learn about this emerging technology. In particular, adapting to the enormous freedom that 3D allows will require a major change in the way people think and design.

The Netherlands now also taking steps in AMUntil recently, Dutch involvement in AM was fairly limited. Most machine builders (for applications in the metal sector) are German. There are already some fairly large specialist AM companies in Belgium. In the Netherlands, last year a consortium of ten parties launched the Addlab, with the aim of accelerating the introduction of AM applications specifically for Dutch high-tech manufacturers. Another initiative is Additive Industries, a start-up whose ambition is to develop the next generation of AM machines.

Because of the enormous freedom the AM technology allows, products can be made with for instance a honeycomb structure, which means they can be significantly lighter while retaining their rigidity and strength. Free forrm channel structures can also be printed with it.This makes local and more even cooling or heating possible. With this layered production technology, products can also be manufactured in a single piece rather than in separate parts, which means there are fewer separate components and so increases the reliability of the product.

38

5. Analysis of the identified challenges

1. Despite positive developments, availability of staff is still an issue

2. R&D remains the basis of structural growth

3. Steps taken in increasing flexibility

4. Feared scarcity of raw materials driving demand for sustainable solutions

My Industry

Groeiambities van de Nederlandse maakindustrie

Holland’s going to make it

My Industry 2030

39

‘Availability of top-class staff’ still high on the agendaOne of the conclusions three years ago was that ‘the availability of top-class staff’ was the biggest challenge facing manufacturing industry. The issue has clearly not gone away. After sales, R&D and investment in machinery, training and recruitment of staff is still regarded as the most important area for investment by manufacturing industry in the coming years.

Not yet an urgent problemIn general, companies do not yet encounter serious problems in filling vacancies. Nevertheless, a great many employees will be retiring in the period 2018-2030. It is therefore important that the current promotion of technology, through the National Technology Pact for example, does not diminish. Crucial factors for the success of the campaign are how it is translated at the regional and local level and the active involvement of schools and companies themselves.

Adjusting to contemporary demands is a major challengeThere are also some concerns about whether employees have the skills to meet contemporary demands. Automation calls for different competences, in terms of knowledge of ICT and software, for example. Training and education by companies themselves is an important factor in that regard. Companies are also required to be more flexible, and sooner or later that also affects the workforce. Fixed working hours with fixed wages do not help a cyclical sector like manufacturing industry that faces global competition. In the study My Industry 2030 it was argued that “the Netherlands needs ambitious entrepreneurs”. The phrase “and ambitious employees” could be added to that.

5 Analysis of the identified challenges

Despite positive developments, availability of staff is still an issue

Number of HBO/university technology graduates is growing again

“What I need most of all are ambitious and motivated employees”

“There are positive developments at university/HBO level, but a threat of shortages at lower levels”

■ HBO/university graduates per year in the disciplines technology, manufacturing industry

and construction (right-hand axis) _ Share of graduates in the disciplines technology, manufacturing industry and construction

in total number of graduates _ Share of female graduates in the total number of graduates in the disciplines technology,

manufacturing industry and construction

0%

5%

10%

15%

20%

25%

Aandeel vrouwelijke gediplomeerden in richting techniek, industrie, bouwkunde in totaal aantal gediplomeerden in richting techniek, industrie, bouwkunde

Aandeel gediplomeerden techniek, industrie, bouwkunde in totaal aantal gediplomeerden

Gediplomeerden HBO/WO per jaar in richting techniek, industrie en bouwkunde (R-as)

2012201120102009200820072006200520042003

0

3.000

6.000

9.000

12.000

15.000

Gediplomeerden HBO/WO per jaar in richting techniek, industrie en bouwkunde (R-as)

40

Further increase in private R&D spending required for higher growth pathR&D lays the foundations of a knowledge-based economy. The Netherlands still has top-class research institutes, as well as companies that base their future on R&D. Concerns are often expressed about the level of spending on R&D, but official figures show that spending was higher in 2012 than in 2011 across the board. Research expenditure rose from 2.04% to 2.12% of GDP, whereas at the international level, the magic threshold is considered to be 3%. Spending by manufacturing industry is not low (see page 31) and companies seem to be aware of the need to invest more. Manufacturing industry will not be able to reach a higher growth path without an increase in private R&D investment.

More intensive cooperation neededMore successful R&D programmes require intensive cooperation, however, not only vertically in the chain, but also horizontally and in close collaboration with research institutes. Moreover, there is a need for cross-sectoral cooperation to find solutions for complex challenges in areas such as health care, ageing, mobility, energy and nutrition, where opportunities for growth exist worldwide.

Collaborative ventures generally start small but, as is the case with innovations, they can be the start of something big. The Addlab (see page 37) is an entirely private initiative. In a partnership, not only can more knowledge be created and shared, there is also a wide range of possibilities for raising capital.

OEMs moving closer to the customer, the chain has to followThe trend of parties moving up the chain is continuing. OEMs, especially specialist machine builders, are operating closer to their customers and have to offer them ‘solutions’ that the customers themselves have thought of. Consequently, the larger OEMs are looking for suppliers that can assume more tasks for them. This is no longer just production activities but increasingly development activities. Suppliers must have a certain scale to take on this role, and more intensive cooperation can provide the answer. Finally, there is another trend among OEMs to make acquisitions, mainly for the purpose of acquiring the target’s technological know-how. The objective of the OEM is to accelerate the pace of product development.


R&D remains the basis of structural growth

R&D spending, absolute and as % of GDP

■ Companies ■ Institutions ■ Higer education

0

2

4

6

8

10

12

14

Hoger onderwijs

Instellingen

Bedrijven

20122011

1,22%1,16%

0,23%0,22%

0,7%0,66%

X € bn.

41* See also ING, Tussen ratio en gevoel, April 2013, ** CBS, figures 2011

Greater flexibility in various respectsIncreasing the flexibility of their operations became a priority for many companies following the slump in demand in 2008 and the rapid recovery during 2009. On the procurement side, companies have been far more critical in assessing the conditions and timing of purchases. There is still a certain risk, but agreements on that are also being made more frequently with customers. Especially since 2008, companies have also been trying to keep the stocks in the chain as small as possible. However, this demands a great deal of flexibility in order to be able to meet demand at all times.The ‘flexible buffer’ in a company’s workforce has been a well-known phenomenon for years, and it can be as large as roughly a quarter of the workforce.

To retain expertise, companies are increasingly joining forces to create pools to avoid losing employees for whom there is no work in slow periods. Labour flexibility is important for manufacturing industry, but retaining know-how is perhaps even more important.A growing number of companies are also using ‘hour banks’ to increase the flexibility of their permanent staff. Openness and transparency towards employees about operations helps in this and companies that are progressive in this regard can respond more quickly to change.* Major steps have been taken with these developments. As well as increasing flexibility in order to respond to short-term fluctuations, retraining of staff for the medium and long term is also needed to prepare them for the greater role robotisation, automation and ICT/software will play in manufacturing.


Steps taken in increasing flexibility

Profit and loss in manufacturing industry**

0

50

100

Pre-tax pro�t (7% of the turnover**)

Other costs (% of the turnover, 12.5)

Purchasing (% of turnover: 57)Flexibility on the procurement side: suppliers that can grow with the company, coping with unexpected situations (e.g.. non-delivery), safeguarding a permanent supply of raw materials, absorbing or pro�ting from exchange rate �uctuations. Important partners: suppliers, �nanciers.

Staff (% of turnover: 20)Flexibility of staff: personnel costs can be adjusted more easily to turnover, the right employees are available in good times. Important partners: government, trade unions, knowledge institutes/schools

Financial (interest rates, depreciation (% of turnover: 3.5))Appropriate capital structure to allow �exibility in �nancing, supply chain �nancing for lower working capital. Important partners: �nanciers, sometimes customers

42Source: European Commission


Feared scarcity of raw materials driving demand for sustainable solutions

Companies experiencing few problems in relation to raw materialsA fourth challenge for the (European) technology industry concerns access to raw materials, in particular metal-containing minerals. The EU accounts for 3% of the global production of these commodities. Up to now, companies have not faced physical shortages, but in the past there have been enormous price increases for scarce earth metals due to geopolitical developments (export restrictons by China). To a large extent, the ‘raw material challenge’ is a European challenge and the EU is conducting research into the desirability and feasibility of creating stockpiles of critical materials.

Demands for sustainabilty from large manufacturers pushing chain in the right directionAt the same time, industry is finding solutions under the motto of ‘sustainability’. Companies are looking for solutions in recycling and the use of substitutes. The more urgent the situation, the greater the effort that is being made, and generally also the better the results. Large industrial companies, including car makers, are taking the lead in this by setting firm targets for partners in the chain. The auomotive sector is investigating ways to eliminate rare earth metals from electric motors. That will immediately reduce demand for the rare earth metal neodymium. There are not only risks to the supply of this metal because China controls its production, producing it also causes pollution. Ending its use will therefore enhance the brand’s sustainable image.

Suppliers have to be aware of the steps the end manufacturer plans to take in relation to sustainability, since they will ultimately affect the entire supply chain. One thing is certain: there is no longer any turning back from the path of sustainability.

Concentration of production of mineral raw materials

Russia• Platinum Group Metals

Canada• Cobalt

USA• Beryllium

Mexico• Fluorspar

Brazil• Niobium• Tantalum

South Africa• Platinum Group Metals

Rwanda• Tantalum

India• Graphite

Japan• Indium

China• Antimony• Beryllium• Fluorspar• Gallium• Graphite• Germanium• Indium• Magnesium• Rare earths• Tungsten

Congo• Cobalt• Tantalum

43

Round up: route to 2030

Dutch technology industry needs to shift up a gear

44Source: CBS, ING Economics Department

Round up: route to 2030

Dutch manufacturing industry needs to shift up a gear

Stronger technology industry needed to achieve the sector’s growth targetDoubling the sector’s added value in twenty years will not be easy. It requires annual (nominal) growth of 3.5%. After two lean years, growth of 4.7% up to 2018 will be needed to get back on track. That is not impossible now that the world economy is picking up and the volume of manufacturing production is forecast to grow by 3% in 2014 and 2015. Regardless of the precise figures, technology industry has to become stronger in the coming years. Further industrial growth can only be based on top-class knowledge, high-quality production, automation, flexibility and efficient use of energy and materials.

The availability of the right people must remain a key issue for companies, schools and the government. The Dutch technology industry sector is not per se weaker than other countries in terms of R&D. The further investments planned by OEMs, in particular, offer hope. There is also nothing wrong with technology industry’s ambitions for growth. Many companies want to grow outside the Netherlands, including the traditionally domestically-oriented metal sector. It is now a question of implementing the plans, which will require more intensive cooperation.

Added value: route to 2030

0

5.000

10.000

15.000

20.000

25.000

30.000

35.000

40.000

20302025202020152010

0

5.000

10.000

15.000

20.000

25.000

30.000

35.000

40.000

20302025202020152010

Annual growth 3.5%



Annual growth 3.5%



45

With thanks to

Accell Group René TakensAdditive Industries Daan KerstenASML Peter WenninkASML Lucas van GrinsvenAWL Brand van ‘t HofBons en Evers Martin EversBuhold Industries Cees van der BurgBuhold Industries Geert RaatelandCryotek Piet TelDieseko Ton KraakDutch Shape Guus EngelenESEF Frank Klein TankFME Geert HuizingaGietburg Herman HeuvingHebels Staalservice Joost HebelsHelvoet Peter RijkoortHelvoet Bas SchuursHess AAC Systems Kees KrowinkelHGG Mark HelderKasteel Metaal John KasteelKendrion Piet VeenemaMetaalunie Richard SchuitemaMetaalunie Foort Jan WissePhilips Hans de JongPhilips Eric DrentResato Michel HooftmanVanderlande Industries Herman MolenaarTechni-Show Gert-Jan BraamVNU Exhibitions Daan Rodenrijs

47

DisclaimerThe views expressed in this report reflect the personal views of the analyst(s) about thesubject of this report. No part of the compensation(s) of the analyst(s) was, is, or will bedirectly or indirectly related to the inclusion of specific views in this report. This report wasprepared on behalf of ING Bank N.V. (“ING”), solely for the information of its clients. Thisreport is not, nor should it be construed as, an investment advice or an offer or solicitation forthe purchase or sale of any financial instrument or product. While reasonable care has beentaken to ensure that the information contained herein is not untrue or misleading at the timeof publication, ING makes no representation that it is accurate or complete in all respects.The information contained herein is subject to change without notice. Neither ING nor any ofits officers or employees accept any liability for any direct or consequential loss or damagearising from any use of this report or its contents. Copyright and database rights protectionexists with respect to (the contents of) this report. Therefore, nothing contained in thisreport may be reproduced, distributed or published by any person for any purpose withoutthe prior written consent of ING. All rights are reserved. Investors should make their owninvestment decisions without relying on this report. Only investors with sufficient knowledgeand experience in financial matters to evaluate the merits and risks should consider aninvestment in any issuer or market discussed herein and other persons should not take anyaction on the basis of this report. ING Bank N.V. is a legal entity under Dutch Law and is aregistered credit institution supervised by the Dutch Central Bank (“De Nederlandsche BankN.V.”) and the Netherlands Authority for the Financial Markets (“Stichting Autoriteit FinanciëleMarkten”).

The final text was completed on 3 March 2014.

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