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safeguarding jobs in the German lift and escalator industry. Development and structures of the industry in Germany Even the question of the technical terms used to describe lifts is fraught with controversy and something of an emotional minefi eld among elevator and left technicians and trade experts in Germany. Terms such as “Fahrstuhl” – a word for lift or elevator frowned upon by specialists – are commonly deployed in general usage and in the fi nancial press to describe a vertical method of transport, as demonstrated recently during extensive reporting on the Lift Cartel which was generally referred to in the press as the “Fahrstuhl Kartell”. A similar situation applies to the different terms “Rolltreppe” and “Fahrtreppe” used to describe escalators. Since the beginning of 2006, the lift and escalator industry has been set on a course for growth following a number of leaner years. With the reviving fortunes of the building sector, the order situation in the lift industry has shown healthy development, with orders received in 2006 alone representing a massive 9 % increase. According to German Mechanical Engineering Industry Association VDMA, this fi gure represents the fi rst positive growth rate for six years. Taken overall, the lift and escalator sector represents a signifi cant branch of German industry, encompassing the new installation, modernization, servicing and repair of lifts, escalators and travelators. No detailed data is available indicating employment and turnover in the industry. A cautious estimate indicates a workforce of around 18,000 working in the lift and escalator industry. There are around 800 companies registered in Germany as being involved in the fi eld of lift and escalator repair, maintenance, installation, modernization and production, with annual turnover lying at around 2 billion Euro. The structure of the industry is characterized by the presence of the so-called Big 4 (Kone, Otis, Schindler, ThyssenKrupp Elevator) and their holding companies which dominate the market alongside a large number of small and medium-sized enterprises (SMEs represent a collective market share of around 40 %). The Big 4 are at the same time the only companies operating in the German lift and escalator sector which fall into the over 1,000 employee category. The Big 4 are the industry’s four biggest corporations, not only in Germany but worldwide. They offer both lifts and escalators, and apart from them only few companies still exist which extend their activities to both these product groups. The majority of small and medium-sized enterprises active in the industry work in lift construction. These SMEs frequently occupy their own market niches and/or are primarily regionally oriented. Alongside their regional strength, their success lies in their fl exibility and customer proximity. In terms of their size/their nationwide presence, among the SMEs the names Schmitt & Sohn (Nuremberg) and OSMA (Osnabrück) are counted the biggest. In addition to these are a large number of “regional top dogs” whose activities are primarily oriented towards specifi c regions of varying size. Alongside these companies forming part of the core industry, the wider fi eld includes manufacturers and suppliers of components for lifts and escalators and also smaller fi rms involved purely in the installation and servicing sector, some of them employing only one. Jobs For “lifts and escalators”, which fall within the NACE classifi cation “manufacture of lifting and handling equipment”, there are no offi cial statistics on the number of jobs. According to our own surveys, a workforce totalling around 18,000 may be assumed throughout the industry. Over recent years, however, the number of jobs has diminished signifi cantly. One reason is the closure of two major escalator plants by Otis and Kone as well as other production centres in the lift construction industry, another is a general cutback of permanently tenured staff in many companies (such as the installation and servicing departments in the Big 4). World market share A signifi cant process of concentration is taking place in the worldwide lift and escalator sector, which may be see as the Hitachi 7 % Mitsubishi 8 % Others 16 % Kone 11 % Diagram: World lift and escalator market – market share in % consequence of the global presence of lift and escalator producers: The six biggest manufacturers Otis, Schindler, ThyssenKrupp, Kone, Mitsubishi and Hitachi account for 84 % of the world market share, and also the lion’s share of the European market. In the international arena, the competitive situation is dominated by these global players, despite doubts raised by the cartel infringements uncovered by the European Commission. In the specifi c markets of the various world regions, the competition pool is extended to include the respective national and regional suppliers who attempt to stand up to the global players in the battle to gain market share. Concentration processes and the “cyclical economy” For a number of decades, the industry’s structure and dynamic have been characterized by mergers and company takeovers, in particular in respect of the Big 4. A quote from the website of the Association of Medium-Sized Enterprises speaks for itself: “In 1970, the buyer of a lift corporation is quoted as saying: In fi ve years there will only be fi ve lift companies left in Germany. He was wrong” (www.vma. de). For the multinationals, the takeover of SMEs is linked to a strategic goal of taking control of maintenance agreements and so expanding their own servicing business. The integration of SMEs generally runs according to a similar pattern: The production is closed down in the short to medium term, leaving at best only a small workshop. On the other hand, there continue to be new small company formations, often from the basis of existing lift construction companies whose business is largely concerned with servicing and/or installations. The resulting pattern is described by some as a “cyclical economy” in the industry. Lifts Escalators ThyssenKrupp 13 % Schindler 18 % Source: Handelsblatt dated 22/02/2007; Schindler Tätigkeitsbericht 2006 LIFT-REPORT 33. Jahrg. (2007) Heft 6 33 Otis 27% Hitachi 6 % Mitsubishi 8 % Others 16 % Kone 12 % ThyssenKrupp 12 % Otis 20% Schindler 26 %
The competitive pressure to which the lift and escalator industry is exposed in both the international and the national arena is enormous. Aggressive competitive strategies and tough price-cutting polices have resulted in a signifi cant collapse of pricing levels over recent years for companies in all three main business sectors: New installations, modernization and now also repairs and maintenance. Many medium-sized lift construction companies in particular do not have the capacity to withstand predative competition, which alongside other factors not infrequently results in a takeover bid and integration into one of the Big 4. Seen overall, there is an unmistakable trend towards the concentration of the German lift market, where company buyouts have effectively concentrated the range of goods and services on offer over recent years. Growth and competition in the service sector Service orientation within the lift and escalator sector is very high, for manufacturing in general, and for the mechanical engineering sector in particular. Many companies operating in the sector have long since adopted a policy of offering customers the complete spectrum from the industrially manufactured or manually crafted product through to servicing. Linking products and services is becoming an ever more important trend among mechanical engineering fi rms and a number of other sectors of industry in Germany. The lift industry may claim to be something of a pioneer in a mechanical engineering industry characterized by a growing orientation towards the service sector; it has been a precursor in the shift of classical branches of industry away from manufacturer to service provider. As long as 20 years ago, Johannes Schmitt, today the CEO of Schmitt & Sohn, entitled his dissertation “Development in the Lift Sector from Manufacturer to Service Provider” (Schmitt 1988). Services represent a powerful growth area within the industry. The “Repair of lifts and escalators” has only been captured by the production statistics since 2002, but in the brief interval of just three years since these statistics have been recorded, the proportion of total production accounted for by services has leapt from 36 % to 48 %. This statistic also refl ects the high strategic signifi cance of the expanding service business for lift constructors. Development within the industry is primarily dependent on building investment and is subject to cyclical fl uctuations. New installation business was under pressure up until 2005 due to slug- gish investment activity, while the ever more important service sector remained relatively resistant to cyclical economic pressure. It was particularly during the recent crisis period of the building industry up until 2005, in other words when demand was suppressed, that the service sector emerged as an essential mainstay for beleaguered manufacturers to compensate for loss of earnings from new installations. Taken overall, the service sector is largely resistant to cyclical economic pressures, and to date has also proven fi nancially more lucrative for the companies involved. Consequently, producers are frequently willing to compromise on price for sales of new lift and escalator installations, provided the deal includes a long-term service contract. However, since 2005 prices in the service sector have also been subject to immense competitive pressure, serving to also the shrink contribution margins to be gained from maintenance contracts. This development is placing the policy of subsidizing new installation business (to gain access to lucrative maintenance contracts) increasingly under question as a business strategy for producers. The overriding strategic aim of the Big 4 can be neatly summarized by the term “growth”. Each of the four corporations aims to grow its service business faster than its competitors and to increase the number of maintenance contracts it holds. This is expressed in corporate directives and strategies such as “Leadership through Service” (Schindler), “1st in Service” (Otis), “Global Service Strategy” (ThyssenKrupp) and “VISION” (Kone). It is practically only possible to gain market share in the lift and escalator sector by company takeovers. The most important growth strategy is consequently the acquisition of other lift constructors and their maintenance contracts. Other SMEs 32 % OSMA 3 % Schmitt+Sohn 5 % Kone 9 % Diagram: Lift and escalator service business in Germany Over recent years, the emphasis of this acquisition strategy has been on the growth markets in Eastern Europe and Asia, although all of the Big 4 have also acquired a number of SMEs in Germany. The big players in the industry have been pursuing this strategy already for some time, and it seems set to be stepped up again over the coming years. One strategic area of particular signifi - cance in the service sector is that of socalled third-party maintenance. A core element of this new and expansive service strategy lies in contracts to service lifts from other manufacturers. For installers and fi tters, maintaining older lift installations from other manufacturers is largely troublefree, as this work involves primarily mechanical components, while more recent installations present more of a problem due to their use of “closed control systems” which only authorized staff of the original manufacturer can access. But even these systems can be “cracked” using technical means by competitors: The training centres of the Big 4 selectively train installers in the workings of third party control systems. Alternatively, the maintenance company retrofi ts its own components. At the same time, third-party maintenance agreements are simplifi ed by the fact that large-scale clients tend to specify the use of standardized control systems which are freely available for purchase on the open market in order to retain a greater degree of fl exibility in the placement of maintenance contracts. In practice, the range of third-party maintenance contracts on offer represents something of a minefi eld for sales departments, in spite of the dedicated training courses now on offer and aggressive marketing campaigns making use of different marketing tools such as mail shots and cold calling campaigns. Not only the Big 4 but also SMEs from the lift construction sector are leaning ever Actual status 2006 2010 – Growth scenarios of the Big 4 Schindler 22 % ThyssenKrupp 12 % Source: Company data and IMU estimates 34 LIFT-REPORT 33. Jahrg. (2007) Heft 6 Otis 17% OSMA 3 % Schmitt+Sohn 5 % Other SMEs 22 % Kone 12 % ThyssenKrupp 15 % Schindler 24 % Otis 19%
Seite 1 und 2: Branchenreport Aufzüge und Fahrtre
Seite 3 und 4: Service ist ein starker Wachstumsbe
Seite 5 und 6: Service. Harter Preiswettbewerb und
Seite 7: Industry report Lifts and escalator
Seite 11 und 12: now also applied in China, Australi
Seite 13: order to withstand the growing comp

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