The hardware industry is highly competitive in the mid-end market

**Abstract** The machinery industry is currently facing significant challenges, including a slowdown in demand, overcapacity, rising costs, and declining prices. These issues are unlikely to improve in the short term. Although the industry has made some progress in restructuring, upgrading, and improving management this year, profit margins have not yet improved, and the downward trend remains. This grim situation serves as a warning that the pace of industrial transformation and upgrading must be accelerated. Efforts should focus on increasing production efficiency and reducing resource consumption. At the 2013 National Machinery Industry Economic Situation Report held in mid-November, Cai Weici, Executive Vice President of the China Machinery Industry Federation, highlighted that since the "Twelfth Five-Year Plan," the operational difficulties for the machinery industry have significantly increased, and the pressure to shift growth models has become more urgent. While many companies are facing numerous challenges this year, market forces are driving faster restructuring and transformation within the industry. Cai predicted that the machinery industry will maintain a relatively stable but low growth rate in the coming year. Production and sales are expected to grow by 10% to 15%, with profit growth around 10%, and export earnings projected to increase by 5% to 10%. **Mid-End Competition** According to the comparison of main business income and profit growth rates in the first three quarters, industries closely tied to consumption, informatization, and automation are growing faster than traditional investment-driven sectors. The automotive industry, which contributes the most to overall growth, has seen a higher growth rate this year, serving as a major driver for the machinery industry’s performance. Similarly, sub-sectors such as agricultural machinery, instruments, and basic components are also outperforming the broader industry. Conversely, traditional investment-oriented industries—such as construction machinery, hardware, heavy equipment, and power generation equipment—are performing poorly. Some of these sectors may not see a decline in output, but their main business income and profits have fallen sharply. As one manufacturer put it, “There's no shortage of work, but profits have dropped dramatically.” This is largely due to overcapacity in these industries. When the market cools down, competition intensifies, leading to price drops and sharp declines in profitability. Interviews with several hardware manufacturers revealed that while order volumes and sales revenue have declined, the drop in profits is what concerns them the most. From a broader perspective, the low-end hardware market offers minimal profit, while high-end hardware imports remain high. Given the sluggish overall market demand, hardware companies are undergoing transformation under downward pressure. The mid-end market has become the focal point of competition. Both domestic large enterprises and emerging players are focusing on this segment, as it offers easier opportunities for mass production. Foreign brands are also accelerating their presence in the Chinese market. **Not Easy** While the reasons behind this situation are clear, the real challenge lies in how companies can establish themselves in this competitive market and sustain profitability. Recently, a meeting of the China Automotive Manufacturing Equipment Innovation Alliance (CIAME) was held in Shanghai, where representatives from several car companies attended. Cars are a major consumer of hardware, with at least 50% of Jinchao’s customers coming from the automotive sector. However, domestic hardware companies rarely participate in key areas like engine production lines. Most of the equipment needed for the four core processes in China’s automakers is still imported. It’s important to note that the issue isn’t about the absence of high-end hardware, but rather the lack of large-scale industrialized, market-ready, and competitive high-end products. While recent achievements show promising technical progress, there is still a gap in market adoption and industrialization. If the mid-end market cannot achieve sufficient scale, it will be difficult to gain market credibility. This is the only way for mid-end products to move upward. However, there is still a big gap between being capable of producing and actually doing it well. Being able to make a product is one thing; convincing customers to pay for it is another. Therefore, the key for Chinese hardware manufacturers is to succeed in the mid-end market and lead the broader industry’s transformation. It’s not just about quickly improving performance under pressure, but also addressing the critical issue of product reliability. It was reported that a factory has been using two German-made stamping lines. This time, Ford chose to manufacture them locally in China. In the face of international competitors, China’s CNC hardware is still “insufficient,” which weakens its cost-effectiveness in the high-end market. Performance in this context is not just about technology. Breakthroughs in various fields of high-end CNC hardware have been achieved, such as five-axis linkage technology, which was once difficult to master but is now widely available. These advancements are helping to address challenges in the mid-end market. However, the real challenge lies in craftsmanship. As observed in a documentary, the spirit of excellence and professional habits are among the most valuable assets. Without solid manufacturing processes, even the best technology can be undermined. This leads to recurring quality issues, making the reliability of domestically produced high-end CNC hardware questionable. When users purchase domestic high-end CNC hardware, they often view it as a luxury, hoping that it will eventually replace imported alternatives. But until reliability improves, this dream remains distant. In short, achieving success is not easy. However, for domestic hardware companies, the mid-end market represents a crucial opportunity to win the battle in the industry’s transformation and upgrade.

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