More On Measuring Economic Growth

Over at Bloomberg Mark Gilbert sees the sales of SKF, world’s largest manufacturer of ball bearings, as a microcosm of the global economy:

Few components are as essential to the workings of industry as the humble ball bearing. So the bleak economic picture painted by today’s earning report from the world’s biggest bearings maker was worrisome enough. But combined with sales news indicating weak consumer demand for staples such as toiletries and food — goods that economists call inelastic, meaning people tend to keep buying margarine and soap no matter what their economy is doing — they suggest the global economy is far more fragile than most observers have acknowledged.

Sweden’s SKF is a proper industrial company. Its metal spheres are used in everything from wind turbines to Ducati motorbikes to fridge compressors. So the ongoing slump in its organic sales growth, which tells you how its underlying business is doing excluding things such as acquisitions or the gyrations of the currency market, suggests things aren’t going so well for its customers — all the makers of things with moving parts out of steel and other hard materials…

and follows with a graph illustrating the Swedish manufacturer’s flagging sales. Sales growth was down to 1% at the end of 2014. When I read the article my immediate reaction was to wonder whether SKF’s results were actually representative. I did a little research and it isn’t. According to SKF’s own estimates the worldwide ball bearings market grew by 4% last year. Other analysts project 7% annual growth over the period of the next 10 years.

What actually appears to be happening is that SKF is losing market share. They appear to have made a strategic error. China continues to be the largest market for ball bearings (for obvious reasons) and Chinese customers are increasingly bearing Chinese ball bearings. I think we should expect other emerging markets, e.g. India, Brazil to follow the same pattern. Emerging markets will neither continue to emerge nor be markets for European or American manufacturers forever.

I don’t honestly know whether the global ball bearings market is a microcosm of the world economy. However, I’m pretty confident that SKF’s experience is not representative and Mr. Gilbert should re-think his assumptions.

3 comments… add one
  • ... Link

    So manufacturers want suppliers close to home? What a novel concept!

  • Guarneri Link

    I would say ball bearings are a quintessential GDP company. I can’t comment on share dynamics or shift in consumption by market.

    I can say, as I did in a recent comment, that one of our GDP oriented companies, which is taking share in reman and displacing OEM as the value option, is soft. One of our “inelastic product” companies is doing fine, although it’s positioning is such that it it is benefitting from a download by consumers from the premium option.

  • My point was that if the ball bearing market is growing at 4-7% per year while SKF’s sales are only increasing at 1% per year it’s pretty much a mathematical certainty that the company is losing market share which ain’t just due to a slowing global economy.

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