Dagong Europe has published the update of its Industry Compasses: Alcoholic Beverages, Automotive, Luxury Goods, Oil & Gas, Pharma, Power Utilities and Telecom. Industry Compasses are sector-focused analyses that combine an overview of major European industries with a focus on developments and opportunities in China.
“European know-how driven industries like Automotive, Telecom and Pharma are showing signs of recovery. Energy businesses continue to suffer from a crude low-price environment, oversupply and imbalanced policies. Although softer macroeconomic development in China could pose short-term constraints for many global industries, we continue to see a wealth of opportunities for players that manage to successfully migrate towards customer value from volume-driven strategies, applying flexible market approaches and wise geographic diversification”, says Richard Miratsky, Head of Corporates Analytical Team.
“China has become one of the largest global markets in many sectors, with Chinese main players and investors increasingly expanding into the global arena. Increased Chinese foreign investments in high-tech industries and lifestyle sectors show both China’s desire to overcome its know-how disadvantage and the middle class’s growing focus on lifestyle quality. Food, agriculture, health, leisure and luxury in particular have seen growing activity over the past 18 months”, adds Marta Bevilacqua, Director of Corporates Analytical Team.
Each Industry Compass includes three main sections which discuss the important market drivers, main players and strategic connections with China. The series is updated periodically and the range of industries being examined will expand over time to capture new market developments and investment flows between Europe and China.
- Alcoholic Beverages – Slowing growth in China (+1.2% yoy), the Russian crisis (-6% yoy) and the subdued macroeconomic environment have resulted in a stagnating global market (+0.8% in 2014), and adversely impacted European producers. The introduction of anti-extravagance and anti-corruption measures in China further impaired the alcohol market growth dynamic, which is dominated by spirits (43.1%), with the major impact on luxury spirits. The global players have adopted cost optimisations, non-core asset disposals and major strategy reshaping in response to sluggish market development.
- Automotive – The fragile macroeconomic improvement in Europe underpinned a renewed positive trend for the automotive sector. For the first time new passenger car registrations saw positive growth at +5.7% yoy in 2014, after a consecutive six-year fall. However, in absolute figures the level of new car registrations in Europe still remains structurally about 20% below pre-crises levels. China’s low car density provides ample space for sustained growth despite a high concentration, with 10 automakers representing over 90% of the market.
- Luxury – The global luxury market has seen solid US demand, sluggish EU spending and lower-than-expected growth in China and Hong Kong over the past year and half, with adverse impact on players highly exposed to the East. Furthermore, the Chinese government’s anti-extravagance campaign has exerted negative pressure on the Chinese luxury sector, which grew by only 4.3% in 2014. Going forward, we believe that better customer experience and service, strong brand identity, effective social media use and wise geographic store location are key to success in the global luxury market, which reached EUR 250Bn in 2014 (+3.3% yoy).
- Oil & Gas – Low crude oil prices are constraining the growth prospects of the European oil and gas majors, which saw a revenue compression in 2014, which continued in 1Q15. European players are reshaping their strategies and organisational structures, aiming to regain a grip on returns and generate cash flows to fund investments. China’s slowdown is impacting global demand as it represents 10% of total world oil consumption and is the second biggest crude oil importer after the US.
- Pharma – The pharma sector is recovering from revenue losses from patent expiries. Despite the peak in 2012, some European players are still highly exposed to expiring patents. Demographic developments, government healthcare reforms and advancing local competition are transforming the landscape of the Chinese pharma market, which at USD 90Bn is the third largest globally.
- Power Utilities – Weak demand, subsidised renewable sources and imbalanced regulation continue to adversely impact European power utilities, which are focusing on cost cutting, investment reductions and asset divestments to preserve their financial strength. China’s growing electricity demand and need to reduce the use of coal is driving its large state utilities’ interest in European utilities.
- Telecom – Quicker product turnover, increasing competition, rigid regulation and a strong M&A appetite have led to a reordering of the telecom industry in Europe. 2014 brought significant changes for the Chinese telecom sector, which is dominated by 3 domestic players: China Mobile, China Unicom and China Telecom. For the first time, data surpassed voice traffic in the region. Ongoing infrastructure development may facilitate the entrance of foreign manufacturers and providers of ancillary communication technologies.