The PVC joinery sector - between survival and reorganization |
English Section Publicat de AG&F 09 Feb 2011 08:00 |
The two years of recession having defined the constructions industry have generated an extremely strong impact on all this sector’s components. The most affected were segments whose activity is defined by a significant added value and in which complex manufacture technologies are employed. This range also includes the insulating joinery and / or curtain façade production activity, which - in the analyzed timeframe - recorded an over 60% cumulated drop (most of the decline being however recorded in 2009). If we consider a structural analysis, it appears an accentuated decline was reported by the PVC unit segment, whose share of the total sector market totals over 70%, according to the latest estimations. This is not to say that aluminium or stratified wood units had better conditions, but drops were more reduced in their case. Experts currently estimate that in 2010, the total turnover from insulating joinery sales did not exceed EUR 400 million.
Such a state of art is by no means to be neglected, and it is clear to the same extent that depreciations were not uniformly distributed between all sector members. Considering the significant share of the final cost of a window held by profile systems (approximately 30%), we can state that the suppliers of this type of materials recorded the most significant losses (equivalent to those recorded worldwide). They were generated, on the one hand, by the reduction of partners’ activity for objective reasons (demand drop, restriction of the final beneficiaries’ purchase power, negative psychological impact of recession etc.) or subjective reasons (poor business management) and on the other, by the growth of manufacture costs, imposed by the growth of quotations in the international stock exchanges for raw materials used for finite products. Therefore, constraints had a dual nature: from upstream - coming from supply - and from downstream - corresponding to distribution.
Minimum profitability level
The first effect of this unpleasant situation consisted in a profitability drop, a phenomenon justified by the pressures applied from opposite directions, which generated a manufacture price growth, along with a delivery cost drop. The result was represented, for suppliers with poor financial stability, by the decision to abandon the Romanian market, while for solid companies, the situation resulted in massive reductions of expenses, personnel, capital acquisitions and, probably the most serious aspect, the postponing of investments for an undefined duration. Thus, a branch generating impressive profit margins, like the PVC system trade sector before September 2008, got to the cruel reality of an economic sector literally struggling at the limit of the profitability threshold, with reduced short-term recovery perspectives. As initially mentioned, this situation however is not similar for all companies, there also being cases of companies having chosen the crisis moment to re-launch their offer, particularly on the niches left free by the companies having decided to withdraw from the market.
The rural area, a prisoner of low quality systems
Another paradox of the analyzed activity sector consists in the fact that suppliers whose products are inferior in terms of performance characteristics have managed to stay operational. At the same time, we have lately noticed an increasingly decisive attempt to cover the offer economic segment, ever more companies - although only a few actually admit it - focusing on the promotion of cheap ranges. This doesn’t mean that the offer no longer includes the standard or premium range, but the respective product category no longer significantly contributes to the turnover. Although huge efforts are made to balance revenues, there is however a minimum level we cannot go beyond. Unfortunately, one of the most dynamic market segments at the moment - namely that of the demand coming from rural environment customers, holding a significant share of the total current requests of insulating joinery - is almost exclusively offered by companies practicing price level impossible - or at least extremely difficult - to compete with. Even if, with certain compromises, top companies could reach an acceptable competitiveness level, the gain from that would by no means justify the efforts. Furthermore, the risk of compromising acknowledged brands would be huge, and it seems that no one is willing to pay such a price. Therefore, at least on a short term, the respective demand area is to be a „prisoner” of an offer completely inadequate from a technical and qualitative point of view. As a sector specialist pointed out with black humour, „the bright side” would be that we do however witness a slight quality improvement with rural environment building shell systems, in the sense that, no matter how unperformant new PVC windows may be, they have qualities superior to those of the units they replace. It remains to be seen how they will behave in operation condition, it being a fact that, due to the unacceptable compromises made in terms of manufacture procedure, system geometry, number and quality of interior reinforcements, etc., the respective products’ reliability is limited (an extremely important aspect, given the risk that long-term use products like windows may no longer meet certain minimum obligatory conditions of compatibility with the use intent after a period between one and five years).
Paradoxes of the local PVC joinery market
An important role will be held in the future by the way in which the experience gathered by users will cause them to act towards increasing their level of awareness of the purchased products. It is obvious that, unfortunately, Romanian customers still make their purchases (even those affecting their own comfort level, and direct living costs) mainly based on the price criterion, almost without the least attention to products’ conformity to the intended use. The completely inefficient way in which local beneficiaries currently act can only be visibly changed through sustained campaigns, mainly organized by system suppliers - those holding the necessary resources to support such initiatives. For all those directly connected to this sector, and not only, it should be pointed out that the Romanian sector market is dominated by profile brands, the presence of joinery brands being quite discrete. The mentioned abnormality can be justified precisely by the sector’s uneven development, the windows manufacturers in the economic „boom” period not bestowing enough attention on the implementation of a coherent marketing strategy, which they almost completely left in the hands of much more financially solid partners, profile system representatives. The latter accepted this somehow unusual role (for traditional West-European markets), but the final result consisted in mistaking finite products for their component systems. Clearly the disadvantage will have to be remedied as soon as possible, there already being some signals from big companies specialized in joinery execution, having chosen to create their own brands and logos. Until then, we have a lot to hear about „X type profile windows” for a long time, which will somehow force suppliers to allot significant resources to advertising targeting final consumers (although, theoretically this fails to reach the objective, the option to inform the specialized segments being preferred). As a conclusion, we can expect important resources to be oriented towards the respective direction, reducing even more system suppliers’ economic efficiency.
Article published in the January/February 2011 issue of the FEREASTRA Magazine. For detailed information click here!
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