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EVOLUTION OF GRANITE INDUSTRY IN THE LAST DECADE
1 TECHNOLOGICAL ADVANCES IN PRODUCTION TECHNIQUES
The last decade witnessed extraordinary advances
in technology both in extraction and elaboration
techniques. In the extraction process the use of
diamond wires in the quarries has increased
production efficiency and the offered the
possibility of increased sized blocks in
processing. The gangsaws of the early nineties
would, typically, produce about 1500 square
metres per month of slabs, ten years later the
latest models of today can now go up to 7000
square metres or more. 50 or even 100 multi-disk
cutters allow a much faster production of granite
tiles the thickness of which can be less than 10
mm.
2 THE CHANGE FROM A HIGH MARGIN LOW VOLUME TO A
LOW MARGIN HIGH VOLUME BUSINESS
Technological advances and market competition has
changed a basic feature of the industry- the
margins it works with. While granite has an image
of a luxury product, in the production side, the
processing industry has changed from being a low
volume high margin one to a low margin high
volume business. In the beginning of the nineties
a big factory was usually considered to be one,
which produced 10000 square metres per month, and
there were few such factories. Today a big
factory is considered to be one which produces
50.000 square metres per month and there are
several in the world. This change has often meant
that in some countries where companies did not
reinvest in becoming bigger, these companies
slowly found themselves to be in a situation of
low margin-low volume, thus eroding
competitiveness and threatening survival.
3 THE RELATIVE DECLINE OF ITALIAN DOMINANCE
10 years ago Italy was the undisputed leader in
the granite industry and other countries were
more like satellites. The biggest and complicated
projects were mostly done by Italian companies,
and even for relatively simpler products like
slabs and tiles, Italian production was easily
the biggest in the world. In fact, 75% of granite
blocks produced in Spain were exported to Italy
for processing 10 yeas ago. But the Italians did
not invest as much in the new modern machinery
(apart from the important fact that other
countries with raw materials developed their own
processing industry), and by the end of the
decade Italy was in clear decline. Modern
factories were set up in Taiwan, China, India,
Portugal, Brazil and especially Spain, with the
latest technology Italy had to offer and this,
inevitably, contributed to the decline of Italian
market share. Most of the granite companies in
the Carrara area have closed down and many in the
Verona area are struggling. However, it must be
mentioned that Italy is still the overall leader
in total volume, the total production there is
still an estimated two times bigger than Spain.
The general consensus is that, by and large,
Spanish companies are more competitive and
profitable than Italian ones.
4 THE EMERGENCE OF SPAIN
The emergence of Spain in the last ten years has
been an important phenomenon in the industry.
Spanish companies were the biggest buyers of the
modern machinery, and they constantly invested in
better production facilities. Companies from the
region of Galicia, in particular, had an
advantage- there is a local culture of using
granite, thus creating a big local demand. The
construction boom of the last five years in the
Iberian Peninsula has provided a big boost to the
local industry. Even today only about 25% of
Spanish production is exported; the rest is sold
in the local market. Spain produces today
approximately 15 million square metres of granite
per year and almost 20% of the increase in
production capacity was set up only last year.
Spain's prominence in the international markets
often came at the cost of Italian and Portuguese
companies.
5 CHINA- FIRST A MARKET, THEN A COMPETITOR
In the beginning of the nineties no one knew
anything of China. In the early nineties the fast
development of coastal China, especially in
Guangzou and Shanghai, where modern gleaming
skyscrapers seemed to be coming up every day,
meant there were huge projects of granite, which
was supplied by the European companies. China
became a very attractive market for the best and
biggest granite companies from Europe. But after
1998 there was a complete change. Suddenly
Chinese companies started doing first small
simple projects, then medium sized projects and
now many do big projects in China. There is
hardly any business left today in China for
foreigners and that too only in special materials
and complex projects. China is now often the most
important buyer of granite blocks in several
colours like red, to be processed in the many
modern companies that have recently come up.
Chinese companies are also exporting granite
kerbstones and tiles all over the world, at
unbeatable prices. Moreover, they have even
become serious competitors in Europe for standard
size tiles in major projects with incredibly low
prices in grey and light coloured local materials.
CURRENT TRENDS IN INDUSTRY
1 LOWER AND LOWER PRICES
While production in the granite industry has
increased dramatically in the last decade, the
decline in prices has also been impressive. Not
all the decline can be attributed only to
reduced costs as a result of technological
improvement. Gross margins have come sharply
down, and unless a production unit is extremely
efficient or the material being worked with is
highly exclusive, the chances of making any
profit at all is low.
2 THE STRONG COMPETITION FROM CHINA.
China, as mentioned earlier, has become a serious
factor in the world markets in granite tiles
especially in greys, pink and other light
colours. Its fast increasing presence has sharply
accelerated the trend of lower prices. Many
knowledgeable people suspect they may be
practising dumping. But China is still, as of
now, almost absent in the slab segment in the
international market and in the export of
imported materials elaborated locally.
3 NEW MATERIALS ALL THE TIME
More and more new materials are appearing
everywhere and all the time. New quarries are
being opened every day of beautiful materials in
Brazil, India, Africa and elsewhere. There is a
lot of choice of materials nowadays of a very
wide range. Many of the big granite factories
have decided that one way to prosper in the
highly competitive industry is to work with
materials no one else has, and thus are either
operating their own quarries in far away
countries, or arriving at agreements to buy the
whole production of certain quarries. The access
to raw materials has become a key aspect of
competitive advantage. There are a lot more
quarries but the fact is also that the production
of many quarries is sometimes too small to be
able to offer the materials for big projects.
4 THE BIG COMPANIES SETTING UP OWN WAREHOUSES.
Some of the biggest companies are setting up
their own warehouses in other countries so as to
be closer to their clients and also make sales of
small quantities instead of having to sell only
full trucks or containers. There are now many
warehouses of granite companies in the different
cities in United States, Italy, Spain, Portugal,
France, Holland, Poland.
5 INCREASING POPULARITY OF GRANITE IN MAJOR
PROJECTS.
One of the most positive developments for the
granite industry is the greater awareness of it
among the architects, and its growing popularity
in major projects. Whether it be office
buildings, airports, commercial centres or even
hotels, granite is becoming more and more
popular for the big projects all over the world.
Most airport projects in recent years have used
granite as the flooring material.
6 INCREASING DIFFICULTY IN OBTAINING PAYMENT
GUARANTEES
There used to be a time when exporting was risk
free in terms of payments because all buyers were
expected to open letters of credit. Nowadays,
letter of credit has practically disappeared in
the United States except for projects and even in
Germany, which was considered among the safest
countries to do business without guarantees,
obtaining letter of credit from buyers is
becoming difficult and non-payments has become
common. The option of exporting is becoming more
risky than ever.
QUESTIONS FOR THE FUTURE
1 UNCERTAIN ECONOMIC ENVIRONMENT IN THE WORLD.FOR
HOW LONG?
As everyone knows, the world economic environment
is extremely uncertain. No one knows whether the
economic slowdown in the United States and now
spreading all over the world, will be for a
short period of time, lasting or will last
longer. The economic growth in Europe is slower
this year compared to the year 2000 and economic
news is getting worse by the day. The Far East
countries except for China, and Latin America are
on the throes of recession. What will happen in
2002?
2 WILL BRAZIL AND INDIA EVER FULFILL THE PROMISE?
By general consensus, India and Brazil have been
blessed by nature with the widest variety of the
most beautiful granites. Yet, when it comes to
processing facilities, their development has
been way below the potential. The volatile nature
of the Brazilian economy with lots of
uncertainty every two years or so, has
discouraged investment. Will the processing
industry ever become seriously big as it has,
for instance, in the case of Spain? India began
the early nineties with new factories coming up
everywhere, but it soon became obvious that
buying new plants is not enough to be in
business. Red ink soon became the norm in the
balance sheets and many companies collapsed
leaving a bad name for the whole industry. A
decade was lost. In the last two years, however,
there has been some fresh investment once again,
more encouraging because that investment is being
made by businessmen who have survived the
difficult times and are tougher and wiser. But is
this a new beginning or just a stray development?
3 THE CHINA FACTOR.
The market share of China in the international
trade in granite has been steadily increasing in
recent years. Will Chinese exports extend to
slabs and imported materials? If that ever
happens the threat to the survival of the
elaboration industry in other countries will be
real. And how will these threatened companies in
Europe and elsewhere react?
4 CONSOLIDATION OF INDUSTRY - MIXING WITH OTHER
ORNAMENTAL ROCKS
Even though natural stone means marble, granite,
slate etc., the reality is each of them has been
almost separate worlds up to now. Their cost
structure is different, but often even the
markets are different. Marble is exported by some
companies to almost 75 countries in the world,
for granite the biggest companies say there are
no more than 25 countries to sell to. There is
very little contact and exchange of information
between the world of marble and the world of
granite. But this may be changing. More and more
the two different worlds will be collaborating as
the costs of selling and finding new clients
become prohibitive. Sales networks of different
companies are likely to merge or at least
collaborate closely; warehouses are becoming
common to both. Their final client is almost
always the same. Will the two come together?
5 A HIGH CAPITAL INDUSTRY?
This article has mostly examined the industry from the point of view of processing not extraction. Some of the current trends suggest that factories, to be competitive, are being forced to invest not only in (increasingly expensive) modern equipment, but also in extraction for access to the raw materials, and, moreover, also in expensive commercial investments such as opening their own warehouses. This strategy has its risks; it places huge demands on management skills in an industry where, till recently, all decisions were made by the owner at the top of the hierarchy. In other words, the granite industry is evolving into a highly capital intensive and complicated industry. Is such huge capital investment unavoidable for growth, and how will it affect the rules of the game for the smaller companies? The answer to this question is still not evident.
6 TECHNOLOGICAL CHANGES
This is the age of technology. Resist it and you are dead. Invest in it and there is still no guarantee of success. One can be sure that technological advances will continue to play their disruptive role in the future. What will be the productivity of the most modern factories five years or ten years hence? The answer to this key question is one among several others that will determine the shape of the industry.
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