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The Magnetic Material Industry Will Facing Integration

Category : Industry News     Date : 05/05/2023
At present, compared to the international advanced level, China's magnetic material industry is at a disadvantage. In the fierce international competition, the domestic magnetic material industry is bound to grow into an international magnetic material giant, even an international electronic component giant. We expect that the growth of international giants, which have grown up from national magnetic material enterprises, will roughly go through the following stages.

Centralization strategy

From scratch, from small to large, it is generally suitable for adopting a centralized strategy. From the perspective of the international life cycle of the product, it is generally in a period of expansion into developing country markets, and the competitive means have generally reached a stage where cost leadership is mainly relied on to obtain advantages. The vast domestic market, restrictions on the invasion of multinational enterprises, cheap domestic labor and abundant resources, and the background of international division of labor and industrial transfer constitute the foundation for the emergence and development of ethnic enterprises.
Adopting a centralized strategy, we should choose products with broad market prospects for centralized management, such as current high permeability soft ferrite, EMI ferrite, bonded neodymium iron boron, etc. At the same time, this centralized choice should be able to fully utilize the existing advantages of the enterprise, or the enterprise should be able to build advantages in the field.
At present, many domestic magnetic material enterprises are in the stage of centralized strategy. Many of them have the foundation for further development and the potential to grow into international giants. But who will stand out? How to achieve sustainable development? Everyone is exploring.

Horizontal integration

At present, the domestic magnetic material industry needs to first complete internal integration. Due to historical reasons and multiple introductions, some small enterprises (even our large enterprises are only small internationally) have grown in the magnetic material industry. According to the law of industrial development, in a completely free market economy, at a certain stage, enterprises will complete the internal integration of the industry through joint ventures, cooperation, mergers and acquisitions, alliance cooperation, free competition and other ways, improve the industrial concentration ratio, and give full play to the economic effect of scale.

Vertical integration

The phenomenon of basically completing horizontal integration and then conducting vertical integration is relatively common. When horizontal integration reaches a certain level, there are mainly several important enterprises in the industry competing. If these companies want to eat each other, it is generally difficult; If these companies want to merge with each other, they are often restricted by antitrust laws. At this point, vertical integration will be an important means to improve enterprise efficiency and strive for competitive advantage. Through vertical integration, extending upstream and downstream of the industry, there are also self-development, mergers and acquisitions, joint ventures, strategic alliances, and other methods.

Vertical integration upstream may be more suitable for the domestic magnetic material industry. Firstly, as many of the raw materials of magnetic materials are scarce resources, effective control of scarce resources will be more helpful in building advantages for the industry. Secondly, due to the wide range of uses of magnetic materials and the large number of downstream customers, the bargaining power of customers is limited, and the demand for downstream integration by magnetic material enterprises will not be very strong at once. Once again, many downstream industries are either already fiercely competitive or have high barriers to entry, while upstream industries are easier to expand domestically.
After the main enterprises of magnetic materials achieve horizontal integration and upstream integration, they will have a significant competitive advantage in the industrial chain. At this point, with vertical integration towards the downstream, the enterprise will occupy a more advantageous position. Of course, there may also be situations where integration upstream is not achieved, but rather downstream is extended first. There are three possibilities for this situation: 1. For specific enterprises, it may be difficult to integrate upstream first; 2. There may be favorable investment opportunities downstream; 3. Extending downstream first can better leverage the advantages of the enterprise itself.
Diversification strategy

With the increasing level of horizontal and vertical integration, the scale and position of enterprises in the industry will be greatly improved. But to a certain extent, enterprises will encounter bottlenecks in their development. So far, whether it is horizontal integration or vertical integration, enterprises have adopted a relatively centralized strategy on their product lines. Due to the existence of growth limits for each type of product, in order for enterprises to achieve greater development, they must enter the fourth stage of growth - the stage of diversification strategy.

In some cases, the diversification strategy stage may arrive early. One scenario is the emergence of substitutes. When the dominant products of a company are strongly impacted by better substitutes, the company will face pressure to diversify. Another scenario is that the growth space of the dominant products of the enterprise is far from as expected, or although the growth space of the dominant products is still huge, the entire industrial structure has deteriorated significantly and there is no longer a foundation for obtaining satisfactory profits from them. Therefore, as early as in the stage of centralized strategy, enterprises should take precautions, always pay attention to industry trends and future trends, and strive to cultivate future "star businesses" when the dominant products are still in the "golden bull period".

Generally speaking, 'related diversification strategy' is more advantageous than 'non related diversification strategy', which can fully leverage existing advantages and utilize existing resources. For example, from expanding the production of soft magnetic ferrite to operating rare earth permanent magnets, from expanding the production of magnetic materials to operating MLCC, chip inductors, and chip resistors, existing technology, equipment, talent, experience, procurement channels, and marketing networks can be fully utilized.

The 'non related diversification strategy' is sometimes also a feasible option. There are also extremely successful examples in reality. 
Generally speaking, adopting a "non related diversification strategy" is suitable for the following situations: 1. The original related fields are no longer able to accommodate the further growth of the enterprise, or do not have sufficient attractiveness; 2. Enterprises are no longer able to maintain a dominant position in their original field; 3. New non related target areas have sufficient growth potential and are generally in the initial stage of industrial formation; 4. There are not yet strong enough competitors in the target field, and enterprises can effectively overcome barriers and establish advantages.

Cross national business strategy

China has fully entered the stage of cross-border business strategy: firstly, the technology following and catching up strategy previously implemented by enterprises has achieved great success, and the enterprise's technology has already taken the lead internationally and is in the position of technology output; Secondly, the overall level of the national economy has been greatly improved.