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How are lift and escalator manufacturers meeting the demands of the construction industry within an increasingly competitive market? Peter Ward investigates.

In industries where work is slow, competition can be fierce. But when business is booming and the market is flooded with rivals, the race for a decent share can be even more extreme, as members of the lift and escalator sector will testify.

A high level of competition can create rapid advances in technology, with companies constantly trying to outdo each other's innovations. It can also bring with it a number of problems and challenges.

While four or five major players seem to dictate the global market, in the Middle East they are joined by countless smaller businesses trying to break through.

ThyssenKrupp's sales director Josef Forkl explains: "The market itself is extremely competitive. I have never seen in any other market in the world such a density of elevator companies. If you go to Europe, Asia or the USA the four big players are always there...but I would say more than 100 smaller elevator companies are [operating in the Middle East] also."

Price rises

One of the major issues facing all manufacturers in the sector is that raw materials costs are rising, but due to the number of firms offering lifts in the region the end-product prices have not increased.

Otis' director of business development Yusef Shalabi is wary of how this is affecting the sector: "It's not an easy situation. There is work, but at the same time it's becoming much more difficult to execute.

The costs are rising much faster than [manufacturers] can move this cost onto their clients because of competition.

"Shipping costs have gone up; raw materials costs have gone up; equipment costs have gone up; salaries have gone up - everything has gone up. That is at source, so the cost of equipment as it arrives is already higher. Now locally in the last two years our cost of doing business has risen hugely," he states.

According to Shalabi shipping costs can jump overnight, affecting companies like Otis that have their major factories in China.

He adds that the price of steel has increased "three or four times".

This can result in companies compensating for possible cost increases during the early tendering processes and removing the extra costs later in negotiations to have a better chance of winning contracts.

Maintaining a market share

Securing contracts and winning installations is the main aim for the lift manufacturers, and during the current construction boom there are plenty of installation jobs available.

But this will not always be the case. However firms are now planning for the future when the dust has settled on cities like Dubai, and are aiming to have as many systems installed as possible in order to continue operations by undertaking the maintenance and servicing of lifts.

"Of course we would like to make a little more money on new sales and installation, but the market is really competitive," says Forkl.

"As in most of the markets worldwide, profit margins are low or even zero in new installations and future maintenance will [ensure continued profits]. We are hoping for long-term relationships with our clients," he adds.

Shalabi agrees, saying: "Today there is a boom, so I say let me sell at a very low margin or no margin to increase my portfolio, so in ten years' time when this boom is over I still have a lot of lifts in town and this company can live without selling a single new lift but on income from maintenance."

Shalabi adds that a maintenance and servicing agreement can be "an investment" because although on some contracts large profits can be made, on others where there are major repairs needed, it is possible to lose financially.

Forkl offers a stark warning on the importance of responsibility within industry: "If you don't maintain an elevator [effectively] and if you don't obey certain rules, it could theoretically end in terrible accidents."

Skills shortages

One issue that the lift industry shares with the majority of other sectors is the problem of finding skilled workers.

The competition and abundance of work is causing skilled workers' salaries to rise and other costs associated with recruiting new staff are also increasing.

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