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