Cipher Snapshot: Steel Manufacturing
An analysis of an industry in transition
• Japanese companies are IP incumbents; Chinese companies have strong momentum
• Almost all Asian companies focus solely on IP protection in domestic market
• European manufacturers have small portfolios but broad territorial coverage
• Innovation pipelines are decreasing heavilyThe steel industry is in turmoil. China -– once a net importer -– in an effort to saturate domestic demand hit a vicious cycle of overproduction. What was once the food for a growing industry is now the stomach-ache of the global steel industry. The question this snapshot is concerned with is whether Chinese companies have impacted the intellectual property fundamental to this industry and if so, how.
Figure 1 above shows a size/growth matrix of the world’s biggest steel manufacturers. There is a clear division between Chinese, Asian (India, South Korea and Japan) and European companies. Chinese companies (left upper corner) show a lot of momentum by having the highest growth among the groups. The figure shows that they are on the trajectory of building substantial IP portfolios in the industry. Asian companies with the exception of Tata Steel contrast this position. They are the incumbents with large and slow-growth portfolios. European companies have comparatively small and low-growth portfolios, which is surprising as ArcelorMittal is the market leader in terms of production volume.
To further dig into understanding why Chinese companies have been able to catch up and build momentum, Figure 2 above depicts a selection of Asian and Chinese companies’ patent pipeline developments over the last decade. There are two contrasting stories: while Chinese companies show a steady increase – although in small magnitude – in pending patent portfolio size, other Asian companies show an enormous decrease in its pipeline, almost closing the gap between the two groups.
Figure 2 shows Chinese companies closing the pipeline gap compared to the leading Asian companies. But with numbers showing that Asian companies still own a bigger pipeline (more pending patent applications), the question remains: will they overtake the Chinese companies as a consequence?
The age profile of the companies’ portfolios, illustrated in Figure 3, gives further insights that are in line with what the data has shown so far. Chinese companies own newer portfolios, with most of the patents being five years old or less and very few older than 10 years. In comparison, ThyssenKrupp, ArcelorMitall, Tata Steel and POSCO show portfolios that are balanced in age. The large Japanese companies exhibit the oldest portfolios with the majority of their patents aged between ten and twenty years.
A final look at territorial coverage, depicted in Figure 4, shows that geographic focus on home markets is the name of the game for Asian companies. Tata Steel seems to be the exception to the rule, having recently announced its intention of selling off its UK arm of the business. European companies have a notably, much stronger geographic profile.
There is no doubt that Chinese steel manufacturers have started noticing the importance of IP, however they are still only racking up the numbers in terms of domestic patents. In contrast, the incumbents have declined their innovation pipelines over the last decade and are today almost on level footing with the surging Chinese.
Whether this is a reaction to the current crisis in the industry is subject to speculation. What is clear is that the Chinese are the ones pushing innovations within the industry. However, they place themselves in a vulnerable position for export or expansion if they carry on with single minded IP strategies.