Manufacturing firms worldwide are increasingly deploying asset finance to facilitate equipment acquisition and technology upgrade, according to research from Siemens' Financial Services Division (SFS).

A study conducted amongst the global top-40 industrial machinery and equipment manufacturers found that 76% reported rising customer demand for asset finance over the last two years, and the majority (93%) expect interest to increase further in the near future.

While use of asset finance by manufacturing firms based in Europe remains static, largely because of the slow business investment environment, the proportion of manufacturing equipment sales enabled through asset finance has risen over 2% per year in the US.

However, SFS’ study shows that the biggest growth in asset finance usage (15%) over the past 24 months came from Asia, where the concept is still in a relatively early stage of its development compared with the mature economies of the West. 

Looking ahead, the research suggests use of asset finance is expected to pick up in Europe as improving economic confidence sees companies start to make previously deferred investments, with predictions of a growth rate of over 5% annually across the region.

In comparison, the US will see uptake of asset finance by manufacturing firms rise by 3% a year. The SFS study says this lower figure should be viewed in the light of the US market having a significantly higher penetration of asset finance than Europe. Proportionally, therefore, the lower US percentage growth represents proportionally larger absolute volumes relative to the size of the economy.

Asia is expected to demonstrate extremely strong growth in the proportion of manufacturing equipment sales funded through asset finance, with a predicted increase of over 14% during the same period. The study notes that as well as the rapid development of leasing companies in China, the authorities have been encouraging foreign private capital  to participate in the market for some time.

Respondents tipped China, Poland and industrial Eastern Europe, and South East Asia as the areas likely to show strongest demand for manufacturing equipment finance in the coming years, followed to a lesser extent by growth in Turkey and Latin America.

The biggest reason behind the growing popularity of asset finance is identified as budget pressures, with 72% of respondents reporting a "squeeze" on their customers' capital equipment budget in the last two years.    "Access to up-to-date technology is critical to a manufacturing company's competitive position, cost-control and productivity," commented Brian Foster, head of industry finance at SFS. "By using asset finance, businesses can meet the constant demand for high-specification, tailor-made equipment in a financially sustainable way."    

The study concludes that even as liquidity returns to the financial services sector, asset finance is set to continue to  make gains in popularity for manufacturing equipment finance, partly because of the pent-up desire to invest in more productive (and energy-efficient) equipment. Its attraction comes from the option of having a source of finance that is separate and distinct from traditional borrowing, allowing companies to preserve those lines of credit for tactical business requirements.

SFS’s "Financing the Future" report can be downloaded here: http://finance.siemens.com/financialservices/global/en/press/studies/documents/whitepaper_2014_financing-the-future.pdf

   

 

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