US drives-makers are losing business as many of their OEM (original equipment manufacturer) customers - the core of the variable speed drives market - transfer production to newly industrialised countries. Several drives-makers have had to shut down plants or to restructure their activities to adapt to this shrinking customer base, according to a new report.

"The OEMs are seeking component sources closer to the countries where their facilities are located," explains Liliya Navarrete, an industry analyst with Frost & Sullivan, which produced the report. "This is reducing demand for variable speed drives in the domestic [US] market."

To retain business, the US drives-makers are having to develop new strategies to satisfy their customers, both at home and globally. F&S says that cost reduction is one way of staying competitive in a mature VSD market, especially because drives` capabilities now provide little advantage as differentiating factors.

Intense competition between drives manufacturers is fomenting prices wars, making VSD products more affordable and encouraging their wider adoption, F&S reports. It predicts that the downward pressure on prices is likely to escalate as more participants enter the market.

Although the price cuts will affect drives-makers` margins, the lower prices will encourage more users to switch to VSDs for new and retrofit installations, boosting the number of drives sold and the total revenues generated. Frost & Sullivan predicts that the value of the North American drives market will grow from around $1.54bn this year, to $1.73bn by 2010.

F&S suggests that customer demands for shorter lead times are "likely to compel VSD companies to invest in R&D as well as equipment of greater efficiencies, to trim the production process". It also reports that that VSD manufacturers have been "working on raising the bar on the cost efficiency and quality" of their products.

"Manufacturers have to strive to engineer new solutions that will help to increase product value and customer service," says Navarrete. "This move is all the more significant, considering that clients are seeking technological improvements to increase productivity and efficiency in the wake of the economic recovery".