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I’m writing this from Bangalore, India—after having spent some time in Australia a few weeks ago, then a couple of weeks in England, then South Africa, and now India, where I’ll bring in the New Year before returning to my home in San Diego, Calif. Perhaps this helps my global perspectives, which I’d like to share with you from afar.
In the global environment, there are only three sources of wealth—natural resources, labor and knowledge. Resources (oil, minerals and the like) are tied to geography; labor is steadily being eliminated through automation; knowledge is the key. Through inexpensive, universal communications technology, knowledge-based work is migrating worldwide to the highest-quality, lowest-cost providers.
The human factor—“asymmetric motivation”—is forcing change. In advanced regions such as North America and Europe, salaries are high and the motivation to work long hours is limited to those few who have natural drive. By contrast, in developing countries, the push for upward mobility is intense, which results in huge productivity differences.
The fundamental purpose of automation is to improve productivity—generate increased, higher-quality output with reduced costs. Productivity has become a fierce, head-to-head competition between regions and nations for the single reason that it is the source of the wealth, the key to improvements in living standards. Those who can produce cheaper, faster, better—win!
The next major changes will come not from incremental improvements, but several new “inflection points.” Innovation will be a key driver for growth. And that may come from virtually anywhere—not just the advanced first-world countries.
While automation markets in North America and Europe stagnate (few new process plants and factories are being built these days), foreign markets will continue to expand in spite of the current worldwide recession. Within the next two decades, India will overtake China to become the world’s most populous country. Both countries’ middle-class populations are advancing quickly to produce and consume a vast amount of products, services and energy. For any organization, growth plans must take into account the markets in these and other major, advancing countries.
Pricing trap
Prices for automation products are traditionally based on manufactured cost with target gross and net profit margin multipliers. Conventional cost-based pricing is stuck in a trap because global companies are prepared to compete with significantly lower profit margins. The large automation suppliers, struggling to compete against lower-priced commodities, are simply shuffling distribution channels in futile attempts to generate growth while their revenues and profits continue to decline. New pricing paradigms are needed.
Change affects all spectrums in the automation business landscape: end-users; hardware, software and equipment suppliers; services. Plants and factories will move to where materials originate, and will be designed to “disappear” when sources are depleted. Services that can be provided remotely will migrate worldwide to the best low-cost providers. Knowledge moves easily and can be transferred anywhere.
Future scenarios will be vastly different from the past, even within the next decade. In a fragile financial environment, look for new automation leaders to emerge, perhaps even from China, India or elsewhere, through acquisition. Look for BIG changes.
Jim Pinto is an industry analyst and commentator, writer, technology futurist and angel investor. You can e-mail him at: This email address is being protected from spam bots, you need Javascript enabled to view it Or review his prognostications and predictions on his Web site: www.jimpinto.com
