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Column: Automate, emigrate or evaporate

The prolonged business recession in this new century is bringing significant and irreversible changes in a competitive, global environment.

Industrial automation end users and suppliers alike have had to cope with declining business. The trend has brought mergers, acquisitions, divestitures and consolidations in its wake. How will the tide turn?

Almost every segment of business is undergoing significant change. For end users, manufacturing plants must be smaller and more flexible, with location typically determined by proximity to raw materials or customers. For automation suppliers, products must be designed to meet global end user needs, with integration and maintenance services that are local for all customers.

Automation commoditization

A couple of decades ago, many automation products used proprietary technology that provided true customer value and generated good growth and profit margins. Sadly, over the past few years, most automation products have become commodities—available from several sources with marginally different features and benefits. This makes them subject to drastic price reductions and stiff competition, causing a general business decline. A recession makes the competition more brutal, as competitors cut prices in their struggle to survive.

Today, the features and functions of programmable logic controllers (PLCs), personal computer-based supervisory control and data acquisition systems (PC-based SCADA) and distributed control systems (DCSs) are quite easily copied. Everyone in the world knows how to design and manufacture these products, leaving many suppliers very little true product differentiation.

Most U.S. and European manufacturing companies have been through the treadmill of quality and cost improvements—total quality management (TQM), lean manufacturing and the like. But offshore companies, too, have quickly learned the drill. So, the cost differentiation comes down directly to relative wage scales.

With fast developing quality skills and wage rates that are just 10 percent of comparable Western equivalents, China is poised to take over the world’s manufacturing. Today, U.S. manufacturing workers are being displaced on a large scale; even Mexico is losing manufacturing jobs to China.

But that’s just half the story. China and India are poised to replace the world’s knowledge workers as well. Both countries turn out hordes of engineering graduates each year from universities that are rapidly growing in size and quality. India has the advantage of a high percentage of English speaking scientists and engineers. As product design becomes more network-centric and less location-dependent, competition against Western engineers is becoming fierce.

Many automation companies are generating significant cost reductions through manufacturing in China and Singapore, and moving software development to India. In a global environment, these are good business decisions.

In the future, the key will be to integrate and complement local technical and marketing skills with offshore capabilities to produce a consistent stream of excellent results.

Three keys for success

In a global market, there are three keys that constitute the

winning difference.

• Proprietary products: developed quickly and inexpensively, with a continuous stream of upgrades and adaptation to maintain leadership

• High-value-added services: proprietary knowledge offered through effective service providers, tailored to specific customer needs

• Global partnerships: the special needs and custom requirements of remote customers must be handled locally, giving them the feelings of partnership and proximity.

Implementing these new directions is indeed a tall order. New and different management and leadership abilities are demanded. Those that don’t perform will simply evaporate! In the new and different business environment of the 21st century, the companies that can achieve these goals will generate significant growth and success.

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