Moderate Growth Seen for Process Capital Expenditures

There are signs that the manufacturing recovery has begun, but its continued success depends on the ability of the financial markets to return to normal functioning, according to recent report by ARC Advisory Group Inc. (, Dedham, Mass.

Small, medium, and large businesses have all been strained by the inability to access short-term capital.  Moreover, many businesses have simply delayed capital equipment expansions, particularly if they manufactured components in the automotive supply chain, ARC says.

Although the short-term forecast for global automation expenditures for the process industries looks bleak, ARC expects moderate market growth to resume during the latter part of the five-year forecast period ending in 2013. Once the economic turmoil settles, the globalization environment will resume, which will once again cause manufacturing companies to invest in capital expenditures.
Investment resumes

“Manufacturers will continually face challenges to raise productivity, lower product costs, reduce plant operating expenses, and increase return on investment (ROI) to compete in the global market. Consequently, capital investments for automation should resume across many industries,” according to ARC Senior Analyst David Clayton, principal author of the report, titled “Automation Expenditures for Process Industries Worldwide Outlook.”

It is not often that price erosion becomes a major concern in the automation sector. However, industry veterans have experienced double-digit price decreases. There are several reasons for this, but the net effect is that the market will have difficulty growing even in the high single-digit range over the next five years, according to ARC.

One element contributing to the price erosion is that controllers are rapidly becoming an automation commodity in some sectors.  Differentiation between products, capabilities, and performance factors is rapidly diminishing. A large percentage of the suppliers in the market can compete very effectively from a performance criterion across many markets.  This increases price competition.

Service relationships

With the commoditization of control equipment, many automation suppliers are differentiating themselves by broadening the scope of services offered to include front-end engineering and design, operations, outsourced maintenance and performance improvement. Users and suppliers alike benefit from a more collaborative relationship. Users can leverage the expertise of suppliers to help manage plant assets across their entire lifecycle. Suppliers can go beyond being just automation providers, enhance their overall project revenues, and enjoy long term revenue streams through customer service relationships.

With the global economic uncertainty and ongoing lack of consumer demand, manufacturers are putting more thought into whether they should replace or simply repair their automation equipment. Because automation repairs are often less expensive than replacement, it is reasonable to expect to see a jump in repair business during an economic slowdown, ARC concludes.

ARC Advisory Group Inc.

Subscribe to Automation World's RSS Feeds for News

More in Control