ARC Announces Only Automation Services Study on the Market: Service Market Booms for Automation Suppliers

Business Wire, May 22, 2007

DEDHAM, Mass. -- Automation suppliers continue to benefit from strong demand for automation services across the entire spectrum of the plant lifecycle and the scope of nearly all automation products and applications. In an automation market that is already riding the crest of a growth cycle, automation services is at the top of that crest and benefiting from several converging factors that will provide ever increasing market growth through the next five years, according to the new ARC Advisory Group study, "Supplier Provided Automation Services: Market Size and Forecast Through 2011" (www.arcweb.com/res/autosvs).

According to the study's principal author, ARC Research Director Larry O'Brien (lobrien@arcweb.com), "The total services market served by the automation suppliers approached $14 billion in 2006, and will grow at an average annual rate of over 12% through 2011. Mature markets such as North America and Europe, the Middle East, and Africa (EMEA) constitute the bulk of the market for automation services, but revenue growth will be concentrated in the developing economies of China, the rest of Asia, and Latin America. The Chinese market, for example, will be more than double the size of Japan by 2008 for automation services provided by suppliers."

Labor: A Global Issue that Drives Outsourcing and Services Growth

The primary contributor to the growth in services over the next several years is the continuing shortfall of skilled labor among end users. "Baby Boomers" - children born after the Second World War and into the boom years of the 1960s - are starting to reach retirement. Many of them are now, or soon will be, 60 years old. This is starting a wave of retirements that will see the number of people over the age of 65 in the USA alone reach over 70 million by the time the last boomer retires in 2030. The average age of workers in manufacturing industries in developed countries is already over 50. Companies have downsized, right sized, and re-engineered their workforces without apparent thought for the consequences of this upcoming retirement tidal wave. The paradox is that although workers are getting older on average, the average retirement age has dropped to 58 years, in many cases due to the reengineering process of the past couple of decades.

Data from the US Census Bureau also shows that, as a percentage of the world population, the largest growth area in the next 50 years will be in the ranks of the elderly. Several governments have responded by increasing the statutory age of retirement, in the case of Germany for instance, it has increased to 67 years. In a recent interview, a major refining company stated they had lost 2,500 years of experience last year when 100 operators retired at one site, each with an average of 25 years of experience. As further evidence, a major chemical company analyzed their plant demographics and found one of their largest plants would lose 75% of its operating staff to retirement by the end of this decade. The same is also true of many discrete manufacturers.

Bring Vertical Industry Expertise to Bear

End users are demanding an increasing level of vertical industry expertise from their suppliers. When providing services and developing expertise, suppliers must take the vertical industry-specific component into consideration. Many of the large suppliers use their vertical industry teams as a primary interface to the customer. With the shrinking ranks of qualified personnel at end user companies, most suppliers are finding that hiring well-qualified experts from a wide range of different industries is a fairly easy task. For many suppliers, key customers end up becoming key employees.

Speaking the language of a certain industry, however, is not enough. Value -add services must be developed that address specific vertical industry concerns, which could range from process-specific expertise to regulatory compliance, and other factors. Many industries have overarching technological and process changes that they are implementing that will have a significant impact on their future success, such as the "Digital Oil Field of the Future" initiative, and any industry specific service capabilities that are being developed should take these into account.

Advanced Services Require an Advanced Selling Approach

The growing scope and breadth of services being offered by automation suppliers also requires an advanced selling approach. Most large process automation suppliers already have dedicated direct sales teams that are very familiar with the concerns and requirements of their customers, but the increasingly complex array of services offered requires a multi-tiered selling approach that addresses the business value proposition of the solution being offered.

The multi-tiered approach particularly applies to performance-based services or services related to the adoption of new technologies such as fieldbus, where there is a high level selling team that communicates to the executive level, a team that addresses the engineering and operations level, and perhaps even a team that addresses the maintenance level of the plant. In the case of fieldbus, for example, many of the most successful fieldbus implementations are the ones that get the buy-in of maintenance level personnel before the project starts.