The reason for such growth? Vast pools of engineering expertise that used to exist at major user companies have shrunk to critically low levels. Many of the automation services that are required throughout the lifecycle of a plant or factory can no longer be performed in-house. Users are looking to the next logical choice for these services -- the suppliers that provide them with the automation products, systems, and software that keep their plants running.
"More suppliers today are taking on the task of supervising entire automation implementation projects, acting as the main automation vendor or supplier that coordinates activities between the systems integrators, smaller suppliers, and the user. This simplifies things for the user because the main automation supplier provides a single point of responsibility for the success of the project, saving time and money," says to ARC Research Director Larry O'Brien, the principal author of the study.
Performance services enable sustained improvements
While project services are being increasingly outsourced to automation suppliers, the real benefits for users lie in the increasingly broad spectrum of after market services being offered. Users today are focusing more than ever on achieving superior return on assets and asset utilization. This also means driving optimum levels of performance from the control system and the automation and plant or factory equipment infrastructure. Again, automation suppliers are stepping in to fill this void with a range of both products and services designed to help users achieve a vision of Real-time Performance Management (RPM).
Automation suppliers look to services to fight sagging hardware margins
The adoption of standard, commercial-off-the-shelf (COTS) products and components drastically reduced the cost of hardware and eliminated most of the proprietary competitive advantage that automation suppliers could build into their hardware. With hardware no longer a competitive differentiator, suppliers looked to their software and service offerings as well as vertical industry expertise to make up for the losses experienced in the hardware business. The scope of services offered has widened considerably over the past several years. Services have emerged as a lucrative business addition. When coupled with areas requiring high domain expertise they can generate high margin business for suppliers.
China provides growth opportunities and challenges
Suppliers are finding it a challenge to keep up with demand in China, and the sheer volume of new plant and factory construction is expected to continue at a healthy pace through the next five years barring any unforeseen actions by the Chinese government to cool down growth. At the same time, users in China are demanding many of the latest technologies and are investing heavily in education and training of their workforce to be able to utilize these advanced technologies effectively.
Conversely, users in China and the rest of Asia are known for being very price conscious, making it difficult for suppliers to actually make money off many of the large scale projects they are bidding on in China. Many automation suppliers lament that while the majority of revenue growth for their services business comes from China, they still make most of their profit in developed markets such as North America and Europe.