New Product Developments and Enhanced Production Efficiency set to Drive Growth in European SCADA and DCS Markets

Frost & Sullivan In response to rising raw material costs and increased competition from low-cost manufacturing regions such as Chinal, European manufacturers are paying greater attention to their operational efficiency. As a result, investment in automation and control solutions is on the rise and providers of supervisory control and data acquisition (SCADA) as well as distributed control system (DCS) solutions are likely to see greater opportunities since these systems are crucial in achieving production synergies and eliminating costs in the manufacturing process.

An added factor aiding the uptake of SCADA and DCS systems is the enhanced value proposition derived from new product developments. Advances on the DCS front have seen the development focus widen from traditional process control to an extended range of applications such as production management, safety instrumented systems, information management and documentation, all handled in one single system. Likewise, advances in SCADA technologies have ensured improved IT compatibility along with the capability to support higher-level business systems such as manufacturing execution systems (MES) and enterprise resource planning (ERP).

New SCADA systems increasingly offer features traditionally associated with DCS products, such as in-built redundancy. This enables a primary host computer to automatically switch to a secondary computer in the event of a system failure, thereby ensuring that the data remains available to clients in the event of server disruptions.

As a result of these product advancements, differentiation between SCADA and DCS systems has blurred and this has also changed the degree to which these systems compete against each other. Further, with a growing share of the revenues being generated from system upgrades and retrofits, the general reluctance of end users to switch suppliers is restraining competition.

With the retrofit market offering healthy revenue opportunities, large suppliers will benefit from their greater instalment base and are thus in a better position to pursue retrofit opportunities. Nevertheless, these suppliers will also be under pressure to extend their offerings through new retrofit product development, a heightened focus on which could negatively impact profit margins and force suppliers to review their costs.

This pressure, coupled with the relative lack of organic growth among many large firms, may in turn trigger a degree of divestment among those firms whose control system business is not a core element. Conversely, this could also force larger market participants to acquire other manufacturers with particular strengths in new product development or with a brand presence in vital end-user sectors.

In response to this challenge, smaller suppliers stand to gain from aligning with competitors in order to reach a wider customer base. This is likely to become increasingly important as multinationals look to source products from a selected short list of large firms with global supply capabilities. Although this may seem improbable in some cases because domestic participants would require a significant incentive to enter into such an agreement, this proposition could be relevant in specific end-user sectors.

The European SCADA and DCS markets across major end-user sectors such as oil and gas, pharmaceuticals, food and beverage, chemicals, power generation and pulp and paper is expected to generate a revenue growth of $691.0 million between 2005 and 2011. With a projected increase of 36.9 per cent, the food and beverage sector is likely to show the highest growth rate and the power generation sector is poised to lead the growth in monetary terms, exceeding $300.0 million for a growth of 28.4 per cent. Individually, SCADA system growth is likely to be $188.0 million compared to DCS growth of $503.0 million.

While future growth trends between SCADA and DCS do not show any significant changes, the lack of new system opportunities is expected to have a significant impact on future growth patterns. This is reflected by the expansion of the retrofit market, projected to generate growth of $476.0 million by 2011 as compared to new system growth of just $214.0 million over the same time period.

Strategic Analysis of Selected European SCADA and DCS Markets Publ 20060208