Pockets in East Europe for automation vendors

Katarzyna Owczarczyk is a Research Analyst with the Frost & Sullivan European Industrial Automation and Process Control Practice. She focuses on monitoring and analysing emerging trends, technologies and market behaviour in the Industrial Automation and Process Control industry in Europe.

The economic recession restrained growth in the western European industry market, which was already reaching maturity. The subsequent transition of the manufacturing base to low-cost eastern European countries has opened new prospects for market sustainability. This, in turn, is expected to continue offering growth opportunities for the automation and control solutions (ACSs) market.

Revenues from process industries in the ACSs market reached $597.9 million in 2008 and are forecast to exceed $846.0 million by 2015. A number of factors can be attributed to Eastern Europe’s overall attractiveness including EU membership, a broad industrial and production base, relatively low labour costs and historical and cultural connectivity with the western market and economy.

EU Accession Drives Investments in New Member States

Eastern Europe offers opportunity to automation vendors

The EU Accession has been one of the main factors behind positive market opportunities in Eastern Europe. Many end users in Eastern Europe, through the European Standards, are being forced to improve their infrastructure levels to be equivalent to that of western Europe. Eastern Europe has a broad industrial and production base. Many heavy and light industry plants exist, which, once modernised, will constitute good bases for various industrial developments. Additionally, all the factories built under Communism have been privatised. However, they need to be modernised and upgraded.

Currently, many end-user companies have to oblige with regulations set by organisations such as Occupational Safety and Health Administration (OSHA), Registration, Evaluation, Authorization, and Restriction of Chemicals (REACH), Environmental Protection Agency (EPA) and Food and Drug Administration (FDA). Huge investments are also needed in the power and water and wastewater treatment sectors to meet European standards. For instance, to implement the EU Urban Waste Water Treatment Directive in the 12 new member states, approximately, €35.00 billion will have to be invested by 2017.

In 2008, Poland, the Czech Republic, Slovakia and Hungary accounted for 66% of the Eastern European ACSs market partly because they were able to transform and restructure their economies faster upon joining the EU. They have also been bolstered by the influx of foreign investment, focused on plant retrofits, thereby stimulating the ACSs market growth.

Power – The Fastest-growing Market Even during the Global Recession
Power, chemicals and oil and gas accounted for the largest share in the Eastern European ACSs market in 2008. This is attributed to the extensive use of Distributed Control System (DCS) in these industries in their manufacturing processes. A majority of the new small- or medium-sized facilities, in many chemical and most of the power and oil and gas facilities, are likely to prefer typical DCSs, rather than hybrid or a system based on several Programmable Logic Controllers (PLCs), because of their reliability.

Power is also the fastest-growing market for ACSs, the revenues of which are expected to almost double by 2015. Eastern Europe faces rising prices, strict environmental targets and an impending capacity crisis in power generation due to the decommissioning of aging power plants and increasing demand. Power will sustain stability due to the continuous high demand for energy as well as the high amount of European funds available for renewable energy and government investments in transmission and distribution to improve the overall network efficiency and decrease transmission losses.

Other sectors
The chemicals and oil and gas industries are very important in the ACSs market due to existing regulations concerning environmental pollution. However, the chemicals industry in particular is expected to be severely affected until 2010 by the economic recession. Food and beverage and pulp and paper are comparatively smaller markets that are already well developed, but still need further investments to improve plant performance and meet continuously changing standards. PLCs are more commonly used in the food and beverage and pulp and paper industries as Eastern Europe has a large number of small food manufacturers and paper mills for which more-expensive DCSs are not required. The smallest sectors are pharmaceuticals and water and wastewater. However, the latter offers significant growth potential due to the necessity for regulatory compliance with EU Directives and the availability of EU funds, which drive PLC market growth. This is because of the affordable price that makes the PLC as one of the most used automation components in the water and wastewater sector.

Outlook
The Eastern European ACSs market is expected to grow steadily from 2010, driven by growing demand, especially from the power sector. Among Eastern European economies, Slovakia, Romania and Poland have the most favourable growth prospects, while countries like Romania, Bulgaria and Hungary that have had large external imbalances caused by the economic recession, are expected to witness low or flat growth.

From a product standpoint, Manufacturing Execution system (MES) and Industrial Asset Management (IAM) are expected to witness high growth, as they, despite being relatively new in the Eastern European market, experienced high growth despite the economic recession. This growth is mostly driven by the need for production optimisation and compliance with quality and regulatory demands.

To stimulate demand in Eastern Europe, automation vendors should provide automation systems that are compatible with existing plant installations. This would instil confidence among the end users and urge them to invest in automation. Moreover, the establishment of a strong and reliable network with local distributors and system integrators is crucial in order to increase access to customers.

Katarzyna Owczarczyk is a Research Analyst with the Frost & Sullivan European Industrial Automation and Process Control Practice. She focuses on monitoring and analysing emerging trends, technologies and market behaviour in the Industrial Automation and Process Control industry in Europe.

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