Booming Chinese Markets Compel Automation Companies to Adopt an Integrated Approach.

Business Editors

PALO ALTO, Calif.--(BUSINESS WIRE)--April 28, 2004

As multinational corporations rush to China to capitalize on low manufacturing costs and burgeoning internal markets, automation companies supplying China are tempted to turn around and ask: "All growth and no profits?"

"The fact is that only a few automation vendors have cracked the code to profitable growth, which includes low-cost engineering and manufacturing utilizing domestic-trained resources, local sourcing of quality sub-systems, cultivating political contacts and packing value-added services in product offerings," says Frost & Sullivan team leader and industry analyst Sathyajit Rao.

New analysis from Frost & Sullivan (www.industrialautomation.frost.com), "Automation Company Strategies in China," reveals that the automation market in China generated $834.1 million as revenue in 2003 and is likely to reach $1,991.7 million by 2010.

The Chinese government, while systematically withdrawing from the direct management of the economy, has made sure that multinational companies (MNCs) make certain commitments to transfer technology, train local manpower and develop local manufacturing capabilities.

This has compelled automation solution providers to adopt an integrated approach encompassing design, technology transfer, engineering, equipment sourcing and project management practices.

However, such an approach could be time-consuming and resource-intensive, along with the potential threat of local partners emerging as future competitors, intent on taking advantage of the loopholes in intellectual property protection regulations.

"China's accession to the WTO implies a steady reduction of tariffs barriers, improved compliance with environmental regulations, reduction of domestic subsidies and arrival of overseas competition," says Rao. "This means that local Chinese companies will need more access to capital markets and new technologies to remain globally competitive," he explains.

Having realized the ramifications of the WTO, local industries are proactively seeking innovative technological solutions that will enable them to focus more on product development.

High demand for sophisticated automated solutions is particularly evident among state-owned industrial enterprises that were earlier brought up in a protected environment promoting national self-sufficiency and are now ridden with surplus labor, antiquated technology and inferior products.

Only multinational automation companies with state-of-the-art technology and application expertise are capable of providing energy-efficient, advanced control strategies/systems that could transform the perilous health of these local companies.

Automation solution providers can look forward to guaranteed growth in the coming years as the irreversible thrust toward free enterprise gains further momentum. Shrewd investment policies such as substantial tax breaks, arranged deals and ban on imports of competitors' products have resulted in a deluge of foreign direct investment (FDI), boosting the demand for automation systems.

Several far-sighted government initiatives for uniform and sustained infrastructure development across the country are also likely to boost the demand for automation systems. Such initiatives include "Develop-the-West" program, nationwide gas transportation facility and effluent discharge system into large water resources.

"The changing profile of process industry spending provides a great opportunity for automation companies to provide value-added services," says Rao. "Clearly there exists an opportunity in the market to exploit an upswing in services revenues. Companies who have realized this potential will be quick in establishing sales leads into projects where value-added services potential exists on project maturity."

If you are interested in a virtual brochure, which provides an overview of the latest analysis of the "Automation Company Strategies in China," please e-mail Dustin McVey at [e-mail] with the following information:

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"Automation Company Strategies in China," part of the Industrial Automation subscription, examines the demand for automation solutions in the following industries of China: power generation, oil and gas, metal, automotive, chemicals, cement, pharmaceuticals, pulp and paper, power and others (such as food and beverages, textiles, packaging, machinery and mining). It also evaluates the various buying criteria of end users and provides strategic recommendations for market participants. Executive summaries and interviews are available to the press.

Frost & Sullivan, an international growth consultancy, has been supporting clients' expansion for more than four decades. Our market expertise covers a broad spectrum of industries, while our portfolio of advisory competencies includes customized strategic consulting, market intelligence and management training. Our mission is to forge partnerships with our clients' management teams to deliver market insights, create value and drive growth through innovative approaches. Frost & Sullivan's network of consultants, industry experts, corporate trainers and support staff spans the globe with offices in every major country.

"Automation Company Strategies in China"

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