Market Insight

Where are the opportunities for non-leading safety suppliers amid the global economic slowdown?

June 28, 2019

Jessica Nian Jessica Nian Research Analyst, Manufacturing Technology, IHS Markit

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The Industrial Internet of Things (IIoT) is expected to become more widespread during the next five to 10 years. This trend is driving manufacturers to develop strategies to ensure their future competitiveness. Smart industrial connections that link machines to products with radio frequency identification (RFID) allow all users to increase productivity and profitability using dynamic monitoring. This leads to more proactive safety strategies.

Leading automation suppliers often have long-term relationships with their customers. These customers tend to be experienced in automation systems and are highly educated about safety concepts. As a result, these companies demand more advanced safety services from their automation suppliers. For leading automation suppliers, safety services present the biggest growth opportunities. The innate advantage held by these leading manufacturers is not easy for non-leading safety focused suppliers to acquire. Non-leading safety suppliers’ clients tend to be more price-sensitive and have lower demand for high-end safety services.

Economic challenges bring fear—and opportunity

In late 2018, an economic slowdown was seen in almost all major economies. The automotive industry in China showed a decline in sales in the last quarter of 2018, highlighting the potential economic risk in Asia Pacific. Brexit, the Italian economic crisis and other political and economic uncertainties are leading to decreased gross domestic product (GDP) growth and reduced manufacturing capital investments. As a result of the global economic slowdown, many OEMs and end-users have become more cautious and are postponing investment decisions. The global risks may not affect the safety market immediately, but the fear is contagious and creates uncertainty.

However, where there is challenge, there is also opportunity. The global economic slowdown represents a turning point wherein many non-leading suppliers can target more high-end products and solutions to build better brand images. Clients soon will require basic safety products to meet the regulatory demands. Meanwhile, most clients are postponing investments on advanced safety projects to eliminate the risk of further negative sales performance. However, in the long term, the highest growth and highest revenue opportunities will come from the advanced integrated safety solutions in accordance with the developments of the IIoT. This is the good time for non-leading safety suppliers to cultivate new clients and promote a positive brand image by introducing high-end safety solutions. Creating a progressive brand image could help those suppliers enter the high-end market to capture long-term opportunities.

Safety market opens up

On the other hand, with the acceleration of IIoT and connectivity, the market is embracing open standards.

The OPC Unified Architecture (UA) is a machine-to-machine communication protocol that’s gaining popularity. The protocol can enable users of independent platforms to run their solutions on any operating system, allowing more advanced systems to be compatible with earlier systems, as well as enabling easier configuration and maintenance. Open industrial communication provides the foundation for non-leading suppliers to compete with larger manufacturers. As the amount of data generated at the machine-level increases, the network architecture should grow and change. The capacity and performance of standard Ethernet and industrial Ethernet may not keep pace with evolving needs. Released in 2018, the OPC UA time-sensitive networking (TSN) provides a vendor-neutral communications infrastructure for industrial automation based on open standards.

OPC UA maps to IEC TSN to enable real-time, or near-real-time, communication between different machines, controllers, clouds and other information-technology solutions. In less regulated countries with more open market cultures, OEMs and end-users are willing to accept new concepts and qualified products that have competitive prices. According to the latest IHS Markit Machinery Production Market Tracker, the total revenue of Chinese machinery production in 2018 was $525 billion. With such a huge market base, China is one of the most promising markets and highest growth opportunities for suppliers, especially in the safety market. The market is still developing and normalizing its safety standards.

Chinese IIoT and big data policies generate new opportunities

As a national strategy, big data will be supported by key policies during China’s 13th five-year plan period. Driven by the demands of the logistics and material-handling industry, the big-data industry will witness an annual growth rate of over 100 percent, as intelligent logistics based on IIoT become commonplace, according to an estimate from the Chinese government. All foreign suppliers are being encouraged by the Chinese government to cooperate with local enterprises to realize the success of IIoT. For those non-leading safety suppliers, this is a good time to enter the Chinese market because it will be easier to establish relationships with local clients. China is still demanding more advanced automation and safety solutions to shift to high-end manufacturing.

Currently, China mostly requires basic safety products; with the sales of these products outperforming advanced safety components. Over 60 percent of China’s users, which usually are small and medium enterprises (SMEs), require basic-function safety products. Safety relays, E-stop and interlock switches are popular among these Chinese clients. However, national strategies illustrate the huge long-term opportunities in advanced products. The strategies now undertaken by safety manufacturing companies will shape the market-share structure during the next five to 10 years. When trying to capture the opportunities in China, non-leading suppliers must make a trade-off between stable revenues in short-term and high-growth during the long-term.

Basic safety components include E-stops, safety interlock switches, safety relays, safety mats and safety drives. Advanced safety components include light curtains, laser scanners, safety I/Os and safety programmable logic controllers (PLCs).

In conclusion, the demand for IIoT, big data and open industrial connectivity is creating the highest growth opportunities for non-leading suppliers. Within developing countries, non-leading suppliers can acquire more market share by educating potential customers on the importance of safety solutions and by providing lower priced safety products.

Research by Market
Manufacturing Technology
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