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Process Industries 2025

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Scenario planning whitepaper from process industry perspective

Scenario planning whitepaper from process industry perspective

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  • 1. Process Industries @ 2025A Whitepaper:Three Distinct Scenarios to the 2025 ProcessIndustry Landscape Material A Whole World New World Let It Be & Lazy Days A Preliminary Survey Version 1.2 (May 2011) Copyright by Yokogawa Electric Corporation 2010-2011. All rights reserved.
  • 2. Process Industries @ 2025 DISCLAIMER OF WARRANTIESThis document is provided on an “as is” basis and may be subject to future revisions, modifications, orcorrections depending on the time development of world economy, society, science and technology.Yokogawa Electric Corporation hereby disclaims all warranties of any kind, expressed or implied, includingany warranty of merchantability or fitness for a particular purpose, for this document. In no event willYokogawa Electric Corporation be responsible for any loss or damage arising out of or resulting from anydefect, error or omission in this document or from anyone’s use of or reliance on this document.
  • 3. Process Industries @ 2025 Table of Contents1. INTRODUCTION ................................................................................................................... 1 SCENARIO PLANNING 101............................................................................................................ 1 THE KEY DRIVERS BEHIND THE SCENARIOS .................................................................................... 22. SCENARIO I: MATERIAL WORLD....................................................................................... 4 EXECUTIVE SUMMARY (@2025).................................................................................................... 4 WHAT THE WORLD LOOKS LIKE ..................................................................................................... 5 HOW THE PROFIT PATTERNS HAVE CHANGED IN THE PROCESS INDUSTRY ........................................ 6 WHAT TRENDS HAVE BECOME PRONOUNCED IN THE PROCESS INDUSTRY ........................................ 73. SCENARIO II: A WHOLE NEW WORLD.............................................................................. 8 EXECUTIVE SUMMARY (@2025).................................................................................................... 8 WHAT THE WORLD LOOKS LIKE ..................................................................................................... 9 HOW THE PROFIT PATTERNS HAVE CHANGED IN THE PROCESS INDUSTRY ...................................... 10 WHAT TRENDS HAVE BECOME PRONOUNCED IN THE PROCESS INDUSTRY ...................................... 114. SCENARIO III+IV: LAZY DAYS & LET IT BE .................................................................... 12 EXECUTIVE SUMMARY (@2025).................................................................................................. 12 WHAT THE WORLD LOOKS LIKE ................................................................................................... 13 HOW THE PROFIT PATTERNS HAVE CHANGED IN THE PROCESS INDUSTRY ...................................... 14 WHAT TRENDS HAVE BECOME PRONOUNCED IN THE PROCESS INDUSTRY ...................................... 15 © Yokogawa Electric Corporation 2010-2011
  • 4. Process Industries @ 20251. IntroductionScenario Planning 101Scenario planning is not a prediction. Prediction is typically based on the extrapolation ofobservable trends. Therefore a simple prediction of any kind is very, very untrustworthy.Don’t agree? See for yourself what the past “experts” are alleged to have said about thefuture.“I think there is a world market for about five computers” (Thomas J. Watson, chairman ofIBM, back in 1943)“There is no reason for any individual to have a personal computer in his home.” (Ken Olsen,president of DEC, back in 1977)Then what is scenario planning? It’s a planning tool which embraces the fact that our futureis not precisely predictable but could be deflected from its course by an unexpected event.Instead of predicting the future, scenario planning allows us to develop a number of possible,high-impact, yet uncertain futures. It helps us deal with the inherent uncertainty thatsurrounds us. By creating a set of equally uncertain, yet possible and high-impact futures, itallows us to think ahead and prepare “what if” plans.A typical scenario planning activity starts by identifying as many important macro and microtrends and possibilities that can affect the future state of a given question. Then they arefiltered and categorized by two criteria: possibility (likely or uncertain) of occurrence andimpact (serious or minor) to the global market. The likely and serious trends are treated ascommon factors, which you would face soon anyway in every scenario. The uncertain butserious trends are the candidates for scenario drivers. By synthesizing these factors, thescenario planners create a number of possible, high-impact images of the future and theunderlying dynamics that can lead to them.In our case, the key question to be answered is: “how the business dynamics of theProcess Industry might change towards 2025.” It is intentionally made user-oriented,from automation vender’s point of view, so that we force ourselves to think of the change ofour users’ business first, and then come back to the point how it might affect us. © Yokogawa Electric Corporation 2010-2011 Page 1
  • 5. Process Industries @ 2025The key drivers behind the scenariosWhat is known as “scenarios drivers” are the key “uncertainties” that can divide the futureinto a set of dramatically different worlds. Note that there is no “correct” choice of drivers inscenario planning -- rather, we look for the most “useful” ones, i.e., those drivers that help usvisualize a set of uncertain yet possible, high-impact, distinct worlds.The four (eventually merged into three later) scenarios were developed by synthesizingliterally hundreds of key trends and possibilities that may affect the Process Industrydynamics. By making the scenarios as mutually exclusive and collectively exhaustive aspossible, the scenario planning team identified the following two parameters as key scenariodrivers:I. Level/intensity of global environmental regulations 2025 status: either “strong global commitment” or “limping along without consensus”If a strong global commitment for environmental regulation emerges, the world will moveaway from fossil fuel. The demand for hydrocarbons and their derivatives will dwindle whileclean, green, renewable energy and materials will become the mainstream, thanks to ahuge inflow of public and private R&D (research and development) funding for newtechnologies. In contrast, if the global collaboration on environmental regulations continuesto limp along without any real consensus, hydrocarbons and their derivatives will continue topower human society. This is the first uncertainty that will have a major impact on theresultant future.II. Macro shift of the primary source of value/differentiation for the Process Industry 2025 status: either “products and production processes” or “services”If the Process Industry continues to derive the majority of its value from the products theymake and the production processes, the key angle of competition will stay at productleadership. Speed, particularly time to market, will be the number-one priority for theProcess Industry. If the Process Industry redefines itself as a service industry, however, thekey dimensions of competition will be customer-intimacy at the high end and operationalexcellence in the volume zone, respectively.At this moment, we cannot predict which way the above two drivers will sway. A two-by-twomatrix based on the two drivers, however, enables us to create four equally possible yetequally uncertain quadrants. Therefore the scenarios that symbolize the four quadrantscollectively represent the uncertain yet high-impact futures of the Process Industry. © Yokogawa Electric Corporation 2010-2011 Page 2
  • 6. Process Industries @ 2025 “Material World” Strong Commitment “A Whole New World” Future World where production is encouraged to Future World where save the Earth industries have undergone tremendous change They rely upon Products Users’ Business Value and Their major Reliance and Production System shifts to Services Differentiation Global environmental Future World where regulations to industries production is still source of the strength Future World where production is no longer Business source of the strength as Usual Extrapolation of Current Business No Global Consensus Environment “Lazy Days” “Let It Be” Figure 1: How the scenario drivers divide the future into four possibilities Macro shift of the primary source of value/differentiation for Process Industry Products and Production Processes Services Level/intensity of global environmental regulation Renaissance by New Chemicals Assimilation by ICT Apex Predator Strong Global Commitment  New specialty material and innovative  New ICT-driven services become the production processes proliferate dominant industry and value migrates out  Traditional bulk producers are challenged of production by nimble new venture companies  ICT-originated mega players from mature  Industry looks for automation that shortens countries assimilate energy and utility time-to-market and enable agile industries, dominating the new production process changes ecosystem  Production becomes a low-value activity  Traditional producers merge to compete  Process industries are commoditized Limp Along w/o Consensus with new entrants from emerging countries across the board and producers redefine  Producers bipolarize into high-value themselves as service companies specialty players from mature countries  Producers outsource production to 3rd and low-cost bulk players from emerging party mega-plants or local mini-plants countries  Production sites shift to emerging countries  Mass of emerging producers look for and disappear from mature countries intuitive automation with just adequate functionalities Process Industry Bipolarization Landslide Service Shift August 2010, Project Holon CONFIDENTIAL 1 ©Yokogawa Electric Corporation Figure 2: How the quadrants can be enriched to help visualize the changes vividlyNote: the lower half was subsequently bundled into one scenario due to their highcommonality. © Yokogawa Electric Corporation 2010-2011 Page 3
  • 7. Process Industries @ 20252. Scenario I: Material WorldExecutive summary (@2025)The Process Industry is experiencing a new gold rush. Heavy investments from both publicand private sectors worldwide are pouring in, accelerating the R&D and commercializationof new specialty materials. Materials that did not even exist in the lab ten years ago are usedin every corner of society -- producing clean renewable energy, replacing plastics and otherhydrocarbon-originated materials, and boosting new industries such as personalizedmedicine. The “sustainable society” is here -- powered by innovative new materials.The Process Industry as a whole is more profitable than ever, with the highest marginconcentrated on the R&D-intensive segments such as fine chemicals, specialty chemicalsand pharmaceuticals. A number of traditional segments such as petrochemical and refininghave declined due to the very strong global pressure to move away from fossil fuel. However,the proliferation of new venture companies as well as the further expansion of the chemicaland pharmaceutical giants, more than compensated for this oil & gas shrinkage.Innovation and product leadership, rather than cost leadership or customer relationshipmanagement, has become the most important success factor in the Process Industry. Timeto market is the name of the game. Speed, rather than scale or scope, has become the key.As a result, new key performance indicators (KPIs) such as cycle time and throughput arenow applied to track and improve overall time to market instead of just measuring plant-flooroperational efficiency.Leading vendors serving the Process Industry have responded to this new challenge bybreaking down traditional barriers. Gone is the separation among the lab, the pilot plant, andthe commercial plant; recipes completed in the lab can now be made into new products andmarketed in no time. Also gone are the cumbersome and time-consuming works to changethe process; modular and engineering-free production units can be quickly assembled anddisassembled to produce just the right amount of product at very short notice. Data from thelab and the plant are integrated, enabling real-time product lifecycle management.Meanwhile, automation vendors that failed to deliver a compelling time-to-market valueproposition have faded away, either acquired by others or cornered into a niche playerposition. Convergence of Process Automation and Laboratory Automation is now complete. © Yokogawa Electric Corporation 2010-2011 Page 4
  • 8. Process Industries @ 2025What the world looks likeThe world is bustling with new opportunities. Environmental regulations, once consideredyet another constraint for most companies and a damper on the global economy, turned outto be a major growth engine.The global economy is booming, led by the leading producers of innovative new materials.Manufacturers geared to the global sustainability drive are now the biggest contributor to theworld’s wealth. Nimble new ventures are born every day while traditional giants are alsothriving, attracting talent from all over the world.The scientists in the leading labs are the modern day alchemists, developing specialtymaterials that make up the fabrics of the new sustainable society. The trailblazing chemicaland pharmaceutical giants as well as leading-edge research institutes are mostlyheadquartered in Europe and the USA, though the scientists and engineers who work thereare increasingly coming from emerging countries, especially China and India. Lessspecialized bulk material production has already moved to their homelands, but thestate-of-the-art material research and process innovations are still mostly spearheaded byEuropean and US companies and institutes.The financial and other service sectors are also increasingly geared to the needs of theseleading manufacturers and research institutes, to the point that some are starting to fear anew bubble economy and all that might entail. © Yokogawa Electric Corporation 2010-2011 Page 5
  • 9. Process Industries @ 2025How the profit patterns have changed in the Process IndustryThe highly R&D-focused “block buster” profit pattern of the pharmaceutical industry hasbecome the basis of the new Process Industry dynamics. Even a decade ago, time tomarket was already the key for the pharmaceutical companies to recover their huge R&Dexpenditures. The global commitment to achieve sustainable society galvanized both publicand private sectors around the world into the quest of innovative new materials, ignitingR&D zeal in the Process Industry at large.Meanwhile, innovations in both R&D and manufacturing technologies have come to allowsmall upstart companies to develop new materials and to commercialize them with arelatively small capital investment. The extremely large-scale and continuous R&Dinvestment by the Chemical and Pharmaceutical giants is no longer such a strong entrybarrier for smart venture companies that leverage new technologies.With time-to-market being the most important success factor, the lab is now clearly thehighest value-adding section. Activities in other part of the value chain includingmanufacturing and production are redefined and streamlined to maximize the value of thelab. The number-one priority for management is to turn the lab outputs into commercialproducts ahead of the competition.At the same time, manufacturing and production remains one of the key value-addingactivities and sources of differentiation for most players in the Process Industry. The highmarket volatility and short product life span of new materials have led to the invention ofextremely flexible production facilities that can be modified very quickly.Truly agile production, however, can no longer be achieved by plant-floor improvementsalone. The seamless integration of the lab and the commercial production processes is nowa necessity instead of a luxury. Those companies that have successfully harnessed thepower of seamless lab-to-production transition prospered, while companies that were notable to go beyond traditional operational efficiency faded away. © Yokogawa Electric Corporation 2010-2011 Page 6
  • 10. Process Industries @ 2025What trends have become pronounced in the Process IndustryIndustry trends: segments such as fine chemicals, specialty chemicals, pharmaceuticals,medical and bio-businesses enjoy the lion’s share of the new wealth created by thechemical renaissance. Other segments also get their fair share of the benefit of theexpanding economy, but the highest margin goes to the chemical and bio- related verticals.Geographic trends: Europe has become the world leader, followed by US. While utilizinghighly motivated R&D resources from India and China, most of the leading companies retaintheir headquarters in Europe or US, where world-class material and bio- research instituteskeep attracting bright young minds from around the world. New venture companies alsotend to cluster around such leading institutes.Automation trends: most laboratories are now fully automated by integrated solutionscombining in-situ analysis, micro-reaction, robotics and IT. Connected seamlessly to such alab is an extremely flexible production facility, often physically distributed worldwide andmade up of modular and engineering-free “LEGO*-like” production units. Information aboutany given product or batch is managed from the R&D phase through commercial productionin a unified production management system, allowing role-based secure access from anylocation. (*LEGO is a trademark of Lego Group)Vendors/service provider trends: the main automation contractor (MAC) concept hascome to encompass the integration of laboratory automation and process automation aswell as life-cycle optimization services after installation. As a result of this marketconvergence, lab-oriented solution vendors have either merged or formed alliances withprocess automation vendors. © Yokogawa Electric Corporation 2010-2011 Page 7
  • 11. Process Industries @ 20253. Scenario II: A Whole New WorldExecutive summary (@2025)The Process Industry is practically embedded in the new hegemony of the mega serviceindustry, where a handful of global conglomerates provide all the smart services for thehyper-connected human society. By now the majority of the end consumers are veryICT(information and communication technology)-savvy. They actively participate in thesmart society as intelligent nodes -- not only receiving personalized services but alsocontributing real-time knowledge via the net. The world of The Matrix movie is emerging forreal -- powered by ICT technologies and new social norms. (Note: Distributors are discussed as a part of service providers in this chapter.)The global economy is booming thanks to continuous investments in the smart societyinfrastructure. The Process Industry has become a necessary yet low-profile building blockof the smart society, with the highest margin now concentrated on the power-relatedsegments such as renewable energy, smart transmission & distribution, energymanagement and energy storage. As traditional production activities have grown lessprofitable in other segments, Process Industry leaders have teamed up with ICT leaders tochange their business models. The successful ones redefine themselves as servicepartners for the new mega service industry, joining the smart society bandwagon.Customer intimacy over the networked supply chain, rather than product innovation or costleadership, has become the most important success factor for the Process Industry. Theproducts themselves such as energy and material are mostly commoditized, leaving littleroom to compete on either functionalities or price. Instead, ICT-enabled responsiveness toever-shifting demands has become the key success factor to survive and prosper as avaluable service partner.Leading automation vendors to the Process Industry have helped the Industry make thistransition by providing ICT-powered solutions that have transformed what used to beprimarily manufacturing companies into intelligent service nodes of the new industrialnetwork. The physical ownership or location of production plants no longer matter; theprimary factor is how visible and accessible the companies are as dependable ProcessIndustry service nodes in the industrial network. Everything else is secondary. © Yokogawa Electric Corporation 2010-2011 Page 8
  • 12. Process Industries @ 2025What the world looks likeThe world is pushing a new frontier that has virtually no limits. Instead of physical expansioninto space, the human race is now focused on tapping the enormous potential of theubiquitous, ICT-enabled social networks -- the collective human inner space, so to speak.People live in smart cities connected by smart mass transportation or rather virtualtransportation, minimizing negative environmental impact while enjoying personalizedservices that best-fit their individual lifestyles. ICT-savvy consumers are less and less drivenby the desire to own expensive goods. Instead, one’s online presence and reputation, whichis the measure of the individual’s contribution to the social networks, has become a muchmore prestigious and sought-after currency.The ICT wizards working for the leading mega service conglomerates keep developing newservices that allow their subscribers to both tap and enrich the collective repository ofhuman knowledge. These relatively benign versions of “Big Brother*” are mostlyheadquartered in the USA and Europe, though their back office functions and manpower arelocated in India. *George Owel: “1984” (1949)While the so-called network externality effect favors the mega service providers with hugeexisting subscribers, the entry barrier of this virtual-service business is relatively lowcompared to asset-intensive industries. New generations of bright young talents continue tocreate new ICT service ventures, constantly challenging the existing mega service players.The US is still the best place for such entrepreneurs to try new start-ups.In a way it is reminiscent of the IT (or dot-com) bubble of the early 2000s, but this time, thecommunications infrastructure itself is no longer the main driver of investment and economicgrowth. Rather, the financial sector is keen on identifying and investing in promising new ICTapplications and service businesses. © Yokogawa Electric Corporation 2010-2011 Page 9
  • 13. Process Industries @ 2025How the profit patterns have changed in the Process IndustryThe highly flexible, responsive and online business models originated in the retail industryhave spilled over to the Process Industry, becoming the key industry dynamics. Even adecade ago, discrete manufacturing industries such as apparel were already geared to the“click & mortar” business model, catering to the individualized end consumer needs viaonline commerce. The ICT-originated mega service conglomerates accelerated the diffusionof web-enabled business models across the entire industry.The Process Industry leaders have adapted to this new environment by revamping their ICTinfrastructure and making their value chain flexible, agile, and “network-ready”. Theirreversible technical standardization and consumer mindset change of the past decademade the majority of Process Industry outputs such as energy and materials commodities.The Industry experiences about them, however, are anything but. Now that the B2B Industryand decision makers are also very ICT-savvy, the quality of the online customer experiencesrather than the quality of physical products themselves made all the difference.As online customer intimacy and market responsiveness via the ubiquitous network becamethe key success factors, real-time customer relationship management and demand/supplychain control came to be the highest value-adding functions. Activities of other part of valuechain including sourcing and production are now fully aligned to maximize the effectivenessof the virtual customer touch-points. © Yokogawa Electric Corporation 2010-2011 Page 10
  • 14. Process Industries @ 2025What trends have become pronounced in the Process IndustryIndustry trends: power-related segments such as renewable energy, smart grid, energymanagement and energy saving have come to the forefront of the Process Industry as theclosest allies of the mega service companies. The mega service conglomerates led by ICTcompanies enjoy the lion’s share of the new wealth created over the network, ushering innew hegemony in the Process Industry as well.Geographic trends: The USA has become the world leader, followed by Europe. Whileutilizing highly motivated ICT resources and infrastructure in India, most of the leadingconglomerates retain their headquarters in the US or Europe, where world-class ICTtechnology and business model research institutes keep attracting bright young minds fromaround the world. New start-ups also tend to cluster around such leading institutes.Automation trends: the mega service conglomerates and their allies are the biggestproducers of automation solutions that allow them to control the demand/supply of energyand information. New automation technologies such as smart turbine control, smart gridcontrol, smart electrical control, and smart meters allow them to monitor and control theentire energy supply chain. Meanwhile, the strong global pressure to achieve sustainablesociety boosted the demand for process optimization and energy saving solutions in allmanufacturing sectors. The equally strong price pressure in the general Process Industry,however, limited the net market growth of such energy saving solutions. All in all, theautomation demand created by the smart energy sectors is now greater in both volume andmargin than that of all the other Process Industry sectors combined.Vendors/service provider trends: a number of major automation vendors have becomeclose allies of the mega service conglomerates, which were born out of the ICT leaders.Some of these automation leaders have become the captive partners of the mega serviceconglomerates while others retained their independence through open alliances. © Yokogawa Electric Corporation 2010-2011 Page 11
  • 15. Process Industries @ 20254. Scenario III+IV: Lazy Days & Let It BeExecutive summary (@2025)The recession is over and the Process Industry is steaming ahead again. The steady growthof China and India is driving the global economy, creating ever stronger demand for energyand material. With the political stalemate unresolved about the enactment of strict globalenvironmental regulations, the market mechanism continues to have a free reign. There islittle incentive for truly innovative R&D efforts except for simple and easy improvements.Hydrocarbons and their derivatives remain the most cost-effective sources of energy andmaterials for human society.The market dynamics of the past decade have polarized the Process Industry into two majorgroups. On one end is a group of highly sophisticated, service-oriented high-end companies,mostly originated from the global Process Industry leaders headquartered in the USA andEurope. These high-end companies have redefined themselves as service providers. Theyhave sold off commoditized bulk production plants and focused on value chain upstreamactivities such as resource exploration as well as downstream activities such as customerrelationship management. On the other end is a group of extremely efficient,cost-competitive mega producers, mostly originated from national majors that haveconsolidated bulk businesses acquired from the global majors. (Note: Distributors are discussed as a part of service providers in this chapter.)For the high-end service-oriented group, upstream technical leadership and downstreamcustomer intimacy have become the key success factors. In contrast, operational efficiencyand cost leadership are the highest priority for the mega-producers. The overall picture ismore or less analogous to what had already happened in the electronics industry.Major suppliers to the Process Industry have come to help the high-end group withadvanced software and service solutions while providing standardized and intuitiveautomation solutions and/or comprehensive operation and maintenance (O&M) services forthe mega-producers. Those serving the high-end group came to partner or merge withspecialists, while those serving the mega-producers came to tie up with low-cost suppliers ofautomation products and services. The middle ground no more exists. © Yokogawa Electric Corporation 2010-2011 Page 12
  • 16. Process Industries @ 2025What the world looks likeThe world is an even more dynamic and competitive place than a decade ago. Whilepolitical agreement on stricter environmental regulations did not materialize, social,technological and economic forces enabled the world economy to grow again with a certainlevel of sustainability.The new middle class of emerging countries, particularly China and India, continues tocreate massive demands for affordable energy and goods. The mega-producers fromcost-competitive countries not only fill these demands but also supply the mature countrieswith reasonable energy and goods. As a result, bulk production/mass manufacturing hasalmost completely disappeared from mature countries. The leading value creators in themature countries are service providers, targeting value chain upstream activities such asexploration and resource management, or downstream activities such as distribution andcustomer management, or both.The global supply chain of energy and goods now comprises the service providers from themature countries and the mega producers in the cost-competitive countries. © Yokogawa Electric Corporation 2010-2011 Page 13
  • 17. Process Industries @ 2025How the profit patterns have changed in the Process IndustryThe profit patterns migrated to two extremes as the Process Industry became bipolarized.They are complementary in nature, enabling a symbiosis of different species on the globalscale.On the upstream side of the industry value chain, the service providers depend on themega-producers to process the resources they discover while the mega-producers dependon the service providers to secure natural resources as feedstock. On the downstream side,the service providers count on the mega-producers to supply energy and goods while themega-producers count on the service providers to provide the most effective and efficientaccess to the global market.For the service providers, customer intimacy is critical. They also need sufficient scope ofdeliverables to meet the Industry’s needs by leveraging their customer understanding. Forthe mega-producers, cost leadership is the key. They need to secure scale economythrough dependable sales channels. As these profit patterns interlock well, a number ofglobal coalitions emerged among the service providers and mega-producers.Such a disaggregation of the industry supply chain and the subsequent re-integration viaglobal symbiosis is equivalent to what had already played out in the electronics and otherdiscrete manufacturing industries through the 2000s. As was the case with the discreteindustries, those that failed to be part of the global symbiosis faded away from the ProcessIndustry as well. © Yokogawa Electric Corporation 2010-2011 Page 14
  • 18. Process Industries @ 2025What trends have become pronounced in the Process IndustryIndustry trends: segments such as oil & gas upstream and metals & mining have becomethe highest margin sectors due to their supply chain upstream nature, while segments suchas power and water also show above-average growth and profitability driven by downstreaminvestments in transmission and distribution. Other segments are also expanding in volume,but the margin is slim and only the most efficient mega producers are thriving.Geographic trends: Leading global service providers originated in the USA and Europecontrol the global industry supply chain, while the mega producers taking care of outsourcedproduction are mostly located in the Middle East, China, India and other resource/labor richcountries.Automation trends: the major automation demands are now driven by the mega producersin the cost-competitive countries. They prefer standardized and intuitive solutions that canbe handled by average local engineers. Due to the massive scale of their operations,reliability is a key buying factor, though not necessarily the reliability of the automationsystems and products; what matters is the reliability of the entire production process.Solutions that minimize human interventions and human errors are very valuable for thesemega producers. As a result, the demand for advanced software and/or services that eitherempower or replace human expertise is at a record high level. In contrast, level 1 and 2automation products and systems are almost completely commoditized. The high-endservice companies also increasingly require solutions that minimize human interventionsdue to the widely distributed and/or hazardous nature of their operating sites. Remoteunmanned operations have become very common for safety and labor shortage reasons.Vendors/service provider trends: due to their geographically distributed nature, thehigh-margin service-oriented segments such as resource upstream and utilities downstreamare well served by automation vendors with advanced SCADA(Supervisory Control AndData Acquisition)-originated systems integrated or incorporated into MES (ManufacturingExecution System) or higher level automation. The mega producers also preferstandardized and intuitive automation. For the high-end service-oriented groups, resourceexploration experts have grown further by forming alliances with automation leaders.Meanwhile, low-cost vendors from emerging countries have made an inroad to themega-producers, complementing their offering by alliances with and acquisitions of softwarecompanies. (End of document) © Yokogawa Electric Corporation 2010-2011 Page 15

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