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Economic Slowdown: Opportunities for the APAC RFID Industry

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This market insight examines some of the areas which show strong opportunities for the Asia Pacific RFID industry during the current financial crisis in 2009. A brief introduction is provided on the …

This market insight examines some of the areas which show strong opportunities for the Asia Pacific RFID industry during the current financial crisis in 2009. A brief introduction is provided on the economic climate and the environment scan of the RFID industry, before analyzing five differing areas which show strong possibilities for stakeholders in this industry to consider.

Frost & Sullivan's opinions and recommendations are provided throughout this market insight, harnessing current and future opportunities in this technology, especially when the global economy is experiencing one of the worst financial crisis’ in modern times.

Published in: Business, News & Politics

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  • 1. January 2009 ECONOMIC SLOWDOWN: OPPORTUNITIES FOR THE ASIA PACIFIC RFID INDUSTRY By: Richard Sebastian, Frost & Sullivan © 2009 Frost & Sullivan “We accelerate growth”
  • 2. 1. Introduction I. Synopsis This market insight examines some of the areas which show strong opportunities for the Asia Pacific RFID industry during the current financial crisis in 2009. A brief introduction is provided on the economic climate and the environment scan of the RFID industry, before analyzing five differing areas which show strong possibilities for stakeholders in this industry to consider. Frost & Sullivan's opinions and recommendations are provided throughout this market insight, harnessing current and future opportunities in this technology, especially when the global economy is experiencing one of the worst financial crisis’ in modern times. 2. Economic Climate I. Current Economic Scenario No country has been immune to the global financial crisis, and likewise, every industry out there has been affected by this crisis, with varying degrees of severity. A closer look at some of the key financial markets across Asia Pacific in 2008 also highlights a similar scenario; significant drop in value of the market. Data collated by the World Federation of Exchanges (WFE) on the domestic market capitalization value of its 18 members based in Asia Pacific show the market has shrunk by 53.1 percent in the end of 2007, compared to November 2008, which translates to the loss of approximately $10.5 trillion in a single year. News of companies going bankrupt are not uncommon during these trying times, with many others making desperate measures such as laying off workers and enforcing strict budget cuts to cushion the impact of this financial crisis. However, many governments around the globe have already issued various stimulus packages and benefits such as financial bailouts, lowering of interest rates, and infusing capital into financial institutions, and so on, to boost the economy. As a result, 2009 certainly looks like a very challenging year ahead for companies involved in the RFID industry to navigate in. II. Pre-Economic Crisis and Progress with RFID Taking a step back before the economic meltdown affected the global economy; RFID's progress in this region was gaining steady momentum and making reasonable progress in a wide host of areas. Before the full effects of this economic slowdown begin to spiral down and hit the Asia Pacific region ranging between the second and third quarter of 2008, many within the industry were optimistic about RFID's potential. It was opined that this technology was moving in the correct direction and majority of the stakeholders felt that the period between 2009 and 2010 was when the 'hype phase' ends and RFID as a technology becomes a truly mainstream commercial technology, with growing interests and more full-scale rollouts being initiated. © 2009 Frost & Sullivan FROST & S U L L I VA N 2
  • 3. Based on observations from mid 2007 onwards, more RFID initiatives were switching from proof- of-concept and pilot-based activities to full fledged projects. In fact, scale of projects were generally becoming larger over time, with many enterprise wide and several inter-enterprise wide or open- loop initiatives being rolled out, thus fueling perception that this technology was slowly becoming pervasive in the environment. Several verticals were beginning to show promise during this time, such as industrial (manufacturing, warehousing, and so on), transportation and logistics, healthcare, aviation, and government-backed initiatives. Not only was RFID looked upon as a platform to improve and optimize the supply chain within those respective verticals, but also as means to improve security and safety. In addition, cross-vertical based applications, which included asset management and document management that can be deployed in any industry, was becoming increasingly popular among the enterprises. III. Current Scenario for RFID Stakeholders As the financial markets do not show immediate signs of recovery at least until the third or fourth quarters in 2009, with strong possibilities to spillover into 2010, the short-term future for the RFID industry certainly looks challenging. With several countries within the region already experiencing recession, and with the remaining majority bracing for the worst, credit financing is expected to remain tight during this tough period. Moreover, with the export market badly hit, companies' revenues have gone to an all-time low and these forces many to take drastic measures which include tightening their budgets on technology related investments including RFID for the enterprise. Already, some RFID stakeholders have mentioned witnessing drops in monthly sales by 10 to 30 percent, with a few others experiencing up to a 50 percent drop in sales. 3. Areas with Opportunities I. What is in Store Now? "Although the global economy may be slowing, the world's largest retailer is rapidly adopting RFID/EPC technology and seeing tremendous benefits. Their recent announcement of a new point of sale system that uses RFID technology will truly change the global retail experience for generations to come." (Louis Sirico; Founder & CTO - Industry Wizards, 2009) There is no denying RFID holds immense potential, not only within the retail industry but potentially to every single enterprise with what it has to offer. However, similar to any new technology just being introduced to the masses; it takes time for the end-user segments to fully buy-in to this technology. Although this technology has begun to make a stronger presence within enterprises across the region in 2007 and early 2008, the financial crunch has certainly derailed the momentum it was picking up. Hence, the question is, what is in store for the for stakeholders involved in the RFID value chain for 2009 and possibly even 2010 until the global economy shows © 2009 Frost & Sullivan FROST & S U L L I VA N 3
  • 4. signs of recovery? Is there any opportunity for them or is it all gloom and doom? While many of the RFID stakeholders in the industry have experienced some levels of drop in revenues due to poorer sales, there are actually several companies involved in the RFID value chain that are persevering and even expanding their business during these challenging times. This part of the market insight takes a look at some of the areas of potential, which can be considered by RFID stakeholders to be profitable even when facing this current economic downturn. Chart 1.1 shows focus areas with potential to be considered during the economic downturn in the Asia Pacific RFID market in 2009. Chart 1.1 RFID Market: Focus Areas with Potential to be considered during Economic Slowdown (Asia Pacific), 2009 II. Think Simple, Unique and Innovative When considering to create new applications, it should be noted that it does not necessarily need to be for a project of a gigantic scale, such as Wal-Mart's initiative, for it to succeed. With RFID's properties of providing the track and trace function without the line of sight thus enabling real time data capture, the potential for new applications to be developed leveraging on this technology is boundless. Moreover, with RFID's capabilities of integrating with sensor technologies, having higher security features than other track and trace technologies, holding significantly larger memory capacities than barcodes, and ability to automate business processes; the possibilities for new applications to be introduced are left up to the creativity of a person. Stakeholders need to remember that many applications available in the market, though may be lesser known, are in reality very simple, unique, and innovative, providing appropriate solution for a particular problem an end user is facing. Simple meaning the application developed does not necessarily be complicated. Unique meaning an application which is new or could be used to service a niche sector. Innovative meaning incorporating RFID in diverse ways. This tag line should be the mantra for all solutions developers to ensure that they are able to sustain and remain © 2009 Frost & Sullivan FROST & S U L L I VA N 4
  • 5. profitable not only during this trying time, but for long-term prospects of the RFID industry itself. Discussed below are several applications which fit the description of being simple, unique, and innovative. Arowana Tracking The use of RFID to tag Arowana fishes is actually part of a broader area known as animal tagging. This application is however elaborated here to showcase the fact that considering those three basic points can be used to solve a specific problem associated with breeding this expensive fish. Considering the fact that Arowana fish is a protected species in many parts of the world, the use of RFID was meant to have a better identification method of this species of fish to prevent illegal trade. Singapore was among the earliest to initiate a program in 2005, to make it compulsory for those importing or exporting this species of fish to implant an RFID tag under its skin for identification purposes. Since then, tagging of Arowana fishes for trade has become a relatively common practice among many other fish breeders located elsewhere in this region. Each RFID tag contains detailed records about the fish, including customer information and product description. DVD Tracking The Malaysian Government, through the Ministry of Home Affairs, is working with several local system integrators such as SentientWave Technology and EcoSensa, based in Kuala Lumpur, to develop a system using RFID to prevent counterfeiting DVDs. The Ministry has issued the B- Certificates for movies in DVD format to first ensure it has passed censorship rating and second, for authentication purposes. This project is set to be the first project to be leverage on the Malaysia MicroChip (MM Chip) version 3 Gen 2 compliant chips. Manhole Tracking Japan and South Korea are two known countries to have initiated a project to tag their manhole covers across major cities. The main purpose of this initiative is to ease repair and maintenance work, as replacements can be done instantly. Considering manholes come in different shapes and sizes, an RFID tag will be able to provide relevant information needed on the exact features of manhole covers whenever required. III. Concentrate on Market Demands There is a general consensus among RFID stakeholders that certain areas, which continue to generate strong interest from end users, are expected to further grow in demand even during this economic downturn. The key reason for these areas, or more precisely, applications to become increasingly popular is the quick return on investment (ROI). Typically, ROI can be realized within six months to three years. Such applications should not be neglected by companies in the RFID business. General Asset Management Asset management can broadly be divided into two separate types; general asset management and IT asset management. General asset management, or simply known as asset management is an © 2009 Frost & Sullivan FROST & S U L L I VA N 5
  • 6. application where RFID is to keep track of all sorts of assets, and can be deployed horizontally across all enterprises and industries. It can be found in a diversified range of industries, such as healthcare, manufacturing, retail, warehousing, transportation and others, as enterprises are beginning to consider RFID as the means for better manageability and visibility of their assets. Typically, RFID is used to keep track of mobile assets, and the type of tag used depends very much on the value of the asset. Active tags are commonly used for assets of very high value, as these enable continuous real-time monitoring, while passive tags, commonly the UHF passive tags, are deployed for assets of medium or high value. HF is also used to a certain extent for asset management. Likewise, real time location systems (RTLS) are also becoming increasingly popular for keeping track of assets where a high granularity (sometimes referred to resolution or accuracy) is required. In such situations, RTLS solutions are able to offer tracking up to coordinate levels (X and Y, and Z is possible only with certain types of solutions). IT Asset Management Information technology (IT) asset management could be considered a separate area of asset management considering the rapid inroads RFID has made into this industry over the last two years. It is a fast growing area where RFID is being used to keep track and manage the dozens to hundreds of servers and hundreds to thousands of tape drives, which can be found in any medium to large scale data center. With promise of process automation of IT assets that contributes to better utilization rates and better cost savings, enhancing security levels for data tape tracking, aids adhering to compliancy issues, improving service levels and reducing total cost of ownerships within data centers, it is no surprise more data centers are beginning to look at means to leverage on this technology. Several RFID related companies including the likes of Motorola, HP, Microsoft and Omni-ID Cayman have specialized products and solutions just for this area, and is anticipated more will begin to enter this market with huge benefits end-users can reap through an implementation. Document Tracking The use of RFID to keep track and manage documents is fast becoming a popular choice among many, especially where security is critical. Several companies are already marketing various document tracking solutions leveraging on RFID, with a few based out of Asia Pacific. The common frequency used for document tracking is high frequency (HF), but there are also other solutions which leverage on low frequency (LF) or ultra high frequency (UHF). The government sectors, banking sectors, finance agencies, law firms, and insurance agencies have begun to deploy this technology to authenticate and have better control of documents. This is in bid to improve overall security concerning to managing classified or high-value documents. Others are leveraging on document tracking solutions as the first step toward enabling a knowledge management solution at work-sites. Many RFID stakeholders consider this as the killer application; an application with the biggest potential to be adopted among end users across all industries. This is definitely true considering the huge number of highly confidential or high-value documents owned by the hundreds of thousands of enterprises across Asia Pacific. © 2009 Frost & Sullivan FROST & S U L L I VA N 6
  • 7. IV. Consolidate Resources and Focus on Key Verticals Many companies involved in the RFID industry often focus on too many areas at the same time, thus not being able to focus on real opportunities available in the market. With the current economic scenario coming into full effect, enterprises will be forced to tighten their budget. This provides a strong need for those offering RFID-related products and solutions to identify areas with strong potential and strategically focus on these few, rather than haphazardly focus on all the areas and end up not showing any positive result. For smaller and medium scaled companies, especially those without a strong financial backup as larger companies, this is the time to consolidate available resources to develop products and solutions with a strong potential; basically in essence become more industry specific rather than being a generalist. With the ability to provide solutions which are more industry specific, a company is able to build on its capabilities and create its own niche areas of specialization. Quantum ID Technologies, Omni-ID Cayman, RSI ID Technologies, Omnitrol Networks, and Identec Solutions are among some of the companies found to have more industry-specific solutions from the very beginning of their operations. It is anticipated that such companies are more likely be able to weather uncertainties, such as the current economic recession, due to their strong capabilities within a specific segment of the RFID value chain, along with competencies developed through serving certain specific industries. Likewise, a few industries show growth potential even during this current downturn in the economy. Discussed below are several areas that illustrate the need to focus on key verticals, which show potential to grow even during this financial crunch period. Healthcare Industry At present, the healthcare industry looks like one of the stronger prospects, where RFID is expected to show reasonable progress. Despite the expected budget cuts similar to any other industry, the impact it has on RFID initiatives is likely to be much lesser. With RFID's ability to provide the five 'R's in the healthcare industry, namely right people, right place, right time, right equipment, and right procedure, continuous traction is expected due to several reasons. When observing it from a macro perspective, the governments of Asian countries have continued to set aside huge budgets for the public healthcare system even with the declining economy. Most of the key countries in Asia Pacific including Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, the Philippines, Singapore, South Korea, Taiwan, Thailand, and Vietnam, have seen healthcare-related investments based on gross domestic product (GDP) expenditure in 2008 between 2.8 and 10.3 percent. As the GDP of most countries will drop due to the recession of the economy in 2009, most industries are expected to witness lower investments. However, the healthcare industry is not expected to witness any significant reduction of investments and is likely to remain at 2008 levels the very least. This is down to several factors. Among the reasons healthcare investments is likely to continue is with most countries still looking at means to revamp and improve the overall public healthcare system, funding or investment are © 2009 Frost & Sullivan FROST & S U L L I VA N 7
  • 8. expected to continue to pour in for a diverse range of areas, including technology-related fields. Taking this into consideration, there is strong possibility for RFID to appeal to end users within this segment of the industry; be it to improve efficiency, security, or safety levels. In addition, hospitals across the Asia Pacific region could rely on RFID as a tool to aid in complying with healthcare-related accreditations, which at times, may be bound by either domestic or international laws, similar to the U.S. Joint Commission on Accreditation of Healthcare Organizations (JCAHO) accreditation which governs the U.S. healthcare industry. Besides that, the private sector of the healthcare industry is under immense pressure to remain profitable, with increasing competition in addition to the financial crunch which has led to lower spending power even among patients. With the private healthcare industry likely to enable a more competitive pricing package to ensure patient inflow, they will need to look at means of improving overall efficiency levels to maintain their earlier profit margins. Bearing this in mind, the participants in the private sector of the healthcare industry will need to look at means to streamline operations, while maintaining a high level for quality of service (QoS) in bids to be profitable. Similar to what RFID has to offer to the public sector of the healthcare industry, it is opined that many in the private sector will currently begin to look more seriously at RFID as means to remain competitive. Moreover, technology stakeholders need to remember another key reason for the Asia Pacific healthcare industry to show such high growth prospects. With the medical tourism industry in this region already making a multi-billion dollar business annually, they will need to ensure the business continues even during this financial crisis. As patients from around the world prefer healthcare facilities across Asia Pacific for medical treatment over those offered in other regions due to a high QoS offered at a much more competitively priced package, those involved in the industry know the stakes are too high to ignore. With endless possibilities RFID has to offer, the healthcare industry; operators within the healthcare industry are likely to consider this technology, so as long they can be convinced by RFID stakeholders that this track and trace technology can dramatically improve their business operations to strike a competitive advantage over their rivals. Animal Tracking Industry The use of RFID to keep track of animals covers four distinct areas, namely, livestock tracking, wildlife tracking, companion animal tracking, and aquaculture or fisheries. Of these, RFID is primarily used in livestock tracking, which includes tracking of cattle, sheep, goats, pigs, and other animals that are managed on larger scale. In addition, another fast growing area is the use of RFID to keep track of shrimp and other fish meant for export or local use. Legislation around the world are driving RFID roll outs in this sector, often subsidized or spearheaded by governments. With growing concerns about animal health, potential bio-terrorism, food safety, international trade, and improving supply chain management have made animal and meat traceability essential. Epidemics such as mad cow disease, bird flu, and others have led governments to consider RFID implementation for animal tracking. Australia and New Zealand are examples of countries in Asia Pacific where the Governments have issued mandates to tag animals. © 2009 Frost & Sullivan FROST & S U L L I VA N 8
  • 9. Nearly all large-scale projects are currently spearheaded by the governments and the contribution from private sector is very small at present. Besides the legislation passed out by the individual countries, they must also comply with legislation of international bodies. For instance, a legislation passed by the European Union in 2005 demands 'one up one down' traceability and a legislation by the U.S. Homeland Security demands unprecedented levels of traceability. Since some of the Asia Pacific countries rely on animal exports to the European Union and the above legislation will drive the demand for RFID tags for animal tracking. In addition to the government, companies such as Wal-Mart and McDonald have mandated full traceability from suppliers. With this in mind, there holds strong opportunity for stakeholders within the RFID industry took at animal tracking as an option for them to further grow their business. Despite the economic recession, due to the introduction of various legislation, strong support from the governments and growing concerns on animal traceability, this vertical is expected to continue to gain traction. Aviation Industry The current financial downturn has severely affected the aviation industry. The Director General and CEO of the International Aviation Transport Authority (IATA); Mr. Giovanni Bisignani recently pointed out that the current situation affecting the aviation industry is the "worst revenue environment in 50 years", and this is definitely not an overstatement. Some of the statistics certainly back this statement. When observing the revenues lost; IATA estimates show that the entire aviation industry looks set to rake in approximately $5 billion in losses, with worst case scenarios showing potential losses up to $5.8 billion in 2008 alone. As for 2009, it has projected a further loss of $2.5 billion. Due to this, it is no surprise many airlines have already gone bankrupt, but the most alarming fact is that 26 airlines in 2008 alone have gone bankrupt. This is worse than the aftermath of the 9/11 incident, when the global airlines industry suffered heavy losses with passenger traffic dropping sharply. IATA estimates 32 million people around the world employed in air transport and related industries such as travel, tourism, and airports. With the unprecedented financial losses faced during this financial crisis, there have already been over 180,000 job cuts in 2008 alone. The immediate future of the aviation industry looks bleak, as another 300,000 to 400,000 jobs are at risk of being cut in 2009, due to the effects of the financial crisis. With such a grim outlook in the aviation industry, the future for RFID could be more promising than expected. Stakeholders in the aviation sector which includes airline operators, airport operators, airplane manufacturers, maintenance, repair and overhaul (MRO) operators, and catering operators will be forced to revamp their business immediately in order to survive in this scenario. In trying times such as this, the value of RFID will be more significant than ever before for the aviation sector. RFID as a technology has significant potential to be deployed in four key areas, namely for baggage handling, in-flight or catering services, MRO, and cargo management. Observing the baggage handling and in-flight services application alone shows great potential the aviation industry to leverage on RFID. Based on IATA and Société Internationale de Télécommunications Aéronautiques (SITA) statistics, over 42 million baggage were mishandled © 2009 Frost & Sullivan FROST & S U L L I VA N 9
  • 10. (either missing or delayed) in 2007 alone globally, resulting to the aviation industry incurring losses of $3.8 billion. Through actual pilots and full scaled implementations done, estimates show RFID can reduce about 10 percent of transfer-related problems and can reduce approximately 15 percent of all local related issues in a baggage handling system. Even modest estimates deduce potential savings to be 20 to 25 percent annually, and return on investment can be achieved within two to three years. As for in-flight services, catering operators incur huge losses annually due to very poor visibility of their catering equipment, which include trolleys and boxes. Catering operators are plagued with high shrinkage levels, poor servicing records, and overstocking of catering equipment due to limited visibility. Based on an initial pilot conducted by KLM City Hopper and KLM Catering Services and overseen by IATA in mid 2008, they estimate total savings achievable once an RFID- based in-flight service is fully implemented among all catering operators can amount to a one time saving of $48 million through reduction of stock. A further $470 million can be saved annually with better management of catering equipment through increased visibility. The strong ROI gains, as highlighted in those two applications, show that RFID has strong potential to make inroads within the aviation sector. Many within the aviation sector are likely to be unaware of how this technology works or the full benefits that can be reaped, thus it is pivotal for RFID stakeholders to continue aggressively to target this industry, considering aviation stakeholders are more likely to initiate an RFID deployment at present than ever before due to the various challenges they currently face. V. Explore New Areas Over the last few years since this track and trace technology became a hot topic, a lot has been spoken on several areas where RFID has potential; namely general manufacturing, transportation and logistics, and the healthcare industry. However, there are areas where RFID shows equally high opportunities, though the contribution of this technology is not acknowledged. Some areas are only currently beginning to witness some initiatives, while some other areas remain to be explored; nevertheless these new areas show tremendous potential for RFID deployment. To persevere especially during tough times, RFID stakeholders should also begin to seriously consider new markets to penetrate and make those their 'blue oceans', as none or a limited number of companies presently operates in such markets. At the same time, it will be beneficial to enter new markets to not only gain a stronger market share, but also develop necessary competencies required for specific industries or applications, thus ensuring the company brand name slowly develops to be a thought leader in a particular field. Discussed below are several areas to be considered to further expand the RFID business. Oil and Gas Industry RFID in the oil and gas (O&G) industry is still in the nascent stage of development not only in Asia Pacific, but also at a global level. The O&G industry holds great potential for RFID as a platform © 2009 Frost & Sullivan FROST & S U L L I VA N 10
  • 11. to support various applications, namely for three distinct areas; supply chain management (SCM); health, safety, and environment (HSE), and facility operations and management. Only minimal deployments took place in 2007 and 2008 globally, and more deployments are in the anvil in 2009. Several companies including the likes of Aker Solutions and Wipro Infotech are among those beginning to offer RFID-related services for the O&G stakeholders to optimize their overall operations within Asia Pacific. As RFID has proven to transform business operations for many other industries, O&G stakeholders are also keen to consider this technology as a means of improvising their operations. With many O&G facilities located across Asia Pacific, especially in China, India, and Malaysia, the potential for RFID adoption in this industry is huge. With the effects of the global economic downturn having a significantly lesser impact to the O&G industry as compared to the other industries, stakeholders in this industry are still likely to invest heavily on technology, and RFID-related companies need to consider this as an opportunity to further develop their business. Integrated O&G operators, such as Exxon Mobil, Shell, Chevron, ConocoPhillips, and others are cash rich and have a healthy cash flow, hence will continue pushing through their projected exploration projects through the next few years. In addition, O&G operators which are national oil companies are also expected to grow for similar reasons and they also have national obligations to stimulate the local economies hence continuing with projects in their pipeline. As a consequence of all of this, the services and engineering or construction companies such as Aker Solutions, FMC Technologies, GE Oil & Gas, Cameron, Schlumberger, Halliburton, and Baker Hughes will continue to flourish during this tough period. This is in addition to the fact that these companies have built up a healthy order backlog during the last few years. Based on the fact that this industry still has strong financial muscle, it is anticipated that the O&G industry on whole is more likely to proceed with an RFID deployment with the aim to streamline operations and enhance efficiency or security levels, so as long ROI gains can be thoroughly justified. However, RFID stakeholders will need to be aware of several potential pitfalls before they try to tap into this industry. First, they will need to remember that the O&G industry is a highly complex environment and there is no room for error. Those with no prior experience are likely to struggle to understand the fine details required to successfully implement business process re-engineering. Hence, it can be advantageous for them to partner with O&G consultants, who are more familiar with this industry when approaching prospect clients. In addition, RFID stakeholders take into consideration that the O&G business is run in a relatively 'traditional' manner, where these O&G companies are known to be conservative when dealing with new companies. This again is beneficial to initiate projects with a trusted O&G consultant rather than approaching it from an individualistic approach. Mining Industry The mining industry is quite similar to O&G industry, where it remains relatively untapped for RFID's progress. In addition, the mining industry has been lesser hit to the volatility of the current financial crunch. Besides the O&G industry, much of the mining industry; which includes iron, coal, © 2009 Frost & Sullivan FROST & S U L L I VA N 11
  • 12. manganese, diamonds, gold, silver, aluminum, copper, nickel, and uranium, has witnessed either stable or higher prices in 2008, showing there is still a high demand. The world's largest mining company in the world; BHP Billiton, has showed steady increase of revenues and profits over the last few years with revenues in 2008 at $59.5 billion ($47.5 billion in 2007) and profit after tax at over $16.0 billion ($13.5 billion in 2007). A similar trend of steady increase in revenues and profits are observed among many other established mining companies, confirming that this industry is profitable even during challenging times such as seen with the economic slowdown. Similar to any other large industry, this track and trace technology serves significant potential in the mining industry, more so considering the harsh environment where mines are typically located in. Opportunities arise within SCM, HSE, and facility operations and management, similar to the O&G industry. RFID application within the Asia Pacific mining industry is still at a nascent stage, but already a few projects have been implemented in recent times. One of the notable ones is the project for BHP Billiton Mitsubishi Alliance (BMA) coal mine in Australia involving Computer Science Corporation (CSC) and Syscan. In this particular project, more than 320 miners along with over 17,000 assets were tagged with RFID for identification and monitoring purposes. With the mining industry showing very strong sustaining power even during this economic recession, it will be wise for RFID stakeholders to look at this area as another potential area for opportunities. As more projects continue to be deployed and benefits better understood by end users, RFID stakeholders can expect this industry to show stronger interest with this technology and having said that, they need to look at means of penetrating this market when it is still in the early stages when competition is lesser. Halal Market The term ‘Halal’ or permissible in Arabic is widely used to highlight products or food deemed permissible according to Islamic law. This industry was worth a substantial value of $580 billion in 2008, with an annual growth rate of 7.0 percent, as per cited in the Halal Journal. Based on this fact, the Halal industry can be considered as a completely separate and stand-alone industry, when compared to the regular food industry in particular, as it comes with its complexities, requirements, and considerations of its own. The biggest concerns for this industry are means to identify food items which have been certified to be Halal and also to ensure that such items have been segregated from non-Halal food items. Presently, one of the ways to distinguish whether the product is Halal or otherwise is by the use of stickers, certifications or product items printed with the words and a special logo on it. However, this method has been known to be not fully effective, as cases of counterfeit stickers or labels have been found to be placed on food or products which are not genuinely passing the necessary Halal certifications set by relevant Islamic bodies. Among the newly emerging applications or industries RFID can deployed in, the Halal industry to date has probably been the least discussed. However, this industry possibly has one of the biggest potentials for RFID technology to be deployed in taking into consideration the scale and volume of Halal products being marketed globally. With many companies across Asia Pacific being © 2009 Frost & Sullivan FROST & S U L L I VA N 12
  • 13. exporters of Halal-based products, there certainly is opportunity for RFID to be deployed in this area, especially for higher valued goods. Stakeholders need to understand that opportunities not only lie in tagging products with RFID labels or tags to ensure authenticity of it being Halal, but it can be deployed to manage the entire value chain of the Halal industry, which may include animal tagging from the breeder right up to the retailer. In addition, the supporting infrastructure such as the logistics and supply chain network connecting from containers, distribution centers and yards, land, sear or air freight, right to all the retailers can leverage on RFID for this purpose of managing Halal-based products. Several countries are in the forefront of trying to push toward a standardized Halal industry. Malaysia, through the Halal Industry Development Corporation (HDC), is trying to promote the MS1500:2004 standards as the internationally accredited Halal standard, thereby making the country the global Halal hub. It is understood it is evaluating various methods to manage and identify Halal products, and one of the possibilities is RFID. Considering there is no information of any medium or large scale projects leveraging on RFID to be used for this purpose in the Halal industry at present, stakeholders within this industry could look at this as a motivation to push forward and become the pioneers in this industry which promises huge opportunities. VI. Prepare for Future Needs While it is pivotal to identify areas, either applications or industries, which show good potential for positive RFID traction even when the global economy is plagued by a crisis, so that companies can focus developing products or solutions for those areas, it is also critical to plan for the medium to short term. Views by economists along with government officials suggest that the global economy including that of the Asia Pacific region will witness signs of recovery possibly by late 2009 or by 2010, helped by the various stimulus packages offered by governments. However, RFID stakeholders, in particular hardware manufacturers, will also need to be prepared for what is in store not only during this economic downturn, but also where the market is headed within the near future. The key requirement here is to fully understand the trends surrounding the RFID ecosystem, as it is dynamic in nature and changes over time. One area where stakeholders can start to consider if they have yet to is to begin developing a product range supporting ultra high frequency (UHF). Based on research findings of Frost & Sullivan, it is estimated that the high frequency (HF) market in 2007 held over 57.0 percent of the RFID market share, with the UHF market holding slightly over 15.0 of the market share. This trend is expected to significantly change over the next five years, and by 2014, the UHF market is expected to supersede the HF market and hold a market share of over 46.0 percent while the latter is likely to hold a market share of approximately 44.0 percent. This trend is not really surprising, taking into account the significant number of advancements observed for the UHF technology since 2006. This includes the ratification of the EPC Gen 2 standards, which has led to offering longer read ranges and higher data read rates per second, along with the fact the technology is currently more reliable than before. In addition, the allocation of the frequency band for UHF usage by local authorities in most parts of the world © 2009 Frost & Sullivan FROST & S U L L I VA N 13
  • 14. means it is at present more viable, as special site licenses are not required. Last, a very important driver is the fact that UHF technology is typically lesser priced than other technologies in the RFID space, thus making it more affordable for larger masses to consider an adoption. Due to these various advancements, many of the newer applications being introduced in the market are leveraging on UHF. Besides, those applications which traditionally used to leverage on HF or other bands such as low frequency (LF) or microwave are also beginning to switch to UHF. However, this does not imply that the other frequency bands do not have a future in the RFID industry, but it is worth noticing that market demands are slowly but surely leveraging more on UHF due to the various benefits it has to offer. In anticipation of the change of demands, companies such as Smartrac Technology, which in the past may have offered only LF and HF range of products have recently in 2008 started to market a UHF range of products as well. For those companies yet to have a UHF-based product portfolio, it can be worth considering beginning research and development (R&D) activities. Developing a new range of products will take time and at present, could be a good time to focus on developing complementary ranges of products when the market is experiencing a slower growth rate. Moreover, it is better to start at the earliest than later to gain the maximum benefits when the RFID industry picks up again once the economy recovers. 4. Conclusion I. Possibilities Only with a Strong Business Case and ROI When observing the RFID ecosystem from a broad perspective, it can be noted that much of the technology is ready to be deployed in various environments; both robust and harsh but at the same time it is felt that many end users still lack conviction to proceed with an RFID deployment even when the economy was still good. Having gone through the different areas of potential, nothing will materialize especially now that the economy is bad. End users are more likely to be more apprehensive to spend on new technologies such as RFID if stakeholders; in particular system integrators or those approaching end users to sell the idea of an RFID deployment without a thoroughly justified business case with sound ROI gains. When looking at why some companies seem to be more successful than others, the answer lies on the fact that besides having a strong technical acumen, these companies also are able to convince end users on the full benefits gained through an RFID initiative backed with a strong business case and thoroughly justified ROI analysis. Based on feedback gathered, end users lack conviction when a poor ROI analysis which may be too general is done and resort to holding back on initiating a project. These same end users may then be approached by another RFID company offering the same solution but with a more detailed ROI analysis which showcases better returns and the end user ultimately decides to proceed with a deployment. However, it may not entirely be the fault of the system integrator in developing a poor ROI. There are instances, based on feedback gathered that customer’s themselves do not provide sufficient information although the system integrator may be in the best position to offer help. Some end © 2009 Frost & Sullivan FROST & S U L L I VA N 14
  • 15. user’s may not want to get the system integrator too deeply involved for fear that sensitive information may be required to be revealed. This in return leads to system integrators being unable to justify a sound ROI to the customer. Ultimately, its not only about having good products and solutions but is equally important for companies involved in selling RFID to end users to re-evaluate the way they proceed with developing their business case’s and ROI analysis’ to ensure potential sales are not lost due to apprehensions on the gains made even though end users may be able to afford such an initiative. At the same time, to fully reap the benefits of what this technology has to offer, end users will need to be more open when dealing with system integrators to ensure the RFID initiative is a success. Tim Wilkinson; Asia Pacific & Japan Regional Manager RFID Center of Expertise of HP shares his thoughts and notes that, "it takes a close collaboration between the customer and the system integrator to share and understand all the areas impacted, both directly and indirectly, and ensure they are correctly reflected in an ROI model," and confirms that, "demonstrating a clear ROI is still ultimately the key during this financial crisis". © 2009 Frost & Sullivan FROST & S U L L I VA N 15
  • 16. Contact Tel: (65) 6890 0999 Email: apacfrost@frost.com Website: www.frost.com CONTACT US Palo Alto New York San Antonio Toronto Buenos Aires São Paulo London Oxford Frankfurt Paris Israel Beijing Chennai Kuala Lumpur ABOUT FROST & SULLIVAN Mumbai Frost & Sullivan, the Growth Partnership Company, partners with clients to accelerate their Shanghai growth. The company's TEAM Research, Growth Consulting, and Growth Team Membership™ empower clients to create a growth-focused culture that generates, evaluates, and implements Singapore effective growth strategies. Frost & Sullivan employs over 45 years of experience in partnering with Global 1000 companies, emerging businesses, and the investment community from more Sydney than 30 offices on six continents. For more information about Frost & Sullivan’s Growth Partnership Services, visit http://www.frost.com. Tokyo © 2009 Frost & Sullivan