Braced for a beating?

These are interesting times, aren’t they? It’s a world of constant chaos and disruption now.

Tariffs implemented by the U.S. government are disrupting global supply chains. Mutually beneficial and longstanding trade relationships with other nations are dissolving. Costs and consumer prices in the U.S. continue to rise with persistent inflation. Geopolitical tensions continue to increase at multiple flashpoints worldwide. Cyber-attacks against industrial organizations are increasing at unprecedented rates.

It seems like you have to look hard to see any bright spots in the world of manufacturing and automation, but it’s not all bad. Both automation suppliers and end users are learning the value of resilience and planning. Those proficient at both will be able to find and capitalize on opportunities presented by these challenging market conditions.

The global and North American automation suppliers have generally been good at this. After a weak period in 2024, which seemed to get progressively worse through the fourth quarter, many automation suppliers are reporting positive financial results in their most recent quarterly reports. ARC Advisory Group anticipates that markets for process and discrete automation will continue to grow over the next several years, albeit more slowly. The end of 2024, however, was a difficult one for many automation suppliers.

Many end user companies delayed investments and sat on their cash in the year leading up to the U.S. presidential election, and the accompanying uncertainty was a big factor in automation suppliers continuing to see a slowdown in growth through the end of 2024. Overall, ARC viewed supplier performance in 2024 to be quite resilient considering market circumstances. Normalization of backlogs, destocking and strong declines in machine automation were key contributors to reduced growth toward the end of 2024.

Challenging path to 2030

Overall, however, it’s going to be a challenging journey to 2030 for the global automation market and North American market. Key indicators such as the Institute for Supply Management’s PMI reports on manufacturing and services (formerly Report on Business) show a continued decline in U.S. domestic manufacturing activity. One of the primary reasons for this decline is the impact of tariffs.

Tariffs pound U.S. manufacturing

Tariffs are wreaking havoc on businesses and supply chains both in the U.S. and worldwide. Raw materials are becoming more expensive, and the costs are being passed to consumers. End users can’t effectively plan and schedule because the availability and cost of materials is too variable and uncertain. This upheaval has resulted in the supply chain for overall manufacturing sputtering along with manufacturing in general. Many nations are no longer accepting orders from the U.S. because of tariffs.

In the U.S., tariffs are also increasing production costs, disrupting logistics networks, and forcing companies to rethink supply chains. Businesses are responding with production shifts, supply chain diversification, inventory stockpiling, and trade route adjustments in efforts to lessen financial burdens and avoid long-term instability. The North American auto industry is among the largest impacted because Mexico occupies a significant role in parts manufacturing and vehicle assembly. Approximately 40% of U.S. auto parts are sourced from Mexico, making the tariff impact immediate and severe.

In the oil and gas industry, tariffs are increasing prices for raw materials, increasing shipping costs, and decreasing demand for U.S. products because its trading partners are souring on trade. It’s hard to think of a sector of manufacturing across the spectrum of U.S. process and discrete applications that isn’t suffering due to tariffs.

These events are putting renewed emphasis on developing resilient supply chains and logistics organizations. ARC sees dramatically increasing investments in more advanced supply chain and logistics solutions. Companies must retune their supply chains to adapt to rapidly changing market conditions, pricing variability and overall raw material availability. Not all of this activity is tariff-driven either. For instance, the Colonial Pipeline cyber-attack required it to rapidly reroute product through alternative means since the pipeline was shut down. Supply chains are under constant threat of cyber-attacks, extreme, climate-related disruptions and other factors.

Reshoring happening, but is it enough?

A primary argument favoring tariffs is that manufacturing will come back to the U.S., and there is in fact a huge reshoring effort underway. This effort actually started before the tariffs due to the COVID-19 pandemic, but the tariffs are certainly jumpstarting reshoring initiatives. Many recent advances in artificial intelligence (AI), robotics and software are making it increasingly possible and appealing to reshore. Many large manufacturers have committed or are investing substantially in reshoring, including TSMC, Apple, Intel, Hyundai and others.

However, most of these investments are related to sectors like semiconductors, computers and electronics, though we’re also seeing activity in sectors like pharmaceuticals and electric equipment, including electric vehicle (EV) batteries, solar panels, wind turbines, and grid-scale battery energy storage systems (BESS). Many of these reshoring efforts themselves depend on continuing government support, for example, from the National Science Foundation’s Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act. However, its future is also uncertain now, along with the fate of any government-funded programs.

Suppliers repositioned in 2024

Emerson’s acquisition of industrial software giant AspenTech, starting in November 2024, propelled the company into the No. 1 spots on Control and ARC's Top 50 Automation Suppliers lists of worldwide and in North American suppliers. This was perhaps the most significant change to the two lists during 2024.

Meanwhile, ABB and Siemens both moved up the ranks in the North American market in 2024. Many other companies also changed positions in North America during this challenging year. Small to mid-sized automation suppliers focusing on the discrete manufacturing sector found the business environment particularly challenging.

Most of the big position shifts in the Top 50 lists over the years are the result of continued industry consolidation. And, as seems to occur every year, most of this consolidation involves large integrated automation suppliers boosting their capabilities in software and services. Emerson’s acquisition of AspenTech is just the latest example of this ongoing trend. It was preceded by Schneider Electric’s acquisition of Aveva, Hexagon’s acquisition of PAS, Siemens’ acquisition of Altair Engineering, and Yokogawa’s acquisition of KBC Advanced Technologies, among others. Likewise, we’re also seeing more acquisitions of industrial cybersecurity companies by the large automation suppliers, but more on that later.

AI supercharges growth in software, services, data centers

New technologies can often be an impetus for growth. At ARC, we continuously emphasize the maxim that, “Technology for technology’s sake is not the answer.” Users need to look at the business value proposition of each proposed technology.

AI has triggered an explosion of new software applications, but cutting through the hype to determine what’s actually useful can be a challenge. However, AI is also moving beyond the hype phase as end users seek to apply AI-based solutions to solve real business problems. AI has a lot of potential to ease the burdens on operators, engineers and technicians in plants. While large language models (LLM) get much of the spotlight, ARC sees myriad applications, where capabilities like machine learning (ML) or deep learning streamline processes, reduce workloads, and optimize operations and procedures in plants.

To say AI is a data processing hog is a vast understatement. The volume of data used to make decisions is increasing rapidly with AI, even though it was already swelling thanks to cloud- and edge-computing before the AI revolution. This presents users with interesting issues regarding the storage, handling and security of their data.

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One of the biggest aspects of this AI-fueled demand for data processing capacity is datacenters. Suddenly, datacenters are another important part of everyday operations for manufacturing end users. Evaluating datacenter providers has become just as important as evaluating control system suppliers. Datacenters are also enormous consumers of energy, and many automation suppliers are focusing on their business in the datacenter market to create OT solutions for datacenters that are energy-efficient and secure.

Many end users also find that implementing AI-based solutions poses some challenges when the data side of the equation is considered. For instance, AI necessitates separating data from applications. ARC is observing adoption of industrial data fabrics to give users the right information foundations to implement their AI strategies. In a further move beyond the hype phase, AI is being applied in the manufacturing sector with some very positive results. Huge advances continue to be made in industrial software and computing, with quantum computing lurking on the horizon as the next big technology shift.

AI offers promise, opportunity—and risks

AI is a huge opportunity for end users and suppliers, but it also presents huge risks. Users must secure their own AI implementations, but many aren’t even aware of the scope of AI tools used at their own companies. Consequently, their AI adoption strategies can lack the guardrails necessary to reduce risk, and maintain resilient security postures. This includes plant and enterprise operations, as well as internal software development activities.

Nonetheless, many end users in a range of industries from pulp and paper to oil and gas are developing their own LLMs and copilots to be used by their workers. Unfortunately, AI is also being used by attackers to mount more effective malware campaigns, identify and exploit vulnerabilities, and create more realistic and deceptive phishing campaigns.

Sustainability still a global business imperative

If AI is the leading technology trend in manufacturing and automation, then sustainability is the leading business issue. Most business and operational challenges faced by end users can be traced back to sustainability, from increasing energy efficiency to reducing emissions, meeting regulatory reporting requirements, and reducing emissions.

Even if the U.S. experiences a rollback in environmental regulations, as the Trump Administration has promised, many companies view sustainability issues as a primary business imperative. Plus, for the rest of the world, sustainability laws are continuing to become more stringent.

However, sustainability is more than just regulatory compliance. Applications like carbon capture and storage (CCS) and hydrogen production, transportation and storage offer huge new opportunities for the automation industry and its manufacturers. End users continue to invest significantly in applications like low-carbon cement production, low-carbon steel production, plastic recycling processes, and renewable fuels such as sustainable diesel and ethanol.

Most of the new power generation capacity installed in North America was either wind or solar in 2024, and this trend is expected to continue because it makes the most business sense for utilities and power providers. ARC also considers small modular reactor (SMR) technology in the nuclear industry to be a domain of sustainability, and we expect this sector to grow significantly in the future. Most of the gas-fired power generation capacity being built today is for on-demand power applications, where grid shortfalls require quick addition of new energy-producing sources.

Why cybersecurity matters more now

ARC continues to see substantial growth in the industrial and operations technology (OT) cybersecurity market. Growth in cybersecurity solutions continues to be recession-proof in many ways because cyber-threats against the manufacturing sector continue to escalate along with increasing geopolitical tensions.

There are also major, industrial cybersecurity regulations that are either in effect now, or will soon go into effect, which will require adherence by end users worldwide. These include the European Union’s (EU) new Cyber Resilience Act (CRA) and NIS2 cybersecurity regulations. Impacting mainly product manufacturers, CRA mandates that comprehensive security practices are adhered to during product development, testing, and throughout their product-support lifecycles. On the other hand, NIS2 is more focused on the cybersecurity practices of end-user companies to ensure their operations are secure.

Other industry-specific, cyber-regulations include:

• Transportation Security Administration’s updated Pipeline Security Guidelines;
• U.S. Maritime Transportation Security Act; and
• National Cybersecurity Authority’s Operational Technology Cybersecurity Controls (OTCC) cybersecurity regulations in Saudi Arabia.

Regulatory issues aside, end users are also starting to see correlations between cyber-incidents and unplanned downtime. ARC now views cyber-attacks and cyber-incidents as a source of unplanned downtime for the process, hybrid and discrete manufacturing industries. Introducing AI-based tools and solutions to the manufacturing landscape will also require more advanced cybersecurity approaches.

The large automation suppliers continue to acquire industrial cybersecurity companies as well. The most recent is Mitsubishi Electric’s acquisition of Nozomi Networks for about $1 billion in September. Other recent acquisitions include Rockwell Automation’s acquisition of Verve Industrial, and Honeywell’s acquisition of SCADAfence in 2023. Even some of the larger industrial cybersecurity providers are making acquisitions, such as Armis’ purchase of Otorio in March 2025.

Top 50 global automation vendors

Top 50 North American automation vendors