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The Improved ARC Automation Index

Jan. 28, 2013
Understand the Current State of Automation Markets and Read an Industry Forecast Based on Variables Such as Investment, Consumer Spending, GDP and Other Economic Indicators
Roy Kok, ARC Advisory Group. Email him at [email protected] or check out Kok's Google+ profile.There are many sources of data that can be used to drive your strategic decisions, but understand that your decisions are only as good as the data on which they are based. Common sense, no?  You are reading this publication, an excellent source of data. Some of it is vendor-supplied; some of it is delivered through the personal experiences of others or of editors. You will also turn to your own internal sources, acquiring regional opinions, staff opinions and, perhaps, consulting industry peers.

The data you collect needs to be tested for accuracy, bias and fit for purpose. Then there is the problem of reliable and repeatable data to guide your decisions on an ongoing basis. This is especially hard to come by, as few have the incentive to create metrics on an ongoing basis.

Your sources for data will typically include items like the Purchasing Managers Index (PMI), stock market indices, various stock tickers, GDP data, employment data, the Consumer Price Index (CPI), currency rates, trade balances and commodity prices. The challenge comes in interpreting these indicators and relating them to your particular business. Markets, such as the Automation Marketplace, may or may not track these indices in ways that are clear and intuitive. So the challenge remains: Where to get relevant and accurate data on which to base your strategic decisions?

ARC Advisory Group delivers a number of reports designed to give you market data. These reports will be highlighted quarterly, through an exclusive relationship with Control and ControlGlobal.com. These reports are the Automation Index Quarterly, Enterprise Market Quarterly, Automation Market Quarterly and the Capital Expenditures Annual Report. All of these reports offer intelligence and metrics on industry.

The ARC Automation Index

ARC developed its quarterly automation index to summarize the current state of automation markets, to enable participants to learn from past developments and to provide a forecast based on major variables such as investment, consumer spending, GDP and other leading economic indicators. ARC bases its index on the publicly available data of major automation companies, including published revenues. Each vendor is included within its region of origin. Extreme values, such as those resulting from acquisitions, are excluded, and all raw data is seasonally adjusted. Seasonal changes in financial reports are frequent, due to incentive structures and are usually strong in the last quarter of a fiscal year.

The big picture

Figure 1. The Global Automation Index Development and Forecast. Where the markets stood as of November 2012 and scenarios for the future.

Each quarter, the report highlights the status of the global market and those in North America, Europe and Asia. The global index and the forecast show the concerns around the debt crisis and fiscal cliff (Figure 1). This data was originally published back in November 2012. Clearly, legislation has helped to avert that scenario, and it would appear the index will continue to improve through 2013.

Looking regionally, another chart offered in the report (Figure 2) highlights the worldwide trend for automation markets, along with those in the Americas, Europe and Asia. In this chart, we see the Americas leading in growth over the same time a year ago, followed by Asia and then Europe. We expect to see a positive growth in America's economy, while both Asia and Europe will show a decline before recovery. The ARC Report goes into much more detail and supports the graphs with a significant analysis.

The situation region by region

Figure 2. Automation markets in Europe and Asia are more challenged than the U.S. markets. The European debt crisis and slowing growth in China are taking their toll.

The report says, "The situation in North America is currently brighter than previously anticipated as the recovery continues. Currently, political uncertainty with respect to the U.S. fiscal cliff causes many businesses to delay investment. However, ARC expects the uncertainty from this factor to be short-lived. The U.S. government has announced plans to support manufacturing, which promises to be a more sustainable, yet slower growing sector than finance, insurance and real estate. These plans for a manufacturing renaissance are likely to drive North American automation growth in the long run.

"Europe, the current trouble spot, is developing in two directions. The Eurozone core has capital available, and automation markets benefited from investments in 2010 and 2011. This is not the case in the Eurozone periphery, where the overall debt of states and banks currently amounts to €12,000 billion [debt of €9,200 billion of banks and €3,340 billion excluding an overlaps (source: Ifo Institute)], and economies are suffering under austerity packages. It's likely that the pure size of this debt will ultimately require creditors to take a significant loss themselves and depreciate their books accordingly. Currently, a shortage of new orders and low capacity utilization point to a rocky road ahead for European automation markets.

"In Asia, the slowdown in Chinese GDP development to below 7% challenges the region as China is an increasing importer of goods and services and a growth engine for the entire region. This slowdown impacts automation companies especially hard, as it is accompanied by a more drastic cut in automation-related investments due to earlier over-investment in selected industries leading to overcapacities."

Industry-specific market and economic data and analysis is available. This is a small sample of the data available in the ARC Automation Index report, which typically delivers over 25 pages of facts, figures and qualitative analysis. For more information including prices, visit www.arcweb.com.

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