Many automation products have become commodities, available from several sources with marginally different features and benefits. And new products are not forthcoming – product development budgets have been cut and there is simply no dazzling new technology on the horizon. In global markets, product requirements keep changing, margins are shrinking and there is pressure on market-share. Most of the automation majors are looking for growth beyond just products. They’re migrating to “Services” which, according to ARC, is the fastest growing segment in the automation market today.

The problem is that "Services" are knowledge intensive, tending to involve relatively narrow, application-specific expertise, which call for special modifications and extensions of standard offerings. Further, they typically include on-site systems design, integration and startup involving many different products, beyond the broad portfolio of even the largest suppliers. This type of business is usually subject to intense competition by smaller engineering and systems integrator firms, and cannot easily be scaled up for consistent revenue growth and profit margins.

Hitting a nerve

Smaller projects are the realm of Systems Integrators, typically relatively small service organizations serving only vertical markets in limited geographical areas. Also, there are applications engineering distributors (AEDs) who serve local markets, doubling as stocking distributors and service providers. Major suppliers must recognize that their service offerings put them into direct competition with these companies, often some of their best customers. The manufacturer has the advantage of additional margins and proprietary product applications knowledge – but the integrator has the advantage of having access to competitor’s products, and can often switch to compete.

The typical SI is a small company (under $10 million) without any real marketing and breadth of geographical coverage. Product manufacturers like Rockwell have a significantly greater depth of marketing savvy which allows them to study total end user requirements and develop more sophisticated offering such as strategic, preventive and predictive maintenance, as opposed to old-style reactive services. Today, for example Rockwell GMS offers “embedded” personnel to provide preventive maintenance, operations support services, startup, troubleshooting, upgrade assistance, project management, training, performance analysis, application development and more. Plus, they provide fairly sophisticated tools to measure business performance and maximize total life-cycle ROI. Few small service providers can match those offerings.

Systems integration and services always require local presence. The large manufacturers have the financial wherewithal to expand globally. But, they lack the ability to provide the depth of service and the “relationships” that the local service providers offer. The dichotomy is difficult to bridge, and expensive.

Large suppliers (Rockwell, Honeywell, Siemens, Emerson) push for global contract relationships which, of course, small suppliers cannot offer. But, developing local talent to provide high-quality services for large global customers is expensive, and takes time. It’s a slippery slope.

In the new economy, the winners will be technology suppliers who offer the best products, combined with the ability to disseminate knowledge effectively with global reach, to provide high-value-added services through effective local service providers. There’s a new maxim: Go global, stay local.