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Process Industries @ 2025


A Whitepaper:
Three Distinct Scenarios to the 2025 Process
Industry 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.
Process Industries @ 2025




                              DISCLAIMER OF WARRANTIES
This document is provided on an “as is” basis and may be subject to future revisions, modifications, or
corrections 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, including
any warranty of merchantability or fitness for a particular purpose, for this document. In no event will
Yokogawa Electric Corporation be responsible for any loss or damage arising out of or resulting from any
defect, error or omission in this document or from anyone’s use of or reliance on this document.
Process Industries @ 2025

                                                  Table of Contents
1.      INTRODUCTION ................................................................................................................... 1

     SCENARIO PLANNING 101............................................................................................................ 1
     THE KEY DRIVERS BEHIND THE SCENARIOS .................................................................................... 2

2.      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 ........................................ 7

3.      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 ...................................... 11

4.      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
Process Industries @ 2025

1. Introduction

Scenario Planning 101


Scenario planning is not a prediction. Prediction is typically based on the extrapolation of
observable 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 the
future.


“I think there is a world market for about five computers” (Thomas J. Watson, chairman of
IBM, 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 future
is 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 that
surrounds us. By creating a set of equally uncertain, yet possible and high-impact futures, it
allows us to think ahead and prepare “what if” plans.


A typical scenario planning activity starts by identifying as many important macro and micro
trends and possibilities that can affect the future state of a given question. Then they are
filtered and categorized by two criteria: possibility (likely or uncertain) of occurrence and
impact (serious or minor) to the global market. The likely and serious trends are treated as
common factors, which you would face soon anyway in every scenario. The uncertain but
serious trends are the candidates for scenario drivers. By synthesizing these factors, the
scenario planners create a number of possible, high-impact images of the future and the
underlying dynamics that can lead to them.


In our case, the key question to be answered is: “how the business dynamics of the
Process 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 of
our users’ business first, and then come back to the point how it might affect us.




                        © Yokogawa Electric Corporation 2010-2011
                                        Page 1
Process Industries @ 2025

The key drivers behind the scenarios
What is known as “scenarios drivers” are the key “uncertainties” that can divide the future
into a set of dramatically different worlds. Note that there is no “correct” choice of drivers in
scenario planning -- rather, we look for the most “useful” ones, i.e., those drivers that help us
visualize a set of uncertain yet possible, high-impact, distinct worlds.


The four (eventually merged into three later) scenarios were developed by synthesizing
literally hundreds of key trends and possibilities that may affect the Process Industry
dynamics. By making the scenarios as mutually exclusive and collectively exhaustive as
possible, the scenario planning team identified the following two parameters as key scenario
drivers:


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 move
away from fossil fuel. The demand for hydrocarbons and their derivatives will dwindle while
clean, green, renewable energy and materials will become the mainstream, thanks to a
huge inflow of public and private R&D (research and development) funding for new
technologies. In contrast, if the global collaboration on environmental regulations continues
to limp along without any real consensus, hydrocarbons and their derivatives will continue to
power human society. This is the first uncertainty that will have a major impact on the
resultant 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 they
make and the production processes, the key angle of competition will stay at product
leadership. Speed, particularly time to market, will be the number-one priority for the
Process Industry. If the Process Industry redefines itself as a service industry, however, the
key dimensions of competition will be customer-intimacy at the high end and operational
excellence in the volume zone, respectively.


At this moment, we cannot predict which way the above two drivers will sway. A two-by-two
matrix based on the two drivers, however, enables us to create four equally possible yet
equally uncertain quadrants. Therefore the scenarios that symbolize the four quadrants
collectively represent the uncertain yet high-impact futures of the Process Industry.


                        © Yokogawa Electric Corporation 2010-2011
                                        Page 2
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 vividly


Note: the lower half was subsequently bundled into one scenario due to their high
commonality.


                                                                                                       © Yokogawa Electric Corporation 2010-2011
                                                                                                                       Page 3
Process Industries @ 2025

2. Scenario I: Material World

Executive summary (@2025)


The Process Industry is experiencing a new gold rush. Heavy investments from both public
and private sectors worldwide are pouring in, accelerating the R&D and commercialization
of new specialty materials. Materials that did not even exist in the lab ten years ago are used
in every corner of society -- producing clean renewable energy, replacing plastics and other
hydrocarbon-originated materials, and boosting new industries such as personalized
medicine. The “sustainable society” is here -- powered by innovative new materials.


The Process Industry as a whole is more profitable than ever, with the highest margin
concentrated on the R&D-intensive segments such as fine chemicals, specialty chemicals
and pharmaceuticals. A number of traditional segments such as petrochemical and refining
have 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 chemical
and pharmaceutical giants, more than compensated for this oil & gas shrinkage.


Innovation and product leadership, rather than cost leadership or customer relationship
management, has become the most important success factor in the Process Industry. Time
to 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 are
now applied to track and improve overall time to market instead of just measuring plant-floor
operational efficiency.


Leading vendors serving the Process Industry have responded to this new challenge by
breaking down traditional barriers. Gone is the separation among the lab, the pilot plant, and
the commercial plant; recipes completed in the lab can now be made into new products and
marketed in no time. Also gone are the cumbersome and time-consuming works to change
the process; modular and engineering-free production units can be quickly assembled and
disassembled to produce just the right amount of product at very short notice. Data from the
lab and the plant are integrated, enabling real-time product lifecycle management.


Meanwhile, automation vendors that failed to deliver a compelling time-to-market value
proposition have faded away, either acquired by others or cornered into a niche player
position. Convergence of Process Automation and Laboratory Automation is now complete.



                          © Yokogawa Electric Corporation 2010-2011
                                          Page 4
Process Industries @ 2025


What the world looks like


The world is bustling with new opportunities. Environmental regulations, once considered
yet another constraint for most companies and a damper on the global economy, turned out
to 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 the
world’s wealth. Nimble new ventures are born every day while traditional giants are also
thriving, attracting talent from all over the world.


The scientists in the leading labs are the modern day alchemists, developing specialty
materials that make up the fabrics of the new sustainable society. The trailblazing chemical
and pharmaceutical giants as well as leading-edge research institutes are mostly
headquartered in Europe and the USA, though the scientists and engineers who work there
are increasingly coming from emerging countries, especially China and India. Less
specialized bulk material production has already moved to their homelands, but the
state-of-the-art material research and process innovations are still mostly spearheaded by
European and US companies and institutes.


The financial and other service sectors are also increasingly geared to the needs of these
leading manufacturers and research institutes, to the point that some are starting to fear a
new bubble economy and all that might entail.




                         © Yokogawa Electric Corporation 2010-2011
                                         Page 5
Process Industries @ 2025


How the profit patterns have changed in the Process Industry


The highly R&D-focused “block buster” profit pattern of the pharmaceutical industry has
become the basis of the new Process Industry dynamics. Even a decade ago, time to
market was already the key for the pharmaceutical companies to recover their huge R&D
expenditures. The global commitment to achieve sustainable society galvanized both public
and private sectors around the world into the quest of innovative new materials, igniting
R&D zeal in the Process Industry at large.


Meanwhile, innovations in both R&D and manufacturing technologies have come to allow
small upstart companies to develop new materials and to commercialize them with a
relatively small capital investment. The extremely large-scale and continuous R&D
investment by the Chemical and Pharmaceutical giants is no longer such a strong entry
barrier for smart venture companies that leverage new technologies.


With time-to-market being the most important success factor, the lab is now clearly the
highest value-adding section. Activities in other part of the value chain including
manufacturing and production are redefined and streamlined to maximize the value of the
lab. The number-one priority for management is to turn the lab outputs into commercial
products ahead of the competition.


At the same time, manufacturing and production remains one of the key value-adding
activities and sources of differentiation for most players in the Process Industry. The high
market volatility and short product life span of new materials have led to the invention of
extremely flexible production facilities that can be modified very quickly.


Truly agile production, however, can no longer be achieved by plant-floor improvements
alone. The seamless integration of the lab and the commercial production processes is now
a necessity instead of a luxury. Those companies that have successfully harnessed the
power of seamless lab-to-production transition prospered, while companies that were not
able to go beyond traditional operational efficiency faded away.




                        © Yokogawa Electric Corporation 2010-2011
                                        Page 6
Process Industries @ 2025


What trends have become pronounced in the Process Industry


Industry trends: segments such as fine chemicals, specialty chemicals, pharmaceuticals,
medical and bio-businesses enjoy the lion’s share of the new wealth created by the
chemical renaissance. Other segments also get their fair share of the benefit of the
expanding 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 utilizing
highly motivated R&D resources from India and China, most of the leading companies retain
their headquarters in Europe or US, where world-class material and bio- research institutes
keep attracting bright young minds from around the world. New venture companies also
tend to cluster around such leading institutes.


Automation trends: most laboratories are now fully automated by integrated solutions
combining in-situ analysis, micro-reaction, robotics and IT. Connected seamlessly to such a
lab is an extremely flexible production facility, often physically distributed worldwide and
made up of modular and engineering-free “LEGO*-like” production units. Information about
any given product or batch is managed from the R&D phase through commercial production
in a unified production management system, allowing role-based secure access from any
location.
                                                          (*LEGO is a trademark of Lego Group)



Vendors/service provider trends: the main automation contractor (MAC) concept has
come to encompass the integration of laboratory automation and process automation as
well as life-cycle optimization services after installation. As a result of this market
convergence, lab-oriented solution vendors have either merged or formed alliances with
process automation vendors.




                        © Yokogawa Electric Corporation 2010-2011
                                        Page 7
Process Industries @ 2025

3. Scenario II: A Whole New World

Executive summary (@2025)


The Process Industry is practically embedded in the new hegemony of the mega service
industry, where a handful of global conglomerates provide all the smart services for the
hyper-connected human society. By now the majority of the end consumers are very
ICT(information and communication technology)-savvy. They actively participate in the
smart society as intelligent nodes -- not only receiving personalized services but also
contributing real-time knowledge via the net. The world of The Matrix movie is emerging for
real -- 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 society
infrastructure. The Process Industry has become a necessary yet low-profile building block
of the smart society, with the highest margin now concentrated on the power-related
segments such as renewable energy, smart transmission & distribution, energy
management and energy storage. As traditional production activities have grown less
profitable in other segments, Process Industry leaders have teamed up with ICT leaders to
change their business models. The successful ones redefine themselves as service
partners for the new mega service industry, joining the smart society bandwagon.


Customer intimacy over the networked supply chain, rather than product innovation or cost
leadership, has become the most important success factor for the Process Industry. The
products themselves such as energy and material are mostly commoditized, leaving little
room to compete on either functionalities or price. Instead, ICT-enabled responsiveness to
ever-shifting demands has become the key success factor to survive and prosper as a
valuable service partner.


Leading automation vendors to the Process Industry have helped the Industry make this
transition by providing ICT-powered solutions that have transformed what used to be
primarily manufacturing companies into intelligent service nodes of the new industrial
network. The physical ownership or location of production plants no longer matter; the
primary factor is how visible and accessible the companies are as dependable Process
Industry service nodes in the industrial network. Everything else is secondary.




                        © Yokogawa Electric Corporation 2010-2011
                                        Page 8
Process Industries @ 2025

What the world looks like


The world is pushing a new frontier that has virtually no limits. Instead of physical expansion
into space, the human race is now focused on tapping the enormous potential of the
ubiquitous, ICT-enabled social networks -- the collective human inner space, so to speak.


People live in smart cities connected by smart mass transportation or rather virtual
transportation, minimizing negative environmental impact while enjoying personalized
services that best-fit their individual lifestyles. ICT-savvy consumers are less and less driven
by the desire to own expensive goods. Instead, one’s online presence and reputation, which
is the measure of the individual’s contribution to the social networks, has become a much
more prestigious and sought-after currency.


The ICT wizards working for the leading mega service conglomerates keep developing new
services that allow their subscribers to both tap and enrich the collective repository of
human knowledge. These relatively benign versions of “Big Brother*” are mostly
headquartered in the USA and Europe, though their back office functions and manpower are
located in India.
                                                                     *George Owel: “1984” (1949)



While the so-called network externality effect favors the mega service providers with huge
existing subscribers, the entry barrier of this virtual-service business is relatively low
compared to asset-intensive industries. New generations of bright young talents continue to
create 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, the
communications infrastructure itself is no longer the main driver of investment and economic
growth. Rather, the financial sector is keen on identifying and investing in promising new ICT
applications and service businesses.




                        © Yokogawa Electric Corporation 2010-2011
                                        Page 9
Process Industries @ 2025

How the profit patterns have changed in the Process Industry


The highly flexible, responsive and online business models originated in the retail industry
have spilled over to the Process Industry, becoming the key industry dynamics. Even a
decade ago, discrete manufacturing industries such as apparel were already geared to the
“click & mortar” business model, catering to the individualized end consumer needs via
online commerce. The ICT-originated mega service conglomerates accelerated the diffusion
of web-enabled business models across the entire industry.


The Process Industry leaders have adapted to this new environment by revamping their ICT
infrastructure and making their value chain flexible, agile, and “network-ready”. The
irreversible technical standardization and consumer mindset change of the past decade
made 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 Industry
and decision makers are also very ICT-savvy, the quality of the online customer experiences
rather than the quality of physical products themselves made all the difference.


As online customer intimacy and market responsiveness via the ubiquitous network became
the key success factors, real-time customer relationship management and demand/supply
chain control came to be the highest value-adding functions. Activities of other part of value
chain including sourcing and production are now fully aligned to maximize the effectiveness
of the virtual customer touch-points.




                        © Yokogawa Electric Corporation 2010-2011
                                       Page 10
Process Industries @ 2025

What trends have become pronounced in the Process Industry


Industry trends: power-related segments such as renewable energy, smart grid, energy
management and energy saving have come to the forefront of the Process Industry as the
closest allies of the mega service companies. The mega service conglomerates led by ICT
companies enjoy the lion’s share of the new wealth created over the network, ushering in
new hegemony in the Process Industry as well.


Geographic trends: The USA has become the world leader, followed by Europe. While
utilizing highly motivated ICT resources and infrastructure in India, most of the leading
conglomerates retain their headquarters in the US or Europe, where world-class ICT
technology and business model research institutes keep attracting bright young minds from
around the world. New start-ups also tend to cluster around such leading institutes.


Automation trends: the mega service conglomerates and their allies are the biggest
producers of automation solutions that allow them to control the demand/supply of energy
and information. New automation technologies such as smart turbine control, smart grid
control, smart electrical control, and smart meters allow them to monitor and control the
entire energy supply chain. Meanwhile, the strong global pressure to achieve sustainable
society boosted the demand for process optimization and energy saving solutions in all
manufacturing 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, the
automation demand created by the smart energy sectors is now greater in both volume and
margin than that of all the other Process Industry sectors combined.


Vendors/service provider trends: a number of major automation vendors have become
close 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 service
conglomerates while others retained their independence through open alliances.




                       © Yokogawa Electric Corporation 2010-2011
                                       Page 11
Process Industries @ 2025

4. Scenario III+IV: Lazy Days & Let It Be

Executive summary (@2025)


The recession is over and the Process Industry is steaming ahead again. The steady growth
of China and India is driving the global economy, creating ever stronger demand for energy
and material. With the political stalemate unresolved about the enactment of strict global
environmental regulations, the market mechanism continues to have a free reign. There is
little 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 and
materials for human society.


The market dynamics of the past decade have polarized the Process Industry into two major
groups. 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 and
Europe. These high-end companies have redefined themselves as service providers. They
have sold off commoditized bulk production plants and focused on value chain upstream
activities such as resource exploration as well as downstream activities such as customer
relationship management. On the other end is a group of extremely efficient,
cost-competitive mega producers, mostly originated from national majors that have
consolidated 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 downstream
customer intimacy have become the key success factors. In contrast, operational efficiency
and cost leadership are the highest priority for the mega-producers. The overall picture is
more 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 with
advanced software and service solutions while providing standardized and intuitive
automation solutions and/or comprehensive operation and maintenance (O&M) services for
the mega-producers. Those serving the high-end group came to partner or merge with
specialists, while those serving the mega-producers came to tie up with low-cost suppliers of
automation products and services. The middle ground no more exists.




                       © Yokogawa Electric Corporation 2010-2011
                                      Page 12
Process Industries @ 2025

What the world looks like


The world is an even more dynamic and competitive place than a decade ago. While
political agreement on stricter environmental regulations did not materialize, social,
technological and economic forces enabled the world economy to grow again with a certain
level of sustainability.


The new middle class of emerging countries, particularly China and India, continues to
create massive demands for affordable energy and goods. The mega-producers from
cost-competitive countries not only fill these demands but also supply the mature countries
with reasonable energy and goods. As a result, bulk production/mass manufacturing has
almost completely disappeared from mature countries. The leading value creators in the
mature countries are service providers, targeting value chain upstream activities such as
exploration and resource management, or downstream activities such as distribution and
customer management, or both.


The global supply chain of energy and goods now comprises the service providers from the
mature countries and the mega producers in the cost-competitive countries.




                           © Yokogawa Electric Corporation 2010-2011
                                          Page 13
Process Industries @ 2025

How the profit patterns have changed in the Process Industry


The 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 global
scale.


On the upstream side of the industry value chain, the service providers depend on the
mega-producers to process the resources they discover while the mega-producers depend
on 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 the
mega-producers count on the service providers to provide the most effective and efficient
access to the global market.


For the service providers, customer intimacy is critical. They also need sufficient scope of
deliverables to meet the Industry’s needs by leveraging their customer understanding. For
the mega-producers, cost leadership is the key. They need to secure scale economy
through dependable sales channels. As these profit patterns interlock well, a number of
global coalitions emerged among the service providers and mega-producers.


Such a disaggregation of the industry supply chain and the subsequent re-integration via
global symbiosis is equivalent to what had already played out in the electronics and other
discrete manufacturing industries through the 2000s. As was the case with the discrete
industries, those that failed to be part of the global symbiosis faded away from the Process
Industry as well.




                       © Yokogawa Electric Corporation 2010-2011
                                      Page 14
Process Industries @ 2025

What trends have become pronounced in the Process Industry


Industry trends: segments such as oil & gas upstream and metals & mining have become
the highest margin sectors due to their supply chain upstream nature, while segments such
as power and water also show above-average growth and profitability driven by downstream
investments 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 Europe
control the global industry supply chain, while the mega producers taking care of outsourced
production are mostly located in the Middle East, China, India and other resource/labor rich
countries.


Automation trends: the major automation demands are now driven by the mega producers
in the cost-competitive countries. They prefer standardized and intuitive solutions that can
be 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 automation
systems and products; what matters is the reliability of the entire production process.
Solutions that minimize human interventions and human errors are very valuable for these
mega producers. As a result, the demand for advanced software and/or services that either
empower or replace human expertise is at a record high level. In contrast, level 1 and 2
automation products and systems are almost completely commoditized. The high-end
service companies also increasingly require solutions that minimize human interventions
due to the widely distributed and/or hazardous nature of their operating sites. Remote
unmanned operations have become very common for safety and labor shortage reasons.


Vendors/service provider trends: due to their geographically distributed nature, the
high-margin service-oriented segments such as resource upstream and utilities downstream
are well served by automation vendors with advanced SCADA(Supervisory Control And
Data Acquisition)-originated systems integrated or incorporated into MES (Manufacturing
Execution System) or higher level automation. The mega producers also prefer
standardized and intuitive automation. For the high-end service-oriented groups, resource
exploration experts have grown further by forming alliances with automation leaders.
Meanwhile, low-cost vendors from emerging countries have made an inroad to the
mega-producers, complementing their offering by alliances with and acquisitions of software
companies.
 (End of document)


                       © Yokogawa Electric Corporation 2010-2011
                                      Page 15

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Process Industries 2025

  • 1. Process Industries @ 2025 A Whitepaper: Three Distinct Scenarios to the 2025 Process Industry 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 WARRANTIES This document is provided on an “as is” basis and may be subject to future revisions, modifications, or corrections 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, including any warranty of merchantability or fitness for a particular purpose, for this document. In no event will Yokogawa Electric Corporation be responsible for any loss or damage arising out of or resulting from any defect, error or omission in this document or from anyone’s use of or reliance on this document.
  • 3. Process Industries @ 2025 Table of Contents 1. INTRODUCTION ................................................................................................................... 1 SCENARIO PLANNING 101............................................................................................................ 1 THE KEY DRIVERS BEHIND THE SCENARIOS .................................................................................... 2 2. 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 ........................................ 7 3. 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 ...................................... 11 4. 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 @ 2025 1. Introduction Scenario Planning 101 Scenario planning is not a prediction. Prediction is typically based on the extrapolation of observable 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 the future. “I think there is a world market for about five computers” (Thomas J. Watson, chairman of IBM, 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 future is 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 that surrounds us. By creating a set of equally uncertain, yet possible and high-impact futures, it allows us to think ahead and prepare “what if” plans. A typical scenario planning activity starts by identifying as many important macro and micro trends and possibilities that can affect the future state of a given question. Then they are filtered and categorized by two criteria: possibility (likely or uncertain) of occurrence and impact (serious or minor) to the global market. The likely and serious trends are treated as common factors, which you would face soon anyway in every scenario. The uncertain but serious trends are the candidates for scenario drivers. By synthesizing these factors, the scenario planners create a number of possible, high-impact images of the future and the underlying dynamics that can lead to them. In our case, the key question to be answered is: “how the business dynamics of the Process 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 of our 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 @ 2025 The key drivers behind the scenarios What is known as “scenarios drivers” are the key “uncertainties” that can divide the future into a set of dramatically different worlds. Note that there is no “correct” choice of drivers in scenario planning -- rather, we look for the most “useful” ones, i.e., those drivers that help us visualize a set of uncertain yet possible, high-impact, distinct worlds. The four (eventually merged into three later) scenarios were developed by synthesizing literally hundreds of key trends and possibilities that may affect the Process Industry dynamics. By making the scenarios as mutually exclusive and collectively exhaustive as possible, the scenario planning team identified the following two parameters as key scenario drivers: 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 move away from fossil fuel. The demand for hydrocarbons and their derivatives will dwindle while clean, green, renewable energy and materials will become the mainstream, thanks to a huge inflow of public and private R&D (research and development) funding for new technologies. In contrast, if the global collaboration on environmental regulations continues to limp along without any real consensus, hydrocarbons and their derivatives will continue to power human society. This is the first uncertainty that will have a major impact on the resultant 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 they make and the production processes, the key angle of competition will stay at product leadership. Speed, particularly time to market, will be the number-one priority for the Process Industry. If the Process Industry redefines itself as a service industry, however, the key dimensions of competition will be customer-intimacy at the high end and operational excellence in the volume zone, respectively. At this moment, we cannot predict which way the above two drivers will sway. A two-by-two matrix based on the two drivers, however, enables us to create four equally possible yet equally uncertain quadrants. Therefore the scenarios that symbolize the four quadrants collectively 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 vividly Note: the lower half was subsequently bundled into one scenario due to their high commonality. © Yokogawa Electric Corporation 2010-2011 Page 3
  • 7. Process Industries @ 2025 2. Scenario I: Material World Executive summary (@2025) The Process Industry is experiencing a new gold rush. Heavy investments from both public and private sectors worldwide are pouring in, accelerating the R&D and commercialization of new specialty materials. Materials that did not even exist in the lab ten years ago are used in every corner of society -- producing clean renewable energy, replacing plastics and other hydrocarbon-originated materials, and boosting new industries such as personalized medicine. The “sustainable society” is here -- powered by innovative new materials. The Process Industry as a whole is more profitable than ever, with the highest margin concentrated on the R&D-intensive segments such as fine chemicals, specialty chemicals and pharmaceuticals. A number of traditional segments such as petrochemical and refining have 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 chemical and pharmaceutical giants, more than compensated for this oil & gas shrinkage. Innovation and product leadership, rather than cost leadership or customer relationship management, has become the most important success factor in the Process Industry. Time to 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 are now applied to track and improve overall time to market instead of just measuring plant-floor operational efficiency. Leading vendors serving the Process Industry have responded to this new challenge by breaking down traditional barriers. Gone is the separation among the lab, the pilot plant, and the commercial plant; recipes completed in the lab can now be made into new products and marketed in no time. Also gone are the cumbersome and time-consuming works to change the process; modular and engineering-free production units can be quickly assembled and disassembled to produce just the right amount of product at very short notice. Data from the lab and the plant are integrated, enabling real-time product lifecycle management. Meanwhile, automation vendors that failed to deliver a compelling time-to-market value proposition have faded away, either acquired by others or cornered into a niche player position. Convergence of Process Automation and Laboratory Automation is now complete. © Yokogawa Electric Corporation 2010-2011 Page 4
  • 8. Process Industries @ 2025 What the world looks like The world is bustling with new opportunities. Environmental regulations, once considered yet another constraint for most companies and a damper on the global economy, turned out to 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 the world’s wealth. Nimble new ventures are born every day while traditional giants are also thriving, attracting talent from all over the world. The scientists in the leading labs are the modern day alchemists, developing specialty materials that make up the fabrics of the new sustainable society. The trailblazing chemical and pharmaceutical giants as well as leading-edge research institutes are mostly headquartered in Europe and the USA, though the scientists and engineers who work there are increasingly coming from emerging countries, especially China and India. Less specialized bulk material production has already moved to their homelands, but the state-of-the-art material research and process innovations are still mostly spearheaded by European and US companies and institutes. The financial and other service sectors are also increasingly geared to the needs of these leading manufacturers and research institutes, to the point that some are starting to fear a new bubble economy and all that might entail. © Yokogawa Electric Corporation 2010-2011 Page 5
  • 9. Process Industries @ 2025 How the profit patterns have changed in the Process Industry The highly R&D-focused “block buster” profit pattern of the pharmaceutical industry has become the basis of the new Process Industry dynamics. Even a decade ago, time to market was already the key for the pharmaceutical companies to recover their huge R&D expenditures. The global commitment to achieve sustainable society galvanized both public and private sectors around the world into the quest of innovative new materials, igniting R&D zeal in the Process Industry at large. Meanwhile, innovations in both R&D and manufacturing technologies have come to allow small upstart companies to develop new materials and to commercialize them with a relatively small capital investment. The extremely large-scale and continuous R&D investment by the Chemical and Pharmaceutical giants is no longer such a strong entry barrier for smart venture companies that leverage new technologies. With time-to-market being the most important success factor, the lab is now clearly the highest value-adding section. Activities in other part of the value chain including manufacturing and production are redefined and streamlined to maximize the value of the lab. The number-one priority for management is to turn the lab outputs into commercial products ahead of the competition. At the same time, manufacturing and production remains one of the key value-adding activities and sources of differentiation for most players in the Process Industry. The high market volatility and short product life span of new materials have led to the invention of extremely flexible production facilities that can be modified very quickly. Truly agile production, however, can no longer be achieved by plant-floor improvements alone. The seamless integration of the lab and the commercial production processes is now a necessity instead of a luxury. Those companies that have successfully harnessed the power of seamless lab-to-production transition prospered, while companies that were not able to go beyond traditional operational efficiency faded away. © Yokogawa Electric Corporation 2010-2011 Page 6
  • 10. Process Industries @ 2025 What trends have become pronounced in the Process Industry Industry trends: segments such as fine chemicals, specialty chemicals, pharmaceuticals, medical and bio-businesses enjoy the lion’s share of the new wealth created by the chemical renaissance. Other segments also get their fair share of the benefit of the expanding 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 utilizing highly motivated R&D resources from India and China, most of the leading companies retain their headquarters in Europe or US, where world-class material and bio- research institutes keep attracting bright young minds from around the world. New venture companies also tend to cluster around such leading institutes. Automation trends: most laboratories are now fully automated by integrated solutions combining in-situ analysis, micro-reaction, robotics and IT. Connected seamlessly to such a lab is an extremely flexible production facility, often physically distributed worldwide and made up of modular and engineering-free “LEGO*-like” production units. Information about any given product or batch is managed from the R&D phase through commercial production in a unified production management system, allowing role-based secure access from any location. (*LEGO is a trademark of Lego Group) Vendors/service provider trends: the main automation contractor (MAC) concept has come to encompass the integration of laboratory automation and process automation as well as life-cycle optimization services after installation. As a result of this market convergence, lab-oriented solution vendors have either merged or formed alliances with process automation vendors. © Yokogawa Electric Corporation 2010-2011 Page 7
  • 11. Process Industries @ 2025 3. Scenario II: A Whole New World Executive summary (@2025) The Process Industry is practically embedded in the new hegemony of the mega service industry, where a handful of global conglomerates provide all the smart services for the hyper-connected human society. By now the majority of the end consumers are very ICT(information and communication technology)-savvy. They actively participate in the smart society as intelligent nodes -- not only receiving personalized services but also contributing real-time knowledge via the net. The world of The Matrix movie is emerging for real -- 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 society infrastructure. The Process Industry has become a necessary yet low-profile building block of the smart society, with the highest margin now concentrated on the power-related segments such as renewable energy, smart transmission & distribution, energy management and energy storage. As traditional production activities have grown less profitable in other segments, Process Industry leaders have teamed up with ICT leaders to change their business models. The successful ones redefine themselves as service partners for the new mega service industry, joining the smart society bandwagon. Customer intimacy over the networked supply chain, rather than product innovation or cost leadership, has become the most important success factor for the Process Industry. The products themselves such as energy and material are mostly commoditized, leaving little room to compete on either functionalities or price. Instead, ICT-enabled responsiveness to ever-shifting demands has become the key success factor to survive and prosper as a valuable service partner. Leading automation vendors to the Process Industry have helped the Industry make this transition by providing ICT-powered solutions that have transformed what used to be primarily manufacturing companies into intelligent service nodes of the new industrial network. The physical ownership or location of production plants no longer matter; the primary factor is how visible and accessible the companies are as dependable Process Industry service nodes in the industrial network. Everything else is secondary. © Yokogawa Electric Corporation 2010-2011 Page 8
  • 12. Process Industries @ 2025 What the world looks like The world is pushing a new frontier that has virtually no limits. Instead of physical expansion into space, the human race is now focused on tapping the enormous potential of the ubiquitous, ICT-enabled social networks -- the collective human inner space, so to speak. People live in smart cities connected by smart mass transportation or rather virtual transportation, minimizing negative environmental impact while enjoying personalized services that best-fit their individual lifestyles. ICT-savvy consumers are less and less driven by the desire to own expensive goods. Instead, one’s online presence and reputation, which is the measure of the individual’s contribution to the social networks, has become a much more prestigious and sought-after currency. The ICT wizards working for the leading mega service conglomerates keep developing new services that allow their subscribers to both tap and enrich the collective repository of human knowledge. These relatively benign versions of “Big Brother*” are mostly headquartered in the USA and Europe, though their back office functions and manpower are located in India. *George Owel: “1984” (1949) While the so-called network externality effect favors the mega service providers with huge existing subscribers, the entry barrier of this virtual-service business is relatively low compared to asset-intensive industries. New generations of bright young talents continue to create 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, the communications infrastructure itself is no longer the main driver of investment and economic growth. Rather, the financial sector is keen on identifying and investing in promising new ICT applications and service businesses. © Yokogawa Electric Corporation 2010-2011 Page 9
  • 13. Process Industries @ 2025 How the profit patterns have changed in the Process Industry The highly flexible, responsive and online business models originated in the retail industry have spilled over to the Process Industry, becoming the key industry dynamics. Even a decade ago, discrete manufacturing industries such as apparel were already geared to the “click & mortar” business model, catering to the individualized end consumer needs via online commerce. The ICT-originated mega service conglomerates accelerated the diffusion of web-enabled business models across the entire industry. The Process Industry leaders have adapted to this new environment by revamping their ICT infrastructure and making their value chain flexible, agile, and “network-ready”. The irreversible technical standardization and consumer mindset change of the past decade made 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 Industry and decision makers are also very ICT-savvy, the quality of the online customer experiences rather than the quality of physical products themselves made all the difference. As online customer intimacy and market responsiveness via the ubiquitous network became the key success factors, real-time customer relationship management and demand/supply chain control came to be the highest value-adding functions. Activities of other part of value chain including sourcing and production are now fully aligned to maximize the effectiveness of the virtual customer touch-points. © Yokogawa Electric Corporation 2010-2011 Page 10
  • 14. Process Industries @ 2025 What trends have become pronounced in the Process Industry Industry trends: power-related segments such as renewable energy, smart grid, energy management and energy saving have come to the forefront of the Process Industry as the closest allies of the mega service companies. The mega service conglomerates led by ICT companies enjoy the lion’s share of the new wealth created over the network, ushering in new hegemony in the Process Industry as well. Geographic trends: The USA has become the world leader, followed by Europe. While utilizing highly motivated ICT resources and infrastructure in India, most of the leading conglomerates retain their headquarters in the US or Europe, where world-class ICT technology and business model research institutes keep attracting bright young minds from around the world. New start-ups also tend to cluster around such leading institutes. Automation trends: the mega service conglomerates and their allies are the biggest producers of automation solutions that allow them to control the demand/supply of energy and information. New automation technologies such as smart turbine control, smart grid control, smart electrical control, and smart meters allow them to monitor and control the entire energy supply chain. Meanwhile, the strong global pressure to achieve sustainable society boosted the demand for process optimization and energy saving solutions in all manufacturing 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, the automation demand created by the smart energy sectors is now greater in both volume and margin than that of all the other Process Industry sectors combined. Vendors/service provider trends: a number of major automation vendors have become close 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 service conglomerates while others retained their independence through open alliances. © Yokogawa Electric Corporation 2010-2011 Page 11
  • 15. Process Industries @ 2025 4. Scenario III+IV: Lazy Days & Let It Be Executive summary (@2025) The recession is over and the Process Industry is steaming ahead again. The steady growth of China and India is driving the global economy, creating ever stronger demand for energy and material. With the political stalemate unresolved about the enactment of strict global environmental regulations, the market mechanism continues to have a free reign. There is little 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 and materials for human society. The market dynamics of the past decade have polarized the Process Industry into two major groups. 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 and Europe. These high-end companies have redefined themselves as service providers. They have sold off commoditized bulk production plants and focused on value chain upstream activities such as resource exploration as well as downstream activities such as customer relationship management. On the other end is a group of extremely efficient, cost-competitive mega producers, mostly originated from national majors that have consolidated 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 downstream customer intimacy have become the key success factors. In contrast, operational efficiency and cost leadership are the highest priority for the mega-producers. The overall picture is more 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 with advanced software and service solutions while providing standardized and intuitive automation solutions and/or comprehensive operation and maintenance (O&M) services for the mega-producers. Those serving the high-end group came to partner or merge with specialists, while those serving the mega-producers came to tie up with low-cost suppliers of automation products and services. The middle ground no more exists. © Yokogawa Electric Corporation 2010-2011 Page 12
  • 16. Process Industries @ 2025 What the world looks like The world is an even more dynamic and competitive place than a decade ago. While political agreement on stricter environmental regulations did not materialize, social, technological and economic forces enabled the world economy to grow again with a certain level of sustainability. The new middle class of emerging countries, particularly China and India, continues to create massive demands for affordable energy and goods. The mega-producers from cost-competitive countries not only fill these demands but also supply the mature countries with reasonable energy and goods. As a result, bulk production/mass manufacturing has almost completely disappeared from mature countries. The leading value creators in the mature countries are service providers, targeting value chain upstream activities such as exploration and resource management, or downstream activities such as distribution and customer management, or both. The global supply chain of energy and goods now comprises the service providers from the mature countries and the mega producers in the cost-competitive countries. © Yokogawa Electric Corporation 2010-2011 Page 13
  • 17. Process Industries @ 2025 How the profit patterns have changed in the Process Industry The 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 global scale. On the upstream side of the industry value chain, the service providers depend on the mega-producers to process the resources they discover while the mega-producers depend on 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 the mega-producers count on the service providers to provide the most effective and efficient access to the global market. For the service providers, customer intimacy is critical. They also need sufficient scope of deliverables to meet the Industry’s needs by leveraging their customer understanding. For the mega-producers, cost leadership is the key. They need to secure scale economy through dependable sales channels. As these profit patterns interlock well, a number of global coalitions emerged among the service providers and mega-producers. Such a disaggregation of the industry supply chain and the subsequent re-integration via global symbiosis is equivalent to what had already played out in the electronics and other discrete manufacturing industries through the 2000s. As was the case with the discrete industries, those that failed to be part of the global symbiosis faded away from the Process Industry as well. © Yokogawa Electric Corporation 2010-2011 Page 14
  • 18. Process Industries @ 2025 What trends have become pronounced in the Process Industry Industry trends: segments such as oil & gas upstream and metals & mining have become the highest margin sectors due to their supply chain upstream nature, while segments such as power and water also show above-average growth and profitability driven by downstream investments 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 Europe control the global industry supply chain, while the mega producers taking care of outsourced production are mostly located in the Middle East, China, India and other resource/labor rich countries. Automation trends: the major automation demands are now driven by the mega producers in the cost-competitive countries. They prefer standardized and intuitive solutions that can be 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 automation systems and products; what matters is the reliability of the entire production process. Solutions that minimize human interventions and human errors are very valuable for these mega producers. As a result, the demand for advanced software and/or services that either empower or replace human expertise is at a record high level. In contrast, level 1 and 2 automation products and systems are almost completely commoditized. The high-end service companies also increasingly require solutions that minimize human interventions due to the widely distributed and/or hazardous nature of their operating sites. Remote unmanned operations have become very common for safety and labor shortage reasons. Vendors/service provider trends: due to their geographically distributed nature, the high-margin service-oriented segments such as resource upstream and utilities downstream are well served by automation vendors with advanced SCADA(Supervisory Control And Data Acquisition)-originated systems integrated or incorporated into MES (Manufacturing Execution System) or higher level automation. The mega producers also prefer standardized and intuitive automation. For the high-end service-oriented groups, resource exploration experts have grown further by forming alliances with automation leaders. Meanwhile, low-cost vendors from emerging countries have made an inroad to the mega-producers, complementing their offering by alliances with and acquisitions of software companies. (End of document) © Yokogawa Electric Corporation 2010-2011 Page 15