E-Commerce to change European sensors market drastically
By Victoria Whitting
Frost & Sullivan Industry Analyst
E-commerce presents a major challenge to all sensor manufacturers and distributors, as it opens up an exciting new distribution channel and presents significant potential for process improvements. It will be vital for manufacturers and distributors to closely monitor the developments of e-commerce in this sector and adapt accordingly in order to increase or protect market share.
Although e-commerce is still at the development phase, people's perceptions of the Internet and the way it can be utilised to conduct business is constantly changing and the technology is rapidly progressing to enable swift improvements in the supply process to take place.
There is a range of options for businesses, including commercial websites, intranets, extranets, e-marketplaces and trade exchanges. The Internet is expected to be a major factor in determining future competitiveness, and this realisation is forcing more and more companies to sell their products on-line.
Product Complexity and Traditionalism in the Sensor Markets Restricts E-Commerce Potential
Levels of complexity for the products in the sensor markets can vary dramatically, from low cost, commodity items, to highly advanced and technical transmitters. It is standard products that are expected to enjoy the first success while the more complex products will not suit the new distribution channel.
Traditionalism in the sensors market is expected to breed reluctance to adopt this modern sales channel and as a result, this market is not expected to fulfil its potential for some time. Concerns over security issues and a lack of familiarity towards purchasing via the Internet will also deter new customers.
Increased Efficiency Drives the Adoption of E-Commerce
Significant process improvements in the supply chain are expected following the emergence of the Internet as an alternative sales channel. The potential cost and timesaving advantages for both the customer and manufacturer are expected to encourage both to go on-line. The ability of the customer to quickly compare and contrast products, coupled with the prospect of next-day deliveries, will drive customers towards this new sales channel.
From the manufacturer's viewpoint, the chances of achieving sales in minutes, or even seconds, holds huge advantages. Costs are expected to fall in all aspects of the internal process, including, advertising, marketing, procurement and ordering. This new cost-saving enterprise is being leapt upon in the industrial sector, where price wars are intense and profit margins tight.
Dramatic Change of Distribution Network Expected
The entire industry will be affected by e-commerce, and in particular, e-business, from sales and marketing through to delivery, affecting the entire supply chain process. The development of e-commerce and widespread use of the Internet to buy and sell industrial products may ultimately threaten the survival of the small and local distributors, who will have to reconsider their role in the marketplace.
These companies will be forced to rethink strategy and position in the marketplace as their current function as distributor becomes increasingly undervalued by the anticipated growth of e-commerce. Distributors may be forced to take on new roles in this new market structure, such as consultancy and working more closely with both the manufacturers and customers to provide a full service, including pre- and after-sales support.
Smaller distributors must acknowledge this change and that their future value will not be in simply presenting a given product, but providing a full and effective solution to a customers manufacturing problem. The larger distributors with vast product offerings and the appropriate logistics solutions are more ideally placed to sell on-line.
Necessity for Comprehensive E-Commerce Strategy
E-commerce creates a new business model and can create problems achieving the necessary organisational and operational changes. Considerable investment, reorganisation and restructuring of companies is required in order to develop a comprehensive, long-term, e-commerce solution.
Ensuring the appropriate logistics are in place to successfully achieve fast deliveries and providing 24-hour customer support all require a high degree of cost and organisation.
The large multinationals active in the sensors and instruments markets often have a broad network of different groups and companies working under the same umbrella, providing a vast range of different products.
Therefore preparing for e-commerce has proved a timely and costly organisation process. Development of an e-commerce plan for the smaller and more specialised companies would represent a small cost compared to the significant cost and time saving benefits, coupled with the potential to reach new markets.
The large process control giants ABB, Honeywell, Fisher-Rosemount, Invensys and Siemens all currently offer sensors via the internet and plan to expand their on-line portfolio as part of wider e-commerce strategies.
Customers Demand Lower Prices
Customers are demanding discounts and price reductions for Internet purchases. Customers expect manufacturers to pass on the lower costs of generating sales through the Internet. A number of manufacturers plan to offer discounts initially in order to entice customers to this new sales channel.
This may set a dangerous precedent in the marketplace as the overall average price is lowered, and customers expect this lower price level to be maintained. Those manufacturers who do not compete with lower prices may ultimately suffer and lose business, and those who set the prices lower in the initial stage will be forced to continue with low prices as demanded by the customers.
So Will Growth Prevail?
With security fears allayed, and as customers become more familiar with e-commerce, this new sales channel is expected to enjoy unprecedented growth. However, while some companies will enjoy growth following successful e-commerce initiatives the whole market is not expected to grow as a direct result of the Internet revolution.
Ultimately, it is the larger and well-established companies, with well-devised web sites, that are likely to benefit from the anticipated growth of e-commerce. A well-known brand name, coupled with an international presence, is expected to enable these companies to increase their penetration of the European market further.
Frost & Sullivan researched the potential of e-commerce within the European sensors and instruments market, encompassing sensors, transducers and transmitters used to measure a range of parameters. Forecasts for this market, for the period 2000-2005, are illustrated in Chart 1.
Total revenues from on-line sales amounted to $7.9 million in 2000, accounting for just 0.2 percent of the total market including all sales channels. In 2000, many of the sensor manufacturers were still developing e-commerce strategy. In 2001, it is anticipated that a significant proportion of sensors in the market will be available on-line, leading to a large anticipated growth in revenues.
This high growth trend is anticipated to continue as end-users and manufacturers alike become more active in the world of e-commerce. It is forecast that total revenues will rise to $721.2 million in 2005 from a compound annual growth rate of 147.0 percent.
A graph comparing the percentage of sales via traditional channels against Internet sales for the European sensors and instruments market is displayed in Chart 2.
A tiny proportion of sales were generated via the Internet in 2000, but this is expected to rise rapidly in the immediate future as the number of e-commerce providers rockets. In 2005, it is forecast that 16.4 percent of revenues will be generated by sales via the Internet. This is relatively low due to the complexity of the products and the trend towards purchasing complete solutions in the process industries.
However, eventually it is hoped that e-commerce software will advance, enabling a wider range of the products in this market to be available and purchased on-line.
Conclusions
The Internet is still far from reaching its potential in the world of e-business. The market is expected to change from its current stage of development, towards the growth stage, in 3-5 years. On-line sales of industrial equipment are forecast to grow dramatically over the coming years, as customers graduate towards this new and efficient sales channel, and manufacturers adopt e-commerce in order to stay ahead or keep up with the competition in this global marketplace.
E-commerce will have a direct impact on competitiveness and the distribution structure of the European sensor markets over the coming years, with the distributors being forced to consider their role in the marketplace.
This e-commerce report researched by Frost & Sullivan explains the impact e-commerce will have on sales and distribution in the European sensor markets, providing revenue forecasts over the period 2000-2005.
About Frost & Sullivan
Frost & Sullivan is an international marketing consulting company that monitors a comprehensive spectrum of Instrumentation, Control and Engineering markets for trends, market measurements and strategies. This ongoing research is utilised to complement a series of research publications to support industry participants with customised consulting needs.
Frost & Sullivan's Public Relations Department can be reached by telephone at +44 (0) 20 7343 8325, e-mail at nikki.cole@fs-europe.com, or visit http://sensors.frost.com.
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