Text of ISA TODAY news coverage
ISA Expo 2004, Houston, Texas
Wednesday October 7, 2004.

Global shifts killing off automation 'dinosaurs'

By: Jim Strothman

Predicting the 12 largest suppliers in the industrial automation industry will shrink to five during the coming decade, ISA EXPO 2004 keynoter Jim Pinto had a simple explanation why.

“In the midst of a downturn, dinosaurs die and new leaders emerge,” said the founder, former president, and chief executive officer of Action Instruments.

Pinto’s talk Wednesday was the 2004 edition of the Rimbach Lecture Series. The series, an annual event at ISA conferences since 1996, honors Richard Rimbach, Sr. (1888–1979), considered the “father of ISA.” Present for today’s event was Rimbach’s granddaughter, Raquel Rimbach.

A widely respected industry visionary, the outspoken Pinto said the largest automation suppliers, all of which do more than $1 billion in business annually, include Schneider, GE, Honeywell, Emerson, Tyco, Yokogawa, Omron, Eaton, Danaher, and Invensys. Several are just below that, but about 90% of the industry consists of smaller companies doing less than $10 million in business a year, he said.

As the larger companies consolidate and parts are sold off, “good parts will live,” the futurist predicted. A prime driver, he said, is the fact that instruments and products considered cutting edge thirty years ago “have become commodities.”

“The only advantage competitors can offer is price, which makes for low margins and stiff competition. You have a recession, and it’s brutal,” Pinto observed.

Outsourcing was a major focus of Pinto’s keynote, titled “Automa-tion Unplugged—Global Shifts in a New Age.”

“America does not have the birthright to be the [technology] leader,” Pinto said. “Whoever makes things cheaper, faster, better, wins.”

Both the U.S. and Europe are rapidly losing their technology advantage to “hungrier” nations, he said. Also, Far Eastern countries like China and India are growing faster than North America. As a result, U.S. and European-based manufacturers save costs by moving factories and process plants “closer to customers—closer to raw materials,” in China and in oil-producing countries such as Saudi Arabia, the keynoter said.

Another technology driver, the Internet, “makes location irrelevant,” Pinto noted. “Knowledge is power—don’t forget that,” he said.

Years ago, outsourcing was done locally. For example, E.I. DuPont first outsourced by firing engineers, who then became consultants that worked for E.I. DuPont for $100 an hour, Pinto recalled.

Today, in China, “you can get the same knowledge for $10 an hour.”

Satellite communications has been another technology driver. For example, he said, Dell moved its “help” telephone answering service to India after satellite communication costs dropped to 20 cents a minute. “Why pay $20 an hour to hire someone in the U.S. when you can get someone just as qualified in India for a fraction of that cost, and you’re paying only 20 cents a minute for the phone?” he asked, rhetorically.

Environmentalists—and zoning restrictions—also are driving business away from the U.S., he pointed out.

“America resists manufacturing. We put up roadblocks,” with communities resisting building new plants for environmental and other reasons, Pinto observed. In Ireland, on the other hand, “the mayor of the city welcomes you; they’ll give you a tax holiday.”

China, meanwhile, is simply outgunning the U.S. in numbers of engineers becoming available. “In China, they produce 700,000 engineers a year—37% of all college graduates,” Pinto said. Their pay, however, typically starts very low, compared to U.S. starting salaries—in the range of $4,000 to $8,000 a year, the keynoter said.

Even so, outsourcing is only responsible for about 300,000 U.S. job losses—about 15% of the total, he said.

“Productivity is the problem,” Pinto emphasized. “Automation has reduced the headcount in all industries”—and not just in the U.S., but worldwide, including China, he said. How should U.S.-based businesses cope in this highly competitive global environment?

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