Enthusiasm has dampened for instrument and lab product sales growth in coming months, according to the annual fall IBO Business Climate Survey. Following a rebound in optimism this spring (see IBO 5/15/13), respondents are again moderating their expectations for sales growth over the next six months.

More moderate expectations are also evident in the International Monetary Fund’s (IMF’s) October forecast for world GDP growth (see table, page 6). The forecast updates the organization’s July estimates, lowering annual growth rates for the world economy this year and next by three-tenths of a percentage point and two-tenths of a percentage point, respectively. Growth rates were also slightly lowered from July for 2013 and 2014 for all regions listed in the table on page 9, except Advanced Economies. For 2013, the Euro Area forecast was increased slightly, but was slightly lowered for Japan. For 2014, Japan’s forecast was increased, but Brazil’s was lowered.

The September “Duke/CFO Magazine Global Business Outlook Survey” shows mixed results compared to its July results. The expected percentage change for capital spending in the next 12 months declined for all regions/countries (see table, page 6) except for China, Latin America and Brazil. For R&D, the expected percentage change for the next 12 months increased for all regions/countries except US, Latin America, Brazil and Africa.

The IBO Business Climate Survey is conducted twice a year to ascertain the opinions of respondents, which include IBO subscribers and other industry company executives, about the outlook for instrument and lab product sales and other industry issues. This fall, IBO received email responses from 33 participants during the first two weeks of October.

As the graph to the right illustrates, 45%, the largest number of Business Climate Survey respondents, expect instrument and lab product sales for the industry as a whole to stay the same in the last quarter of 2013 and first quarter of 2014. This percentage is up from both spring, when 38% expected sales to stay the same, and last fall, when 36% expected them to stay the same (see IBO 10/15/12).

Thirty-nine percent of respondents expect sales to increase moderately, making it the lowest percentage for this response since spring 2009’s survey (see IBO 5/15/09). As in the past three years, participant optimism for a moderate increase in sales decreased from the spring to the fall. As for the outliers, 9% of those surveyed expect sales to decline, up from 3% this spring but down from the double-digit percentages in the spring and fall of 2012.

The outlook of respondents was dour regarding market and regional outlooks, with expectations tumbling for nearly all regions and end-user markets compared to the spring survey. For the nine regions, the average rating was 3.3, down from 3.6 this spring, but up from 2.7 in fall 2012. As in fall 2012, Southeast Asia received the highest average rating at 3.6, but this was down from 4.1 in the spring. Average ratings for China and Latin America also declined five-tenths of a percentage point from the spring. India recorded the largest drop in average rating, declining six-tenths of a percentage point. The results indicate lower expectations for robust sales growth in developing nations, which might explain the overall weaker outlook.

All regions remained in the same ranking in terms of average ratings as they did in the spring. However, unlike in the spring, the two lowest ranked regions, Western Europe and North America, dipped below a 3.0 average rating. A one-tenth of a percentage point change in the average ratings for Japan and Western Europe suggest stabilization. Surprisingly, North America’s average rating declined only three-tenths of a percentage, from 3.2 to 2.9, despite the implementation of sequestration and budget uncertainty.

Average ratings for all end-markets declined compared to the spring survey, with the exception of electronics/semiconductors, for which the average rating increased from 2.9 to 3.2. The average rating for all 11 end-market was 3.1, compared to 3.4 last spring. The largest drop was for Chemical, for which the average rating fell from 3.7 in the spring to 3.0 this fall. Recording declines of six-tenths of a percentage point in average ratings were pharmaceutical and government. As with North America, academia’s average rating declined just one-tenth of a percentage point, perhaps indicating stabilization.

The rankings of end-markets based on average ratings changed from the spring, with energy, the top-ranked market in the spring, tumbling to the fourth ranked. However, the top four markets remained the same. Notably, pharmaceutical fell from the number six to number nine.

Looking toward 2014, executives were asked to rate the likely effect of five positive and five negative factors on the industry as a whole next year. Factors were rated on a scale of 1 to 5, with 1 indicating no effect and 5 indicating a severe effect. Growth in emerging markets received the highest average rating, as the graph below shows. In fact, 48% of respondents rated it a 4. But it was only one of two positive factors, along with increasing direct operations in foreign countries that received an average rating of 3 or above. The internet, pricing, and mergers and acquisitions failed to generate as much enthusiasm. Forty-five percent of respondents gave a rating of 2 for new online capabilities for greater customer contact. The results highlight the importance of new geographical markets for generating sales growth.

Pricing was a topic touched on as both a potentially positive and negative factor, with results indicating that pricing pressure is expected to continue. While the average rating for increased prices as a positive factor for sales growth next year was 2.5, pricing pressure as a negative factor received an average rating of 3.4. However, it trailed sequestration as the negative factor most likely to affect industry sales growth in 2014. In fact, 34% rated sequestration a 4. Likewise, 41% of respondents rated slower economic growth in China as a 4. All five negative factors received an average rating of 3 or above.

IBO also asked respondents about their Chinese competitors, as China has made the development of scientific instrumentation a priority. Executives were asked to rate the strength of Chinese instrument and lab product companies in regard to five business factors on a scale from 1 to 5, with 1 representing not strong and 5 representing very strong. As the graph below shows, Chinese firms’ market knowledge, and sales and marketing were rated the highest, with average ratings of 3.8 and 3.6, respectively. Forty percent of respondents gave sales and marketing a 4. Efficient use of company resources, and hiring and retention of talent each received average ratings of 3.1. The only factor to receive an average rating of less than 3.0 was customer loyalty; however, at 2.9, its average rating was very close to a 3.0. The above-average ratings indicate that foreign instrument and lab companies respect Chinese companies’ ability to do business in several ways and suggest that such companies are effective competitors.