The twice yearly IBO Business Climate Survey reaches out to executives at instrument and laboratory product companies to gain insight into industry developments and growth expectations. This fall’s survey, which received 16 responses, was conducted by email in October and included IBO subscribers as well as other solicited participants consisting of Strategic Directions International and BioInformatics LLC customers.
Asked to evaluate the instrument and lab product business products for the next six months (fourth quarter 2016 and first quarter 2017), 60% of respondents (see graph below), a clear majority, expected sales to increase moderately. This compares to 42% a year ago (see IBO 10/15/16).
Respondents were asked what was the greatest threat to industry sales growth during this period. The most common response was the upcoming US presidential election. Several respondents also cited macroeconomic factors, including global and US GDP growth, and currency effects. Two respondents cited lower government research funding.
The US presidential election could impact US business spending according to the September Duke University/CFO Global Business Outlook. The results are shown in the graph below. In that survey, 33% of CFOs stated that they would wait on new investments in order to gauge the new president’s effect.
Survey participants were then asked about their companies’ responses to Brexit. Four answer choices were provided (see graph below), as well as the choices of “Other” and “None.” Respondents could check all answers that applied. Fifty percent of respondents answered that their companies had no response. However, a quarter of respondents indicated their companies had adjusted prices for their products. The adjustments were likely in response to the devaluation of the pound following the June vote. Considering the uncertainty resulting from the vote (see IBO 7/31/16), companies are likely waiting to take further action as the specific process and timing of Brexit materializes.
Asked about the impact so far of China’s 13th Five-Year Plan, which is now in its second year, on their companies’ Chinese business, there was a wide range of answers in response to the seven choices provided (see graph below). Respondents could check all answers that applied. The greatest number of respondents indicated that they had increased marketing and sales investments. However, 63% indicated the Plan had already impacted their companies in other ways, suggesting that the Plan has already impacted the industry. Nonetheless, 19% of respondents indicated no impact.
After asking about how two current developments, Brexit and the Five Year Plan, are impacting their companies, IBO then asked executives a question about instrument and lab product companies in general. Respondents were asked to rate the current influence of five business strategies on instrument and lab product companies in general (see graph below).
Each strategy was rated as above average in terms of influence. “Integrated solutions” received the highest average rating at 3.8, with over a third of respondents rating it a 5. This strategy also received the highest percentage of 4 and 5 ratings among the strategies listed at 69%. However, “Investments in diagnostic tools and applications” and “Digital marketing” were highly rated as impactful, with 50% and 63% of respondents, respectively, rating them as a 4 or 5. Their respective average ratings were 3.4 and 3.7.
Interestingly, for “Consolidation,” a much discussed business trend, the average rating was 3.2, lower than the other listed strategies. Thirty-eight percent of respondents, the highest percentage, rated it only a 2. Forty-four percent of executives rated it as a 2 or lower. But consolidation may not be as dominant a trend now due to the limited number of such companies and use of other strategies by such companies. For example, notable recent acquisitions have indicated the prevalence of the industry’s major consolidators entering new markets; for example, Thermo Fisher’s purchase of FEI (see IBO 5/31/16) and Danaher’s acquisition of Phenomenex (see IBO 10/15/16).
As usual, respondents were also asked to estimate their companies’ six-month sales growth rates for eight geographic regions (see graph below). The rating system was revised to provide greater clarity. On a scale of 1 to 5, 1 represented a declining growth rate, 3 represented a stable growth rate and 5 represented an improving growth rate.
The combined average rating was 3.5. No region received an average rating of less than 3.0, thus declining sales are not expected, consistent with the answers provided in question 1.
China was the clear leader, with an average rating of 4.4. Thirty-one percent of respondents rated China a 5, indicating a high level of optimism. It displaced North America, which had received the highest ratings in the Fall 2015 and Spring 2016 Surveys. In both of those Surveys, China ranked fourth, marking a comeback for the country that may be related to the flow of Five-Year Plan funding.
India and North America received the next two highest average ratings, respectively. Fifty percent of respondents rated each as a 4 or above. Twenty-five percent rated India as 5. Despite recent weakness in Japan (see IBO 9/15/16), the country received an average rating of 3.6, with 31% of respondents rating it a 4. However, it received no ratings of 5. This would suggest pent up demand, or expected end-of-fiscal-year spending. As in the Spring 2016 and Fall 2015 Surveys, Latin America received the lowest average rating at 3.0. In fact, 44% of executives rated it as 2 or lower, highlighting expectations for declining sales growth.
Respondents were asked to rate on the same scale sales growth prospects for their companies by 12 end-markets (see graph below). As with the Fall 2015 and Spring 2016 Surveys, Biotechnology once again received the highest average rating, at 4.0, as 27% of those surveyed rated it a 5. However, Clinical was not far behind with an average rating of 3.9, marking this end-market’s strongest showing in an IBO Business Climate Survey.
Four additional end-markets received average rankings of greater than 3.5. Improved growth was indicated even for the recently softer end-markets of energy and environmental testing. Forty-seven percent of respondents rated Environmental a 4—the highest percentage among end-markets to receive a 4. In fact, 54% of respondents rated it as 4 or higher. This may be linked to China’s investments in environmental testing and monitoring, which will receive new funding as part of the latest Five-Year Plan.
Three end-markets received average ratings of less than 3, indicating expectations of slower sales growth. Metals and Mining remained among the bottom three markets, as in the Fall 2015 and Spring 2016 Surveys. For this end-market, 40% of respondents rated it a 2, the highest percentage among all end-markets.