Optimism Weakens Year Over Year

Instrument and laboratory product company executives’ expectations have improved from last fall but are not where they were a year ago, according to the results of IBO’s Spring 2011 Business Climate Survey. IBO’s biannual business climate surveys gauge executives’ outlook for industry sales and opinions about economic issues and market trends. Twenty-eight executives were surveyed by phone, email and mail in early May.

Fifty-nine percent of executives surveyed expect prospects for the instrument business to increase moderately in the next six months. These results compare with the same outlook for 56% of respondents in last fall’s survey (see IBO 10/15/10). However, compared with the Spring 2010 Business Climate Survey (see IBO 5/15/10), executive sentiment is less rosy. Last year, 68% of respondents expected sales to increase moderately. Please note that the total composition of the survey sample differs with each survey. Thus, results may be affected by each survey’s sample set. This year’s more restrained expectations may be the result of uncertainty due to concerns about the effects of inflation, slower Chinese growth and post-stimulus spending in the US.

The earthquake and tsunami in Japan affected most of the companies surveyed. Asked about the impact of the Japanese events on their companies, survey respondents could select from five choices, including “no effect.” Respondents could choose more than one answer to indicate multiple effects. Twenty-one percent of respondents indicated that their companies’ sales to end-markets were affected, 18% said that their companies experienced component shortages and 15% said that their companies’ Japanese sales were slower. Only 12% indicated that their companies’ Japanese operations were “at less than 100%.” Surprisingly, a third of executives indicated that the events in Japan had no effect on their companies.

With the threat of inflation becoming a reality, IBO asked respondents about the costs of components and raw materials and the effect on pricing. Eighty-two percent of companies expect their raw material costs to rise this year, and 14% foresee no change. Regarding product components, 68% expect the cost to increase this year, and 21% expect no change.

Sixty-two percent of all respondents expect the increase in raw material costs to affect their product pricing. However, of those who expect raw material costs to increase, 25% do not expect the increase to affect product pricing. Sixty-three percent of all respondents expect the increase in component costs to affect their product pricing. Of those who expect the cost of product components to increase, 14% do not expect it to affect their product pricing. These results show that some companies are managing cost increases. These results are also influenced by the type and amount of components and raw materials a company uses in its products.

Executives were also asked about their future plans for outsourcing and offshoring. A recent survey by Accenture of manufacturing executives found that some companies are reconsidering their offshoring arrangements due to cost and market factors. IBO asked companies whether they expect to increase their usage of outsourcing and offshoring in the next 12 to 18 months. In the case of outsourcing, 77% of respondents expect their companies’ use of outsourcing to stay the same, and 23% expect it to increase. Offshoring appears to be less in demand, as 88% expect their companies’ use of offshoring to stay the same, and 8% expect it to increase. Interestingly, 4% of companies expect to decrease their use of it.

The top-ranking regions in terms of expectations for sales growth remained the same as the Fall 2010 Business Climate Survey. China again received the highest average rating for sales expectations for the next six months. Also, it was again the only region to have an average rating above 4. India, Southeast Asia, Latin America and North America had average ratings above 3.

The impact of the Japanese disaster on future sales appeared to be evident in the country’s ranking. Based on average ratings, Japan ranked last, along with Western Europe, among the nine regions about which respondents were asked. The average rating for Japan was 2.7, compared with 3.1 last fall. However, a year ago, the country’s average rating was 2.8. The last survey in which Western Europe received an average rating above 3 was fall 2009 (see IBO 10/15/09). Experiencing a notable increase in its average rating in this survey was Eastern Europe. It received an average rating of 3.0, compared with 2.6 last fall.

Companies were also asked to rate the six-month prospects for sales by end-market. This was the fourth consecutive survey in which no end-market received an average rating of 4 or above. The top-ranking end-market was the environmental market, which received an average rating of 3.9. The composition of the survey sample may account for the variation in results compared with last fall’s survey, when the environmental market received an average rating of 3.4. In fact, average ratings for seven of the 11 end-markets increased compared with the fall 2010 survey. Showing the largest gain was biotech, for which the average ranking increased from 3.0 last fall to 3.7 in this survey. The only markets for which average ratings did not increase were electronic/semiconductor and government.



Line Graph: Executive Expectations for Instrument and Lab Product Sales for the Next Six Months

Spring 06 Fall 06 Spring 07 Fall 07 Spring 08 Fall 08 Spring 09 Fall 09 Spring 10 Fall 10 Spring 11

0.04 0.00 0.00 0.04 0.00 0.43 0.33 0.17 0.00 0.00 0.00

0.38 0.36 0.58 0.32 0.41 0.35 0.38 0.42 0.28 0.44 0.41

0.50 0.56 0.33 0.56 0.59 0.17 0.29 0.42 0.68 0.56 0.59

0.08 0.08 0.08 0.08 0.00 0.04 0.00 0.00 0.04 0.00 0.00


Bar Graph: Avg. Ratings for Instrument and Lab Prod. Sales Growth for the Next Six Months by Geography (1=Worsening, 3=Stable, 5=Improving)

W. Europe 2.7

Japan 2.7

Middle East 3.0

E. Europe 3.0

N. America 3.3

Latin America 3.4

Southeast Asia 3.5

India 3.8

China 4.1

Avg. 3.3


Bar Graph: Avg. Ratings for Expected Instrument and Lab Prod. Sales Growth for the Next Six Months by End-User Market (1=Worsening, 3=Stable, 5=Improving)

Govt. 3.0

Academia 3.1

Chemical 3.2

Agriculture 3.3

Elec./Semicon. 3.4

Pharma 3.5

Metals/Mining 3.6

Food 3.6

Energy 3.7

Biotech 3.7

Environmental 3.9

Avg. 3.5
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