Pumps & Systems, March 2007
What's hot and what's not with pumps in the water/wastewater industry.
Born in the 3rd century BC, pumps are one of the most important mechanical devices in all industrial applications. Sustaining their importance in a mature market characterized by steady growth and slow technology change, the key competitive factors are price, delivery period, brand reputation, and service. In spite of traveling over time across several verticals of applications, opportunity strikes this centuries-old industry.
The multi-billion dollar global pumps market performs a 2.8 percent growth with the wide range of end-user applications put together in 2005. Among the strong industry sectors is the water and wastewater (WWW) industry, growing at 4.0 percent in 2005, a rate better than the overall global pumps market.
The water and wastewater industry contributes nearly 35.0 percent of total pumps revenues; it is the highest in terms of revenue generation compared to other end-user industries. Pumps in the water and wastewater industry can be classified as centrifugal and positive displacement. The rise in demand for water and wastewater has presented a host of challenges such as increasing energy costs, increased concern about the efficiency of pumps, and increased life cycle costs.
So what's going to hold the threat of the product becoming a commodity in the industrial equipment market? The answer will be to quickly take advantage of the opportunities among booming end-users with a focused solution-centric approach and excellent service.
What is likely to cause products to become commodities? The answer lies in quickly leveraging the opportunities in the end-user sectors, having a focused solution-centric approach, educating customers on technological trends and energy saving solutions, and providing them with excellent after sales service with the availability of spare parts, maintenance and on-site assistance.
The Water and Wastewater Industry: An Overview
The industry is estimated to hold much potential in the future. The significant demand for freshwater, particularly in Asia and Eastern Europe, has helped the water industry reach a growth rate of 7 percent to 8 percent, and the wastewater industry, backed by the need for a cleaner environment, attains a growth rate of 4 percent to 5 percent during the forecast period 2006-2012.
Environmental regulations regarding energy consumption and pollution are becoming stricter than before, eventually forcing old treatment plants to upgrade their facilities or shift to new equipment. New treatment facilities and expansion projects are expected to increase the sales of pump manufacturers and help penetrate the global market.
The ability to provide complete solutions, superior products, quality service, and customer responsiveness has become a key determinant for the growth and success of pump manufacturers. These manufacturers are on the lookout for emerging opportunities in low-cost manufacturing regions. The increasing shift of global pump manufacturers toward the rising economy of Asia has been an ongoing trend within the industry.
The Pumps Market in the Water and Wastewater Industry: Highlights
- Booming market with a 4 percent to 5 percent growth rate.
- Increasing demand for freshwater and a clean environment will continuously drive the market in the future, creating opportunities for the usage of pumps; the demand is likely to arise from emerging plants, expansion units, and upgrade units.
- Asia Pacific is growing at a higher rate than the overall market.
- Brand reputation is anticipated to influence vendor selection.
- End-users demand effective and optimized solutions from pump manufacturers, in-line with advancing technological practices to conform to legal regulations.
- Customer satisfaction will be the benchmark for global market penetration in the future.
- Selection criteria and customer demand will be based on high-energy efficient pumps and reduced life cycle costs.
Moving Ahead
The recent developments in the water and wastewater treatment industries with regard to the adoption of automation and centralized control systems to monitor the quality of water and wastewater, along with a strong focus on power and energy management, has provided a challenging environment for pump manufacturers.
Ultimately, it enhances the need for a continuous focus on innovation and solutions that address customer needs. Intelligent pump systems with variable speed drives integrated with smart pumps and centralized control systems not only benefit remote operational facilities, but also ensure high energy efficiency, empowering customers with profitable bottom-line growth.
The need to reduce lifecycle costs to improve operating margins is anticipated to boost the usage of intelligent pump system units in the water and wastewater industry.
Performing in harsh conditions, with possible operator negligence in massive units, pumps essentially have to be robust, resulting in minimized maintenance for the customer. Failures with regard to bearings, leakage due to corrosion, and damage to seals tend to be common, driving developments in materials and accessories as well. Retrofits and replacements in such harsh environments are anticipated to benefit the sales of pump manufacturers.
The Battleship: Competition
The pumps market is a highly competitive one with very little chance to differentiate among competing products. Technology has not witnessed any significant change in the last few years. As a result, the production process remains the same and this makes the market highly price-competitive.
The market is likely to see some new entrants through the forecast period as more global companies look to increasing their revenues in order to survive in the highly competitive market. It is difficult for new participants to enter and play a part in this market due to difficult dynamics, such as wide range of products, price sensitivity, huge capital requirements and global response. In general, competitive issues are prompt service and delivery, brand image, and price-to-performance ratio.
The new entrants in the market are likely to face significant competition from existing competitors, which include ITT Corporation (White Plains, NY), KSB, Inc. (Richmond, VA), Grundfos Management A/S (Olathe, KS), Ebara Corporation (Tokyo, Japan) and companies that have already carved a niche for themselves in the market.
The major competitive factors for pump manufacturers catering to the industry include energy costs, life cycle costs (LCCs), and improving efficiency of equipment. This had caused customers to take a long-term view of pump purchases, and price is not the only factor influencing uptake. Major market participants are focusing on different industry verticals rather than on one particular industry.
Market leaders work toward differentiating themselves by offering not only reliable products but also profitable solutions that cater to the needs of the customer. The drive to penetrate the market further globally lies in continuous innovation and increased application know-how, along with supreme customer satisfaction and the ability to establish a long-lasting customer relationship. The aforementioned factors will help sustain market leadership.
Some notable acquisitions in this industry are as follows:
- ITT Industries, Inc. acquired Svedala Robot B.V. (Alphen aan den Rijn, Netherlands), a leading manufacturer of high quality submersible pumps and pump systems used in wastewater applications.
- ABS Group (Malmö, Sweden) acquired Soprime, a French manufacturer of pumping stations.
- KSB, Inc. has purchased Precision Pump and Machine, Inc. (Bakersfield, CA).
Size Does Matter
The consolidation trend is likely to be continued by the top manufacturers with the goal of enhancing their technology, product portfolio, service and support, technical expertise, talent pool, and most importantly, market penetration.
This trend will also enable manufacturers to widen their product portfolio, thereby helping to reach a larger customer base. Although market revenues will increase, profits will be determined only by the unique service solutions, the specialty applications, and the innovative product designs that companies offer to customers.
There is also an emerging need for manufacturers to provide quality customer experience and differentiate themselves from their competitors. It has also been observed that market leaders prefer smaller mergers and acquisitions, raising doubts about the possibilities of larger mergers and acquisitions during the forecast period 2006-2012.
Small mergers and acquisitions are preferred because they have lesser risks and an easier integration process when compared to large mergers and acquisitions. Purchasing an efficient technology instead of developing the same in-house seems to be profitable for market leaders. However, every merger and acquisition brings with it the challenge of brand integration.
Never a Closed Door: Conclusion
In addition to water and wastewater treatment applications, with the transfer of liquid being the objective, pumps are used in a wide range of other applications that include agriculture, cooling water, desalination, flood control, and water distribution.
Though the overall pumps market seems to be saturated, the estimates of specific end-user sectors show growth potential in new age economies, especially in Latin America, Asia Pacific and Eastern Europe.
The Safe Drinking Water Act and the Clean Water Act are the two main regulations driving the growth of the water and wastewater industry.
The pumps market in the water and wastewater industry is highly fragmented due to the presence of numerous manufacturers. Due to market characteristics such as mature growth rates, global presence and capital intensive, it is likely to be more difficult for newer entrants to gain traction in the market, as they would need to establish a highly penetrative distribution network and create a strong brand image for their products.
The market is in the maturity stage and is dependent on the emerging economies, which are driving growth with new constructions activities and expansion of existing plants. Throughout the forecast period, competition is expected to be high and manufacturers are likely to concentrate more on solutions based approach and consolidating their share through strategic acquisitions.