Brace yourself. 2008 is not going to be a banner year in manufacturing, according to an industrial outlook report from the Manufacturers Alliance/MAPI that predicts a mild manufacturing recession.
According to the report, there are five economic "shock" factors contributing to the coming downturn: a housing slump; the negative impact of falling housing prices on consumer spending; the credit crunch; high gasoline and oil prices; and an economy that is generating less job growth.
A recent Managing Automation poll of 360 readers came to some of the same conclusions, as 34% of respondents said they are feeling an impact from the mortgage/credit crisis. Nevertheless, technology budgets remain intact, MA readers said, and they still plan to spend money in 2008.
Perhaps that's why so many industry analyst firms are predicting an increase in software sales next year, despite the expected downturn. Spending will be strong in enterprise applications, business intelligence, and human capital management (HCM), experts say.
A newsletter by AMR Chief Research Officer Bruce Richardson noted that AMR's 2007 forecast for enterprise applications spending predicts an 8% increase over 2006 to about $61.1 billion. "That forecast looks pretty safe," Richardson commented. "Next year should be strong, too. Our preliminary 2008 estimates show that total enterprise application revenue should reach $65.4 billion, up more than 7% from the current year."
Richardson also pointed to the ongoing software industry consolidation in 2007 when three large business intelligence vendors — Hyperion, Business Objects, and Cognos — were acquired. He predicted further market consolidation, particularly among vendors of infrastructure and HCM software.
Industry consolidation may indicate a heightened interest among manufacturers in these applications. For example, according to WorldatWork, an association of HR professionals from Fortune 500 companies, successful organizations are more likely to invest in improving their management of human capital. The group recently predicted that outsourcing will increase, the way work is organized and performed will change continuously, and self-directed individualized virtual learning will dominate business training. As a result, HCM will become an even greater source of value for manufacturers in 2008.
In addition, experts say, many manufacturers in 2008 will invest in becoming good corporate citizens, turning their attention to environmentally friendly processes.
According to JPMorgan Global Trade Services' 2008 Global Trade/Supply Chain predictions, manufacturers so far lag in environmental compliance. As a result, the need to be "green" continues to grow.
"Public health and environmental concerns will remain a major issue," the JPMorgan report stated. "Continued attention on global warming, lead-based paints, and the contamination of goods will drive businesses toward environmentally friendly packaging, recyclable products, and the enforcement of trade regulations pertaining to the use of toxic electrical and electronic components. The concept of having a green supply chain will move from being a public-relations strategy to a necessary means of deriving real economic value and improving compliance. As companies focus on supply chain and product lifecycle management initiatives in this environmental light, concepts that will be embraced include the designing of products derived from recycled materials; striving for 'zero waste' from a product at end-of-life; and employing sourcing and fulfillment strategies based on less fuel consumption and the environmental practices of supply chain partners."
Despite the Manufacturers Alliance/MAPI outlook that 2008 will be a turbulent time, all is not lost. It will, in fact, be a time to regroup and get ready for a 2009 rebound, the organization said.
To that end, the need to react quickly and with agility will drive technology investments. ARC Advisory Group predicts that the worldwide market for discrete automation systems will grow at a compounded annual growth rate (CAGR) of 6.8% over the next five years. The market was nearly $17 billion in 2006 and is forecasted to top $23 billion in 2011, according to a new ARC study.
According to the ARC report, "The increased use of automation by manufacturers is vital, due to the environment created by globalization, which fuels automation market growth. Therefore, discrete automation products are expected to have robust growth as they are used across industrial segments, ranging from automotive and electronic and semiconductor to machinery and plastic and rubber industries."
On the IT side, however, worldwide spending will grow at a slower pace as a result of economic uncertainties, according to IDC's predictions. Worldwide IT market growth will be a moderate 5.5% to 6%, down from 6.9% in 2007, an IDC report said. As a result, IT vendors will do some re-focusing of their own.
"The year will be marked by greatly increased investment in emerging markets, introduction of a raft of new online product and service offerings, the opening up of closed business models to communities, and innovative new approaches to simple, solutions-oriented packaging," the IDC report said.