The European Union now represents 30% of the worldwide market for laboratory products, as it continues to grow what will the global impact be.
As the global economy improves, the European laboratory products market could be set to see some of its fastest growth for many years, says Alex Sands, Editor of Laboratory and Analytical Distributor, speaking at the sixth PittCon International Breakfast of the US Laboratory Products Association in Orlando last month. A general consensus has been that both North America and Europe will lose ground, in terms if the relative size of their markets, to the faster growing regions of Asia and the rest of the world over the next ten years. However, a proposed increase in European research funding and new regulations for the chemicals industry could lead to a buoyant European laboratory sector.
Today, Europe, defined as the 25 countries of the European Union, represents around 30% of the worldwide market for laboratory products, compared with North America, which is responsible for 40% of the market and the Asia Pacific region, which is around a quarter. Actual figures for the size of the market can vary widely, depending on exactly which products are included, but according to just one estimate from market analysts Frost & Sullivan, the laboratory analytical instrument market in Europe was worth $2.5-3 billion in 2004. Although individual product markets and countries have their own trends, as a mature sector that serves many end-user industries, the most important factor to affect laboratory products sales in recent years has been the prevailing global economic condition.
Imports and exports
This reliance is demonstrated by a quick study of European imports of laboratory products from the USA in the last eight years (see chart 1). Growth was strongest in 1997 before dropping back to, still quite healthy single-digit levels in 1998 to 2000. The general economic condition and growth in the biotech industries, particularly of Germany and the UK, were the main contributing factors in this growth. This growth all but disappeared in 2001, however, and the sector declined in 2002 as the downswing in the global economy hit investment and research across many industries. Since then there has been resurgence in economic conditions, first in the USA from early 2003 and about six months later in Europe. In 2004, this led to an 18% increase in US laboratory product exports to Europe. Although the weakness of the dollar against the Euro and other European currencies, which has made US products more attractive on price and provided an additional boost to US exports, has contributed to this growth, even attributing an 8% boost to US exports from the benefits of the exchange rate, we are still left with a European market that shows real signs of underlying growth levels not seen since 1997.
Breaking down the European market for imported lab products by country (see chart 2), Germany is the largest market by some way and together with the UK represents nearly 50% of the export market. Adding in the Netherlands, France, Italy and Belguim, the top six account for some 80-85%. Nevertheless, the rest of the European countries taken together make up a significant market themselves. Even more so considering that products are often re-exported to these markets after shipping into the larger markets. Indeed, intra-EU trade is just as important as external trade.
As well as being the largest market for US exports, Germany is also the most significant trading nation within the EU, exporting (and re-exporting) more than twice the imports it receives from the rest of the EU (see chart 3). France and Italy, on the other hand, are net importers, suggesting that their market size is greater than US product imports alone suggest. The UK is roughly flat in terms of net trade with its EU partners, while The Netherlands is a big exporter. Spain, which in terms of its US imports was not significant as an individual market, can be seen to be another important segment with imports of over E200 million from its EU neighbours.
End user markets
Europe is well represented in most of the important end-user markets for lab products, from chemicals and pharmaceuticals, to food and beverages, petrochemicals and the environmental sector.
The largest of these industries is the chemicals industry as whole, with the 25 nations of the EU representing the largest chemicals producing area in the world with around E580 billion in production. As of 2003, 16 of the 30 largest chemical companies also had their headquarters in this region. Today this is concentrated in Western Europe, with Germany, France and Italy representing over 50% of production. There has been a steady decline in investment, however, and a trend towards both R&D and production away from Western Europe and into Central and Eastern European countries, as well as out of Europe altogether to regions such as India or Asia. According to the European Chemical Industry Council, Cefic, the investment to sales ratio for the chemicals industry has been declining since 1998 and in 2003 was 7% lower in absolute terms than in 2002.
The pharmaceuticals industry has been the fastest growing sector the European chemicals sector and is also the heaviest investor in R&D. And although this market in Europe is demonstrating growth again, there is the feeling that more production and research will move away from its historical base in Western Europe. The 10 newest countries to join the EU currently represent just under 10% of Europe’s pharmaceutical industry but their industry is growing at twice the rate of the rest of Europe. In the biotech sector, meanwhile, an Ernst and Young report found that research fell by 17% in 2003. This was a serious readjustment in the sector, but one that has helped to stabilise the industry. Today, investment and research in the biotech sector are slowly on the rise again.
In terms of overall science and research R&D, Europe has long lagged behind the USA and Japan. In 2002, the EU25 region spent 1.9% of GDP on R&D, as against 2.2% in Japan and 2.7% in USA. This is a significant gap to close, but with US research funding looking set to stay flat after years of increases, there is now an opportunity for Europe to make up lost ground. The European Commission has proposed a doubling of the community’s annual research budget to around E13 billion in the next framework programme, FP7, which will run from 2007 to 2013. This could provide a boost to EU research similar to that in the US National Institutes of Health Budget in recent years. To be effective, however, this increase will have to not detract from and even be matched by increased funding at the national level. Problems which have led to previous Framework Programmes to be criticised for being overly bureaucratic, biased towards complicated international collaborations, and subject to political intervention, will also have to be addressed. In this regard, the EU has proposed the formation of a European Research Council that will be independent of the Commission and is modelled to a large degree on a US model such as the National Institutes of Health. Life sciences, nanotechnology and energy have already been highlighted as areas of research priority.
Another EU-wide policy which looks set to benefit the lab products and testing sector is REACH (Registration, Evaluation and Authorisation of all Chemicals). This draft law would force companies to test, register and provide data on some 30,000 chemicals, compared with present regulations, which affect only about 3,000 chemicals. Under REACH, the onus of proving the safety of all sorts of everyday products will be passed to industry.
There are ongoing arguments form the chemicals industry about the cost of introducing REACH, which could drive production out of Europe, or in the case of small producers who could be hit hardest, out of business. Estimates of the total cost to industry vary from E2-10 billion over the next ten years. This remains small compared to the revenue of the industry, however, and in some form the regulations are certain to appear in the very near future. As the old regulations do not take account of new methods and technologies, the implementation of REACH could see overhaul of older laboratories and growth in outsourcing. Either way, the testing sector and the laboratory products industry that supplies it should be the big winners.
The global economy appears to be moving into a period of cautious stability. This in turn should provide stability to the European laboratory products marketplace. Despite declines over industrial investment, the new ascension countries offer within the EU a new low-cost base for some production and R&D. It is also highly unlikely that Westerrn Europe will lose its significant role, particularly in terms of research. The potential for substantial increases in government research funding, better allocation of this funding and the implementation of stricter testing requirements on the chemicals industry could lead to a surge in the European laboratory sector not seen for many years.
By Alex Sands, editor of Laboratory and Analytical Distributor
This article is based on a presentation given by Alex Sands, editor of Laboratory and Analytical Distributor, at the recent International Breakfast of the US Laboratory Products Association. For more information on Laboratory and Analytical Distributor, visit www.lab-distributor.com, or for more information on the LPA, contact Bill Strackbein, president, at email@example.com.
US Trade data are compiled from US International Trade Commission statistics. Laboratory products includes selected items under the Harmonised Tariff Schedule codes 90270 (Instruments for physical and chemical analysis); 3822 (Composite diagnostic and laboratory reagents); 9011 and 9012 (Microscopes); 9016 (balances); and 3926, 7017 and 6909 (plastic, glass and ceramic laboratory wares). Intra-EU trade data are compiled from the European Statistics Office and relate to products under code 90270.