UnderWater Magazine
The following analysis of the world ROV market is based on a thesis paper written by a student at Politecnico di Milano in Italy. Mario Ontini contacted me via the Internet requesting assistance in his research, and I was able to provide him with a few contact names and companies that he did not previously have. In editing Mario's paper for presentation in UnderWater magazine, I found that the results of his research provide a revealing snapshot of the global ROV sector.
- Howie Doyle, Publisher
The manufacturing companies were small to medium sized companies, with an average staff size of 63 employees, and average revenues a bit higher than $10 million. The total value of ROV production in 1996 for all of the companies is estimated between $150-$200 million.
"Barriers to exit" can be defined as economic factors that keep a company in the market even if the rate of profitability is low or negative. The research revealed that barriers to exit from the market are high in the offshore segment, due to the investments necessary to acquire technical knowledge and experience sufficient to compete in this selective market. Moreover, there are significant strategic interdependencies among companies belonging to the same group. Perry Tritech, for example, is one of the leading companies in the sector. It belongs to Coflexip Stena Offshore, which facilitates the projects, engineering, and completion of structures for petroleum companies. Similarly, Racal Techno Transfer Industries Ltd. builds ROVs for its associate Racal Survey Ltd., while Oceaneering International and SubSea International are marine service companies that developed a division to build their own ROVs.
For general purpose and inspection ROVs, the author found that the conversion costs that clients normally have to bear to change their suppliers are not high, and that brand identification is not a key aspect to clients. As ROVs are durable goods, conversion costs are borne when a vehicle gets lost (a rare event) or when an ROV is not able to handle new tasks, and must be replaced. As evidence that brand identification is not of utmost importance to clients, eight ROV operators out of the 11 that responded indicated that they own ROVs built by different companies.
The threat of new entries in the offshore segment is not very high. Barriers to entry include difficulty in obtaining the most advanced technologies, and the cost of experience that has been accumulated by companies already existing in the sector. This accumulated experience translates into the manufacture of more reliable vehicles, lower costs (the so-called "experience effect"), and a better image with clients.
In the quest to maintain a technological advantage, the average percentage of staff assigned to research and development is very high at 22 percent. It is significant to note that 10 of the 12 companies that responded indicated that they hold exclusive patents.
About 80% of the participating ROV operators consider use of ROVs advantageous, even for some tasks that could be done by divers, because of the safety and economic advantages. Specifically, all of the operators in the inshore sector consider ROVs to be more advantageous, whereas among the offshore operators the percentage falls to 75 percent.
The tasks for which ROVs hold the advantage, in the operators' opinion, are mostly inspections, followed by tasks connected to assembly of infrastructures and the recovery of objects. Respondents pointed out that ROVs gain an advantage in cases where the project is engineered to be carried out by remote intervention.
Inspection in an area that is difficult to access (e.g. the inspection of the inside of a pipeline) is a task for which ROVs are preferred to divers by the respondents. In this type of inspection there is a high risk of being trapped in the inspection area, which could endanger the diver's life, whereas the ROV can usually be dragged out by the umbilical (even if this damages the cable and the connection between the cable and vehicle, causing flooding of the electronic parts).
The percentage of inshore operators that are "very satisfied" is over 67 percent, and none of them claims to be "little satisfied." Conversely, none of the offshore operators is "very satisfied" with the way ROVs handle tasks, and the percentage that are "little satisfied" grows to 38 percent. To some extent, the differences in satisfaction can be explained by taking into account the different tasks assigned to vehicles in different sectors.
Problems encountered most frequently by ROV operators are due to insufficient experience of the staff. Other problems include technical problems (e.g. difficulty in the connection between the vehicle and the ROV support vessel) and environmental problems (e.g. currents and poor visibility).
The number of important buyers is small in the offshore sector; the oil companies, telecommunication companies, and military comprise about 70 percent of demand, and are made up of few companies (i.e. they are concentrated sectors). Even the remaining 30 percent is made up of relatively few ROV operators (perhaps 100 companies worldwide). This puts pressure on companies of the offshore sector to try to maintain their clients by having fair prices and high quality products and services. In the inshore/coastal segment there are more clients, each with less relative importance, and consequently they tend to have less contractual (bargaining) power.
Probably another unstated goal of vertical integration in the offshore sector is to maintain a technological advantage on the competitors. Often ROV operator-clients cooperate with ROV manufacturers in the development of specifications of vehicles, in order to obtain ROVs that are more suitable for their unique requirements. In this scenario, the costs of development of the prototype are borne by the first client, while the manufacturer can later use the technology and the experience gained to build vehicles to be sold to competitors of the original client. If a marine service company integrates vertically, to develop its own vehicles, it can safeguard its technological advantages from competitors.
In the inshore/coastal segment, the threat of upstream integration is virtually nonexistent. Companies that use ROVs in an inland setting usually have neither the interest nor technical knowledge to use this strategic move.
Regarding the inshore/coastal sector, the percentage of companies that believes it possible to have revenue growth higher than 10 percent in the next three years is 71 percent. The majority (57 percent) anticipates growth between 10 and 20 percent. The operators who intend to buy other ROVs in the next three years represent 82 percent of the ones that responded to our enquiry. All declared that they will invest in the expansion the vehicle fleets, not in substitution of the old ones.
Research in the most innovative technological areas (telepresence, untethered vehicles, and autonomous vehicles) is being pursued by a minority of companies responding to the survey. Among these companies are Perry Tritech, Oceaneering, and ISE.
There is widespread skepticism among offshore operators regarding the prospect that, in the near future, untethered and autonomous vehicles will replace ROVs in at least some tasks. These vehicles are considered too expensive and too unreliable, so the first wave of autonomous and untethered vehicles for the offshore segment will have to demonstrate their qualities, reliability, and convenience before they will be able to conquer large market shares.
Even some ROV manufacturers voiced skepticism regarding the development of autonomous vehicles to replace ROVs, replying that AUVs and untethered vehicles are at present only "academia" and that they will not be used in real work situations for many years yet.
Telepresence systems have already been introduced in some commercial applications (such as a system that has been developed by Divex in cooperation with British Gas), so implementation of vehicles with telepresence systems should not be too far away, even if only 25 percent of responding companies stated interest in development of telepresence.
Research for offshore vehicles is concentrated on the feasibility of using ROVs in always deeper waters, and in extending their capabilities. Specifically, offshore manufacturers stated that manipulators must become more dextrous. Other improvements needed include the ability to work in stronger currents, and the need for more powerful ROVs. The manufacturers' opinions were mirrored by operators.
Entire contents ©1998 Doyle Publishing Company. Reproduction in whole or in part without express written permission is prohibited.
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