Emerging Growth Markets for Nondestructive Test (NDT)

Inspection Services Brazil, India, China, and South Africa Offer Long-term Growth Prospects

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June 2013

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Research Team

Vijay Mathew Program Manager

Measurement & Instrumentation

Nikhil Jain Senior Research Analyst

Measurement & Instrumentation

Lead Analyst Research Director

Corporate Communications Representative

Jeannette Garcia Corporate Communications

Measurement & Instrumentation

+1.210.477.8427

Jeannette.Garcia@frost.com

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Contents

Section Slide Numbers

Executive Summary 4

Market Overview 8

Emerging Growth Markets for NDT Inspection Services -

• External Challenges: Drivers and Restraints 15

• Forecasts and Trends 23

• Market Share and Competitive Analysis 34

Brazilian Breakdown 38

Indian Breakdown 51

Chinese Breakdown 64

South African Breakdown 75

The Last Word (Conclusions and Implications) 87

Appendix 90

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Executive Summary

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• The emerging growth markets for nondestructive test (NDT) inspection services are

estimated to generate $367.8 million in revenue in 2012.

• Oil and gas and power generation are the dominant end-user industries in the

emerging growth markets.

• Brazil’s revenue contribution to the emerging markets ranks highest, accounting for

55% of the total market in 2012.

• Contrary to common perception, the Chinese NDT inspection services market is fairly

small. It is the smallest of the 4 growth markets under study, but growth prospects are

high.

• The South African market has the highest growth potential with a booming economy

providing investment in new power generation infrastructure, which is driving the NDT

inspection services market.

• The competitive landscape consists mainly of local participants in Brazil, India, China,

and South Africa, with only a few major global companies able to enter the market.

• There are approximately 450 companies battling in these competitive markets.

• It is expected that over the forecast period consolidations in the market will result from

mergers and acquisition.

Executive Summary

Source: Frost & Sullivan

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Compound

Annual Growth

Rate

10.9%

(CAGR, 2012–2017)

Market

Concentration

23.0%

(% of market share held by

top 3 companies)

Executive Summary—Market Engineering Measurements

Market Stage

Growth

Market Revenue

$367.8 M

(2012)

Market Size for

Last Year of

Study Period

$615.6 M

(2017)

Base Year

Market Growth

Rate

7.4%

Customer Price

Sensitivity

8.3

(scale:1 [Low] to 10 [High])

Degree of

Technical

Change

6.0

(scale:1 [Low] to 10 [High])

Emerging Growth Markets for NDT Inspection Services: Brazil, India, China, and South Africa, 2012

For a tabular version click here. Stable Increasing Decreasing

Number of

Competitors

425–450

(active market competitors in

base year)

Competitor Overview

Market Overview

Note: All figures are rounded. The base year is 2012. Source: Frost & Sullivan

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Executive Summary—CEO’s Perspective

2 Advanced NDT services are expected

to drive revenues in the emerging

growth markets.

3 Oil and gas and power generation

remain the dominant end-user

industries in the emerging markets.

4 Extremely nationalized competition

within the market keeps major global

participants from gaining a foothold.

5 Quality of service is expected to be the

key competitive differentiator over the

longer term.

1 Brazil is the largest emerging growth

market for NDT inspection services.

Source: Frost & Sullivan

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Market Overview

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Market Overview

Introduction

The emerging growth markets for NDT inspection services are Brazil, China, India, and South Africa.

China is the smallest. In China, end-user industries prefer performing NDT inspections in-house, instead

of outsourcing. Brazil is the largest market and generated $202.3 million in 2012. South Africa has the

greatest growth potential with a 19.2% CAGR.

Similar to the global NDT inspection services market, the emerging growth markets for NDT inspection

services are characterized by a large number of competitors, although most participants are relatively

small. These participants, often referred to as the mum and pop shops of the industry, compete in the

conventional NDT space. To put things in perspective, India possesses 200–250 market participants

competing for a $50.8 million market.

The key driver for the emerging markets in NDT inspection services is the demand from end-user

industries such as oil and gas and power generation. High oil and gas prices ensured that these

operators earned significant revenue over the past 2 years. This revenue was invested back into

developing the infrastructure in the energy industry.

Source: Frost & Sullivan

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Market Overview (continued)

Source: Frost & Sullivan

A common challenge witnessed in the global NDT inspection services market is a lack of qualified

technicians. However, this challenge is not witnessed in the emerging markets. India is the NDT

education hub and provides trained technicians in country and to other regions like the Middle East.

Similarly, in China, SGS established a PCN training center to bridge the gap between the quality of

training being provided and the quality expected. This training center provides PCN certification and

approximately 2,500 NDT technicians in various disciplines have been undergoing training since the

inception of the training center.

The emerging growth markets for NDT inspection services are experiencing high growth amid a difficult

economic environment and are expected to continue growing over the next 5 years.

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Market Overview—Definitions

Definitions

For this study, the emerging growth markets for NDT inspection services have been

segmented by end-user industry as follows:

Oil and Gas Upstream

Inspection of oil wells and rigs, both on- and offshore; and of drill pipes and drill collars, referred to as

tubular goods inspection.

Inspection of welds on the gathering lines, which connects the oil well to a gathering station or tank battery.

Oil and Gas Midstream

Inspection of infrastructure such as tank batteries, compressor stations, and pump stations; and of welds

on the new construction pipelines connecting the gathering stations to the refineries.

Assessment of erosion and corrosion on the maintenance of pipelines.

Oil and Gas Downstream

Inspection of refineries and petrochemical and of chemical plants driven by regulations.

Power Generation

Inspection of energy, utilities, co-generation, renewable, and non-renewable power plants.

Others

Inspection of aerospace, automotive, transportation, shipbuilding, and manufacturing industries; and of

process industries such as pulp and paper and sugarcane. Source: Frost & Sullivan

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Market Overview—Definitions (continued)

Geographic Scope

India

Brazil

China

South Africa

Source: Frost & Sullivan

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Market Overview—Key Questions This Study Will Answer

Which are the emerging growth markets for NDT inspection services?

What are the key growth drivers and restraints for the emerging markets?

Who are the major participants in these markets, and what are their market shares?

Which are the strategic growth end-user industries?

What are the biggest challenges that market participants need to overcome to achieve growth?

Source: Frost & Sullivan

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Market Overview—Segmentation

Brazil 55.0%

India 13.8%

China 9.3%

South Africa 21.9%

Percent Sales Breakdown

Emerging Growth Markets for NDT Inspection Services: Brazil, India, China, and South Africa, 2012

Brazil is the most

developed market for

third-party NDT inspection

services

India is the third biggest;

however, the market faces

severe growth challenges

China is the smallest

amongst the 4 countries

but possesses high

growth potential

The rapid rise in demand for electricity

is driving investment in new power

generation projects, which in turn is

driving the NDT inspection services

market

Note: All figures are rounded. The base year is 2012. Source: Frost & Sullivan

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Brazilian Breakdown

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• Of the 4 emerging growth markets, Brazil is the

largest and most mature market.

• In the short-term, Brazil is expected to witness

moderate growth due to macroeconomic issues

such as high inflation, slowing gross domestic

product (GDP) growth, and increasing interest

rates that are slowing the capital investment.

• However, it is expected that in the medium to long-

term, the Brazilian market will reach high single-

digit revenue growth rates.

• Oil and gas and power generation are the most

important end-user industries for third-party NDT

inspection services in Brazil.

• Investment in oil and gas infrastructure by the

nationalized oil company, Petrobras, is the biggest

driver for the market.

• Any delays in investment by Petrobras negatively

impact growth in the market.

Source: Frost & Sullivan

Brazilian Breakdown

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Indian Breakdown

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• Economic growth is suffering from a general policy

paralysis that led industrial production to grow on

average 1% over the past 2 years.

• This paralysis also led the GDP to grow at a 6%

average over the past 2 years, which is low

considering the size of the economy.

• Other macroeconomic challenges such as

decreasing currency value, high current account

deficit, and high consumer price inflation have

brought the economy to a stand still.

• These economic challenges have also had a

negative impact on the NDT inspection services

market, and a moderate revenue growth rate in

the short-term is expected.

• However, the economy is expected to recover and

increase capital investment, which will drive the

NDT inspection services market to double-digit

growth rates by 2017.

Indian Breakdown

Source: Frost & Sullivan

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Chinese Breakdown

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• China’s revenue contribution is the lowest

amongst the 4 emerging NDT inspection services

markets.

• This is attributed to the existing end-user business

model that prefers performing NDT inspections

in-house rather than outsourcing.

• Considering China’s low cost of labor, the in-

house NDT inspection model is considered

superior to costly outsourcing.

• But, it is expected that in the medium-term, with

increasing wages and more global companies

entering China, the demand for third-party NDT

inspection services will increase.

• Although growth is slowing, it is still high

considering the size of the economy. Also, the

recent government stimulus to quicken new

infrastructure projects is expected to add to the

economic growth.

Chinese Breakdown

Source: Frost & Sullivan

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South African Breakdown

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• South Africa’s growth pace over the past decade

has outweighed expenditure in energy

infrastructure. This resulted in an electricity deficit.

• This deficit is being addressed by the South

African government, as the 2 largest power

stations are under construction.

• Over the next 5 years, revamping and building new

infrastructure to satisfy the needs of a growing

population (with greater purchasing power) is

expected to drive investment in the energy sector.

• South Africa is a well run country, economically.

The country has a healthy fiscal policy that led to

low sovereign debt and stable inflation levels.

• The GDP has been growing steadily for 2 years

and is expected to be stable for the next 5 years.

• The NDT inspection services market is

experiencing high growth, and high growth rates

are expected for the forecast period.

South African Breakdown

Source: Frost & Sullivan

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Appendix

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Market Engineering Methodology

One of Frost & Sullivan’s core deliverables

is its Market Engineering studies. They

are based on our proprietary Market

Engineering Methodology. This approach,

developed across the 50 years of

experience assessing BRIC markets,

applies engineering rigor to the often

nebulous art of market forecasting and

interpretation.

A detailed description of the methodology

can be found here.

Source: Frost & Sullivan

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Additional Sources of Information

The list of recently published deliverables in the NDT market are provided below.

• World Nondestructive Test Inspection Services Market

• Analysis of the Global Nondestructive Test Equipment Market

• The Nondestructive Testing (NDT) Industry Survey

• Analysis of the Industrial Digital X-ray Inspection Systems Market

• Industrial X-ray Film Market

The list of upcoming deliverables that are to be published in 2013 is provided below.

• Analysis of the Global Ultrasonic Inspection Market

• Analysis of the Non-traditional NDT Equipment Market

• Analysis of the Global NDT Training Services Market

• Analysis of the NDT Market in Oil & Gas

• Analysis of the European NDT Market

• Analysis of the NDT Software Market

Source: Frost & Sullivan

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Learn More—Next Steps

• Talk to an Analyst

• Take our DNA Survey

• Arrange a Growth Workshop

• Explore the Growth Excellence Matrix 2.0

Source: Frost & Sullivan