Sub-contracting hazardous area product development
19 July 2021
Clive Stanley, Director of ExDynamics, a UK based technology development and implementation company working in the field of electro-mechanical equipment and devices for use in global Hazardous Area markets, explains how there is an alternative route to product development.
The global Hazardous Area equipment market was valued at $6.24bn in 2016 and is estimated to grow to $8.82bn by 2022 (MarketsAndMarkets.com) with North America responsible for the largest single share at 45% of this. With products ranging from Cable Glands to Industrial Control Units and Lighting Products required in sectors from Petro-Chem to Food Processing, there’s a huge industrial market for equipment designed to withstand some of the harshest and potentially explosive environments in the world.
The exhaustive testing and certification regimes for compliance in different areas of the world, however, whilst ensuring the safety of personnel and facilities, represent a formidable obstacle in time and cost to not only those companies entering the market, but also to existing manufacturers who may wish to develop new products but are unwilling to commit the time required. Yet, the opportunity cost of not developing new products or delaying their development usually far exceeds the actual development costs especially for companies with global sales channels as competitors gain market share and the vital specifications by designers.
Traditional Development Routes
The Hazardous Area products market is a lucrative niche opportunity, albeit associated with safety critical markets, under-pinned by very resilient growth drivers. Companies seeking growth through new products in this market have traditionally had three options of, acquiring a business with the desired products as a going concern, asset purchasing a range of products from an existing business or developing their own products.”
Each route, however, has its own restraints. Business Acquisition inevitably incurs significant time and cost from initial scoping, through completion and subsequent integration and usually delivers an incremental product portfolio that is less than optimal. Add post completion costs incurred through personnel changes, operational restructuring and sales distribution clashes etc. and the cost rises, despite an initial boost to sales from the existing customer base which may well taper off.
The Asset Purchase route poses one major question – why is the company willing to divest a successful product portfolio? Whether this is due to out-of-date approvals, declining markets or other reasons, it’s rare to find a suitable product or portfolio of products at the right time and the right cost.
Which leaves In-House development, the usual route of choice for larger companies, some of which may already have their own new product development (NPD) departments, but at a significant cost which may well become prohibitive considering the opportunity costs of delays to launch developments to market. Smaller organisations, have to initially ask themselves whether their personnel have the required skillsets and experience and does the company have the capacity for development before seriously costing the project out.
An Alternative Route To Product Development
However, an alternative route to the Hazardous Area products market now exists with the potential to sub-contract the entire R&D process and then take back all attributes, including IPR, certification and tooling upon acquisition of the relevant certification for chosen areas of the global market through PPA (Product Portfolio Acquisition). Whilst no cheaper than in-house R&D, it offers organisations the opportunity to get their products to market far quicker than they could do this with an in-house team.
The PPA proposition enables companies to develop, test, certify and manufacture Hazardous Area products at a fraction of the time usually required to do this in-house, and then re-possess all rights to the finished products. Using a sub-contractor’s vast experience in Hazardous Area product development can deliver the benefits of a fullscale company acquisition at a fraction of the time and without the drawbacks already mentioned. The entire process, of course, is undertaken in complete confidentiality whilst the contarctor’s own in-house design, production and test facilities streamline the whole process.
The PPA Process
With ourselves, a typical PPA process would involve five stages. At Stage 1, we would outline the project scope to a client. Once accepted with NDA forms signed, the consultants then outline a more detailed technical specification in conjunction with the client at Stage 2 before finalising the complete technical proposal which would include deliverables and timescales.
Stage 3 will see the agreement of terms and agreement of milestones to trigger stage payments under a standard Sale and Purchase Agreement. With the project underway, Stage 4 will see the establishment of a private online shared technical centre where the client and consultants can collaborate and update progress for clarification and monitoring. The final Stage 5 will then involve the assignment of all Intellectual Property Rights, certification, manufacturing documentation, tooling, sales and marketing documentation, training and title to the client. We work closely with clients from initial assessment right through the whole process from the production of a costed detailed proposal, agreement of terms and milestones, including those of our partners, through to completion and handover. Our key electrical and engineering team also transfer all knowledge and experience in the product back to the client, reducing the need for continued support.
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