Increased Inward Investment And Construction Activity To Boost Uptake Of Power Rentals In Central And Eastern Europe | Automation.com

Increased Inward Investment And Construction Activity To Boost Uptake Of Power Rentals In Central And Eastern Europe

October 012003
Buoyant growth in the Central and Eastern European (CEE) power rentals market will hinge on increased levels of inward investment from western developers and on the projected surge in construction demand in the post-European Union accession period. But while significant growth opportunities exist, western investors will need to gear up for lengthier amortisation rates than usual, warns a new study by Frost & Sullivan (www.power.frost.com).

As Central and Eastern European countries line up to join the EU, increased investment flows from Western European companies are anticipated. Keen to exploit growth opportunities in the highly fragmented and immensely lucrative CEE power rentals market, Western European companies are poised to ramp up funding.

While there is considerable first mover advantage, early entrants are also exposed to tremendous financial risk. Frost & Sullivan Industry Analyst Ian French explains: “The levels of investment required in order to install even a small fleet of rental units is relatively high in all markets, but especially so in areas where the GDP is low.”

“Also, amortisation rates can be longer in markets where utilisation rates and prices are lower than optimal. In order to reap substantial financial rewards, Western investors will have to accept longer amortisation rates than the usual three years or so,” he adds.

The highest demand for power rentals in the near term is expected to derive from the construction sector. Construction output is set to burgeon, especially following EU accession. Continuous inflow of foreign capital and enhanced private sector investments are expected to sustain growth momentum across the entire industry.

Market participants will need, however, to take note of fluctuations in construction orders rooted in cultural/seasonal factors. “Those companies that do not find contracts for their units may be confronted with the burden of carrying high fixed costs and dwindling utilisation rates, which will rapidly drain financial resources. Companies must identify alternative end-user areas for their units or face severe competitive pressure or ruin,” comments Mr French.

In this context, end-users in telecom, events, utility, industrial, and commercial sectors remain relatively untapped and have the potential to substantially boost demand contribution in the overall market.

So far, companies have preferred to invest in equipment purchases rather than incur relatively high rental costs. Of late, however, the costs of renting power units have declined due to increased competition. New business operating models that emphasise higher capital fluidity, short-term returns and a belief that investment risks should be minimised in an uncertain marketplace will cause companies to increasingly favour rentals over equipment investments.

At present, the Central and Eastern European power rental market is fragmented with low levels of competition in comparison to some of its western counterparts. Most companies currently active in the market are principally focused on sales with only limited emphasis on their power rental business. In addition, there is a dearth of dedicated power rental companies.

As the market advances, this scenario is likely to change. OEM dealerships are expected to concentrate on their rental divisions, while some of the larger rental companies are likely to focus on improving their presence as either new participants or by boosting investments in their existing dealerships.

Frost & Sullivan estimates the current $4.8 million market to grow robustly over the next decade, with growth rates reaching 20 percent per annum by 2009. As product awareness and cultural acceptance of power rentals spreads, all demand sectors are forecast to expand. Principal demand is likely to be for outputs below 100 kVA and especially for that under 50 kVA. With greater market development, demand is expected to extend into the higher output ranges.

The idea of equipment rental is still rather novel in nations undergoing the transition to free market economies. It is, however, gaining widespread approval in Western European countries. In turn, closer ties between Western Europe and the Central and Eastern European countries are likely to prompt improved uptake of rental power rentals in the latter. Among the areas with the best growth potential are the Czech Republic, Turkey, Poland, the Baltic states and Hungary.

“As such, the move to power rental practices in Central and Eastern Europe will take longer than in Western Europe. However, with increasing inward investment from western sources with retained control and use of funds, which will inevitably be directed to promote rental practices, there will be a quickening the process of recognition and change,” concludes Mr French.

Frost & Sullivan, an international growth consultancy, has been supporting clients' expansion for more than four decades. Our market expertise covers a broad spectrum of industries, while our portfolio of advisory competencies include custom strategic consulting, market intelligence and management training. Our mission is to forge partnerships with our clients' management teams to deliver market insights and to create value and drive growth through innovative approaches. Frost & Sullivan's network of consultants, industry experts, corporate trainers and support staff, spans the globe with offices in every major country.

Contact:

Kristina Menzefricke
Public Relations Manager
Tel. +44 (0) 207 343 8376
[email protected]
www.frost.com
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