Third Annual Investment Confidence Report Reveals Optimism Within Specific Market Sectors–Not Across the Board

For the past couple of years, like many other sectors, the laboratory industry has been challenged by the world’s precarious economy. Account deficits and lack of research funding has forced many labs to downsize, cut back on research, and be unable to upgrade their apparatus or invest in new equipment. The start of 2011 is, however, starting to show signs of hope for the economy, which may brighten the outlook for the laboratory market.

Our third annual confidence survey revealed that survey participants—ranging from technicians to corporate management—believe their research organizations will be just slightly better off financially than they were a year ago and that business conditions in their market sectors will somewhat improve to support or attract significant research investments.

Would you say that your research organization is better or worse off financialy than it was a year ago?

The year 2010 did not take the nosedives that the previous year took; therefore, laboratories that were not able to recover were at least able to keep their heads above water. Some had to close down branches and streamline their work, and many looked for innovative solutions to keep business going. The new year inspires new expectations of not just sustaining operations but even improving funding and acquiring additional staff and new technology. This year, as opposed to last year, shows that slightly more survey participants believe that overall the upcoming year will be better than the previous. However, most participants seem to believe that their business will still suffer from the fragile economy.

Confidence
With the economy more stable than in the previous two years, the overall confidence level of the survey participants was up from 50 percent in 2009 to 51 percent in 2010. This indicates that the new year shows promise of being a better period for the laboratory industry.

More than half of the 379 participants believe that business conditions in their market sectors will improve to support or attract significant research investments, that their organizations will be better off financially to fund existing and new research projects, that there will be sufficient funds to expand and maintain the proper work space and work environment in the lab, and that as a whole their organizations will make appropriate investments to fund new and existing research projects within the next five years.

Of the different sectors—examples of which include food & beverage, clinical, energy and petroleum, and forensic—the microbiology sector shows the highest level of confidence that 2011 will be a better year than 2010, while survey participants from the clinical sector show the lowest level of confidence in the new year. This shows that each sector is dependent on a specific aspect of the economy and that not all the labs face similar challenges.

Rafael Leniz, laboratory director of the Coachella Valley Water District in California, feels that until the economy and, specifically, the housing market improve, there won’t be much positive change at his organization.

“The business of my company is to provide quality water to customers,” he says. “The amount of money that customers pay for the service does not cover the costs of providing them with water, so the company has kept solvent thanks to the revenues generated by new customers, that is, new housing developments—building sewage lines, potable water lines, water meters, etc.—and unfortunately the housing development in the area came to a screeching halt due to the housing calamity of the last couple of years.

“Consequently, the revenues of the district took a dramatic drop and the district is eating its reserves,” he adds. “There are no signs that house construction will start anytime soon, and there are enormous political pressures not to raise the water bills. Therefore, I do not see any light at the end of this tunnel. Unless housing construction gets a jump-start in the next couple of months, I think 2011 will be even worse, since most of our reserves are already gone.”

With regard to research and development, survey participants showed that confidence is up this year. Going into 2010, 42.4 percent of the participants were confident that their market sector was going to be robust enough to support or attract significant research and development investments. Going into 2011, this number increased to 51.4 percent.

These results indicate that while overall confidence hasn’t risen drastically yet, there are some areas where the participants have hope for improvement.

Research budget
Most survey participants believe that investments in existing research projects will remain about the same. This percentage is down by 5 points from last year. However, about 30 percent of the participants believe that investment in existing research will increase slightly—up from last year’s 22 percent—while there seem to be fewer folks in this year’s survey who believe that investments in research projects will decrease.

The perception that there will be slightly more funding for new research projects is also faring better, at 34 percent this year as opposed to last year’s 23 percent. However, in this year’s survey, fewer folks believe that there will be significantly more funding for new research projects than last year.

Overall, it seems that with regard to the research budgets, the survey participants are just slightly, if at all, more optimistic than last year. This, of course, depends on the sector that a person is in.

Overall budget comparisons betwen this year and last.

Serena McCoy, a research technologist at the University of Nebraska- Lincoln, believes that in terms of research, her lab was in worse condition at the end of 2010 compared to the end of 2009. The funding for McCoy’s lab comes from research grants and the State of Nebraska.

“We are a university lab, so we do public service-related research,” she says. “Our focus is developing dry beans (kidney, black, etc.) that are resistant to fungal diseases, so growers do not have to invest in pesticides. Our research benefits growers in the U.S. as well as in countries like the Dominican Republic, Haiti, etc.”

Research is always an area of cutbacks because “they say we can get grants to make up for what we’ve lost,” McCoy says.

Staff compensation and hiring
Around 37 percent of survey participants believe that in the coming year management and staff compensation and benefits will remain the same as 2010, while 24 percent believe that they will increase slightly. Overall, the opinion on this issue hasn’t changed significantly from last year to this year.

In addition, most participants believe that hiring additional and replacement staff and education, including meetings, classes and training, will also remain the same as last year. While it’s good news that staff hiring and compensation haven’t gotten worse in the past year, the prospect of not being able to fund additional personnel or reward the ones taking on the bulk of the work is taking a toll on many labs.

“I am seeing a decrease in the morale of my analysts,” says Wanda Ingersoll, the Mississippi Public Health Laboratory’s division director. “We have not had layoffs, but there have been no salary increases for over two years. We are unable to fund any salary increases or add any new positions. Workers feel trapped and unappreciated.”

Additionally, some labs are and will remain short staffed, at least in the near future.

“At the beginning of 2009, our department had enough money for technicians to be three-quarters state money and a quarter grant,” says McCoy of the University of Nebraska-Lincoln. “Due to cutbacks we are now half state and half grant. Grants are becoming much more competitive as everyone is looking for money, so you are less likely to get a grant. We currently are short a virologist in our department and will not be filling that position anytime soon.”

Rafael Leniz, laboratory director of the Coachella Valley Water District, also feels that staffing for his lab will suffer in the next year or so. “We have been on a hiring freeze for over two years now, and that will continue unless the economy makes a dramatic turnaround.”

Lab equipment and facility
About 32 percent of this year’s survey participants believe that there “Each sector is dependent on a specific aspect of the economy and that not all the labs face similar challenges.” 18 Lab Manager February/March 2011 www.labmanager.com Confident? will be no change in 2011’s budget to modernize an existing lab facility, for example, with new furniture, while 25 percent of participants believe that the budget will increase slightly—this is up by only 1 percent since last year’s survey.

On the whole, most participants believe that budgets for setting up a new lab facility and investing in new and preowned lab technology will remain the same as last year. Similarly, most participants believe that budgets for raw materials and for commodity and consumable products will remain unchanged compared to the previous year.

Most of the survey participants believe that in the coming year the budget for lab equipment will remain the same across the board—this includes analytical instruments such as particle analyzers, chromatographs and spectrophotometers; basic lab equipment such as shakers, incubators and glove boxes; lab automation equipment such as automated liquid handling and robotic systems; supplies such as glassware and plasticware, furniture, software, chemicals and biochemicals, antibodies, microarrays, and assays; etc.

These responses are very similar to last year’s and show that the economy has a direct influence on purchasing choices.

Comparison in Analytical Instrument/Separation Equipment Purchases Between this Year and Last

Comparison in Basic Lab Equipment Purchases Between This Year and Last

Matthew Chandler is the quality manager at ILPEA Industries Inc. in Scottsburg, IN—a company that manufactures gaskets that seal refrigerators, freezers, wine coolers, washers, dryers and home doors. The laboratory at ILPEA tests the raw materials that the company manufactures and uses in the production of these gaskets.

Chandler believes that although the economy may affect purchasing decisions, when labs start focusing on the quality of the materials they manufacture, having the tools necessary to test and approve the product is a must.

“All laboratories have to do whatever is required to properly test whatever they are producing or testing for,” he says. “In order to do this, laboratories must continue to purchase and upgrade the equipment needed to keep up with the changes and improvements that are required to stay ahead in today’s economy.”

In order to achieve its goals, ILPEA Industries Inc. closed two of its North American facilities and transferred the production from these to other plants. This gave the company the ability to focus its attention on improving process efficiency as well as product quality.

Wanda Ingersoll, the Mississippi Public Health Laboratory’s division director, has to allocate funds differently this year to meet her lab’s goals. Her facility is an environmental lab that tests the state’s public drinking water supplies for regulatory purposes, and their main funding is primarily fee based.

“The budget for our lab did not increase last year, and I don’t think that it will increase in the next fiscal year; it may even decrease,” Ingersoll says. “While most of our commodities have not had large cost increases, they have increased. Our service agreements have also increased.”

The lack of funds to purchase new instrumentation or modify methods is preventing Ingersoll’s organization from investing in new methods or improving old ones. “Much of the money that we have allocated for instrumentation is shifted to cover supplies and services,” she says.