The concept of rental or leasing solutions for test equipment is far from new. In fact it has been around for several decades. But while in the past it was something of a niche market, the direction in which the tectonic plates of the telecoms/electronics markets have been moving in recent times, and the general commercial philosophy that is now in place, seem to more closely resonate with this sort of business model. The time is right to rent.
The latest arrival
Europe has several firms which currently offer rental/leasing test solutions. Some are relatively small, local operations, but there are three larger players which cover the whole continent. The new kid on the block is US-based Electro-Rent. This corporation already has a strong hold on the American rental market, and hopes to pull off the same trick on this side of the Atlantic. David Saeys is the company's general manager for Europe, and I recently had the opportunity to talk to him about Electro-Rent's objectives here. In his opinion, "People are much more inclined to question their capital expenditure now than they were in the past. Firstly you could pay out a lot of money on new test systems and then find that the market dries up, and you don't need any of it. Many big telecom suppliers ploughed lots of investment into test equipment just before the shock wave of the bursting bubble hit. Then they found that regardless of how much it had cost them, all of that equipment was surplus to requirements and effectively worthless. Secondly," he continues, "there is little point in buying expensive state-of-the-art hardware if it is just sitting on a shelf 80% of the time. There are also lots of hidden costs that people often overlook, such as maintenance and calibration. Once you take all this into account, simply buying equipment outright isn't so attractive." The possibility of handing these concerns over to someone else to deal with means that the logistical, upkeep, and capital expenditure issues can all be resolved relatively painlessly. It also signifies that the industry-leading testing solutions are accessible to a greater percentage of the customer base. "Nobody should buy just simply for the pride of ownership," states Saeys. "There is simply no sense in that. If you can't justify the money involved, and if the ratio of cost to utilisation doesn't add up, then you should look at what other options are available to you."Electro-Rent clearly sees i its global reach as a huge benefit, as it is confident that this will allow even greater utilisation, and give it the ability to lay off the risk if one geographic region is performing badly at any stage. The corporation also hopes that it can differentiate itself from the time-honoured European players in other respects. As Saeys points out, "We are not dependent on any one market such as telecoms, so any down-turn here won't hit us as bad as the competition. We also have a huge inventory, with over $200 million worth stock. This gives us greater economies of scale, and also by serving the global market we can follow major projects around the world as they go through the various stages of development."
Why buy?
One of the firms that Electro-Rent is going to find itself up against - if it is to take a chunk out of the European market - is Microlease. The UK-based company offers over 3,000 different product lines and has offices across the entire continent, as well as a foothold in North America. It has been in operation for over twenty-five years, and though originally it concentrated on short-term rental, during the late 90s, in response to a changing market, it began to provide longer term leasing options and full managed services.Chief executive Nigel Brown is confident that this market is still to realise its full potential: "In the last twelve months we have seen strong growth. Most companies coming out of the recession are looking to keep a close rein on their capital expenditure. They are now far more aware of the utilisation and risk issues, so if they can find another way to address their test/verification requirements that won't force them to make large upfront payments, then they are likely to consider it." He continues, "What they have to decide is whether the whole life cost and the additional maintenance expense can be justified. Why incur extra costs?" he asks, "if you no longer need the equipment." Another benefit that Brown is quick to comment on is that using a rental strategy allows technology-upgrade paths to be put in place. Companies can thus replenish their test facilities with the latest equipment, and keep on doing so without having to pick up the huge price tag that would normally be expected. "By working with a provider like us, who can manage the risk far better thanks to our volume of customers, test-equipment users are offloading a lot of their budgeting/organisational worries, and can thereby concentrate on their core technical issues."With regard to his new competitor, Brown doesn't give the impression that he is particularly worried. In his opinion, "Electro-Rent has a large operation in the US, but I feel it will be difficult for itit to get established here in Europe. Quality of service is what counts in this sector, and we have a strong reputation for being reliable and responsive. This is a very fickle market, and you need to be both cost-effective and dependable if you are going to be successful here. Availability of equipment is another key factor. You need to have strength and depth in your inventory." "The environment is highly competitive, so nobody can afford to put a big premium on their merchandise" he explains. "It is what else the customer gets for his or her money that is important."What Brown hopes will also put Microlease ahead of its American rivals is that it is heavily focussed on the products that are needed for the European rather than the US market. "We have a good portfolio of the latest products, but also retain our equipment for a longer period. You need to have a mix of both; not everyone is going to be working at the cutting edge, and it is important to match the demands of the market rather focus all your attention on one part of it," he states. "We look to develop long-lasting relationships and fully understand our clients' needs." He argues against Saeys' claims of over-dependency on telecoms, saying "it is never a good thing to rely on one market, and we are very mindful of this. We have to go where the business is, as this defines how successful we will be, but we also serve other industries such as aerospace, defence, automotive, oil and gas, etc. Also, the telecoms industry is quite diverse in terms of sectors and different activity stages such as R&D, installation/commissioning, manufacturing, and monitoring/maintenance."Certain countries are still to wake up to the virtues of renting. Brown notes that "though in Western countries like the UK and France rental represents 10% of the test market, and in the US it is over 15% (due to there being a propensity to use off-balance financing), when we look at Germany it is just 1 or 2% of the TAM." He believes much of this is down to a culture of owning what you use, with mainly privately-held firms being dominant, but he feels "this attitude is starting to change" and "as Germany is the largest test-equipment market in Europe, this can only be a good thing for us." Livingston currently claims the lion's share of rental business in Europe, and also has the longest pedigree in this market, celebrating its 40th anniversary this August. As a result its CEO, Mel Porter, can afford to be magnanimous. In his opinion the entry of another player into the European arena simply validates what his company has been saying for decades - that rental/leasing options are a better fit for a large proportion of customers' test needs than buying outright. As he explains, "Having more companies out there evangelising about the virtues of rental is good for all of us. Though Europe is getting more used to this approach, there are still plenty of people left who need converting. We must all attempt to re-educate the client base, and show them why it is in their interest to go down this route. There is plenty of headroom for growth within this area."He feels that though Electro-Rent can boast a larger global inventory this is somewhat misleading. "People have got to be aware that some of this is just smoke and mirrors. It's not simply a question of having the goods, it is whether they are easily available. If you have a customer who is looking for a short-term rental on a piece of equipment (which represents a sizeable percentage of this business), for - say - two weeks, then they need it next day," states Porter. "If your company has to ship that piece over from the US and has to go through all the issues of customs and so forth, then firstly it isn't going to be cost-effective, and secondly it is unlikely to be there on time. The windows of opportunity in such cases can be very short, so you need to be able to act quickly - that is why we have all our stock ready to address the European market." He also explains, "This is a business where longstanding relationships and a good reputation are what counts. Companies need to know that when they have a requirement it will be dealt with quickly and reliably. The cost of the equipment is going to be the same across the board, so it is the level of service that you can provide that makes the real difference." To this end the company has developed a number of innovative offerings for its clients. Easy-2-Source means that a firm can rent for a fixed period and receive a rental rebate when they wish to purchase. The newly developed Rental-Calculator is an on-line tool that allows potential customers can see over what period rental would make sense as opposed to buying.So what do the manufacturers feel about all this? Is the growing number of rental firms just stealing their business? Dave Ireland, design and manufacturing marketing manager for Tektronix Europe, doesn't think so. In fact he sees the role they have to play as being highly beneficial to firms like his. "On the whole we are very pro rental," he states. "In the past our account managers may have thought of them as competition, but now they see them much more as partners." As he describes it, providing test equipment shouldn't just be viewed as an «all or nothing" scenario. "Like it or not, there are always going to be financial roadblocks that can prevent test engineers from buying the equipment they really want. Their bosses might not be willing to give them the required budget. By having other routes for them to get their hands on our products we can gain business that would have otherwise been out of reach. Thus we are happy to work closely with rental/leasing providers, as it adds another string to our bow. If a potential customer can't make a capital expenditure, we can pass them on to companies like these, who are experienced at offering flexible financial solutions. In the future it is likely that more and more test-equipment users will look at these solutions as the best way to overcome the funding issues of their projects. Therefore I would predict the proportion of people who are renting/leasing is likely to increase in the next few years as companies explore new ways of acquiring Tektronix products", Ireland concludes. Porter agrees that what companies like Livingston are doing isn't really encroaching on the manufacturer's business; if anything it is bolstering it. He states, "We don't really target the companies that are going to be in a position to buy the test equipment they need from firms like Tektronix, but there are a lot of potential customers that these manufacturers miss out on, and we can offer a route to them that would otherwise be blocked. If, for example you are a small sub-contractor who has just been given a short/mid term project, but to do this you need a high-end piece of kit which costs 80,000 Euros, without us there they would have only two choices available: firstly buy the equipment, but then have to gamble that you can find future business that will justify that investment - which isn't always easy -, or just turn the contract down due to the high risk involved. Neither of these options is particularly attractive, so we offer a way to serve the firms that find themselves in this limbo where they need the hardware but don't have the collateral necessary to acquire it."
High hopes
Like so many other aspects of modern Western society, the outsourcing of services and utilisation of pay-as-you-go solutions are becoming more and more prevalent. It isn't surprising then that the Test & Measurement sector has followed this trend. Given the fact that test equipment often comes with such a price tag, and the projects that reqiure it are not always ongoing concerns - compounded by the fact that many of the companies involved don't have a great deal of financial muscle - it seems fair to conclude that test rental within Europe is likely to see continued growth for a long time to come. Whether Livingston, Electro-Rent, or Microlease can carve out the biggest part of the market is still to be decided, but certainly this sector is filled not just with hope, but expectation.
