Palo Alto, Calif, United States, Tuesday, May 08, 2007 — The radio frequency identification (RFID) market is an emerging one but is expected to receive a major boost with the standardization of frequencies and reduction of tag prices. Mandates from retail giants such as Walmart and Tesco, technology innovations, and emerging applications are also likely to drive market growth in the long term.

“Governments are focusing on frequency allocation and harmonizing bands used for RFID to ensure greater interoperability, which will bring more credibility to the market and attract higher investment from participants,” says Frost & Sullivan Research Analyst Parul Oswal. “Emerging applications will create opportunities for new participants looking to enter the RFID space.”

RFID technology is expected to make the most rapid strides in the Asian market, which is projected to grow at a compound annual growth rate (CAGR) of approximately 35.0 per cent for the next 5 years. Initial adoption of this technology is likely to be particularly strong in countries with high labor costs such as Singapore, Korea, and Japan.

Currently, security access control is the largest application in most Asian and Southeast Asian countries, but future growth could be limited due to increasing saturation. Electronic toll collection and fare payment is another major application, but is also expected to experience moderate growth due to the low labor costs in many Asian countries.

Supply chain is a small market at present, but has a bright future in Asia since manufacturing is a core industry in many Asian countries. Most supply chain RFID projects are still in the pilot stage, but the technology is eventually expected to be used for warehouse management, inventory tracking, shelf management, and container tracking.

“Overall, maximum growth is expected to come from traditional applications in the medium term, as there are still substantial opportunities for these applications in the developing countries,” remarks Oswal. “New applications will drive growth in the long term.”

However, the uncertain ROI of RFID has been a major restraining factor to the uptake of this technology. Even though prices of RFID tags have fallen, end users are still reluctant to invest in something that could be substituted by another technology such as barcode at a lower price, albeit also at the lower end.

RFID costs are likely to decline further only with increasing volumes, but paradoxically, this technology is more useful in large value, small volume products. It remains to be seen, therefore, whether lower costs will result in higher volumes or whether volumes will increase and result in lower costs.

Nevertheless, the immense potential of the Asian RFID market continues to attract many multinational companies, who along with local participants, offer a wide variety of products and provide different services.

For instance, some companies are involved in the design and manufacture of integrated circuits (ICs) that are used in the development of RFID hardware equipment. System integrators form another group of participants and they integrate the software and middleware in the equipment with the back-end systems. These companies also act as distributors and value-added resellers. In addition, several other companies provide training and consulting services.