EMS
Each geography has a complex matrix of strengths and
weaknesses that must be carefully aligned to the array of requirements of the company that is considering setting up shop there. In CBA's recent report, "Next Horizons for ElectronicsManufacturing," we present an analytical framework for doing this analysis.
Simply searching for the absolute lowest labor cost has
proven not to be a good long-term strategy, as these costs rise quickly -- usually before the enormous costs of finding and transitioning a product to that low-cost region can be recovered. In addition, the costs to manage these complicated and risky relationships typically erase the labor cost advantage, especially for low-to-medium volume products with medium-to- high mix electronics.
Why do companies consider emerging geographies?
In the report, survey respondents listed several issues that are being discussed internally. The report reveals that the key driver for entering these geographies is the quest for new customers.
that required technology transfer agreements, or turned a blind eye to companies that took advantage of lax IP protection are now dominated by indigenous knock-offs.
So how likely is it that midmarket companies will successfully
compete against indigenous companies or global multinationals for these new consumers? And how likely is it that these new consumers will buy electronics industry products at all?
The answer is it depends. A company must follow its market.
If your company makes semiconductor equipment, then you must sell in Asia because the component supply chain has migrated there. Unless there is a dramatic reversal, the electronics industry has decided for good or ill to hand over the component supply chain to Asia, even though this region is far away from current end markets.
However, if youmake proprietary advancedmedical equipment
purchased by well-funded hospitals located only in developed countries, youmay be better off building in the region for the region, whether in-house or with an electronicsmanufacturing services (EMS) organization located down the street.
If you make products relating to telecommunications or
utilities infrastructure or industrial electronics for construction equipment, you should be looking at opportunities in emerging markets to follow the foreign direct investment (FDI) into those regions. If you are an EMS organization with a customer that has legitimate reasons (not including cheaper labor) for entering new markets, it makes sense to do the research.
Here are several other major conclusions and assumptions from our report:
• Transportation and utilities infrastructures are critical to high- tech industries. Companies selling products related to these areas will be attracted to a region that is investing in infrastructure. Companies that require infrastructure should investigate current status thoroughly.
• Electronics manufacturing requires an educated or at least educable workforce. Literacy rate, school life expectancy, labor force % by occupation and age structure are data points that address this issue.
Indeed, in many companies located in developed countries,
future growth in the global economy is expected to come from demand in emerging markets. In the past, this goal has been challenging. Examples abound of midmarket electronics companies that crashed and burned on a strategy of chasing low labor rates and expecting to sell to local customers. Countries
28 |March 2011
• If a population is aging and has not made a transition to a primarily urban, industrial economy, it may be challenged to acquire the skills necessary to build electronic products. Labor rates alone do not comprehend the requirements for electronics manufacturing. If they did, there would be lots of manufacturing in sub-Saharan Africa.
www.electronics-sourcing.com
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