Front End | Electronic Components Supply Network Trade agreements and multi-sourcing strategies
As the chaos in global trade caused by the policies of the new US Administration continues, organisations in the UK and elsewhere need to find ways to manage successful daily operation whilst considering a wide range of mid-to-longer term scenarios. Adam Fletcher, chairman of the Electronic Components Supply Network (ecsn), suggests that a policy of continuing as “normal” whilst carefully monitoring the evolving situation is the only realistic strategy to adopt as these scenarios play out. In this article for CIE readers Fletcher reviews the latest tariff news and considers some longer-term multi-sourcing issues for UK based electronic equipment manufacturers
UK trade deals
In early May ‘05 the UK signed trade agreements with India and the USA but so far only the briefest headline details have been released and with little explanatory information. The devil will undoubtedly be in the detail and in the practical implementations of the arrangements. Based on 2024 data, the agreement with the Indian government will currently impact less than 2 per cent of UK trade but the UK government is forecasting an increase to 3 per cent by 2040, a welcome but cautious prediction given the timescale. The cultural links, business language and legal systems that India shares with the UK would suggest that opportunities for UK-based organisations to capitalise on the new agreement will increase as India’s economy grows. Both export and import activities could increase faster than currently forecast, particularly as the country’s electronics sector is booming and is very likely to continue to expand. The UK’s trade agreement with the USA is probably the best of a bad situation: Trump’s insistence on a 10 per cent general tariff on most imports into the US leaves the UK significantly disadvantaged compared to the same period last year and sets an unwelcome precedent for the imposition of tariffs on goods from the UK without retaliatory tariffs being applied to US exports entering the UK. The agreement has however provided significant protection for producers of aluminium and steel and for automotive assemblers, particularly those producing the higher added-value cars that are primarily exported to the US. However, the overriding concern is that the US authorities appear
12 May 2025
willing to change the terms of current trade agreements almost at the whim of the President. With many observers wondering when next this might happen uncertainty will continue, discouraging investment and hampering growth.
The good news for the UK electronics industry is that the additional tariffs currently imposed by the US only impact a small number of our electronic equipment manufacturers. Companies exporting to the US usually apply some form of “hedging” (financial buffering) to their US$ pricing, primarily to manage exchange rate fluctuations so, whilst unwelcome, an increase in tariff rates can probably either be absorbed within the buffer, shared across partners in the supply network or partially or fully passed on to the end customer. Accordingly, I expect many organisations across the UK electronics industry will adopt a “wait and see” policy and be ready to react accordingly to whatever the next change in US trade policy will be. In the short-term there is little that UK based organisations can do to improve their situation except perhaps to try to enhance their trading position with India and in other export markets, whilst tirelessly lobbying the UK government for increased export support. I remain of the opinion that the international financial and capital markets will continue to significantly influence US international trade policy and in the longer term will force changes that maximise financial returns. We will eventually return to international trading policies much closer to those of the pre-Trump era, but it will be decades before US trade credibility recovers fully.
Components in Electronics
Multi-sourcing strategies At a recent industry event the panel discussion turned to electronic components design-in and second sourcing arrangements. It was evident that many in the audience believed that secure second sourcing of electronic components was a pre-requisite for their organisation if they were going to design the latest generations of components into their new equipment. In the 1970s, ‘80s and into the early ‘90s the leading components makers accepted that the components they designed and manufactured, if successful in the market, were likely to be cloned or copied by other manufacturers, so many sought to recover the exponentially increasing cost of new product development by granting licenses to competitors to legitimately produce their products. Second-sourcing had the dual advantages of boosting the innovator’s revenue stream and reassuring customers that the supply of the new technology would be readily available and competitively priced.
Over the past thirty years or so this scenario has changed significantly: Whilst the older generation of ‘legacy’ components are still available for new designs (albeit from a reducing number of manufacturers) the direction of travel for electronic system manufacturers is unquestionably towards the use of single sourced or near single sourced ‘proprietary’ components. In the semiconductor and passive components markets the trend has been realised in devices with higher levels of functional integration. Including multiple discrete solutions in a single component saves board space and lowers both power consumption and cost. Further, escalating market and customer
demand for the latest technology is compelling component manufacturers to increase their market sector specialisation and focus on serving the requirements of (typically) mobile phone manufacturers but the average in-production lifecycle of a mobile phone is less than eighteen months. Pity the design engineer at an industrial or medical equipment manufacturer faced with having to select components for an end-product that could be in production for five years and have a projected service lifecycle of ten. Design engineers of high-end equipment must routinely consider components availability and lifecycle alongside the electronic performance and package type when selecting electronic components for their new designs. Components that have a wide customer base and a long forecast lifecycle are usually in high volume production and can safely be prioritised for new designs, but designers of high-end products would be well advised to consider how to future-proof their equipment by increasing modular design of PCBs to enable possible future changes of components to be made more easily if needed.
Manufacturers’ authorised distributors today routinely provide customers with information about the primary market drivers for a particular electronic component and where it sits within the manufacturer’s projected production cycle. When production of a component does come to an end, manufacturers try hard to support their customers by advising them well in advance and offering them a last-time-buy opportunity, and their authorised distributors often provide additional support by holding
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