Electronics manufacturing capacity to see global rebalancing
Electronics contract manufacturers will begin focusing on other factors beyond labor cost when it comes to selecting a location for production in the coming years, iSuppli reports.
By Suzanne Deffree, Managing Editor, News -- EDN, December 25, 2007
Electronics contract manufacturers will begin focusing on other factors beyond labor cost when it comes to selecting a location for production in the coming years, iSuppli Corp. has reported.
The firm reminded that in the early parts of this decade, manufacturing capacity shifted from high-cost regions in North America and Western Europe to the low-cost nation of mainland China. However, in the second half of the decade, iSuppli believes contract manufacturing will undergo a global rebalancing that will more lead to a more distributed market.
“The regional diversification by electronics manufacturers can be attributed to other China-centric factors, including a mobile workforce, inflation, taxes and the rising costs of transportation due to soaring oil prices,” said Adam Pick, principal analyst for EMS/ODM market intelligence services at iSuppli, in a statement. “Ultimately, the emphasis has greatly shifted from labor costs only to the total cost of ownership, which considers managerial resources, organizational structuring, manufacturing competencies, intellectual property and, of course, logistics.”
The firm said that analysis of the recent capacity expansions announced by leading electronic manufacturing service (EMS) providers, original design manufacturers (ODM) and OEMs reveals a number of new trends impacting the global electronics manufacturing business.
The first trend iSuppli pointed to in its report is the rising penetration of emerging regional economies, a factor that continues to be critical for many EMS and ODM providers. The firm specifically noted India’s domestic market’s ability to attract foreign direct investment (FDI) by several leading providers including Foxconn, Flextronics, and Jabil.
ISuppli also noted Russia as a more recent focal point for electronics manufacturers. While television specialist Vestel A.S. has been building its ODM/own brand manufacturing (OBM) presence in Russia for some time, Foxconn in August announced a $50 million investment in the nation to build data-processing systems for Hewlett-Packard Co., the firm put forth.
Secondly, proximity to large, local markets with fast-growing product segments appears to be critical to ODMs, iSuppli said, noting that that is particularly true for companies seeking to establish LCD-TV manufacturing for Western European distribution. Indeed, Wistron Co. and Quanta Computer recently established capacity in Eastern Europe to build flat-panel sets for OEMs including Sharp Electronics and Hewlett-Packard. The ODMs’ local presence in the region helps minimize tariff costs throughout the European Union, the firm said.
Third, iSuppli said OEMs appear to be looking to diversify their manufacturing profile. The rise of Vietnam as an alternative, low-cost manufacturing zone with both skilled and unskilled labor has attracted EMS providers, ODMs and OEMs during the past 18 months.
The firm reminded that North American and Western European manufacturing capacity has been significantly downsized over the past few years, with Solectron, Celestica, Sanmina, and Elcoteq shutting down 38 facilities across North America and Western Europe. However, iSuppli pointed out that this manufacturing did not only go to China, but also to other regions that have a strong allure for EMS providers and ODMs.
For more on the contract manufacturing market see Electronic Business’ listing of the 2007 top 100 electronics contract manufacturers .
