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Facing the Challenges of 2012 and Beyond
February 1, 2012 |Estimated reading time: 9 minutes
Editor's Note: This article originally appeared in the January 2012 issue of SMT Magazine.
As we enter 2012, one thing is certain: A tremendous amount of uncertainty still remains in the economic outlook. While this statement might make some nervous and wary of moving ahead with business prospects, those that plan ahead and continue to invest in R&D will successfully meet the challenges of an uncertain marketplace.
A diverse group of trends, including the return of manufacturing to the United States, the continued development of clean energy options and mobile communication devices, and the end of exemptions to RoHS chemical restrictions, all bring the potential to affect business in 2012. Knowing what these trends are and how to deal with them can help a company thrive in tough economic times.
Recession: Yes or No?Are we talking ourselves into a recession or are there real indicators that a recession exists or is imminent? According to Jim Greig, Sales and Marketing Manager Electronic Materials, LORD Corporation, several indicators illustrate that the economy is not as bad as some would perceive. While there might be doubt about the market, he advises companies that now is not the time to be hesitant about conducting business.
“There is a lot of nervousness concerning the global market and the constant talk regarding an impending recession does nothing to calm one’s nerves,” he said. “Concern about the economic and political situation in the U.S., Europe and Asia, while a legitimate topic of conversation, cannot provide any definitive answers.”
Even in uncertain times, companies still need to conduct business, have ongoing dialogues with customers, and continue to invest in R&D. Companies that plan well in difficult circumstances will typically come out of tough economic times much stronger than companies who take no action at all.
Greig points to the automotive and the semi-conductor industries as two examples of markets that are experiencing strong growth. “Due to strong consumer demand, the automotive industry will be manufacturing many more cars in 2012,” he noted. “This is a positive sign. It means that people still have disposable income and are willing to invest in a new car.”
Greig cites the latest statistics from PricewaterhouseCoopers’ (PwC) latest Autofacts forecast which show global automotive growth to be about 6.6% over 2011. The PwC October 2011 Quarterly Forecast Update reports that “inventory restocking, export upgrades, new capacity installations and a series of high-volume, high-profile product launches in the mid-size car segment should propel output forward in 2012.” Light vehicle production is expected to reach 14 million in 2012.
Similarly, in the semi-conductor industry, industry groups are indicating that spending will be up in 2012 in terms of capital equipment expenditures. This is a sign that semiconductor manufacturers are adding production capacity due to increased product demand, Greig stated.
Even if a company is going through challenging market conditions, it should continue to in invest in R&D and keep current with what is happening in the marketplace. “From a technology point of view, you have to be looking at the next generation of products your customers are developing and their needs for materials and product design,” he said. “In this way, when the market does start to strengthen, you will be in a position to support that growth ahead of your competitors.”
Greig also cautions against cutting too much labor. “If you slash too much of your skilled labor force, you run the risk of having to quickly rehire and retrain employees when production needs increase,” he noted. “Instead of being able to get product to the market swiftly, you will be scrambling to find skilled labor and possibly putting your business at risk.”
As an example, Grieg cites the 2008 economic crisis and its impact at LORD. At that time, while the company did take actions to streamline its budget in certain areas, they continued to invest where necessary. When the market began to turnaround, the company was in a much better position than if they had not made plans. Recovering from a slow business climate is much easier if you take the necessary precautions and remain poised to reenter the market as soon as possible.
Back in the U.S.Currently, one of the most compelling trends evident in the market is the return of manufacturing to the U.S. “As the low-cost countries, or perceived low-cost countries, become more expensive as manufacturing sites, we are seeing some manufacturing returning to our shores,” commented Greig. “As air travel costs rise, along with the associated costs of managing facilities overseas, plus increased labor rates, many companies are finding it more cost-effective to produce goods at home.”
In past years, some U.S. manufacturers have moved their entire production operations offshore. With the increasing political and economical instability in many European and Asian countries, manufacturers are feeling more confident bringing these operations closer to where they can be managed locally.
While Greig agrees that keeping some manufacturing plants in foreign countries to support a local customer base makes sense in certain circumstances, he does suggest that companies reevaluate the decision to manufacture offshore. The best choice might be to start manufacturing in the U.S. again.
Clean Energy Incentives While everyone talks about clean energy being “the wave of the future,” Greig noted that consumers seem to be reluctant to take the plunge into clean energy options and move the market forward. “Solar and wind energy, and LED lighting, while becoming more prevalent in Europe and Asia, have not been adapted to a wide degree in the U.S. Solar energy, in particular, although becoming more popular in some states, is not common in many of the larger cities.”
Although Greig believes that clean energy options are a strong trend for the future, without incentives to change from fossil fuels to alternative energy sources, it will be difficult for the market to grow. Incentives will help to drive the solar manufacturing business and the suppliers who support them.
“If we truly want energy conservation to progress, there needs to be some type of incentive for consumers whether in the form of rebates or tax breaks,” Greig commented. “This could be in the form of grants to homeowners who install solar panels or tax refunds to companies that use clean energy materials in their buildings.”
Keeping Up with What’s NextIt is essential that manufacturing and assembly companies, and their suppliers, keep up with the latest developments in the communication industry. This industry changes rapidly, and electronic manufacturing and assembly companies must be poised to meet industry demands for advanced technology and materials.
“Especially in the mobile communication industry, new devices are being introduced every few months, with more functionality and more power,” said Greig. “This keeps manufacturers and suppliers busy supplying the cell phone and tablet producers--whether it is with new semi-conductor chips or advanced chemicals.”
There are many new communication companies entering the market, crowding out some of the traditional manufacturers of these products, and driving the industry to develop products with more applications and performance capability. As each new device reaches the consumer, the next generation model is in development. Suppliers to this market need to be ready with the parts and technology dictated by the market.
“It is important to have regular technology roadmap discussions with your customers to find out what their anticipated requirements will be,” Greig stated. “You have to learn about what they are developing and how you can supply the components or chemicals they will need.”
For many of these advanced applications, a standard, off-the-shelf solution might not be adequate. It might be necessary to custom-design a product formulation or spend time and money in R&D. You want to be ready with your product when your customers are ready to manufacture their product.
As an example, Greig explained how LORD works with its customers to understand their technological needs not just for current production requirements, but what will they need in five years time. “We collaborate with our customers to ensure that as the business moves forward the partnership moves forward also,” noted Greig. “We want to be able to deliver the end product when our customer needs it.”
RoHS Exemptions EndingDo you know that many RoHS exemptions will be expiring within the next few years? RoHS, a European Union (EU) directive, restricts the use of specific hazardous substances found in electrical and electronic products. As of July 1, 2006, all applicable products in the EU market must pass RoHS compliance.
Six restricted substances are banned as hazardous to the environment and harmful to individuals during manufacturing and recycling. RoHS has specified maximum allowable levels for lead, mercury, cadmium, hexavalent chromium, polybrominated biphenyls and polybrominated diphenyl ethers. Several product categories are impacted under the directive including appliances, electronics, communication devices, lighting and power tools.
When the directive initiated, several product categories were exempted from compliance, such as medical devices, control and monitoring equipment, and batteries. For these industries, the proposed dates for inclusion into the RoHS directive are from 2012 through 2018.
“There are still a lot of manufacturers out there who are still using these banned substances in some of these exempted products,” commented Greig. “These manufacturers really need to start finding alternatives now or they will find themselves unable to manufacture or sell their products in Europe.”
When RoHS was first established, certain substances in specific applications were exempted, such as lead, because at the time there was no alternative. For example, lead used in car batteries and in medical-shielding applications for X-ray machines was not banned. However, as these exemptions end, alternatives must be developed for the lead content.
Are there alternatives to lead? “In some instances, new materials have been formulated that take the place of lead,” Greig said. “Presently, at LORD, we are working with one of our partners to develop an alternative to a lead-based formulation for the medical industry. But there are some products where there might not be any substitute, so companies need to be looking at developing new product formulations now.”
Plan for Change
Planning is vital to the manufacturing industry--circumstances change quickly and you have to be ready to meet the challenges in the marketplace. This is a very fast-paced, risk-averse industry and you have to plan for changes before they occur. According to Greig, you can sell something to someone once, but the point is to maintain that business and grow that business by becoming a partner with your customer.
“Unless you are talking to your customers about the future, their plans and how you can help them meet their goals, by the time the future comes, it will be too late,” stated Greig. “It’s not just about taking the next order, but what is the next generation of product that your customers are developing.”
Anita LaFond is Senior Editorial Manager at Constructive Communication, Inc. with more than 30 years of experience as a business journalist in the manufacturing industry. Jim Greig is Sales and Marketing Manager, Electronic Materials, for the Americas region at LORD Corporation. He is responsible for all sales and marketing activities for the Americas territory relating to electronic materials, including encapsulants and potting compounds, thick film materials, SMT adhesives, thermal management materials, and microelectronic materials. He has been instrumental in introducing new product programs through direct channels to market, as well as through the company’s distribution network.