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Overcoming Challenges & Risk: A Snapshot of the EMS Market in 2012
January 14, 2013 |Estimated reading time: 5 minutes
Editor's Note: This article originally appeared in the December 2012 issue of SMT Magazine.
The EMS market has undergone key reshaping in the past year. The past year has brought a mixed array of news for most EMS providers, as some participants benefitted from improved balance sheets and cash flow. For others, a decrease in original equipment manufacturer (OEM) orders led to a less promising financial year. Overall, 2012 is expected to bring marginal growth for the global EMS market. One of the principal growth drivers in the next two to three years will be increasing cost pressures and the ability to partner with OEMs to develop cost-effective, value-adding, and innovative solutions. Uncertain economic conditions will play a vital role in determining how fast EMS providers will grow in the next two to five years.
Overall, 2012 has been a year of small milestones for EMS providers. In a recent Frost & Sullivan report, “Evolution in Electronics Design and Implications on Supply Chain Partners,” OEMs responded positively to increased outsourcing to EMS partners and for more value-added services apart from manufacturing services. As electronics continue to play a prevalent role in all walks of life, EMS providers’ role will continue to remain strong.
Evolving Role of EMS Providers
EMS providers are gradually benefitting from an evolving OEM perception. Smart OEMs have come to recognize the value that a successful EMS-OEM partnership can yield beyond just cost savings. Many OEMs are utilizing select EMS providers to complement their corporate strategy for identifying opportunities in emerging markets and exploit cost-competitive countries to achieve manufacturing success. As OEMs attempt to overcome economic challenges and focus on innovation, they will set new directions in partnering with EMS providers in the next five to seven years.
The EMS market is also expected to continue transitioning from specialization in high-volume production in traditional markets to low- to mid-volume manufacturing specialization in niche markets such as industrial, aerospace and defense, and medical. An increasing focus on expanding value-added services is evident in areas such as design, aftermarket services, and complete supply chain support.
A key area of improvement in the last year has been in managing complex supply chains. The quickly evolving electronics design and shorter product life cycles will continue to necessitate flexible, responsive, and proactive supply chains, especially as consumer demand changes rapidly. OEMs will continue to utilize EMS providers’ strengths and flexibility to offer continuous supply, maintaining delivery promise, better pricing, and quality assurance.
Technological factors are expected to have the greatest impact on the EMS market and subsequent growth strategies. Technology has played, and will continue to play, a key factor in determining the new opportunities and areas of growth for EMS providers. Demand for superior communication devices, navigation systems, fuel-efficient vehicles and aircraft, environmentally friendly manufacturing, and smarter products have the potential to speed up EMS opportunities. With the electronics industry set to leapfrog in terms of design and innovation, the implications on the overall supply chain partners such as EMS providers is significant.
The promise of emerging opportunities in developing countries has also bolstered EMS-OEM collaboration in the last few years. With that said, a significant paradigm shift has occurred in the way both OEMs and EMS providers are currently viewing their low-cost manufacturing solutions. With rising logistics costs, labor wages (especially in China which has seen wages rise over 150% in the last five years), and time-to-market are driving up other costs that are detracting from overall cost savings. To achieve success and compete effectively, EMS providers are focusing on balancing strategy-based manufacturing with technology innovation. As a result, an evolution to a hybrid regional manufacturing strategy is targeted toward capturing growth prospects as opposed to insular thinking of “low-cost manufacturing.” The EMS market is gradually witnessing a reverse migration of electronics manufacturing of high-end products or sub-systems from China.
EMS providers have made strong headway into design and other value-added services. However, to reap full benefits, they will need to:
- Cultivate long-term collaboration throughout the value chain;
- Participate proactively in design activities in niche markets;
- Effectively communicate the ability to be more than a tactical cost-saving manufacturing partner;
- Help increase competitiveness and brand recognition for OEMs; and
- Build proactively in ensuring reliability, responsiveness, and reassurance.
Currently EMS providers have the ability to play a vital role in elevating OEM competitive positioning through:
- Creating or reshaping a business model to keep costs down;
- Leveraging in-house expertise to increase value proposition for customers--design for manufacturing, supply chain, and other services; and
- Integrating best practices to propel competitive positioning for customers.
This is achieved by enhancing manufacturing, engineering, and supply chain expertise to redefine tangible cost benefits and true cost of ownership.
In terms of main participants, Foxconn continues to remain the dominant market share leader in the global EMS market in 2012. Despite the challenges the company has faced, including factory riots and bad press for poor labor conditions, the company has created unshakable positioning amidst strong competition. Additionally, a number of tier-one EMS providers such as Jabil Circuit, Celestica and Sanmina-SCI have been focusing on re-branding their image as design and innovation partners. Interestingly, an increasing number of Asia-Pacific EMS companies such as New Kinpo Group and Shenzen Kaifa Technology have shot up the Top 10 EMS list, usurping companies such as Sanmina-SCI and Benchmark Electronics.
Conclusion
The EMS landscape has evolved in many diverse ways in 2012, albeit at an uneven pace across industries and tiers of participants. The biggest impact from 2012 and the last couple of years will be EMS’ role in design services. While there is a noticeable lag in the growth rate of EMS design services, increasing innovation and demand for faster time-to-market, along with fresh thinking from OEMs will positively impact the role of EMS providers in electronics product design.
With lessons learned from the past, and throughout 2012, it is obvious that the road ahead is not going to be smooth sailing. More work must to be done before EMS providers can recapture the golden days of unparalleled growth. As EMS providers help reshape value proposition and transform operations for OEMs, outsourcing in the electronics industry is poised to attain a healthy growth in terms of new responsibilities. Lavanya Rammohan is research analyst and acting manager within Frost & Sullivan's Electronics and Contract Manufacturing practice. She has over eight years of experience in research, strategic consulting solutions, and project management, particularly for electronic devices, contract manufacturing, as well as supply chain providers. Since joining Frost & Sullivan in 2005, Rammohan has completed several research studies and consulting projects in the SMT equipment, electronics manufacturing equipment, semiconductor, and contract manufacturing markets. For more information on this subject, contact Jeannette Garcia, Frost & Sullivan corporate communications associate, at 210-477-8427. Rammohan may be reached at lrammohan@frost.com.