The Unstoppable Growth of Electronics Manufacturing: The Assembling of Printed Circuit Boards, Electronics Subsystems, and Finished Electronics-Based Products Is a Global Market Expected to Be Worth More Than [Euro]1.2 Trillion in 2004 and Is Forecast to Grow to [Euro]1.5 Trillion by 2007
Wendin, Christine, European Business Forum
The Gulfstream G550 jet, the trendy iPod, the addictive PlayStation and the sleek Sony wall-size plasma TV all have something in common. Not the fact that they are all at the top of your wish list. Rather, each of them relies on the lowly printed circuit board (PCB), a green plastic card that houses and interconnects electronic components. PCBs, which are typically associated with computer systems, are at the heart of a diverse portfolio of products: household appliances, consumer electronics, mobile phones, toys, medical equipment, automotive sub-systems, and aerospace components.
The assembling of PCBs, electronics subsystems, and finished electronics-based products, has become a big business. These activities, collectively referred to as electronics manufacturing, have resulted in a global market that is expected to be worth more than [euro]1.2 trillion in 2004 and is forecasted to grow to [euro]1.5 trillion by 2007, according to market research firm Electronics.ca Publications.
A booming industry
Electronics manufacturing has been a growing industry since the 1950s when such consumer electronics as TVs became mainstream products. With the birth of the personal computer and the resulting high-technology revolution, the industry boomed and its dynamics also began to change. In particular, the companies that made and sold the electronics products, called original equipment manufacturers (OEMs), began to outsource some of the manufacturing processes to contract service providers in an attempt to cut costs on products that were becoming commoditised.
Today, two major trends are affecting the electronics manufacturing industry. First, pricing pressure continues to affect more and more electronics-based products as they become standards-based, from PCs and DVD players to digital cameras and mobile phones. The result is that product makers outsource additional functions in an attempt to reduce costs, capture more profit margins, and remain competitive.
Second, China and other Asian countries have emerged as crucial forces: first, as low-cost locations for manufacturing centres, which intensifies pressure on margins, and, second, as potential new market opportunities in serving the growing Asian domestic electronics market. Together, these trends are reshaping the landscape of electronics manufacturing.
Growth of outsourcing
Over the last decade, increased outsourcing by OEMs to better manage costs has already had a significant impact on the industry with the emergence of electronics manufacturing services (EMS) providers like Celestica, Flextronics, Sanmina-SCI, and Solectron. EMS comprises manufacturing of PCBs, assembly and integration of electronics systems, supply chain management of materials, and other related services. EMS emerged as a result of the increasing commoditisation of electronics-based products, which erodes OEM profit margins. These service providers differed from the first contract manufacturing service providers in that they provided higher value services than simply assembly of PCBs or subsystems.
Generally, the viability of any given electronics product is determined by the OEM's ability to maintain an adequate profit margin while selling enough unit volume to adequately fund research and development (R & D) for the next generation of products. However, as technology becomes commoditised, the intellectual property (IP) that distinguishes the product is no longer characterised by a proprietary design or components that belong to the OEM. Instead, the IP that characterises the product resides in highly engineered components like PC microprocessors.
Products once characterised by de facto or de jure architectures and interfaces become those in which the IP is subsumed into a standardised component. In this scenario, component makers are the ones that reap the largest margins, at the expense of OEMs, and as product categories become commoditised, component manufacturers are likely to see continuing growth, as they have over the past year. …