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Electronics Production | October 01, 2007

Growth opportunities abound in<br>the Southeast Asian EMS market

With the need to focus on differentiation possibilities such as R&amp;D for product innovation and sales and marketing, original equipment manufacturers (OEMs) are outsourcing their electronics manufacturing activities to concentrate on their core competencies.
For electronics manufacturing services (EMS) providers, this is an opportunity to create economies of scale by spreading fixed costs to a number of OEMs.

New analysis from Frost & Sullivan, Electronics Manufacturing Services Opportunities in Southeast Asia, finds that electronics manufacturing services markets in Southeast Asia earned revenues of $20.70 billion in 2006 and estimates this to reach $38.39 billion in 2013.

“Outsourcing enables OEMs to gain access to the latest design and manufacturing technologies, accelerate time-to-market and time-to-volume production, and improve supply chain management without having to make substantial capital investment," notes Frost & Sullivan Research Analyst C.P. Liew. “As more products incorporate electronics, the available market for EMS providers is expected to increase accordingly."

The Southeast Asian EMS industry is expected to continue to benefit due to further migration from multinational providers from the United States and Europe due to their higher manufacturing costs and under-utilized capacity.

EMS providers generally prefer making investments in larger markets such as China and being located near their OEMs. However, with progressive industry growth in the long term, they are likely to set up bases or expand their existing bases in Southeast Asia to minimize the risks of concentrating on just a few geographical areas.

However, the increased outsourcing trend had also led to the development of original design manufacturers (ODMs) that not only provide design services but sell finished products to the OEMs, which they can label and sell under their own brands. With the ODM model, OEMs can now focus more or only on sales and marketing, which has proven to be a major threat to the EMS providers.

“Due to the intensifying competition, EMS providers should strategically choose the segments they want to compete in," explains Liew. “They can garner a significant margin by concentrating their efforts on emerging medical equipment and automotive electronics markets, which hold immense potential for Southeast Asian EMS."

Medium-volume products such as medical equipment and automotive electronics are seen as the better fit for Southeast Asia, since EMS providers will have sufficient volume to cover fixed costs. These products contain high degree of intellectual property (IP) specific to the OEMs, thereby presenting a significant entry barrier for ODMs and any new participants. Hence, specializing in low-volume products can prove advantageous to EMS providers in the long term.

EMS providers can also benefit from pursuing collaborative design with OEMs and share any IP created rather than providing complete design services (as per ODM model) to prevent any conflict of interests. This arrangement can also provide EMS providers with the knowledge and skills gained during the design phase to the manufacturing phase of a product.

Electronics Manufacturing Services Opportunities in Southeast Asia is part of the Surface Mount Technologies Growth Partnership Service program, which also includes research in the following markets: growth opportunities in the North American aerospace and defense EMS provider, Chinese surface mount technology (SMT) equipment, and world EMS supply chain.

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