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Electronics Production | February 13, 2008

Consumer Electronics driving the<br>Outsourcing trend in the EMS Industry

The electronics manufacturing service (EMS) market remains a highly dynamic market driven primarily by the consumer electronics and communication sector.

EMS providers also find increased opportunities in niche markets such as medical, industrial and aerospace and defense sectors. In response to the growing competition levels in the industry, EMS providers increasingly adopt innovative and strategic business models. These include better knowledge of customer needs, understanding the business models of customers/original equipment manufacturers (OEMs), effective communication tools, creating global footprints and focusing on core competencies. New analysis from Frost & Sullivan, Trends in Electronic Manufacturing Services, finds that the growing demand for consumer electronics will increase the outsourcing trend in the industry. Cost savings, flexible solutions, quality and operational speed provided by EMS providers increase the dependence of OEMs on EMS providers for design services. Increasing end-user demands, especially in the consumer electronics sector, and fast-paced technological developments pressure OEMs to continuously introduce new products in the market. Consequently, OEMs have to increasingly depend on EMS providers who offer significant benefits such as cost savings, reduced time-to-market, reduced time-to-volume, quality and flexibility. Leveraging the capabilities of EMS providers, OEMs can focus on research and development activities as well as sales and marketing strategies, while saving on capital investments. “The dependence of OEMs on EMS providers is more predominant in the consumer electronic, communication technology and the computer, storage and peripheral sectors, while the consumer electronics sector generates maximum revenues and drives the need for outsourcing,” notes Technical Insights Research Analyst Kasthuri Jagadeesan. “These apart, the automotive electronics market also provide growth opportunities for EMS providers to improve on their market revenues.” However, the increasing competition in the EMS market, the threat posed by the original design manufacturers (ODMs) and penetrating into niche market segments remain constant challenges for EMS providers. In order for EMS providers to sustain their presence in the industry, they must provide value-added services, an effective supply chain management and create global footprints. “The intense competition faced by the EMS providers is forcing them to enhance their value proposition and to offer integrated and end to end solutions,” says Jagadeesan. “A strategic partnership with OEMs during the course of their business deal will enable the EMS providers as well as the OEMs to contribute effectively to the success of the end-product and also to achieve high profitability and good market share.” Since OEMs remain very selective in choosing their EMS partners, EMS providers should focus on maintaining long-term relationships with their customers through their enhanced value-added services, strategic partnership and alliances, as well as through diversification. EMS providers should also focus on maintaining scalable business solutions, customer centric models, effective supply chain management strategies, penetration into niche markets and effective information technology tools.
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