PCB | May 08, 2009

The situation of the PCB industry in Europe

The economic crisis may serve for all kinds of comments in every industry, but it especially applies to the PCB-industry in Europe. It shows that this industry - for the time being - has lost its identity. For many buyers a PCB is just a commodity like pencils, pens and paper.
They have no idea about the product, but buy them - because by chance they all start with “p”. That they are buying a key component, quite often a very complex one, which decides about the success of a much more important electronic device, seems to be lost to them.

If your alarm clock doesn’t work, well, it is a nuisance. The same may apply to a higher degree to your cell phone. It is an entirely different story for your brake assistant or your air-bag. But the automotive industry has shown to all other industrial sectors that price is the one and only argument. Moving to cheaper countries is a legitimate act – we all want to avoid paying higher prices. But demanding European service, European know-how and European flexibility at Asian prices can’t work.

Or the attitude to break any existing contract at will and forcing manufacturers out of the market doesn’t show any long-term or strategic planning. If prices are falling, the argument is “you have to compete with the world market”. If prices are rising one hears “sorry, we have a contract”.

And exactly this was the case during the past few years. The attitude of purchasing directors to dictate prices and to play one company against the other was (and still is) the painful experience of most suppliers. Instead of doing their homework and trimming their own companies into efficiency, it was easier – and cheaper – to pinch the supplier. Even deep insights into the production process and the cost structure of the supplier was not asked for, but was demanded. And quite often, a clever idea was transferred immediately to the Asian competitor – the pretext of a process audit allowed such gathering of intelligence, while non-disclosure-agreements were of no concern to such customers.

Now we have the global crisis and this gives the situation a new twist. Large and small companies won’t have enough liquidity to buy new equipment as the banks are afraid to grant loans – despite the fact that our governments have just taken great pains to help them out of the mess they created themselves. Since the year 2000, the industry in Western Europe (without the new EU-members) has lost 55% in all categories: in “real numbers” these are more than 300 companies, more than 24.200 jobs and more than 2.600 million EUR in revenues.

Now one could say that there is no future to manufacture PCBs in Europe, but this argument is wrong.

Even during the so called “good times”, the cheap supplier from the other end of the world - in regular intervals - had either not enough capacity to fulfil sudden surges of demand or the quality was not good enough to satisfy the standards of his customers. Logistics are another problem as “buying cheap” requires a lot more work in getting the goods from “A” to “B”. For this reason in many cases sea freight was chosen, but rising energy prices (like in 2008) or new threats (like the pirates in the Arabian Sea) are having their influence on rates, insurance premiums and/or the whole supply chain. Risk management today is much more important to the success of a company than it was 5 or 10 years ago.

Which prospects has the industry?
One has to admit that the outlook at present is not promising and from those companies that have survived the turn of the year several are marked to go down – or have gone down already. And while in the past mainly smaller companies have not been able to carry on, now it has hit even large and very large manufacturers. During the first four months of 2009, almost 1800 jobs - or 9% - have already been lost.

We should take a look to Asia. There the crisis is the same as it is here. But many companies now are looking for ways not only to weather this storm, but to make best use of the situation. Which PCB-technologies are promising? Which changes in process technology should be started? Are there any new customer segments not yet tackled and how can this be done? As it is so often the case: a bad situation can be turned the other way if one uses his imagination.

So: who is going to survive?
The answer is difficult, but it is an easy guess that those manufacturers with a close relationship to their customers will stand a better chance to survive than others. The financial crisis and the banks have given us a new term: “inherent to the system.” And those companies who are inherent to the system will overcome the situation – but it will be just a few.

The automotive industry will badly need good and efficient companies in a position to meet the technical standards of the industry and being able - at the same time - to manufacture large volumes in consistent quality. All in the electronic industries will need capable suppliers for expert technical advice, to start new products, to accompany these products into mass production and, later, into end-of-life management. In between such companies will assist when additional need arises, will help in case of logistical problems.

After the crisis, we will need each other more than ever before. And the remaining companies have to think about concepts on how to do business in future. If you can’t beat them, you have to join them in the one or the other way. What we need now are strategic alliances based on trust on both sides and cooperation for the benefit of all participants (suppliers in the low cost country, partners in Europe and customers). But there have to be new rules for the “time after…” Nobody can expect European production and European service at Asian prices. There has to be one price for one place of origin and another for the other place.

And the industry has to find a new identity: the business model of the past (everybody against everybody) has to end, because otherwise the industry will go down even further and faster. If a customer wants to buy cheap he has to do so – at his own risk. And when he needs help, he can get it - but that comes with a price too.

My last employer told me once: “We are not supposed to produce PCBs. We are supposed to make money and PCBs are – at the moment – the way to this aim.” Insofar I can recommend all members of the supply chain involved: look out for a good and reliable partner. And treat him in the right sense of the word: as a partner. Then a good and prosperous future should be possible!

author: Michael Gasch (data4PCB)
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