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Electronics Production | June 08, 2009

The hottest EMS destinations!

Analysis from Frost & Sullivan, finds that EMS providers and OEMs will continue to invest in low-cost regions and thereby exploit growing economies.
As innovation, cost, and time to market become hyper competitive, EMS providers strive hard to find better outsourcing options that provide competitive benefits as well as create value for customers. Trends point to a migration away from China to India, Vietnam, Ukraine, Romania, Poland, the Czech Republic, Brazil, North Africa, and the Middle East.

EMS-outsourcing will continue to be impacted by three conspicuous factors, namely, providing support for OEM base, servicing local end markets, and identifying low-cost manufacturing options. However, other considerations that include easy access and availability of local engineers during product conceptualization, development, and integration stage gain importance as well. EMS providers explore new arenas, going beyond the cost parameter, which was, until now, the primary reason for migration.

“An evolutionary process is unfolding within the EMS outsourcing strategy, and regionalization is proving to be a smart decision while balancing the need for migrating toward low-cost regions,” says Frost & Sullivan Senior Research Analyst Lavanya Rammohan. “With the emerging hybrid model of regionalization and keeping high volume manufacturing at low-cost regions, EMS providers have the opportunity to capitalize on new economies.”

The focus is on exploring new economies, increasing service destinations, and maintaining brand repute. Economic stability, lower wages, and substantial local market potential have put Eastern Europe, Asia, Russia, and Brazil in the spotlight, not in terms of high volume production alone, but also for the manufacture of high-tech products.

Additionally, the escalating demand for R&D and the availability of technological expertise make conditions ideal for the evolving role of EMS-OEM partnership. The level of R&D and design expertise in countries such as India, Singapore, Malaysia, Thailand, Vietnam, and Indonesia will propel these countries higher up the value chain.

The availability of support software, especially in India is another noteworthy advantage, acting as a precursor for sparking interest in passive electronics manufacturing. Robust economic growth, development of infrastructure, higher levels of education, and government benefits are triggering a growth spurt in emerging regions as the next hot outsourcing destinations.

Although the pace of transition toward the new hubs has been rapid, the lack of a structured component base, absence of a uniform infrastructure, and economic volatility has curtailed prospective EMS investment.

“Having borne challenges such as dealing with communication across various time zones and expensive logistics costs, EMS providers are carefully considering proximity to end markets as well as low cost manufacturing,” says Rammohan. “However EMS providers have to contend with challenges of under-developed infrastructure, logistics, and component supply base in most of the targeted outsourcing regions.

Overall, EMS providers expect changes in the market as OEMs and contract manufacturers grow weary of the complications of time-consuming transition of projects, increased logistics costs, and greater time to market. EMS providers are reorienting themselves to balance low-cost options with opportunities for renewed growth and profitability.

Participants in this space must idealize outsourcing as a business proposition that can enhance profitability as well as drive performance. Besides, complete solutions and products must be offered along with the necessary software for support and maintenance, according to the report.

Image Source: Nouratron A/S.

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