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Electronics Production | January 05, 2011

Globalization means different things to midmarket OEMs and EMS

Globalization means different things to midmarket OEMs and EMS companies than to top tier (“Goliath fringe”) multinational enterprises (MNEs). Opportunities and challenges must be carefully assessed and each company must exercise due diligence to determine if, when and how it should attempt to do business in emerging markets.
CBA research points to a sequential approach emphasizing the importance of ‘FIT’ – flexibility, integration and timing – when choosing an outsourcing solution. Midmarket OEMs increasingly are starting with a ‘clean slate’ and revisiting the make-or-buy decision for electronics manufacturing. Often, a ‘hybrid’ approach is undertaken, where outsourcing is considered a tool used strategically, rather than a rigid strategy used in every situation. Electronics manufacturing is complex and demanding, requiring close relationships among players; a midmarket company’s brand may be placed in jeopardy through ill- advised decisions related to globalization. Some findings of the latest Charlie Barnhart & Associates LLC report Next Horizons for Electronics Manufacturing: - Transportation and utilities infrastructures are critical to high tech industries. Companies selling products related to these areas will be attracted to a region that is investing in infrastructure. Companies that require infrastructure should investigate current status thoroughly. - Electronics manufacturing requires an educated or at least educable workforce. Literacy rate, school life expectancy, labor force % by occupation and age structure are data points that address this issue. - If a population is aging and has not made a transition to a primarily urban, industrial economy, it may be challenged to acquire the skills necessary to build electronic products. Labor rates alone do not comprehend the requirements for electronics manufacturing. - Demand for high tech products is secondary to survival necessities. If people don’t have access to sanitation and clean water, they will not be able to buy electronic products. - Just because a country has a lot of people, doesn’t mean there is a demand for all types of electronics. GDP/capita, cell phone usage, and number of internet users are factors that help determine readiness for high tech products, but more research into domestic demand for a particular country and product category is required. - There are different types of customers in an emerging market: government entities, non- government organizations operating in the geography, multi-national enterprises (MNEs) already operating in the region, and lastly the domestic consumer. Companies must have the strategy and the relationships in place within the ecosystem that make sense for their products. - Cultural differences have the potential to impact markets for electronics. Companies must understand the culture in order to create appropriate products and to bring them to market in a way that is acceptable. It is likely that distribution channels available to domestic companies will not be as easy to penetrate for foreign companies. - There often are two economies in operation in emerging countries: one for local citizens and one for foreign nationals. Companies usually need a local presence to thoroughly understand the interplay between the parallel universes. - It is difficult, although not impossible, to do business in countries where the government is corrupt and where there is no rule of law. ----- Author: Jennifer Read, Associate at Charlie Barnhart & Associates LLC
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