Electronic Manufacturing Service Companies
In 2011, a significant slowdown in demand from end users and the anticipated stagnation of electronics manufacturing service (EMS) industry forced some companies to re-evaluate the business strategies.
Electronic Manufacturing ervice Companies
In 2011, a significant slowdown in demand from end users and the anticipated stagnation of electronics manufacturing service (EMS) industry forced some companies to re-evaluate the business strategies. Besides with the global economy recovery still in the slowdown mode, EMS providers also faced the threats from electronic material supply shortage in Japan, the damage on the hard disk supply chain in Thailand, and so on.
Cost continues to remain the prime focus for original equipment manufacturer (OEM) selection in China, for example, material prices have risen, labor wages have increased 20.0 percent in the Pearl River Delta, and supply chain costs are also going up. Over the past five years, employment costs in south China have risen by about 187.0 percent. Furthermore, growing popularity of other cost competitive countries such as Vietnam, Malaysia, India, Indonesia, Singapore, and Mexico have decreased the attractiveness for contract manufacturing in China. These countries are also benefited from skilled labor pool and the labor wages in these regions are raising slower compared to China.
Despite the challenges in the Chinese EMS market, China is still the first choice for most of the international OEMs. China has already become the largest domestic sales and production market in the world and the manufacturing technology has reached the medium level. The development of the Chinese economy and impressive domestic demand are expected to support increasing revenue trend for Chinese EMS market.
China's average gross domestic product (GDP) growth rate was 9.7 percent from 2008 to 2010, and in 2011, its GDP growth rate was 9.2 percent. The International Monetary Fund predicts that China's nominal GDP is expected to reach $10,061.80 billion by 2015. China's high GDP growth is likely to lift the purchasing power of Chinese consumers, as well as upgrade China's consumption structure. Driven by the boom demand for smart phones, tablets, and computers in China, the OEMs have high revenue growth rate that increase the outsourcing to EMS providers.
New research from Frost & Sullivan, "Chinese Electronics Manufacturing Service (EMS) Market", finds that the EMS market generated revenue of $136.79 billion in 2011 and is expected to generate $252.40 billion by 2018. High demand from computing and storage, telecommunications, and consumer electronics industries fuel the greatest growth opportunities. China became the largest selling and production market in the world for mobile phone, computer/PC, and TV in 2011. Chinese EMS market accounts for nearly half of the global EMS market's aggregate revenues, and it has grown to be the world's largest consumption market of smart phones and PCs.
Chinese EMS market will also get a leg up from the developments in end-user industries. EMS providers are focusing on diversification and treading into different segments such as light emitting diode (LED), automotive, renewable energy, and aerospace and defense (A&D), especially the commercial aerospace market. The growing demand in those industries is further expected to increase outsourcing opportunities. Expansion in China's commercial aerospace industry is creating a wealth of new opportunities for EMS providers. C919 is one of the key components of China's Large Aircraft Project. An increasing number of contracts, such as C919, have spurred OEMs to embrace EMS providers as strategic partners.
Research also indicates that the overall market revenue is anticipated to witness growth over the forecast period. EMS companies are already prepared for the new opportunities and have been building on the capabilities in order to be ready for the expansion in demand. Computing and storage industry, which has been developing steadily, is driving the overall market growth. Consumer electronics had the highest CAGR among the end-users.
In addition, Chinese government has provided investment opportunities in the Twelfth Five Year Plan (2011-2015), which shows the government is expected to support the advanced equipment manufacturing and expand government purchases. To meet the demands of its increasing large population, the government has to invest heavily in the infrastructure including power, water and transportation, aerospace, and renewable energy. The government gives tax incentives, which affects the imports and increases the OEMs unit shipments. The government also provides the preference policy for building the manufacturing factory, R&D and service center. EMS companies will gain effectively develop and business opportunity from the Twelfth Five Year Plan.
Chinese EMS companies have to continuously improve the quality and reliability of their finished products, with competitive pricing, in order to compete with international EMS providers. In the market, EMS providers need to provide the cost-effective solutions for OEMs and try to reduce the delivery time after manufacturing. The intense competition forces the EMS companies to continuously improve the quality and reliability of their finished products.
The EMS market also has high level of competition with intense mergers and acquisitions (M&A) trend. Tier-1 EMS providers are looking for capabilities that will give them a more comprehensive solution to offer customers in aerospace, medical, and renewable energy industries. Furthermore, some international EMS companies are likely to acquire the companies such as Solectron Corp. to maintain the dominance in the market. The local government and leading EMS providers have continuous co-operation and make more investment in manufacturing factories and R&D center. Many Chinese EMS companies have high growth rate and stronger positions in 2011, such as 3CEMS Group, Wong's International (Holdings) Limited, VTech Communications Ltd., WKK Technology Ltd., and so on.
One major cause for concern is the growing popularity of other cost competitive countries such as Vietnam, Malaysia, India, Indonesia, Singapore, and Mexico reduce the participation for China. For example, Mexico is expected to play a dominant choice for products and services targeted for the North American market. Improving infrastructure capabilities, rapidly growing domestic demand for consumer electronics, and proximity to the North American market are increasing Mexico's competition level. It will be interesting to note.
EMS providers have the ability to negotiate more aggressively and source components and raw materials at lower prices. Many international companies choose the Asia Pacific region to establish the global procurement center especially in Hong Kong. The advantage is the close purchasing from the coastal China such as printed circuit boards (PCBs), and also utilizes Hong Kong as the trade port advantage to save transport costs. Location-based manufacturing factories and service centers are becoming the "must-have" for the EMS providers. Another trend for the tier-1 EMS providers is transferring the manufacturing factory and R&D base from the costal to the central or north of China.
In conclusion, the impressive domestic demand from computing and storage, telecommunications, and consumer electronics industries provide the greatest growth to Chinese EMS market. To expand continuous investment in technology innovation, and provide the efficient supply chain service for OEMs, is a good strategy for the EMS providers to maintain the leading position. Chinese EMS market is transforming to accommodate increasing outward leaning toward service-oriented approach and high volume manufacture of higher technology products, such as iPhones.
Cost continues to remain the prime focus for original equipment manufacturer (OEM) selection in China, for example, material prices have risen, labor wages have increased 20.0 percent in the Pearl River Delta, and supply chain costs are also going up. Over the past five years, employment costs in south China have risen by about 187.0 percent. Furthermore, growing popularity of other cost competitive countries such as Vietnam, Malaysia, India, Indonesia, Singapore, and Mexico have decreased the attractiveness for contract manufacturing in China. These countries are also benefited from skilled labor pool and the labor wages in these regions are raising slower compared to China.
Despite the challenges in the Chinese EMS market, China is still the first choice for most of the international OEMs. China has already become the largest domestic sales and production market in the world and the manufacturing technology has reached the medium level. The development of the Chinese economy and impressive domestic demand are expected to support increasing revenue trend for Chinese EMS market.
China's average gross domestic product (GDP) growth rate was 9.7 percent from 2008 to 2010, and in 2011, its GDP growth rate was 9.2 percent. The International Monetary Fund predicts that China's nominal GDP is expected to reach $10,061.80 billion by 2015. China's high GDP growth is likely to lift the purchasing power of Chinese consumers, as well as upgrade China's consumption structure. Driven by the boom demand for smart phones, tablets, and computers in China, the OEMs have high revenue growth rate that increase the outsourcing to EMS providers.
New research from Frost & Sullivan, "Chinese Electronics Manufacturing Service (EMS) Market", finds that the EMS market generated revenue of $136.79 billion in 2011 and is expected to generate $252.40 billion by 2018. High demand from computing and storage, telecommunications, and consumer electronics industries fuel the greatest growth opportunities. China became the largest selling and production market in the world for mobile phone, computer/PC, and TV in 2011. Chinese EMS market accounts for nearly half of the global EMS market's aggregate revenues, and it has grown to be the world's largest consumption market of smart phones and PCs.
Chinese EMS market will also get a leg up from the developments in end-user industries. EMS providers are focusing on diversification and treading into different segments such as light emitting diode (LED), automotive, renewable energy, and aerospace and defense (A&D), especially the commercial aerospace market. The growing demand in those industries is further expected to increase outsourcing opportunities. Expansion in China's commercial aerospace industry is creating a wealth of new opportunities for EMS providers. C919 is one of the key components of China's Large Aircraft Project. An increasing number of contracts, such as C919, have spurred OEMs to embrace EMS providers as strategic partners.
Research also indicates that the overall market revenue is anticipated to witness growth over the forecast period. EMS companies are already prepared for the new opportunities and have been building on the capabilities in order to be ready for the expansion in demand. Computing and storage industry, which has been developing steadily, is driving the overall market growth. Consumer electronics had the highest CAGR among the end-users.
In addition, Chinese government has provided investment opportunities in the Twelfth Five Year Plan (2011-2015), which shows the government is expected to support the advanced equipment manufacturing and expand government purchases. To meet the demands of its increasing large population, the government has to invest heavily in the infrastructure including power, water and transportation, aerospace, and renewable energy. The government gives tax incentives, which affects the imports and increases the OEMs unit shipments. The government also provides the preference policy for building the manufacturing factory, R&D and service center. EMS companies will gain effectively develop and business opportunity from the Twelfth Five Year Plan.
Chinese EMS companies have to continuously improve the quality and reliability of their finished products, with competitive pricing, in order to compete with international EMS providers. In the market, EMS providers need to provide the cost-effective solutions for OEMs and try to reduce the delivery time after manufacturing. The intense competition forces the EMS companies to continuously improve the quality and reliability of their finished products.
The EMS market also has high level of competition with intense mergers and acquisitions (M&A) trend. Tier-1 EMS providers are looking for capabilities that will give them a more comprehensive solution to offer customers in aerospace, medical, and renewable energy industries. Furthermore, some international EMS companies are likely to acquire the companies such as Solectron Corp. to maintain the dominance in the market. The local government and leading EMS providers have continuous co-operation and make more investment in manufacturing factories and R&D center. Many Chinese EMS companies have high growth rate and stronger positions in 2011, such as 3CEMS Group, Wong's International (Holdings) Limited, VTech Communications Ltd., WKK Technology Ltd., and so on.
One major cause for concern is the growing popularity of other cost competitive countries such as Vietnam, Malaysia, India, Indonesia, Singapore, and Mexico reduce the participation for China. For example, Mexico is expected to play a dominant choice for products and services targeted for the North American market. Improving infrastructure capabilities, rapidly growing domestic demand for consumer electronics, and proximity to the North American market are increasing Mexico's competition level. It will be interesting to note.
EMS providers have the ability to negotiate more aggressively and source components and raw materials at lower prices. Many international companies choose the Asia Pacific region to establish the global procurement center especially in Hong Kong. The advantage is the close purchasing from the coastal China such as printed circuit boards (PCBs), and also utilizes Hong Kong as the trade port advantage to save transport costs. Location-based manufacturing factories and service centers are becoming the "must-have" for the EMS providers. Another trend for the tier-1 EMS providers is transferring the manufacturing factory and R&D base from the costal to the central or north of China.
In conclusion, the impressive domestic demand from computing and storage, telecommunications, and consumer electronics industries provide the greatest growth to Chinese EMS market. To expand continuous investment in technology innovation, and provide the efficient supply chain service for OEMs, is a good strategy for the EMS providers to maintain the leading position. Chinese EMS market is transforming to accommodate increasing outward leaning toward service-oriented approach and high volume manufacture of higher technology products, such as iPhones.
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