Cost reduction is the most important driver for the outsourcing market. The electronics manufacturing services (EMS) model yields an average of 10 percent to 15 percent in savings, which drives outsourcing from OEMs to EMS providers.
New analysis from Frost & Sullivan finds that the markets earned revenues of $45.80 billion in 2011 and estimates this to reach $68.19 billion in 2016.
“The outsourcing trend in industrial, medical, automotive and other sectors is set to offer more business opportunities for EMS providers in Europe,” notes Frost & Sullivan Research Analyst Nupur Sinha.”
OEMs may outsource some or all of their lower-margin activities, ranging from procurement, PCB and box assemblies, testing and even the repair and warranty of sold products.
Central and Eastern Europe (CEE) is increasingly becoming a key region for the European electronics industry. Many leading multinational OEMs and EMS companies have capitalised on the cost-competitiveness offered by this region to minimise operational and manufacturing costs associated with volume manufacturing of electronic assemblies.
“CEE has also started electronic manufacturing for niche markets like automotive, medical, and industrial,” adds Sinha. “Within these markets, the sub-assemblies with lower profit margins are being manufactured in CEE, rather than in Western Europe, resulting, ultimately, in the expansion of the overall EMS market.”
The most profitable verticals for EMS providers like consumer electronics and telecommunication are marked by stiff competition. The European market is also witnessing greater interest in industrial and medical segments due to the higher profit margins they offer.
However, as European EMS providers attempt to shake off the effects of the recession, they face a potent new threat. China, India and other Asian countries with their advantages of low manufacturing cost, abundant skilled labour and sizeable domestic markets, are starting to gain a competitive edge over their European counterparts in the electronics manufacturing industry.
“China, in particular, will offer a large pool of inexpensive and skilled labour,” cautions Sinha. “This will pose a serious threat to European EMS providers.”
Frost & Sullivan
