OEMs will push EMS providers to India
India will become an important location for electronics equipment manufacturing once its logistics and supply chain issues are worked out.
By James Carbone -- Purchasing, 10/19/2006 6:00:00 AM
Global electronics manufacturing services (EMS) providers that are looking to increase their business with OEM customers will likely be asked to begin manufacturing in India if they aren’t already.
While India’s logistics and supply chain are underdeveloped, many OEMs are pushing EMS providers to locate in India. OEMs want to sell products in the huge Indian market and want manufacturing in that market.
“There has been so much interest in India,” says Matt Chanoff, an analyst for EMS industry consultant and market researcher Technology Forecasters in Alameda, Calif. He says in some ways India is similar to China.
“What made China so interesting was a seemingly endless supply of relatively cheap labor,” says Chanoff. “At the same time it is rapidly growing market. You have a similar thing in India. There is a very large number of people willing to work in these factories and at the same time there is a fast growing middle class,” he says.
In India labor rates are low, English is spoken and there are a lot of engineers. There are differences. China has better logistics and supply chain. However, Chanoff says logistics and supply chain will improve in India and more electronics manufacturing will move there. EMS providers who move into India won’t give up on China. In fact, EMS business will grow in China even as providers expand into India.
Jabil Circuits, based in St. Petersburg, Fla. is one EMS provider that is bullish about China and India. It has four manufacturing sites in China including Shenzhen, Huangpu, Shanghai and Wuzi.
Jabil also has a “modest” amount of manufacturing in India, says Mark Mondello, chief operating officer. However, the EMS provider is investing in India and believes the country will become an important manufacturing location for Jabil.
“It will be a good foundation for in-country consumption as well as for export to Europe and the U.S.,” he says. “The challenges we see are the need for continued improvements in infrastructure, logistics and supply chain.” He notes China faced those issues eight to 10 years ago.
Some EMS companies like Flextronics and Foxconn are manufacturing cell phones in India, but manufacturing there will become more diverse, says Mike Andrade, senior vice president, communications global accounts for Celestica in Toronto. He says there is strong growth for base stations and enterprise IT. Also server and router manufacturing is starting in India.
Chinese expansion
While EMS companies will move to India or grow their footprint there, they will also continue to expand in China.
“There is a belief that China is only good for low-end, high-volume manufacturing,” says Mondello. “But our footprint and factories support everything from lower end, high-volume electronics to very high-end technically challenging hardware that is more high-mix, low-volume. The hardware we build there is well diversified.”
Jabil builds everything from instrumentation to industrial controls, medical products, networking and infrastructure products in China.
“We have had significant growth in China and we are bullish that it will continue for the next couple years,” says Mondello. He says a growing portion of Jabil’s total revenue will be from China.
“If you look at our revenue today, which we are pacing at $12 billion, it is equally divided among Europe, the Americas and Asia,” says Mondello. “If you went back to the late 1990s, most of it would have been coming from Western European and North America.”
Not just China
While a lot of manufacturing has transitioned to China, there will be growth in other low-cost regions. “It’s not just all about China,” says Andrade of Celestica. “Often EMS providers’ strategy is to have low-cost manufacturing in China. It has been a China or bust attitude recently,” he says.
However, he notes that companies are starting to realize that having all manufacturing in one area is risky for a variety of reasons, including geopolitical unrest and catastrophic weather events among others.
He says Celestica’s strategy is to have manufacturing in multiple low-cost regions such as China, India, Mexico and central Europe.
“In the fourth quarter we will have 80% of our business in low cost regions,” says Andrade. “Five years ago, only about 20% of our manufacturing was in those regions and the rest in North America. This has been a conscious decision for us. We see the future of electronics manufacturing supply chain in those regions,” he says.
One of the low cost regions is Eastern Europe. Jabil has factories in Hungary, Poland and the Ukraine and Jabil will have “significant growth” there, says Mondello. “At some point in time we will take a look at additional sites throughout eastern Europe.”
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