It’s a growing market: world population is projected to increase to over 8 billion in the next 15 years. More importantly, the ranks of the consuming classes are swelling at a still faster rate due to rapid growth in emerging economies – particularly those in the so-called BRIC economies of Brazil, Russia, India and China. Within 20 years, more than 200 million people in these economies will have incomes over $ 15,000, according to analysis by Goldman Sachs; that’s a lot more households putting goods such as home computers, mobile phones and MP3 players on their shopping lists.
However, this enormous reliance on consumer spending is exposing the electronics industry to higher risks. Consumer behaviour is fickle, and macro-economic factors also come into play, which are just as difficult to anticipate. The effects of the high fuel prices, partly caused by instability in world oil prices, takes spending money directly out of consumers´ pockets. The selling prices of consumer electronics are also fragile. Indeed, a new product will typically be selling for around half its original price within 12 months of introduction. In this context, time to market is enormously important to earning potential and profitability.
So while the tabloid headlines have great swathes of our industry rushing off to build consumer electronics in China, it is worth considering once more the true cost of the logistical challenges in moving finished products to the point of sale. Shipping is slow, and much of the flexibility necessary today to respond to unexpected market shifts is lost. On the other hand, airfreight costs are high, and may wipe out a good proportion of the economies secured by manufacturing offshore.
A strong case is emerging for manufacturing closer to the point of consumption – at least on the same continent. In the cases of the American, European and Asian continents, each has a BRIC member on its doorstep. In the case of Europe, consider that the Russian labor rate is close to the cost level in some parts of China. With the flexibility and logistical considerations added to the equation, manufacturing on the European continent for consumption in Europe begins to make a lot more sense. Hence, growth in Chinese production of electronic equipment has slowed from 14.6 % in 2004 to 7.4 % in 2008. This is according to the iSuppli China Application Market Forecast, and we are reminded that the successes and opportunities surrounding the world’s emerging economies are not restricted only to China.
Taking a closer look at the example of Russia, there is also a growing base of marketable technological expertise. St. Petersburg is now the centre of Russian electronics education with its 23 technical universities, and these have played an important part in building the city’s current reputation for cutting-edge RF design.
St. Petersburg’s location is also strategically important. Only 150 km from the EU border, it continues to act as the gateway between western Europe and the Russian territories; a status it has held since the time of Tsar Peter the Great.
However, another important aspect of the projected growth in manufacturing output and consumption is the strong evidence that our lives are moving beyond the planet’s means. Of course, it is going too far to suggest that electronic technology can necessarily save the world. But we will come to rely on a diverse range of electronic devices in order to manage our use and consumption of the world’s resources more efficiently.
There are many opportunities in this area of innovation. We can now see a number of large and well-known brands, particularly in Germany, The Netherlands, the USA and elsewhere, which are designing remarkably efficient products for this century.
There is also an explosion of start-up companies around the world, who are focusing on developing technological solutions to environmental management and preservation. We may be able to found a sustainable future on this creative energy.
But if one country is singled out as being home to the most diverse environmental innovations already deployed in commercial products, it is Japan. While the economy has been slipping down the global performance charts, Japan’s technologists have been busy identifying a new set of global indices.
So here we have an interesting situation. The world electronics industry has become heavily reliant on the growth of emerging economies to simultaneously build and drive markets for new products. On the other hand, the very conditions required to sustain this growth are challenging the sustainability of all of our lives. There is no data to suggest that consumer demand will slow down, or become easier to satisfy. But with pressure increasing on governments to meet environmental obligations imposed by Kyoto and future accords, the opportunities for non-consumer electronic applications may begin to increase once more.
Michael Brianda
EPP EUROPE 400
