To be exact: “The roles played by China, India and Eastern Europe in the sector of electronics production” was the somewhat long winded heading of an hour-long, lively, professionally moderated panel discussion between six top-level executives, all well versed in the strategies as well as the daily nitty-gritty of global manufacturing systems and their manifold supply and delivery chains.
To be exact again: There should have been a mention of North Africa in the announcement as well, and the growing role it is about to play as a manufacturing base of European, namely Southern European OEMs. More of that later in this report. First to the, more or less, general, well-known statements of the top six executives, prodded by a series of equally generalized questions posed by the panel moderator, TV journalist Sabine Beckmann. Instead of rehashing the entire session, let’s quote some of the most interesting answers and conclusions – to show where the trends in global electronics manufacturing are heading at.
“China still is the most important location,” as Martin Kurpjoweit, VP Europe of Atotech Deutschland stated right at the beginning. Still. But, as the other participants insisted, India is catching up (with a lag of several years as far as the development of its industrial base is concerned), and Eastern Europe is not far behind as a viable alternative. They all, for cost reasons alone, are well qualified as production bases and as prospective markets, too. But they all have their prevailing socio-economic conditions, different educational, linguistic and cultural backgrounds, infrastructure and logistics, tax and investment regimes. From there follow different planning and working policies for foreign investors. Distance is beginning to play a growing role in terms of rising transportation cost and availability, if you consider “landed cost” at the entry point of the targeted market as the final decisive factor. That plays in both directions: Increasingly the targeted customers are found in those countries that up to now have served only as production bases for re-exported finished goods to the investors‘ home bases – wherever that is.
The other new development, says Jochen Eickholt, CEO of Siemens Home and Office Communication Devices, is that “the creation of value is shifting”. Innovation is still happening in the traditional industrial regions such as North America, Japan, Europe and South Asia. But mass-market customers in the targeted regions are turning into the real decision makers and price arbiters of the products that are still designed some other place.
Logistics is becoming the critical choke-off point in the supply and delivery chains. There, China is ahead because it has invested early on and massively in its transportation systems, urban resources and production services. From this vantage point, its rigid, centralized government system is an advantage. India, on the other hand, having a long democratic tradition, appears at a disadvantage despite its well educated workforce and its booming markets, because decision-making takes time and political finesse.
“China is fast, India is slow,” as Jürgen Gromer, President of Tyco Electronics brings it precisely to the point. On the other hand, China is also fast in terms of employee fluctuation, as Günter Lauber, President of Siemens electronic Assembly Systems knows: “There is no shortage of skilled labour. But mobility and loss of experience within the work force are a problem.” The way out is establishing unified and rigid quality control systems. Quality levels have to be maintained on a global scale, Lauber says, “by strong central control.” Conclusion of all roundtable participants: Local manufacturing quality is not an issue because it is controllable.
On to the cultural inhibitors to smooth production systems and mass markets – clearly a decisive factor when manufacturing and marketing innovative high-tech goods and services. There, India can trump an inherent advantage: “India has the language advantage”, Kurpjoweit says. Because English is spoken widely and well since the days of British colonial rule. How about the other notorious business activity inhibitor: permits and bureaucracy? There, the political culture per se comes into play. Again: China is fast and India is slow. Environmental standards – a growing problem. They are beginning to converge on a worldwide scale, as all participants agree. “There is an increasing awareness of being eco-friendly,” Eickholt of Siemens says. Gromer agrees, “China’s environmental rules require following the same regulations as Europe’s.” ROHS and WEEE are setting the standards, if only in regard to potentially toxic materials contents of products, one might add, not so much to local pollution and waste disposal. But that, too, is beginning to change for the better.
Next point, increasingly important: energy cost and secure delivery. A bleak picture: “Energy costs are rising around the world. The same with materials,” Gromer attests. “It’s a sensitive and difficult situation.” It also levels the playing field for all prospective investment regions – if only in a negative sense. Will distance play a larger role as far as cost is involved? Not for his company, counters Yoav Harel, President of Orbotech: “The motivation is to go where the market is. We follow the markets.”
So, if all this points to conditions worsening but converging, if it will be one “global world” in terms of production conditions – where, then, is the next destination for expansion and investment in manufacturing? In the face of upheaval spreading throughout the financial markets, which clearly affects business decisions and consumer attitudes? In any case, there is no detriment to China, Gromer says: “China is a big market; there is no danger of a breakdown. I don’t see a growth stop there, over the next several years.” Eddie Kawase, President of Panasonic Factory Solutions Europe concurs: “China will always be the biggest market. But global diversification is the rule. So, India keeps being important as a future potential market.”
Plagiarism, a hot topic in the popular media, as far as China is concerned: “Our IP is well protected,” Eickholt says. “If it happens, we act swiftly.” Harel of Orbotech: “High-end technology protects the product. As strategy, no complete solutions should be sourced out.” Rising labour cost: “Labour cost is not a decisive factor. It’s only 2 % of total cost,” Kawase of Panasonic says. “Our incentive is to achieve low prices even by manufacturing in high-labour-cost countries. Communications and logistics are equally important.” As a consequence, according to Lauber: “Production is shifting back to Europe” – Eastern Europe, that is. Another prospective Asian venue is coming up: “Vietnam is rising,” says Harel of Orbotech.
Even closer to home: “North Africa is becoming a player as well”, notes Eickholt of Siemens, figuring as a base for Southern European manufacturers. There is a massive build-up of container ports and electricity grids right across the Mediterranean Sea. Especially Tunisia and Morocco are set to prosper, if belatedly, from the current shifts in global production systems due to the strains of rising energy and labour costs and potential transportation choke-offs. Africa, North as well as South, are set to become future destinations for production and consumption of electronic goods. (Werner Schulz)
EPP Europe 400
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