Capability Trumps Capacity in EMS Industry
After two decades of concentrating on capacity, the focus of the electronics manufacturing services (EMS) industry now is shifting to capability, with competencies including manufacturing skills and supply chain management gaining in importance, according to IHS iSuppli EMS & ODM Market Research at information and analytics provider IHS Inc.
Over the past two decades, the EMS industry has grown by a combination of organic growth and acquisitions. Industry revenues increased as original equipment manufacturers (OEMs) outsourced production to EMS providers across myriad industries. At the same time, EMS companies acquired numerous manufacturing assets from many of those same customers.
As this trend has progressed during the last two decades, the end markets for EMS products have shifted somewhat. The decade of the 1990s was focused on enterprise-class products, while the stress during the 2000s fell on consumer-oriented electronics. These acquisitions brought, not only capacity, but more importantly, capabilities that IHS believes are in many cases just now starting to earn substantial returns for many companies across the industry.
So far this decade, IHS research shows the product mix has shifted slightly as more industrial products have started to flow through the industry. In parallel with this shift, there has been a rise in focus on enhancing capabilities.
Capabilities previously honed for the production of high-reliability, enterprise-class products can be adapted to industrial products. At the same time, the lessons learned in terms of cost control and meeting extremely tight deadlines for the consumer products sector can also be adapted to other products that are new to outsourcing.
Such need for improved capability could take many forms. Already, EMS companies have been observed to expand into capabilities that were previously considered non-core, such as in-house mechanical fabrication or aftermarket service. Furthermore, EMS providers are placing greater emphasis on end-to-end supply chain management. These and many more capabilities are likely to be the largest drivers of growth for the industry.
Given the concerns for much weaker global growth than currently expected, IHS remains quite cautious on its 2012 EMS industry growth outlook, but companies that enhance their capabilities are more likely to capture a larger share of the market over the next decade.
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