Manufacturing Digital Magazine - High Tech Industry Perfect Storm Article
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Manufacturing Digital Magazine - High Tech Industry Perfect Storm Article Document Transcript

  • 1. PEOPLE & SKILLS | DECEMBER/JANUARY A number of factors have impacted global sourcing from the Far East in recent months which Mark Morley suggests could lead to Eastern Europe becoming a major manufacturing hub for the high tech industry Written by: Mark Morley, Director of Industry Marketing for Manufacturing, GXS 32
  • 2. | www.manufacturingdigital.com MANUFACTURING A HIGH TECH ‘PERFECT STORM’ IN EASTERN EUROPE or the past twenty years most consumer electronics goods have been manufactured in the Far East, the traditional ‘manufacturing hub’ of the global high tech industry. However, disruptions are quickly changing the dynamics and structure of high tech supply chains. Low cost F will continue to have a high focus for many companies, however protecting production capacity and ensuring quick delivery of goods to end markets has now become the strategic focus for many associated companies. Although many high tech companies will continue to have head offices located in the Far East, Dec/Jan 2013 33
  • 3. High tech ‘perfect storm’ production locations are going to have to change in order to protect both the supply chain and the high tech industry in general. We’ve already started to see the shift from East to West with Foxconn establishing numerous plants in Brazil, recently announcing that they would be building a fifth plant there in order to serve the exponential growth in the mobile device market in North America. In a similar manner, Mexico is also seeing significant inward investment as companies look to take advantage of lower labour costs and more importantly its close proximity to the lucrative North American market. So, we have a significant manufacturing hub in the Far East, we have a growing presence in Mexico and South America, but what about the other major region in the world, Europe? Many high tech companies have established a presence in Europe, both in terms of regional sales offices and production plants. However, the relative high costs of producing goods in the main European countries of Germany, France and the UK have kept inward manufacturing-related investment to a minimum. Though Sony thought it was financially 34 viable to build a TV manufacturing plant in the UK, it’s now starting to outsource the production of flatscreen TVs, putting the plants future in jeopardy. In a surprise turnaround it was recently announced that the low cost PC, the Raspberry Pi would now be made at Sony’s plant in the UK, rather than in China. Increasing wage costs and other macroeconomic factors are starting to impact high tech investment in China and the Raspberry Pi is an excellent example of near-shore manufacturing - a trend that is likely to continue. So this begs the question; if it’s possible to manufacture the world’s cheapest PC in the UK, a PC that is not much bigger than a business card, why doesn’t the high tech industry consider further investments in the Europeanregion, especially in Eastern Europe where labour costs are still relatively low and the countries border onto Western Europe? The Eastern European picture Recently, I conducted a research study looking at the B2B adoption levels and key industries of the countries making up Eastern Europe. The Czech Republic, Slovakia and Slovenia came out
  • 4. | www.manufacturingdigital.com Natural disasters, high wage demands and strikes in China, rare earth export restrictions from China, not to mention the high value of the Japanese Yen are all contributing (factors).” The Oriental Pearl TV Tower in Shanghai, China Dec/Jan 2013 35
  • 5. High tech ‘perfect storm’ fairly well in my analysis, with Slovenia being highlighted as a key investment hub for the manufacturing sector. There were various reasons why these countries were favoured as strategic manufacturing locations: They all border Western Europe, which means that goods could be manufactured and shipped across the borders by train or lorry-based 3PL providers They have a low cost base and a very skilled workforce that have been able to adapt their skills very quickly to the companies and industries that have invested in the region so far As well as transport, they have good communications and utilitye a ed as uc u es related infrastructures 36 Many of the high tech suppliers who have established a plant in Hungary are supporting their automotive customers across the border in Slovakia, which is the main automotive manufacturing hub in Eastern Europe.” The port of Koper in Slovenia provides the gateway, via the Adriatic Sea, into Eastern Europe for many companies, especially S C co pa es oo ASPAC companies looking to get suppl their products or supplies into the Slov European market. Slovenia has loc become a strategic location for not only distributing parts, components or products to en end destinations but also to destinations, service th many high the tech ma manufacturers, such a Dell who as have plants in the coun country. The local gove governments also offer sig significant tax incentives an heavily and
  • 6. | www.manufacturingdigital.com m c PLAY Hungary has seen significant investment from the manufacturing sector subsidised land prices to encourage companies to setup in the region. In addition, countries such as Hungary and Poland have seen significant investment from the manufacturing sector. A 2010 report estimated that up to 30 percent of consumer electronics devices manufactured in the Eastern European region came out of Hungary. Many of the high tech suppliers who have established a plant in Hungary are supporting their automotive customers across the border in Slovakia, which is the main automotive manufacturing hub in Eastern Europe. The Perfect Storm Over the past 18 months there have been a number of factors that have impacted global sourcing from the Far East, developing into the ‘perfect storm’ when it comes to deciding future sourcing strategies. Natural disasters, high wage demands and strikes in China, rare earth export restrictions from China, not to mention the high value of the Japanese Yen are all contributing. This combination of factors could lead to many Dec/Jan 2013 37
  • 7. ww w.m N LEA APP NE IPHO N’S LEA UTO N: A MEA AND w .man ww ufact urin gdig ov | N om ital.c HAND T THE BU LT THE BO ILT RS & WILK WERS INS IN N NAUTILU S LOUDSP S EAKER EAKE A ER 2011 anufac turingd igital.c om | Jun e 2011 THE RI SE THE DRO OF NES TOP BUSINES TEN S JETS ww w. URT FONCEPTS K RTANOW C R SH FO O 1 201 M manu fac tur ingdig ital.co m | July 2011 011 ISLE OF MAN TT Z ERO GOC YCLE ECOFR PERF IENDLY ORM COM ANCE MUT ING LE OTT LY ND ANTB IP -FRIELA PL DERSH ii U ECO A-CO LEA C O W S? CO MA SIG END ION SIX INT TAT MAN INHI UFA BITE LEAN TRAN N EC THE EXP CAN UP TO LIVE : CTU D BY RIN G: TRAD ITIO N SFO IT’S R AL LEAD L ABOU MATIO NS: T ERSH IP TOP TEN PR PRO RODU FAIL FAIL AILU CT U UR TECH ES AN TECH RES A D ECHN FL P N L FLOPS OLOGY LO S Y MAKE AN EXECUTIVE DECISION MANUFACTURING DIGITAL’S UNIQUE & INNOVATIVE DESIGN DELIVERS HIGH QUALITY CONTENT THROUGH THE USE OF THE LATEST DEVELOPMENTS IN DIGITAL MEDIA. REACH 97% EXECUTIVES WITH THOUSANDS OF LOYAL READERS ALL OVER THE WORLD. ACCESS ANYTIME, ANYWHERE, AND ON AN ARRAY OF PLATFORMS. REACH AN AUDIENCE OF DECISION MAKERS... CONTACT US TODAY 38 ENTE N INN RPRISE N , C EO CLEA VATION N TE CHNAND OLO GY
  • 8. | www.manufacturingdigital.com m c High tech ‘perfect storm’ domestic market, a trend currently being seen in Brazil. Many governments in Europe have identified economic growth as a key way to reduce European debt levels and to help countries emerge from recession. The EU needs to classify key Eastern European countries as regional development locations which will get further significant tax breaks and other incentivized options for companies looking to build plants or expand existing operations in these locations. Eastern Europe a big asset manufacturers changing the structure and dynamics of their global supply chains and ultimately benefit the countries that make up the Eastern European region. North American and European companies are also starting to near-shore production back to their home markets. In Asia, Japanese companies are looking for new manufacturing locations to minimise future supply chain disruptions and due to on-going wage strikes, Chinese-based companies are also now looking for growth opportunities outside their Will Eastern Europe become a major high tech manufacturing hub? The European Commission needs to develop a more all encompassing business and investment plan for the region - one of Europe’s biggest assets. With more and more companies deciding to source parts and products from the Far East over the past decade, this has partly reduced the investment in Eastern European countries. However the Japanese earthquake has changed sourcing dynamics forever, meaning that Eastern Europe could start to see further significant inward manufacturing investment once again. www.gxs.com Dec/Jan 2013 39