In 2016 it had a world market share of 14.6%. Legislation that strives for more fuel or energy efficiency has driven growth for electronics in the automotive, building and lighting sectors. Industrial production turns ‘smart’ and becomes more automated. An increasingly ageing European population and cost pressures on the healthcare sector have also increased the demand for electronic innovation in this sector.
Legislation and legal requirements continue to shape the sector
Overall, legislation mainly focused on environmental and security issues has increased the demand for intelligent and efficient products and solutions. A number of European Union (EU) Directives has been issued in the last few years that accelerate the development of renewable energy sources, electronic vehicles and electronic lighting in Europe.
Political measures are expected to continue driving the share of electronics in automotive in the short and long term. Following the example of the US, Europe may impose new directives to ensure personal safety, for example, by obliging the mandatory use of rear view cameras and an emergency call in vehicles.
As a developing-country exporter you can benefit from this trend as it drives the demand for electronic components and/or assemblies/subassemblies in a variety of products.
The Internet of Things (IoT) is a game changer
The Internet of Things (IoT) is an overarching development that affects all sorts of technological applications and devices, ranging from automotive to consumer electronics. It will have a fundamental impact on the life and work of human beings in the long term. The trend is driven by the desire of users to increase convenience, functionality and efficiency. The IoT basically means that data on the status of a system is detected in real-time and evaluated to optimize the efficiency of operations or to operate the system remotely.
In 2016, it was shown that small- and medium-sized enterprises in the industrial production sector have started to embrace this trend. Yet they also face challenges, as they have to acquire new competences in the area of IT that many do not have. In this context, component distributors see a chance to take on a more powerful role as a system integrator. They can offer the full range of components needed for IoT integration. This puts them in a stronger market position, contributing to filling the gap in competence of small- and medium-sized enterprises.
There are a variety of electronic components that enable technologies for IoT. Key components are field bus systems, cabling for data and information channelling, as well as electrical motors as actuators and of course software. These are product areas in which companies like yours have competences and are able to act as suppliers of the European market.
Increased importance of supplier reliability
Megatrends such as globalisation and consolidation drive substantial changes in the product supply chain. Athe same time, this raises concerns of European manufacturers towards the increasing risk of international cooperation, such as supplier reliability and supply chain efficiency. Risks need to be measured and managed in order to keep the total cost of ownership (the indirect and direct costs of a product) at a reasonably (low) level.
In the short and long term, European original equipment manufacturers (OEM) will be increasingly looking for the most reliable suppliers and will try to eliminate risk through supplier contract and cost management. Reliability and efficiency become key priorities for successful cooperation. Cultural and geographical proximity and on-time delivery may shorten the acquaintance phase and turn a new and unknown supplier into a trusted partner more quickly.
In the long term, supply chains will continue to undergo changes, becoming more innovative, open to customisation as well as lean, fast, and flexible.
Growing opportunity for cooperation with developing countries
While production costs in Europe are high, the fast development of markets outside Europe defines global trends and market needs.
In the short and medium term, high production costs in Europe are expected to intensify pressures on European manufacturers. Increasing labour and production costs in ‘technology-rich’ countries such as Germany, Switzerland, Finland or Sweden have driven production outsourcing to labour-rich countries and have generated a shift to Engineering & Manufacturing Services (EMS) providers.
As a developing-country exporter you will have a cost advantage by offering labour-intensive products, and you will benefit from the ability to supply better-priced electronics. In this context, developing countries such as Vietnam have started benefiting from a production shift away from China, as labour costs there are rising significantly.
There is also the chance that production will return to Europe in the future in the medium and long term as automation of machinery reduces the significance of labour costs; however, the trend of relocating away from Europe has been stronger thus far.
Knowledge-sharing and access to industry-specific information strengthens developing-country exporters
The growing importance of cooperation drives two-way knowledge sharing between OEMs in Europe and suppliers in developing countries, thus increasing the number of innovations across all application industries.
European countries are losing their image as global technological leaders, because other manufacturers are catching up by developing their technology.
In the long term, expertise and innovation may migrate to emerging countries, as the level of education in emerging or developing countries improves through two-way knowledge-sharing between mature and emerging markets. The declining interest of talented people in engineering in Europe will result in a shortage of skilled personnel.
As a result exporters like you will have the opportunity to become more competitive and introduce their own innovations to Europe in the medium to long term.
Consumption in Europe grows
Through the penetration of new markets and the growing share of electronics in applications, the electronics and electrical engineering market in Europe is growing in the short term and is expected to continue to do so in the long term.
Semiconductors, which are widely used in numerous applications including energy, automotive, healthcare and other industrial segments, did well in 2015 Europe-wide, showing a high single-digit growth driven by sales in Germany, France and the UK. Electromechanical components also did well. In terms of growth rates, sensor and optoelectronics have done especially well according to the association FBDI, with a two-digit cumulated average growth rate over the twenty years from 1995 to 2015.
The relocation of the production of finished goods outside of Europe may have an adverse effect on the sales of electronic components and may benefit other production countries.
Western European markets remain the largest consumers of electronics and electrical engineering in Europe due to their population size, economic power, and sophisticated demand. After years of economic downturn the UK strengthens its position as second-largest market behind Germany. Spain seems to have stabilized its economic situation and starts growing again. This goes along with decreasing unemployment rates which, however, remain high, with around 20% in 2016.
It is best to target smaller Southern and Eastern European countries through large trade hubs in Western and Northern Europe.