Outsourcing trends to fuel EMS industry landscape

By Saif Ali Bepari, Global Market Insights

The global electronics manufacturing services (EMS) market is on the verge of tremendous change owing to rapid commoditization of electronics, adoption of new technologies by EMS providers, and increasing pace of outsourcing. Original equipment manufacturers (OEMs) are facing a unique set of challenges that start with conceptualizing innovative products on the one hand, and the managing of costs over the life of products on the other. This dilemma has compelled major OEMs to turn towards EMS industry owing to the fact that these firms span the value chains of the most complex manufacturing environments around the world.

While the future of electronic manufacturing services is best viewed from the context of mass-customization strategies for various industrial sectors, it would be prudent to mention that consumer electronics and medical devices are the two major verticals driving the EMS market share. According to a research report by Global Market Insights, Inc., EMS industry share is slated to surpass USD 650 billion by 2025.

Globalization of outsourcing in the consumer electronics segment and its consequential impact on EMS market share

A law defined by Gordon Moore, the founder of Intel Corporation, is being proven repeatedly throughout the electronics industry. Defined over 40 years ago, the law states that the chip density roughly doubles during every product generation. However, the domino effect of this law for original equipment manufacturers (OEMs) is that pricing has become the only way for many of them to differentiate their products from those of competitors.

In this context, when the price is the only factor that makes all the difference, the entire value chain is affected which makes the overall industry much more competitive. OEMs are now focusing on just a few top priorities and are less interested in managing the entire value chain of how they conceptualize, manufacture, and service products on their own.

Consequentially, every process which is not directly associated with serving the consumer is being outsourced. Here, it would be prudent state that the OEMs in the communication and consumer electronics industry are among the major firms which have focused extensively on outsourcing.

As EMS providers ensure that the frugalities involved in product manufacturing are taken care of, OEMs like Sony, Dell, Intel, and Apple are able to deploy their resources towards research and development, as well as marketing campaigns. As mobile technologies are evolving at an unprecedented pace and are becoming cheaper, large consumer electronics firms are outsourcing the manufacturing of their products to the Asian EMS providers.

Taiwan’s Foxconn, the world’s largest EMS provider, has emerged as a prime example of how Asian EMS providers are creating a global presence in the consumer electronics segment, particularly smartphones, by adopting innovative business models. Notably, Foxconn registered a year-on-year growth rate of 50 percent in 2017, garnering revenue mainly from the sales of Apple’s flagship smartphone iPhone X. The company manufactures other iPhone models and iPads as well, apart from assembling computers for Dell.

The growing preference towards outsourcing the production has enabled OEMs like Apple to focus on their core strengths. This strategy has proven to be beneficial to large OEMs and has helped the EMS market size to expand at a rapid pace over the recent years. As global outsourcing continues to gather momentum, the EMS providers are set to witness a substantial increase in business opportunities in the consumer electronics segment in the times to come.

Increasing demand for electronics-embedded and smart medical devices is benefiting the EMS industry share

Prominent medical device manufacturers are eager to design and manufacture smarter and smaller medical devices that incorporate new technologies such as Internet of Things (IoT) and other electronics-embedded features. Moreover, the increasing demand for wearable and smart medical devices is driving the need for smaller, flexible, and light-weight products in the healthcare sector.

The technologies required to create such products include miniaturized chip scale packaging and use of molded interconnect devices which integrate plastic and electronic components. These technologies have helped the EMS providers to deliver products that can potentially improve patient comfort, regulatory compliance, and the overall manufacturing process of medical devices. Following are two significant examples of how EMS providers are embracing new technologies:

• Despite rapid technological advancements, battery lifetime continues to be a significant challenge for wearable and implantable devices. A few EMS providers – catering to the medical device OEMs – are making efforts to meet customer demands for miniaturization without compromising on battery power. For instance, the Taiwan-based EMS provider MEAN WELL recently released its MSP-1000 series power supply device which fits into smaller packages and even increases the battery lifetime.
• The global regulatory landscape of the medical devices sector is witnessing transformative changes as some of the guidelines are due to come into effect in the next few years. For instance, Europe’s Medical Devices Regulation would make it even more tough to introduce new medical devices across the region in the times to come. Consequentially, the OEMs are turning towards EMS providers to manufacture products that would readily comply with the regulatory framework. In this context, EMS providers such as Sanmina Corporation are adopting cloud and other technologies to create a system which they refer to as a medical “forced quality framework.” Production operation, material, and equipment are all connected via bar code scans to a single database in the cloud.

Evidently, the instances of MEAN WELL and Sanmina Corporation are a testimony to the fact that EMS market is set to be transformed in terms of how prominent players view shortcomings of OEMs and adopt real-time data collection and analysis techniques to improve product lifecycle planning and material availability.

The worldwide manufacturing sector is undergoing a humongous change owing to Industry 4.0 which would be driven by the convergence of technologies, increasing price competition, industry consolidation, and accelerated product life cycles. In such a scenario, where OEMs from almost all industrial sectors need to focus first on strengthening existing customer relationships and then acquire new customers with entirely new assortment of products, EMS market would irrefutably be at the forefront in providing value to the global manufacturing industry in the times to come.