The electronic manufacturing services (EMS) industry has grown to over $1 trillion, but like many things of great size, it’s as maneuverable as a supertanker. Building momentum takes time, and changing direction is painfully slow. Recently, a perfect storm has been brewing that will disrupt this industry that has changed little since the 1990s. 2020 will be a seminal year for EMS. Those who adapt will prosper, and those who ignore these challenges will struggle, or worse, become irrelevant.
As the owner of a content agency with 15 years in the EMS sector, here are my thoughts on what's coming and how EMS marketers should adjust their message to reflect these industry changes.
Factor No. 1: Trade Wars And Tariffs
President Trump has been waging a trade war for months and recently told American brands to look for manufacturing sources outside China. This has enormous ramifications for EMS companies with China-dominant footprints, particularly those with limited capacity in the Americas. We have already seen large layoffs in China by global players as they push to scale up in places like India and Vietnam.
China is looking less like the factory of the world for other reasons too. Rising labor rates, intellectual property issues and a desire to bring production closer to design and consumption are driving regionalization. But moving manufacturing is complex and expensive. It is not clear if or when the trade war will end and what tariffs will stick, but it's clear that manufacturing geographies are changing, and the ability to move from one region to another quickly and painlessly is in demand. Agility is at a premium, and this needs to be real and tangible, not just words.
Factor No. 2: The Rise Of Manufacturing-As-A-Service (MaaS)
The rapid adoption of manufacturing-as-a-service (MaaS) has been fueled by that same desire for agility. Combined with elastic capacity and a frictionless purchasing experience, MaaS offers a compelling solution. Platforms such as those provided by Fictiv, Xometry, MacroFab and 3D Hubs have won the support of engineers and purchasing professionals. These platforms have also attracted the attention of the VC community, with those four alone raising north of $100 million this year. MaaS platforms offer an intuitive purchasing process, more akin to ordering an Uber than to the complex and often slow bidding process associated with the current EMS model. Many MaaS platforms provide instant quotes from uploaded BOM (bill of materials) and CAD (computer-aided design) files. Some call this the second EMS revolution, or EMS2.0. Marketers of EMS1.0 will need to compete with this rich, value-driven message.
Factor No. 3: Digital Transformation And Industry 4.0
Whether referred to as smart factory, Industry 4.0 or the Fourth Industrial Revolution (4IR), the digital transformation of manufacturing has promised much and delivered little. EMS companies have been quick to talk the "smart talk" and slow to walk the "smart walk." Some smaller companies have grasped the nettle, but while larger EMS players talk about digital transformation, few have anything resembling a digitized manufacturing ecosystem. OEMs are looking for a dividend from this so-called revolution and their expectations in terms of visibility, flexibility and value will increase. EMS companies need to get with the program or risk being marginalized. A genuine digital transformation strategy will soon be table stakes for those wishing to bid certain OEMs. Marketing that message and showing evidence will become essential.
Factor No. 4: Regionalization And Proximity To Market And Design
As trade wars put pressure on OEMs to move manufacturing from specific geographies, a regionalization trend has been building momentum. OEMs are looking for manufacturers nearer to their customers and to their design and innovation teams. The trend of moving manufacturing to China, which many followed like lemmings in the 1990s and 2000s, has stalled and been replaced by a trend for shorter supply chains that have products manufactured closer to consumption. Regionalization favors manufacturers that offer production in or close to key consumer geographies. That might mean a footprint with factories in the Americas, Europe and Asia. In some case that will mean lower-cost regional solutions such as Mexico, Eastern Europe, North Africa and just about anywhere in Southeast Asia, including newer players such as Vietnam or Indonesia. Marketers should prepare to message a new footprint alongside agility and the ability to seamlessly move production.
Factor No. 5: Disruptive Manufacturing Technologies
Technologies like robotics, artificial intelligence (AI), augmented reality (AR) and additive manufacturing (3-D printing) are disrupting the world of design, manufacturing and fulfillment. Fortune favors the brave, and EMS players that see these as opportunities rather than threats will gain the most. Some exciting solutions are coming from collaborations between traditional manufacturers and niche players in the additive manufacturing or custom robotics space. Many EMS players have been working on these technologies to help them scale and compete, but few have rolled out compelling solutions or tell compelling stories.
Testing Times Ahead
These factors are by no means exhaustive. Consolidation and M&A activity in the sector has been substantial this year and will continue. The desire and consumer demand to protect the environment will have an impact as we move to more sustainable solutions. Recent figures suggest that the economic growth enjoyed since recovery from the global economic crisis in 2008 is unlikely to continue. Pundits are predicting a softening of the market late in 2019, continuing into 2020. Meanwhile, consumers continue to expect greater customization, faster time to market and lower prices.
The bottom line is, the EMS industry is changing fast. Incumbents wishing to protect their position need to respond quickly to disruption and not just talk about digital transformation. New players have unprecedented opportunities to infiltrate the market, providing newer, digital-first, user-friendly business models. This challenges management at a strategic and customer-facing level, so getting the message right for both incumbents and new entries is pivotal to business success and perhaps even survival.
2020 will be a big year for the EMS industry, and shifts will happen. Some will disrupt; others will be disrupted.
