January 2010 Leading Indicators Report Click on this link to get the latest report from Charlie’s research. He tracks the data points that matters most to the outsourced electronics manufacturing industry.

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By Eric Miscoll

The years of high growth for the maturing EMS industry are over. Based on the forecasts of leading research groups, the five year compound annual growth rate (CAGR) for the EMS industry from 2008 to 2013 will be 7.8% according to Electronic Trends Publications, 1.8% according to International Data Corp, or 0.0% according to InForum Inc. A blending of these three forecasts yields a CAGR of only 4.0%. This is a far cry from the rock and roll years of the late 1990s when EMS was the darling of Wall Street and industry forecasts were routinely in the double digits.

The reason for this slow-down goes beyond our global economic woes. The current EMS model has realized its potential. As Charlie expresses the concept, “The outsourcing dividend has been spent.” OEMs that do not outsource have judged it an unappealing solution for them, while other OEMs have begun a return to self-build. This latter issue, while not yet a significant trend, does mean that some OEMs are judging the EMS industry as inadequate for their manufacturing needs, for whatever reason. The reality is that most electronics manufacturing has and probably will always be done internally by OEMs. This is apparent when you consider the penetration rate, a measure tracked by industry watchers for nearly 20 years. The penetration rate is a comparison of EMS revenues with OEM Cost of Goods Sold (COGS) and it grew to around 20% and seems to have leveled off, regardless of EMS expansion into other services to capture more. What OEMs primarily outsource is the commoditized part of the process – the printed circuit board assembly (PCBA). The more desirable (to the EMS) box build work was harder to come by, and the original design manufacturing (ODM) industry proved to be a strong competitor for this level of work, especially for commoditized products.

Both EMS and ODM will continue to serve a purpose in the electronics industry, but their penetration of overall OEM COGS has reached a plateau at what is likely to be its saturation point unless some things change in the industry.

As I see it, there are essentially three events that would help improve the health of the EMS industry, as defined by higher profitability: a new “killer app”, a drastic reduction in available capacity, and/or a change in the fundamental practice of outsourcing.

New electronic products tend to be good for the EMS industry. The industry’s growth was fueled by computers, cell phones, networking equipment, and game consoles. The EMS industry benefits when OEMs bring new products to market, especially when the OEM’s desire is to maintain IP ownership. The benefits of new products can be significant, but also only offer a short term benefit to the industry.

The electronics manufacturing industry, inclusive of both EMS and ODM, is plagued by too much available capacity. Based on CBA’s assessment, there is approximately 450-500 Million Square Feet of global capacity (being used or not), including EMS and ODM, but excluding India. Using a baseline metric of $1M per annum per 1K square foot, the industry is geared up to produce $450-500B per year, but last year the combined industry only generated about $230B, according to InForum Inc. This glut in capacity allows OEMs to apply pricing pressure on the industry, and there will always be someone willing to low-ball the market. This is the primary issue that challenges the industry, and a drastic reduction in capacity is necessary if the industry is to improve its profitability. This can occur through a combination of consolidations and business failures.

A change in the OEM practice of outsourcing provides the most promise for the EMS industry. OEMs need to focus more on a proper Total Cost of Ownership (TCO) analysis than on just finding the lowest available labor rate. CBA has been advocating this approach for many years, and thankfully people are starting to heed this call, but more need to do so. Most OEMs spend far too much internally overseeing their outsourced manufacturing and very few are taking the steps necessary to do something about it.

Compounding this incongruence is the practice of EMS companies trying to differentiate themselves from other EMS companies by spending more time tweaking the ‘definition’ of their value proposition than actually implementing systemic innovations in their approaches and/or service offerings. . In our experience, almost all EMS value propositions now say essentially some combination of the following obvious attributes:
• Customer focused/centric
• Proactive
• Quality operations
• Reduce costs
• Improve time to market

These traits are not game-changing differentiators, but rather the least common denominators of being in business in any industry. I recall an old Far Side cartoon that captured this challenge perfectly. It showed a herd of penguins all looking the same, and one lone penguin in the middle of the pack was singing “I gotta be me, oh I just gotta be me….”

The reality is, there are many EMS companies that are very good at manufacturing, and many innovative OEMs in all industry sectors. The challenge lies in the intersection between these entities. CBA would challenge the industry to take the outsourcing business model to the next level. To forge, invest-in and nurture long-term, mutually profitable business relationships founded on real-life cross-enterprise, market-sector specific data. That’s what Charlie Barnhart & Associates LLC has always been about and is what our Company will be working on in 2010. We hope you will join us!

Let’s face it. Whether you think the official recession is over or not, the global economy is not in such great shape. US consumers are severely tapped out, and some major changes will have to occur before a growth engine replacement will be found. As one pundit put it recently, most of the ‘green shoots’  in the global economy have been the direct result of ‘manure’ coming from government stimulus programs and are unsustainable at the current deficit spending levels.  They are throwing money at the same tired industries that have failed the requirement for productive sustainable economic health: housing, construction, banking, healthcare. A sustainable recovery will require serious realignment in the investment priorities and assumptions of the policy makers and resource managers, as well as different decision-making at the grassroots level.

Ultimately, an economy is a snapshot of the sum total of what people who have a choice (typically the brightest people) at a given point in time have chosen to do to make a living and to spend that income. When people decide to do something else, things can reverse course quite dramatically. That’s what makes forecasting a challenge.  In the U.S., we are living with the consequence of the general wisdom that holds factories are dirty and a service economy is better, specifically marketing,  finance, insurance, banking and general paper-pushing. But if you spend some time with the Facebook generation, you will get a sense that maybe this is changing. A Wall St. Journal article, entitled, “Tinkering Makes a Comeback,” posits that ‘making cool stuff’ is looking like a better career option.  The article quotes  an MIT professor saying, “I’ve been here 23 years and I definitely see this trend back to hands-on,” he says. “A lot of people are pretty disappointed with an image of a career in finance and they’re looking for a career that’s real.”

The article cites as evidence the mushrooming of engineering playground co-ops called “hackerspaces’ that have sprung up around the globe. For a monthly fee, engineering students, or just everyday folks can work on inventions, using available tools, components, equipment and the shared knowledge of fellow enthusiasts. The cost of essential equipment like CNC metal working machines has become so affordable that these coops have been able to re-ignite the inventing spirit in Everyman.

This is heartening, so we decided to do a little informal, non-scientific research to verify the trend. I spoke to some engineering students I know. One junior at Arizona State University confirmed that he has quite a workshop set up in his dorm room; in fact he operates a cell phone repair business, buying online and repairing for resale to earn some extra money. He notes that a Hackerspace community called ‘Heatsync Labs’ is forming in Tempe, looking for donations and equipment and permanent meeting space. When asked about his future vocation, he comments, “I can’t wait to get out of school and start making things that are useful to people. I don’t want to just make things rich people can buy, I want to solve problems. And, mom, can you send me my December rent check ASAP?” Well, yes, in the spirit of full disclosure, the above-quoted engineering student is a relative.

Hackerspaces and budding capitalism are not the only outlets for this impulse. At Illinois Institute of Technology (IIT), in Chicago, the robotics club is always on the lookout for discarded items to enable their many projects. A group of students recently found a floor scrubber in the dumpster, and you would have thought it was spring break in Ft. Lauderdale. Next month, Southern Methodist University in Dallas, Texas, is scheduled to launch a partnership with Lockheed Martin modeled after the famous “Skunkworks” program.  Skunkworks got its start in 1943 when Kelly Johnson was charged with developing  the top secret P-80 Shooting Star jet fighter plane. That group operated out of a rented circus tent near a plastics manufacturing plant that produced a strong odor. Hence the name. The hallmark of the organization was the ability to by-pass corporate bureaucracy in favor of getting innovative products completed and into production. The SMU version of the  program will apply the same spirit to solving real problems of infrastructure construction, clean energy and so forth, in a brand-new laboratory that probably doesn’t smell that bad.

So there are plenty of reasons to expect a renaissance in innovation and manufacturing across the globe. I imagine many electronics OEMs and EMS companies are already actively seeking out  and supporting these initiatives on campuses and in communities through donations of time and resources. One of our clients, Jabil Circuits, operates a facility in Tempe, Arizona, close to ASU. They work with the industrial engineering department, sponsoring senior projects and interns to give students hands-on experience. We’d love to hear about other programs. Let us know what you are doing by commenting on our blog.

By Eric Miscoll
This is a question that seems to be on people’s minds. There are effectively three issues that are slowing the migration of electronics manufacturing to Asia: rising labor costs in China, greater consideration of proper Total Cost of Ownership analysis in outsourcing decisions, and the new trend of insourcing by certain OEMs.

According to analysis by Charlie Barnhart & Associates, since the end of CY06, the average, non-weighted cost (i.e., the cost to the EMS) of Fully Burdened Labor in China for PCBA is up over 50% and over 100% for Box Build. This rising cost of labor in the most popular destination for electronics manufacturing outsourcing has resulted in other countries, notably Mexico, India, and Vietnam, becoming more cost competitive. Mexico should benefit from this trend especially for goods destined for the U.S. market.

The electronics manufacturing industry has for years pursued the lowest labor rates around the planet in hopes of providing their OEM customers with a lower cost solution. This worked well in some cases and countries for some years, but once fuel prices skyrocketed the risks associated with this approach became clear and OEMs began to rethink their cross hemispheric outsourcing solutions. In a proper Total Cost of Ownership analysis, direct labor rates are one of many issues considered, and the cost improvement it can offer can be quickly eliminated when considering other important issues like transportation, support, and inventory costs.

A significant yet still minor trend in the industry is that of some OEMs returning to a degree of “self build.” Most OEMs always maintained in-house manufacturing capabilities, even while outsourcing a majority of their printed circuit board assembly, which is the primary service of the EMS industry. OEMs had also established their own facilities in the same low cost regions as their EMS suppliers. Whether or not OEMs return to greater self build is subject to debate in the industry. Charlie Barnhart has already stated his opinion that the pendulum towards outsourcing will start to return in 2Q 2012. The issue here is that OEMs are starting to reconsider the impact that outsourcing of their electronics manufacturing has had on their cost structures and product quality levels, and some are deciding that they can do it better than the EMS industry can.

In the meantime, the pursuit of the next low cost region continues with countries like India, Vietnam, Ukraine, Tunisia, and Macedonia garnering the attention of the industry.

CBA’s recommendation has been and continues to be that no two engagements are alike, and lemming-like behavior in search of ‘low cost labor’ can lead to expensive mistakes in outsourcing. OEMs should consider a proper ‘FIT’ – flexibility, integration, and timing – when designing a supply solution for their electronic products.

In another surprising move, the Nobel prize for economics this year went to Elinor Ostrum and Oliver E. Williamson, two academics whose work has little to do with complex financial models or market theories. Since the Nobel award carries great prestige and endows credibility and legitimacy to schools of thought, influencing public policy makers of the future, it’s worthwhile to consider the implications of the award to Ms Ostrum and Mr Williamson.

For one thing, the award has never been given to a woman before, which is heartening for this writer. Some thought the favorite for the award was Eugene Gama, the University of Chicago professor known for the efficient market theory. Last year’s award winner Paul Krugman, got the award for his theories on international trade. In his blog, he notes that the award represents a validation of  New Institutional Economics, a term coined by Williamson. He had never heard of Elinor Ostrum before her win.

Alfred Nobel, the inventor of dynamite among other things,  founded the prizes to award individuals that have ‘conferred the greatest benefit upon mankind’. The economics prize was created years later, ‘in honor’ of Alfred Nobel. Since some of the theories of Laureate economists in the past are said to have caused the global economic meltdown, it is fitting the Committee look at a different approach. Some thought no economist should be awarded a Nobel prize this year, since arguably the field has caused misery rather than benefit to mankind in recent times.

What I find most interesting about Ms Ostrum’s work is in regard to the concept of the ‘tragedy of the commons.’ To refresh, the tragedy of the commons is a political science concept taught to highlight what happens to shared resources such as water, wildlife, forests, and oil reserves.  The theory posits that individuals acting in their own self-interest tend to destroy resources they share, necessitating either government intervention (socialism) or privatization to preserve them. 

Ms Ostrum studied forests in South Asia and Africa, and water management in India and  many other examples and found that the tragedy of the commons is not inevitable. Local communities that rely on scarce resources often manage them very well for long periods of time; government intervention and/or privatization many times hasten their destruction, rather than protect them. When people in the communities understand the problem thoroughly, they can solve it on their own using existing associations.

What does this have to do with job creation and the electronics manufacturing industry?

Most pundits agree that although the recovery may be underway it is threatened by lackluster job growth. The unemployment rate is officially at nearly 10%, and unofficially at 16%, and even higher in some areas. Demand for electronic products is not likely to improve until the unemployment rate goes down. Housing, and other areas of the economy are similarly dependent on more people having better jobs. Arguably the electronics industry is still caught in a kind of paralysis, with lots of bemoaning about trade policies and other government action or inaction. Corporate malfeasance, banking failures, and so forth are all blamed as reasons to stay on the side lines with your head down hoping no one will think to fire you. There is a general sense of doom and foreboding. Is manufacturing dead in developed countries? Is that a good or a bad thing? Can service industry jobs replace manufacturing jobs? Will countries that do not manufacture electronics maintain competitiveness? What shall we do to prevent the collapse of civilization as we know it???

I think the time to ponder about our past transgressions is officially over. The key to a sustainable recovery is jobs. Let’s not agonize too much about which kind of jobs are best. We just need a lot of them. All organizations must focus on that one thing: what can we do to preserve existing jobs and create new ones? This does not have to be a mindless ‘Buy Local’ approach with its unintended global consequences. I think about the history of ‘Google’ — the founders combined far-sighted, patient venture capital support, and a good idea for an until-then unimagined revenue source, with an idealism and focus on its employees that netted over 400 millionaires on the day of the company’s IPO.

What Ms Ostrum’s work demonstrates is if a community understands a problem, they can solve it rationally using local resources to the benefit of all. They don’t need massive government or private intervention. The talented individuals and communities in the electronics industry needs to apply their formidable innovation and business skills to this problem of job creation and help create sustainable global economic well-being. Without lapsing into hopeless Pollyanna-ism, we would do well to adopt some of Alfred Nobel’s principles in our strategic thinking.

If we assume that the global recovery is in fact imminent, if not occurring now, (probable US stock market crash notwithstanding) let’s discuss how companies can ensure success in the new world order. To paraphrase a now-famous saying, a catastrophe is a terrible thing to waste,’ – here’s an opportunity for the industry to reset and perhaps correct some self-destructive behavior that’s been evident since the outsourcing phenomenon began. Since everyone likes lists, here’s mine for how to avoid doing the same things that got us into this mess. So, from now on let’s NOT:  

1. Mindlessly follow the herd.  Media love trends.  The simpler and less nuanced the better.  Industry editors like to quote ‘experts’ and, let’s face it, it is safer to say the things everyone else is saying. Eventually these ‘opinions’ become self-fulfilling prophecies as Wall St. analysts see the articles and then pressure CEOs to follow suit.   Unfortunately business success requires innovation, and when you are talking about business processes, that mean NOT doing what everyone else is doing, but instead doing that which works best for your organization’s unique set of talents, markets, skill-sets, products, assets, resources and capabilities.  Right now, industry editors are discovering a new ‘trend’ – that electronics OEMs are bringing their manufacturing ‘in-house’ and we are returning to a vertically integrated model, as if that were the only recipe for success and those that aren’t following the herd will fail. This will once again result in lemming-like behavior. When you are talking about business strategy, that’s a recipe for disaster.    Ironically, as one of the aforementioned ‘experts,’  Charlie Barnhart & Associates LLC (CBA) is predicting  that the self-fulfilling prophecy phenomenon will occur once again in outsourcing. We predict that, unless some new catastrophe rolls down the pike, by the end of Q2 of 2012, the outsourcing pendulum will have stopped, and will start reversing itself. In other words, outsourced electronics manufacturing as a % of TAM will stop growing and start shrinking by that time. You heard it here first. However, that doesn’t mean that if your organization outsources, or doesn’t outsource, and it’s working for you, you have to do anything in response to trends. We’re hoping that this time, companies will do what’s right, not what’s trendy.  

2. Get trapped in outsourcing as a ‘strategy’. CBA says this often: Outsourcing is a tool, not a strategy. It’s one possible response to a business need, like eating is a response to hunger. You can eat hamburgers, vegetables, or cotton candy. You will feel differently depending on which you choose. The same with electronics manufacturing and outsourcing. One possibility. And what’s more, outsourcing is a powerful tool, like dynamite. If you don’t understand it thoroughly, its implications, unintended consequences and total costs, you will blow yourself up. Outsourcing can work very well for many products, geographies, market segments, and volume levels. But CBA believes that too many companies outsource too much, too often, in geographies that are too remote, for all the wrong reasons.  

 3. Be politically correct, but not honest. Those of us who have been around awhile are somewhat alarmed at the growing tendency to change language to appease one interest group or another. We are concerned that this has led to the practice of labeling (and rejecting) people and arguments without thoughtful analysis. This may be a function of the torrent/flood/tsunami  of information in which we live and work. Quick and easy ways to delete and categorize are critical to get through the day. However, it has led to a cloud of unknowing hanging over us all as we struggle to figure out what the heck anyone is trying to say. For example, in my neighborhood, several of us drive  ‘previously owned vehicles’. However when I call them ‘used cars’ instead of previously owned vehicles, I’m instantly maligned and marginalized. Get over it – they’re ‘used cars’ and there’s nothing wrong with that! We have to start talking to each other more plainly, as big grown up adults, as we negotiate manufacturing issues with other business entities. Nor should we engage in blame games when people make mistakes in order to advance a position. Just solve the problems as they come up, using direct, simple language that honestly addresses the issues as you see them.   

4. Write off China. Another example of something companies should NOT do right now is mindlessly follow the herd about China. Someone should ask all the companies whose CEOs forced them to have a ‘China’ solution, whether facility, supplier, or whatever, ‘how’s that working for you right now?’ At the time, the stated rationale was, ‘to capture the domestic market in China’ – but what they really meant was ‘to find low-cost labor’. In electronics, since labor is only 5% of selling price, that unstated rationale never made sense.  And ask Motorola how that domestic market rationale has played out for cell phones.  Now with the labor costs in China rising rapidly and any advantage easily offset with other internal and external added costs, companies are leaving China in a panic.    The thing is, China is not one thing, especially for electronics manufacturing. Lemming-like behavior will again spell suicide. As time has gone by, the capabilities of China in electronics have improved dramatically. Those that had bad experiences two quarters ago, and are now retreating in horror, will miss opportunities, as there are some very good shops there now and some companies will be able to capture domestic markets in Asia. The key is to carefully craft a rational and innovative manufacturing policy.   

5. Engage in passive-aggressive or terrorist tactics. We are seeing some truly alarming behaviors in EMS-OEM contract negotiations. Desperate, in fact.  We have stated in the past that some toxic OEM-EMS relationships resemble a master-slave situation. The suggestions that are coming out now go way beyond that. They have by-passed a warden-prisoner comparison and are at the terrorist-victim level.  For example, an OEM asked us whether we thought it would be a good idea to introduce ’punitive’ terms into a contract with an EMS. As in, if the EMS misses a shipment, they will be fined some amount that is high enough to be painful. On the other side, we are seeing EMS companies signing up for terms that they have no intention of complying with, if activated. That’s the passive-aggressive side. They figure they are churning business anyway as the relationships have become unprofitable and unforgiving, so what difference does it make? They will just dump the OEM if they try to impose punitive terms. This is insane. No one can be successful under these conditions and these negotiations are suicidal for both parties.  

6. Invent any more management principles. We don’t need any new, cleverly named ’initiatives’ or ’re-engineering’ or ’paradigm-shifting’. Business management is not rocket science. In fact, rocket science is not even rocket science. I know rocket scientists, and the work they perform is fairly straight forward from a practical perspective. The point is, let’s stop all the silliness and focus on what’s important. We have some critical work to do after this latest catastrophe. Let’s not waste time. Let’s just build useful, innovative electronic products, near where the customers who want to buy them live, and save the world.

by Eric Miscoll, Principal, Charlie Barnhart & Associates LLC

Recent economic events have impacted every aspect of the business world, and the outsourced electronics manufacturing industry is no exception. Some have claimed that what the world economy has experienced will change the game completely — that things can never go back to the way they were because the implications of what has occurred are so profound.

We all know that business is cyclical, so whatever the timing, eventually some kind of recovery will take hold and growth will return. The question is, what have we in the electronics industry learned? Or more precisely, if the meltdown was a game-changer, what is the new game, and who will play it most skillfully?

My first instinct is to lament that all will just return to ‘normal’ and people will try to go back to business as usual, because this is the most comfortable option, and inertia is a powerful thing. We see the industry reacting to the global downturn by reducing capacity — cutting headcount, consolidating facilities, and so forth in response to diminishing demand. Many industry players more aggressively targeted new industry sectors, most notably military and medical electronics. Are these the actions of game-changers? That’s what companies should have been doing during the good times.

Old adage: that which doesn’t kill you , makes you stronger. But does that apply if you don’t use your newly found strength to change the way you operate? Newer adage: insanity is doing the same things over and over and expecting a different outcome.

An interesting article from Seeking Alpha editor, John Lounsbury, entitled, The Hidden Depression of the 2000s, sought to analyze the economy of the past nine years by subtracting the effects of public and private sector debt. His conclusion points to the source of our current troubles. Instead of investing for the long term, all this money we’ve thrown at the economy has been used for consumption. I would add that a big part of the problem is lack of a domestic manufacturing base to help create solid job growth:
“Whether you look at stock market values, personal income, poverty, employment, or GDP relative to newly acquired debt, we have had a depression for most of the early twenty-first century. It has been masked by unprecedented borrowing. Commercial credit and credit cards have been used at an unsustainable level. Home equity has been used like an ATM. Federal spending has been put on the tab. If you look at the U.S. as a black box, we have borrowed trillions of dollars, poured the money into a hole in the box, and gotten far less in value out the other side. That is what happens when you borrow for consumption, rather than for production. We have been on the mother of all consumption binges and now we have a colossal belly ache and hangover.”

 The global economy should be moving toward a regional approach to manufacturing, both for long term global economic health and corporate social responsibility reasons; the ability of the emerging countries to substitute domestic demand for dimishing exports to the developed countries is already bringing these economies out of the global recession faster and will accelerate the trend of regionalization. But is our industry really seeing this writing on the wall? Have OEM-EMS relationships been truly modified to adapt to new realities? Are OEMs more committed to total cost analysis, including their own internal costs, when they compare outsourcing supply solutions? Have EMS companies stopped accepting the wrong type of customer at a loss just to keep lines running?

Our sense is that the industry as a whole is still plagued with the same challenged and troublesome dynamics as before; the unexamined rush to low labor cost regions without a comprehensive total cost analysis; OEMs hopping from one EMS supplier to another for the cheapest price. EMS companies playing games with quoting instead of bravely fighting the perception battles about total cost. Instead of doing the hard work of business process innovation and realistic cost analysis, many in the industry have just hunkered down waiting for the storm to pass. Some are engaging in the great acronym swap: in pursuit of higher margins, companies have changed business models, ODMs become OBMs; EMS become JDM or DMS. Many of those margin improvements remain illusionary.

But hold on. There are pockets of hope. Charlie Barnhart & Associates is on the lookout for companies with game changing business process innovation. Companies that aren’t whining about unfavorable government trade policies; that aren’t waiting for government bail-outs or stimulus money. They are doing what successful companies around the globe have always done. They are taking a good idea and executing it flawlessly. In the electronics manufacturing industry these companies are the OEM with an irresistible electronic product that becomes the next “great app” with a clearly understood set of core competencies and accounting practices; it is the EMS with a well-defined value proposition willing to wait fearlessly for the right customer with whom it knows it can be mutually profitable. These are the MVPs of the ideal electronics outsourcing supply solution — and when they find each other, they win the game no matter what the global economy throws at them. And we are finding these companies. Watch our website www.charliebarnhart.com as we share our discoveries in our Spotlight series and searchable EMS listing. The game has changed. There are great players out there. Let us know about your company’s innovative response to the new game.

Contact: eric@charliebarnhart.com

Here’s a link to a recorded presentation by Charlie Barnhart on the hidden costs of outsourcing the wrong products in the wrong geographies, using data from his proprietary analysis of failed cases. Joining his for a discussion is John Zurborg from Creation Technologies and Dave Lentz from Avnet Electronics Marketing’s Supply Chain Services. The discussion is moderated by Eric Miscoll.

In our last blog, The White Cliffs of Dover, we mused about the number and variety of ‘forecasts’ and ‘prognostications’ published at the time about when the recession would be over and we shared my secret for predicting the future, which involved the CD player in my car and the principle of randomness.

The point we were trying to make was that NO ONE can predict the future; not the people writing those articles, not me, not you, not even Warren Buffett (even though he did declare REITs ‘weapons of mass economic destruction’!)

Don’t get me wrong. Charlie Barnhart & Associates LLC believes in monitoring key economic indicators and the value of strategic research to leverage beneficial industry trends. That’s what we do. But currently there seems to be a general business paralysis. Our industry seems to be holding its breath waiting for some magical sign before resuming operations.

Here’s the real news: The recovery is happening RIGHT NOW and if you’re not participating in it you’re missing the boat!

The indicators are up, maybe not a lot but they are up. Book to bill ratios have stabilized, the ISM index is now over 50 and Innovation has finally come back into favor (about time!) Does this mean that we know exactly what graphical shape the charts will assume in the next six quarters? No! And you know what: it really doesn’t matter.

But, Charlie, you say. My business is down 20% from last year. I need to know when I’ll get back to those joyous days of 2007. My response is maybe next year, maybe five years from now or maybe never. Get over it. As my blessed mother used to say when I fell down and starting crying, “Is the blood gushing out of your body?” (Regular bleeding didn’t count.) “If not, then pick yourself up and get back to work.”

But what about the unemployment rate, you ask. It’s almost at 10%, and climbing, so that means the economy is still in the tank, and everything is still terrible.

Hey, if the unemployment rate is at 10%, that means the employment rate is at 90%. That’s a lot of people with jobs. And that means it’s time to start inventing and making stuff that’s so beneficial and provides such value that we won’t have to lay anyone else off.  In nine words, it is time to quit whining and get busy.

What will the new economy look like? It’s time for a dose of  reality. The new economy is going to look a lot like the old economy except you’re going to need to subtract about six or seven years. Houses are going to be (should be) places where people live and raise a family, rather than being money generating machines. We will (should) save before we purchase, rather than completely replacing all our belongings every six months on credit. We will (should) purchase automobiles for transportation instead of status symbols. We might even start saving money for our children’s education and our own retirement. Maybe Economists will even stop referring to ‘The American Consumer’ as the driving force of global economic development as if it were a holy calling.

 
A big change but you know what, it will actually be ok. We will get used to it, and China or India can become the driving force of global economic development for a while.
 
Does this mean I believe that everything will be easy in the EMS industry, and that we all will live happily ever after? No. This industry is still a sick puppy, with some deep systemic maladies. Fortunately (as always) we have a few ideas about how companies, including both the suppliers and consumers of Electronic Manufacturing Services, can improve their own prognosis as we experience the recovery together. There is much that can be done, and some things that should NOT be done. Stay tuned for the next blog for our ideas.

Keep the faith!

Before wrapping up for the weekend on Friday, I read all the stories about the economic recovery sitting in my in-basket. There were 8. I have no idea how I was selected to receive this plethora of prognostications, maybe it’s in punishment for being a Blogger? Blog and ye shall be blogged! Somehow that seems appropriate.

Anyway, what I noticed was that 4 of the emails were up-beat; “The recession is over” and 4 were completely doom and gloom; “Don’t count on one iota of improvement until 2018!” Fortunately, interpreting this dichotomy as the glass being either half-full or half-empty reminded me that I needed to go to Costco before all the cheap libations were gone.

So after firing up my gas-guzzling, over priced micro-vehicle that gets 36 MPG on television but only 18 on planet Earth I cranked up the volume of my 2.3 watt sound system and waited in anticipation to see which album my (demonically possessed) CD changer would select for my enjoyment…

There’ll be blue birds over the white cliffs of Dover, tomorrow, just you wait and see!

All right! Disk two of the Righteous Brothers anthology, “The White Cliffs of Dover.” What a great tune, boy does that bring back memories. When was it 1965, 1966? Must have been ’66, but can’t remember for sure which year? Ah, The White Cliffs of Dover, the Righteous Brothers, too cool!

Then I thought to myself, you know these lyrics really are up-beat, “There’ll be blue birds over the white cliffs of Dover” and it can’t be a coincidence that this song played immediately after the 4/4 tie on the debate about the recovery! So I decided to call it, once and for all, the white cliffs of Dover were the tie breaker – no question about it. Glass half-full.

After getting home with my booze (unopened) I couldn’t get the ’65 or ’66 question out of my mind… So I Googled it.

Words – Nat Burton
Melody – Walter Kent
Published – 1941

 Hey, wait a minute 1941!?

“’There`ll Be Bluebirds Over the White Cliffs of Dover’ is one of the most famous of all the World War II era pop classics. It became a sensational hit in 1942, as it reflected the feelings of all the Allies towards the British people in their brave fight against Hitler. Originally released in the U.S. by bandleader Kay Kyser, four other artists also hit the top 20 with this song that year: Glenn Miller, Sammy Kaye, Jimmy Dorsey and Kate Smith. The most well known version of the song on this side of the Atlantic is probably the one recorded by Vera Lynn in 1942. Other artists who`ve recorded this standard include: Connie Francis, Bing Crosby, Jim Reeves, and The Righteous Brothers.”

Ah, this is WWII song? (The war to end all wars – no forget that, that was WWI). How could this be a WWII song about B-24 Liberator bombers over the coast of England played by some dudes and a dudette named Glenn Miller, Sammy Kaye, Jimmy Dorsey and Kate Smith? There aren’t any bluebirds in England (are there?) That isn’t very uplifting. I’ve never even heard of bandleader Kay Kyser, what a rip-off! This is a Righteous Brothers tune; I saw them perform it in concert in ‘65 or ’66.

I don’t care what anyone says, Blue Birds over the white cliffs of Dover is the tie-breaker in the battle for economic recovery; half-full or half-empty simply isn’t acceptable – we’re using it as the tie-breaker, period end of quote!

Disgusted with all things Google, I went outside to get some air.

Within 30 seconds a torrential rain started and I was almost struck by lightning but I don’t consider either of those events to be a sign or omen of any type. Don’t worry my friends, the outcome is clear… There’ll be blue birds over the white cliffs of Dover, tomorrow, just you wait and see!