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
