It’s no secret that electronics manufacturing services (EMS) providers have been trying to increase their profit margins. Deeper penetration into the aerospace and defense (A&D) markets may provide such an opportunity, Frost & Sullivan reports.
“To maximize revenues, EMS providers must respond effectively to changes in the A&D industry,” said Frost & Sullivan Measurement & Instrumentation Research Analyst Apoorva Ravikrishnan. “Specifically, they must take advantage of market opportunities and stave off threats that have emerged with the decline in the defense sector and growth of the aerospace sector.”
Most of those opportunities will come from the Far East and Latin America, Frost & Sullivan says. With two wars winding down, the U.S. defense budget will remain static or be reduced. European defense budgets are also under constraint. The Asia-Pacific (APAC) defense sector will have the highest growth rate in the next five years, according to the research firm. Latin America, especially Brazil, is also poised for growth.
Frost & Sullivan estimates the global EMS market in defense and aerospace totaled $16.64 billion in 2014. This will increase steadily to $25.23 billion by 2019.
The commercial aerospace sector in particular is set to surge in the next few years as the global gross domestic product (GDP) improves and raw passenger kilometer (RPK)/air passenger traffic grows, according to Frost & Sullivan. Aerospace OEMs are also using more electronics in their systems. But EMS providers will have to supply more than just manufacturing services. Aerospace and defense OEMs increasingly depend on electronic manufacturing service providers to address risk management, logistics and aftermarket service needs. EMS providers with global a supply chain and advanced technological capabilities are in the best position to exploit this trend.
However, Frost and Sullivan also expects competition in the sector to increase. “Tapping these markets in the face of intensifying competition may prove challenging,” stated Ravikrishnan. “EMS providers must invest in responsive manufacturing and offer specialized services to gain patronage among A&D OEMs.”
Breaking into the U.S. or EU markets will be particularly challenging. Frost & Sullivan said these markets will continue to use established and familiar EMS providers. The APAC defense sector, on the other hand, will see a boost in regional EMS providers to cater to the burgeoning defense sector. Established EMS providers in A&D looking to penetrate this sector will need to address political/legal impediments and compete with the low-cost manufacturing services provided by regional APAC participants. Strong technological capabilities, skill sets, and expertise will enable them to penetrate this high growth potential market.
Also, more EMS providers are focusing on customer satisfaction as the key strategy to retain contracts, the research firm said. Traditionally, A&D OEMs were wary of switching EMS providers as the costs associated with switching were high. This trend will change as the competition intensifies and more Tier II and Tier III participants are equally equipped and capable of addressing the needs of OEMs. Moreover, the lower tier EMS providers participating in the A&D industry in the past have gained recognition and experience.
Overall, EMS providers in A&D will be successful if they are prepared to deal with market dynamics and strategically plan ahead for the future, Frost & Sullivan concluded.