Editor's note: Europe was hit hard by the Covid-19 pandemic. As of July, the IPC trade association said Europe would return to pre-pandemic levels by the end of 2021. “Our expectations for growth in Europe have increased over the last month,” IPC reported. “We now expect GDP to expand by 4.7 percent in 2021, up from 4.2 percent last month. Prior to this revision, we anticipated it would take until 2022 for Europe to return to pre-crisis levels.”
EMS expert and Scoop founder Philip Spagnoli Stoten recently spoke to electronics manufacturers to gauge their view of the European market.
We’re not out of the woods yet, and even if the disruption as it relates to Covid-19 subsides a new and problematic disruption is occurring thanks to shortages in the semiconductor supply chain.
In the conversations I have had with industry executives around the world the story is one of improved orders and challenges to shipments. We have seen crazy book-to-bill ratios over recent months, some over 1.5. That’s not because the sector is growing at that rate. It is because billing is challenged by shortages, with businesses saying they have delayed up to 20 percent of their routine shipments. Orders are no longer just for the coming month or quarter but are being placed much farther out to avoid further risks of shortages. We are even hearing of companies double ordering to ensure they get some product. This leaves us, as an industry, at risk of inventory overhang when supply and demand return closer to a balance.
So, with a strong desire to reshore manufacturing driven by a need to improve supply chain security, resilience and agility, many believe the stars are aligned for a manufacturing renaissance in Europe. I asked a few executives if they believe this renaissance is under way, and what needs to happen from governments and industry to create a competitive and sustainable manufacturing industry in Europe?
In a recent column in Forbes entitled A Manufacturing Renaissance Could Drive Europe's Post-Pandemic Recovery, Senior Contributor Marco Annunziata wrote “while the public debate has focused on vaccine distribution and fiscal stimulus programs, important changes are afoot in Europe’s manufacturing system, where a number of companies are striving to create more efficient and resilient localized supply chains, so as to better respond to both the adverse impact of the recession on profit margins and the continued disruptions to the global trading system.”
Bruno Racault of ALL Circuits and Rainer Koppitz of KATEK Group joined Marco and I for the inaugural Made in Europe show.
“In Germany, Europe’s largest economy, KATEK Group is striving to create a more robust European supply chain,” said Annunziata. “KATEK is Germany’s second-largest EMS, and Rainer Koppitz, their co-founder and CEO, is firmly focused on growing the company to achieve the scale that can allow KATEK to offer a wide range of solutions and to have increasing muscle at the negotiating table to procure components at competitive prices. Even in a year as challenging as 2020, KATEK has been able to grow organically as well as through two important acquisitions. Koppitz also sees tactical, targeted acquisitions as crucial to acquire the right technologies to succeed in extremely dynamic sectors such as healthcare, renewables and eMobility.”
Theo Saville, co-founder and CEO of CloudNC also weighed in. “Reshoring is all the rage right now, but despite a global pandemic and the blocking of the Suez Canal, the global supply chain has held up extremely well. These are black swan events, and whilst there seem to be far too many black swans around recently, I wouldn’t throw globalization under the bus just yet.”
Just-in-time supply chains have been operating efficiently and effectively for decades now, and hopefully the lessons learned from Covid will create an environment where investment in real time data and automation will make it easier for supply chains to handle future macro-disruption, Saville continued.
“The biggest trend I see emerging is increasing automation and the future use of autonomy [removal of human decision making], with the potential to level the playing field in terms of labor costs across the globe," he continued. "Labor is the largest single cost in manufacturing and reducing the labor burden results in much smaller differences from region to region. And perhaps the constant desire to chase low-cost labor will diminish.
“But don't expect mass adoption by the long tail of SME manufacturers to birth a new digital revolution. The tech is too expensive and difficult to integrate, the factories too low-tech and fragmented,” Saville added. “Instead expect the emergence of TSMC or AWS like businesses - rapidly growing tech companies with a proprietary advantage that delivers superior service, economics, and genuine scalability."
Looking to 2050, Saville expects the manufacturing market will shift to dominance by a few players with a value proposition that encompasses the speed of Proto Labs; the quality of Rolls Royce Aero; and the price advantage and scale of Foxconn.
ALL Circuits CEO Racault said he had recently written an article entitled Made in France – A Manufacturing Renaissance for EMSNow. “My opinion is still the same. I believe that Europe, not just France, has a great opportunity to re-establish itself as one of the most important manufacturing regions in the world. We have the consumer market; we have the manufacturing infrastructure; and we have innovation. What else is needed?
“Like many European EMS companies, we’ve been driving along the digital transformation path and automation has resulted in the labor element of manufacturing becoming less significant. This substantially levels the playing field between Asia and Europe, even the higher wage regions like France and Germany,” he added.
Governments in Europe are seeing manufacturing as a route to recovery after the tough times of the pandemic and many are incentivizing EMS companies to grow and develop. “We have had support as we expand our footprint off the back of some substantial new orders from European companies," Racault continued. "For me the renaissance will need governments to support manufacturing companies that invest wisely in new technology and even new solutions. We are becoming a much closer technology partner to our customers rather than just an outsourced manufacturing solution.”
ALL Circuits is seeing a real renaissance, he added. “While the pandemic has substantially damaged the French economy and many French companies, we believe it has provided a chance to reset and to move forward with a sustainable vibrant manufacturing sector that can provide great services, great value and well-paid long-term employment.”
In Part 2, EMS executives discuss government investment in electronics manufacturing and local/regional/global supply chains.