Editor’s note: Europe's manufacturing industry – as in other regions – was hard hit 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.”
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?
Governments in Europe see manufacturing as a route to recovery after the tough times of the pandemic and many are incentivizing companies to grow and develop. While the pandemic has substantially damaged the economy, it has also provided a chance to reset and to move forward with a sustainable manufacturing sector that can provide great services, great value and well-paid long-term employment.
“Together with the EMS industry in Europe, IPC and some smart local associations we have been tackling this issue for the last five years,” said Dieter Weiss of in4ma. “We showed that manufacturing in Europe is not necessarily more expensive, but few listened. This changed dramatically in February 2020, when Covid-19 paralyzed the industry, and many companies were not able to get any material supply at all. In many cases it was not the virus and government shutdown orders that led to short-time work but missing components and parts.”
Companies started to investigate whether statements about cost of manufacturing in Eastern Europe were correct, he added, and realized that in some cases it was even cheaper, depending on the region of China they had sourced from in the past. The industry also realized that some components were not available at all in Europe.
“No supply chain manager can let such a problem sit untreated, but correction doesn’t happen overnight, and it doesn’t happen 100 percent,” said Weiss. “Companies have defined that a certain percentage of their products must come from Europe (or MENA) in order to guarantee flow of products no matter what disrupts the supply chains. Numerous other unanswered political questions about China have been another accelerator.”
Similar to the European medtech industry, the electronics industry and the EMS industry are mainly medium sized companies. Governments do not speak enough in support of medium sized companies, said Weiss. “[Heads of state] attend the opening of the new Bosch chip factory in Dresden, Germany and the European government talks with Intel, who is demanding 8 billion Euro in subsidies in order to build a chip factory in Europe, but that is it. They think by pumping money into the big chip manufacturers they solve the problems. The governments and ministries do not care enough about medium-sized companies, even though we are talking about 250,000 jobs in the European EMS industry, 700,000 jobs in the European OEM industry and about the same number in the supply chains to these industries.”
The only exception recently has been France, which set up the “Make in France” program. “We have since read about support [backed by Brussels] for medium sized companies in the French electronics industry. There is nothing similar in Germany,” said Weiss.
In4ma, IPC and a couple of smaller associations are now initiating a better unification and communication within the European EMS industry.
“By establishing production sites in all critical regions in the world, Zollner started its local-for-local manufacturing footprint strategy in 2004 with the founding of its China site and has built up production facilities close to core markets to secure short lead times and offer world-class service to its customers,” said Manfred Amberger, senior vice president for marketing and sales at Zollner Elektronik AG. “Our core market sectors like automotive, industrial electronics, healthcare and life sciences, aerospace/defense and rail technologies have been moving ahead with this regionalization at pace for decades.”
To create greater resilience in the supply chain it is important that upstream supply chain items, like semiconductors, PCBs, passive components and their raw materials, are more readily available locally, he added. “The increasing demand in e-mobility and expanding digitalization offer enough potential to justify Europe as a production location from a business standpoint.”
But how can the importance of Europe be increased for the supply industry? “This will not be accomplished by initiatives from individual EU member states but requires proactive support from the European Union," Amberger said. “Thus, it is a pan-European task and duty to make Europe interesting again to component suppliers. Furthermore, education and training of skilled employees represents one of the most critical aspects and potential barriers to Europe once again achieving technological dominance in the electronics industry.”
As the current reshoring trend underscores, next to supply chain security, sustainability is paramount, he added. Cost is important but increasing automation and the digitalization of business and production processes brings with it cost-reduction potential.
“Europe remains a competitive location when compared with low-cost locations around the world. This coupled with its proximity to millions of consumers will ensure it remains an important and sustainable manufacturing region," Amberger concluded.
An industry ready for change
I always feel so privileged in what I do that in any given week I can talk to half a dozen CEOs from the OEM, EMS and supply chain sectors of the electronics industry, and what stands out to me from this conversation is the view we are on the verge of real change and with that come both opportunities and challenges. This is without doubt a time when fortune favors the bold. I suspect we will look back on the early 2020s with the benefit of hindsight and talk about those companies that were brave enough to embrace change and grasp the nettle of this renaissance and run with it, disrupting and shaking things up as they go. These will likely be the new rising stars of the electronics industry.
For more insight check out the Made In Europe show on YouTube at https://youtube.com/playlist?list=PLWPIC4XR6zdHh_ENqpDrrsP1TGnDKkI-R