While China has been branded “factory of the world” for two decades, pandemic and commercial war had a clear impact on globalization, what is the current status for China in the Electronic Manufacturing Services sectors ?
Is Electronic manufacturing services in China still a trend ?
Newspapers headlines stressed out the fact the Apple via its EMS subcontractor Foxconn, is moving some production capabilities out of China to India. Does that implies that China is loosing it’s attractiveness for Electronic manufacturing ? Not if you look at the big picture, global electronic manufacturing market is estimated to 477 Billion USD*, almost 86 Billion* of it (18%) is coming from China and there is no indication that this value is shrinking.
Let’s have a review of the different factors :
Human ressources
One of the most obvious factor when it comes to globalisation is difference in human ressources.
Wages
China workers wages are still low compare to western countries but educated managers salaries are very similar or even higher than in the west. In fact wage positioning of China is average in Asia, lower than Korea, Japan or Taiwan but higher than Vietnam, Thailand, Malaysia or India for example. It is still an advantage compare to Europe and US but not so impacting.
Workers availability
On one side Chinese workers are aging and young generations are not so kind to work in factories in difficult conditions but on the other side unemployment rate in the young generation is high (up to 25%) making it a reserve of potential employees. More and more workers tough are looking for positions not far from their home and are not interested in position in historic factory clusters (Guangdong, Zhejiang / Jiangsu).
Education
Education level is very good in China, many universities have comprehensive training programs in the electronic manufacturing field and studying these majors is still highly regarded by students.
PCBA components
Electronics manufacturing services is basically the ability to source, assemble and test electronics components.
Local supply chain
Having been factory of the world for so long, China is not lacking factories of any type, many electronic components suppliers have some factories in China or in Asia in nearby countries. Furthermore local Chinese components manufacturers are also numerous and gaining in size and quality. This situation is unique to China, and is the main reason moving production from China to other countries may become a headache.
US bans
Since Donald Trump started economical war with China, more and more critical electronic components are banned from usage in China, the change of president in US, far from changing this policy even strengthened it.
For PCBA assemblies that requires critical US components, China is not an option anymore, a throughout analysis of electronic boards BOM should be conducted to evaluate the exposure to such components.
Other factors
In order to have a full view of China strengths and weakness for EMS, below factors should not be neglected.
Highly Competitive environment
It is often overlooked but the very competitive environment in China is highly beneficial for its competitiveness. When you’ll find tens or maybe hundreds of EMS in other countries, you’ll have thousands in China, making them compete fiercely on pricing and in the same time specializing of each and different kinds of PCBA manufacturing.
Furthermore the presence of so many actors on the market is creating a virtuous circle, with many high-specialized services providers and equipment manufacturers that can be found next door.
Logistic costs
Logistics can be divided into two areas : local logistics and international logistics. Local logistics are for different reasons (numerous roads, railways, planes, logistics companies, low wage employees) very competitive in China.
Whereas the international logistics costs is related to the international market, it has reduced a lot since the end of the pandemic and benefits from the many infrastructures (5 ports in the world’s top 10) and frequent shipments.
Conclusion
We think that Electronic Manufacturing Services in China has still a brillant future in the the following years as no alternative can match all the strength of China as a global EMS. Nevertheless, some trends can be noted :
- No more manufacturing in China for PCBA assemblies with critical US electronic components
- Broadening of countries of origin of Electronic Manufacturing Services providers for the biggest companies. Move to be seen as a strategic one rather than an economical one. (exemple of APPLE)
- Localisation in home country for customers concerned by environmental or political issues, at the clear expense of competitiveness.
