The European EMS Market Is Fragmented and Is Under Threat from the Asian Market
Europe’s market for electronic assemblies is heavily fragmented within the SME segment. Manufacturers are often specialized in specific components (e.g. components for surface-mount technology, which enable particularly efficient printed circuit board assembly). At the same time, fewer than four per cent of EMS manufacturers are responsible for more than 70 per cent of the market’s sales revenue. This development continues to drive market consolidation. There were twelve mergers and takeovers within the sector in January and February of 2024 alone. In this environment, small and medium-sized companies are struggling to achieve economies of scale and must use the limited resources at their disposal for research and development efficiently. There is still considerable sales potential to be tapped as EMS companies currently only cover 43 per cent of Europe’s printed circuit board assembly (PCBA) market; the remaining 57 per cent are in the hands of OEMs.5
The increasing dependency on non-EU markets (despite initiatives on the part of the European Union) represents a growing risk for the European EMS sector. In the case of PCB manufacturing in particular, the non-EU share will rise from 82.5 per cent in 2023 to around 89 per cent in 2035. This will be accounted for by applications such as smartphone circuit boards, motherboards and control devices. The trade association IPC, which connects the electronics industries, expects the EU market share for critical electronics components, PCBs and advanced packaging to decline from the current 17 per cent to around 15 per cent by 2035. Asian suppliers are expected to increase the price pressure due to factors such as oversupply, product copies and technical twins.6
Increased Flexibility and Speed Needed
The short product lifecycles (such as those of engine control units in car assistance systems) and fast-moving market changes in the sector mean that ever-greater flexibility is needed both in production volumes and in meeting individual customer requirements, such as in prototype development. Reliability and precision are becoming more and more important as critical success factors among EMS manufacturers on the European market. Continuous compliance with and further advancement of quality standards is increasingly challenging SMEs in particular in terms of costs and resources when it comes to certification. Increasing material, energy and labor costs coupled with drops in orders and in capacity utilization in parts of the sector are additional factors squeezing margins. Companies’ finances are also being strained by costs relating to cybersecurity as well as the impact of inflation and rising interest rates.7,8
Three Opportunities for European EMS Companies
To position themselves successfully in the long term and secure a competitive edge for themselves and their customers despite these difficulties, European EMS companies need to play consciously to their strengths and focus on three core areas: customer service strategy, technologies and resilience.
E2E Order Handling Boosts Customer Service Strategy and Operative Efficiency
Customer-focused collaboration is a key factor for success for small and medium-sized European EMS companies. A consistent focus on the customer means that individual requirements can be better understood and customized solutions can be offered. Companies that focus their structures and processes on flexibility are able to combine fast production cycles with high quality. In the EMS sector, this means being able to develop, test and dispatch prototypes within a few days. In order to fully exploit these advantages and secure them in the long term, it is essential to implement an order-to-delivery (end-to-end) process holistically aligned with the customer and consistently organized. This will allow reliable delivery performance, a high degree of flexibility and short response times to be combined with stable and profitable operations. The effectiveness of this process depends on three key factors: a clearly defined and unbroken process from sales to delivery, tailored and universal operative tools and an integrated collaboration model shared by all departments. A seamless and extremely well-designed order handling process can offer companies significant cost savings. Empirical evidence shows up to 25 per cent shorter throughput times, up to 5 per cent lower material and transportation costs as well as productivity increases and an improvement in replenishment times of over 15 per cent. For EMS companies that find themselves caught between being a component supplier and a system provider, this process forms the basis for sustainable profitability without compromising on customer satisfaction.