From divesting to doubling down – manufacturing strategies for European electronics
© European Union 2021 Analysis | June 21, 2023 Can the trade conflict between the West (actually more the United States, as Europe is grossly undecided) and China drive a renaissance of European electronics manufacturing? And if, what will reshoring look like? Author: Georg Steinberger, President of IDEA and Digital Supply Chain Expert at Sourceability . Georg Steinberger – © Private Starting into 2023, the two-year-long disruption by the pandemic may have ended, but other disruptions are mounting, economical, ecological, but more prominently geopolitically. The once conflict on unfair trade practices between the United States and China has transformed into an all-out systemic rivalry and led to a verbal redefinition of “globalization” : de-globalization, regionalization, new cold war, reshoring and probably a bunch of other terms that more or less say the same thing: reducing the dependence on China. One of the most prominent examples of decoupling is the semi-declared “semiconductor war” between the US and China, largely based on the mounting conflict around Taiwan. The significance of Taiwan’s semiconductor industry for the global economy cannot be exaggerated, whether in the actual semiconductor production or the backend manufacturing of these. The current culmination can be read in nearly every social media, newspaper, and tech magazine: the “West” is withholding key technology from China , especially high-end semiconductors and semiconductor manufacturing equipment, China blocks western companies to sell their products (for example memories) for security reasons . And all regions and major economies – Europe, the US, South Korea, Japan, and India – create giant “Chips Acts” to strive for strategic independence on semiconductors. Further down the value stream, namely in the electronics manufacturing industry, similar considerations have happened for some time now. During the last two years, a lot of companies have reconsidered their production strategy in order to reduce the dependence of the once production “El Dorado” China. Various aspects feed this rethinking: the geopolitical tension, the complexity and therefore vulnerability of the electronics supply chain, the permanent threat to intellectual property and last but not least ESG (Environment, Social, Governance) rules and responsibilities, which are turning increasingly from nice to have, to legally binding. And not to forget, some governments like the French are supporting the trend of reshoring (to France, of course) with money, subsidies and advice. If you look at the European electronics industry and its market figures – a good representation would be the European components distribution, which is by far the largest and furthest-reaching channel – the trend to reshoring has not yet materialised. In the last two years, when the considerations started, the industry was too much engaged in solving availability issues, finding skilled workers and production capacity for the existing business, trying to reshore business from China on a large scale would have been wishful thinking. But make no mistake, it will happen, to which extent needs to be seen. Especially industrial customers take concerns seriously and weigh the many opportunities that the future electronics market offers (IoT, factory automation, e-mobility, renewable energy, smart grid and many others) against mounting security concerns like IP-theft, cyber-risks and of course the political climate. In addition, being closer to European end customers and using the means of digitalisation both in manufacturing efficiency and supply-chain-management could become a game changer also on the cost side. The big question is: is it possible? I mean, is it possible on a larger scale, leading to a renaissance of electronics manufacturing in Europe? Over the last 20 years, the European market has grown more slowly than Asia and China, and also than the United States, leading to an erosion of Europe’s global market share. This erosion has also led to a shift in supply chains and raw material production. China is by far the largest producer of PCBs, plastics and many other raw materials needed for electronics production. What sense will it make to build a factory in Europe if 90% of raw materials still are procured in China? The entire ecosystem reorientation, if taken seriously, will require years and will come at a price. The most probable scenario to reduce dependence on China will lay in a mix of strategies, from complete divestment to a strengthening of Chinese operations. Kamala Raman, Vice President at Gartner and prominent researcher of global supply chains, calls it the 4D: Divesting , Decoupling , Diversifying and Doubling Down . While divesting has either commercial or regulatory aspects (like in the case of semiconductors) and according to Mrs. Raman is only for […]
