Trouble in India

The riots at a Wistron plant in Narasapura could have lingering effects long after the damage is cleaned up.

India has been touted as the “next China,” a label local trade groups and business executives have relentlessly promoted. Besides being the only countries with a population exceeding 1 billion, however, the similarities are perhaps too many for today’s climate.

Even so, despite Prime Minister Modi’s best efforts to convert the nation into an autocracy driven by a Hindu ruling class, India is fighting a current that China avoided during its rise to manufacturing power, and that flow is getting stronger.

Yes, Nokia and Apple suppliers like Foxconn continue to make plans to expand in the country. But the broader supply base still isn’t there, and, perhaps burnt out from their China experience, expats aren’t relocating by the thousands to help the locals set up and manage companies. The semiconductor industry has changed over the past 20 years. New foundry costs are still rising, and the number of players has shrunk. Putting multi-billion dollar plants in India that replicate older technologies while still finding the resources to compete on the leading-edge might be a longshot, at best.

Nor has India provided the incentives China did to relocate. Instead, it has taken a tack similar to Brazil’s: Steep import taxes that while aimed at China, might actually discourage others from migrating there. Already, India and the US have taken economic swipes at each other, with the US dumping India from its preferred buyer program that allowed zero tariffs exports to the US, and India hiking tariffs on product coming from the US. The EU Parliament is taking an equally dim view of the former British colony’s trade and humanitarian approaches.

Indeed, Modi’s approach to alienating and, some argue, encouraging violence toward India’s religious and ethnic minorities puts Western OEMs in a difficult spot. Already under the gun for their massive investments in China, which have helped prop up that country’s autocratic leadership and create an international powerhouse that is now flexing its economic and military muscle all over Southeast Asia, business leaders might be loathe to plow more assets into yet another unpredictable regime. With governments, including the United States, slapping restrictions on Chinese companies for their alleged treatment of Muslim minorities, it won’t be easy to win any PR battles over why India is somehow an exception.

And the pollution coming out of India might be on a par with China’s — or even worse — hardly an attraction for today’s green marketing campaigns.

It remains to be seen, but I think episodes like Wistron’s will delay the push to the “next China.”

Tariffs are Taxing the Supply Chain

The breaking tariff situation in the electronics industry is equal parts fascinating and chilling because of its lack of near-term precedence and unpredictability. We’ve spoken with several EMS companies (read the article here) to gauge the extent of the disarray and get a sense of how they are (attempting to) resolve the issue.

Our reporting is ongoing, so be sure to check back occasionally for updates.

 

 

‘Fake Parts’ Data as Perplexing as the Issue

Interesting report on counterfeit component trends, prepared by ERAI.  PLICs and microprocessors are the most commonly reported counterfeited parts.

One big takeaway: “Suspect/counterfeit parts that have not been previously reported are constantly entering the electronic supply chain and the threat of encountering one of these parts remains very high.”

All that said, the number of fake parts reported is minuscule — just 774 were reported to ERAI. As epidemiologists know, the best way to reduce risk and occurrence of negative outcomes is through research and communication.

Where the Jobs Are

This news item from the Associated Press cuts to the heart of the matter when it comes to reshoring of manufacturing and why skeptics (including this humble writer) abound over whether Foxconn, among others, truly intend to set up large manufacturing plants in the US:

WASHINGTON (AP) — President Donald Trump brought two dozen manufacturing CEOs to the White House on Thursday and declared their collective commitment to restoring factory jobs lost to foreign competition.

Yet some of the CEOs suggested that there were still plenty of openings for U.S. factory jobs but too few qualified people to fill them. They urged the White House to support vocational training for the high-tech skills that today’s manufacturers increasingly require — a topic Trump has seldom addressed.

“The jobs are there, but the skills are not,” one executive said during meetings with White House officials that preceded a session with the president.

The truth is there are hundreds of thousands of manufacturing jobs available in the US today. The US Census Bureau puts the figure at just shy of one million. In talking with circuit board fabricators and assemblers over the years, the biggest impediment to hiring is not lack of work but rather lack of qualified workers.

My belief is that the demographics of electronics design and manufacturing resemble a bimodal distribution (two humps), whereby workers over 50 years old represent the largest group by age and workers aged 20 to 30 the second largest. Those aged 30 to 50 are the smallest group (the valley in the graph, see below). My thesis is that workers in that segment were coming online right about the time the North American electronics industry cratered — late 2001 to early 2004, leaving them either out of jobs or unable to crack the then much-smaller workforce that was left after the tech recession.

(The graph below illustrates the basic concept, although in reality the right hump would be higher than the left as there likely are more workers over 50 than under 30 in electronics design and manufacturing today. But you get the idea.)

With the older wave starting to retire, coupled with an upturn in the industry’s fortunes starting around 2008, a new wave of workers has entered the industry. And while we often speak of the lack of millennials in manufacturing, a tour of Silicon Valley area shops takes the air out of that conversation. There, workers don’t ask where the young people are; they just look around — they are everywhere. And manufacturers are catering to them, setting up coffee (and more) bars inside their plants, creating workspaces that resemble outdoor atria that offset the traditionally sterile assembly lines.

Moreover, there is some concern that widespread move of manufacturing back to the US will only accelerate the implementation of robots, leaving thousands of operators on the sidelines. In anticipation, robot makers are ramping capacity, in some cases by as much as two times. This is not without precedent. Those of us who were around when PCB fabrication and assembly migrated to China en masse in the late 1990s/early 2000s recall how common semiautomatic machines were then. It was a nod to the Chinese government, which was adamant about protecting employment.

What’s your experience? Is your company weighing a return to the US? If so, will it come with an increase in automation?

(Please, no political comments.)

Auto Electronics: Gearing Up or Headed for the Cliff?

What would the electronics industry do if automotive demand were to pull a Thelma and Louise and head off the proverbial cliff?

The auto recovery has been the axle of the Western supply chain since 2008. The drivetrain is starting to show some wear, however, with market followers forecasting nominal growth at best for 2016.

The good news is that electronics content in vehicles continues to increase, rising to 8.9% of the $1.42 trillion worldwide electronic systems market last year, up slightly from 8.6% in 2014. Moreover, forecasts call for the share to continue to rise over the next several years.

Less clear is the extent, if any, the seers account for the potential for widespread ride-sharing trends or — worse for some — outright banning of vehicles.

To wit: Some 27 million Americans alone will use some form of ride-sharing at least once this year, a figure that doesn’t include traditional car-pooling. Urban millennials are growing up without the preconception that vehicle ownership equates to status, an important cultural shift.

A drop in demand for hybrid/electric vehicles (HEV) could also decelerate electronics growth. Hybrid sales alone dropped 15% year-over-year in 2015 — reversing a big gain in 2014 — and bottoming oil prices have kept the market for electric sluggish. Hybrids carry almost twice the electronics content of conventional gas autos, making HEVs a key growth engine for electronics makers.

More disconcerting to the auto supply chain is the prospect of a carless environment. This is actually happening, and in places you wouldn’t necessarily associate with technological backlash. For example:

  • Bogota, Colombia, has been car-free on Sundays since 1976, a move that sidelines an estimated 1.5 million vehicles.
  • Likewise, Jakarta has sponsored Car Free Day every Sunday since 2007.
  • San Francisco shuts certain streets to vehicle traffic on various Sundays throughout the year.
  • Oslo plans to ban cars from the city center by 2019.

Car-free days are becoming so widespread, the phenomenon has its own Wikipedia entry. In fact, now there’s even a World Car Free Day (Sept. 22).

The electronics supply chain has gotten plenty of mileage from the automotive industry for nearly a decade. It might be time to find a backup plan, however, if the sector wants to keep trucking on.

How Far Should Sustainability ‘Standardization’ Go?

My longtime friend and industry colleague Pam Gordon blogged today about the role trade associations should play in driving the industry toward sustainability practices. In it, she writes

Associations will not necessarily push members to the next level of sustainability practices. But members can raise the baseline through their involvement and commitment — emphasizing that the industry’s continued profitability and continuity rests in good part on meeting customers’ increasing efficiency requirements, avoiding dependence on dwindling materials, and reducing costs through design-for-environment principles.

I agree with all that. But Gordon also mentions a colleague’s discussion of the possibility of trade groups offering certification in supply-chain sustainability, suggesting that those that do not are behind the curve. There, I’m very reluctant to concur.

I am a huge fan of standards, but I also recognize their limits. I view sustainability as an extension of innovation. And innovation is not something that can be standardized. Those companies that consistently adapt fastest to market demands are always the winners in the long run. I think the same will be true with design for recycling and reuse and other such initiatives. Companies will either pursue that course or not, but to add a layer of bureaucracy in the form of yet another pursuit of paper isn’t the way to go.

Pam writes that some associations help members raise their own sustainability goals above the level of current regulations by giving them workable frameworks, such as the codes of conduct from the Electronics Industry Citizenship Coalition. I have long felt the EICC’s code of conduct is a sham. Under Labor, for instance, the first rule is, “Participants are committed to uphold the human rights of workers, and to treat them with dignity and respect as understood by the international community.” Yet EICC members include Foxconn and Pegatron, which are routinely cited by watchdog groups for worker abuse. It may be a code, but its toothless.

Pam is tuned in to the industry and always makes her readers think. Her note that the industry lacks roadmaps for best practices in sustainability is dead on. A roadmap isn’t a certification, however, and that’s where I call on trade associations to draw the line.

Do Fakes Count?

The news today regarding the seizure by US Customs of nearly a quarter-million counterfeit electronics devices makes me wonder: Do the various industry market research data include all those faked goods?

Consider: Some reports claim as much as $100 billion a year worth of fake electronics products is trafficked. Given that the entire consumer electronics supply chain produces about $1.2 trillion worth of products per year, and most fakes are consumer goods, that’s a pretty good chunk to add to it.

Not all fakes work, of course. For years, “salesmen” would hawk counterfeit PCs outside the doors at Nepcon China. But they were missing most of the important parts — motherboard, CPU, memory, etc. Caveat emptor to those who fell for the scam.

But what’s changing is that in many instances, the knockoffs so closely resemble the look and functionality of the originals, it’s hard even for company officials to discern. And you don’t get there without using real parts, even if they are of lesser quality.

The wildest example I know of concerned NEC. A few years back, the Japanese computer and chip company learned of a massive multinational counterfeit ring which attempted to essentially recreate the entire company! More than 50 factories in China and Taiwan were producing faked NEC PCs and consumer handhelds.

Fifty factories is a scale that’s hard to hide. That’s a lot of production lines to buy, too. It makes you wonder if they were building them on knockoff SMT equipment.

Reasons for Enthusiasm Real

Even the most pessimistic industry-watchers should be curious at least over the shifting attitudes toward bringing production back to the US.

The New York Times today published an extensive piece looking at the top-down change — from President Obama on down — in the nation’s outlook toward manufacturing. Researchers at MIT and elsewhere are promoting the benefits of keeping makers and thinkers together. “The manufacturing process itself is going through an innovation revolution,” said Stephen Hoover, chief executive of Xerox PARC, noting the emphasis on smaller numbers of highly skilled techs who run sophisticated and heavily automated lines.

Earlier this week, Mike McNamara told listeners at an investment conference that higher (and unabating) labor costs in Southeast Asia is making the decision process over where to put its plants “more interesting.” The Flextronics chief executive said he could see production coming back to the US. “[O]ver time, as [labor]  costs continue to go up, you’ll probably see more things get pushed back in the USA,” McNamara said.

Even Foxconn is showing some appeal (for a change) for its push toward automating its factories. Maybe Jim Raby’s vision for true lights-out manufacturing will finally be realized?

A decade ago, at Wall Street’s urging, companies followed the herd to China. Not enough thought was given to the ramifications of chasing lower labor costs, and my guess is that we will be feeling the pain of these short-sighted decisions for some time to come.

But given the prospects for higher levels of automation and a more balanced approach to regionalization, it’s been years since the industry was so exciting.

Outsiders Taking Over

Is the bloom off the rose in Vietnam?

The Vietnam News Service is reporting that with many businesses shifting from production to imports, Vietnam’s electronics industry is “standing on the verge of extinction.” More than 90% of the nation’s electronics exports are performed by foreign-based countries, the Viet Nam Electronics Business Association maintains. Meanwhile, major OEMs are closing domestic plants and switching to an import model to serve Vietnamese customers.

For those who see Vietnam as an alternative to China, this is not the wakeup call they expected.

Early Thoughts on the Mitchell Administration

The hiring of John Mitchell as IPC’s new president comes as a breath of fresh air to those of us who had long tired of the antics of the previous regime.

Mitchell, the fourth person to run the 55-year-old organization, is the first with electronics industry experience, having spent a combined 16 years at Bose and Alpine Electronics.

As Bill Bader and Jim McElroy at iNEMI have proved, when it comes to running a not-for-profit volunteer organization in this industry, experience counts. The supply chain and regional differences are far too complex and the technology too intense for a greenhorn, especially one who isn’t willing to do their homework.

We envision — and hope — for a return to the days when member input is sought and valued. More than that, however, we are eager to see the occupant of that important position have a vision and tenacity that goes beyond avenging imagined personal wrongs.

Mitchell has his work cut out for himself. The industry is fractured, physically and emotionally. He will have to learn to lead without alienating, something his predecessor never accomplished. He will have to mend fences with the North American board fabricators, on whose shoulders IPC was built but were later ignored or cast out as the organization moved into the more lucrative assembly market. He will need to understand that the suppliers are generally looking to protect declining margins, and yet much of the technological know-how has migrated to that side of the industry, so he will need to convince them it is in their best interest to continue to support IPC’s technical programs, not just the exhibitions. He will need to navigate the treacherous China-US relations, in which the occasionally nasty spells of provincialism and finger-pointing from both sides mask an underlying dual-relationship that neither party can live without. He will have to right an internal culture that has grown distant from its membership. And he will have to do so while determining whether the four (!) vice presidents who applied for the job — two of whom have now been rejected multiple times — are up to the task of working with the man whom the IPC board considered a superior leader.

Based on Mitchell’s resume and conversations with IPC board members, he is the right person for the job. He is first and foremost an engineer. He has a deep business background that belies his age (he graduated college in 1991). He has worked at a high level for a major supplier of consumer electronics, giving him insight into branding and the supply chain intricacies that his predecessors either never had to deal with or were unable to master. We look forward to the next chapter in the continuing story of IPC.