Electronica 2006 – the German dividend

At electronica yesterday, it was interesting to talk to local and international suppliers and find that Germany is gaining as some electronic manufacturing returns to Europe from Asia.

It is important to note that it is not just outsourced manufacturing that is moving back to Europe and whilst most of the returning volume business is headed for Eastern Europe, some smaller volumes are finding their way back in to Western Europe.

It seems that Germany has gained more from these trends than other Western European countries, such as the UK, France or Italy.

Why Germany?  I wondered, so I asked. 
It seems that one reason is that the Germans have been more patient during the recent migration of business to China.  By doing marginal business they have been able to keep facilities open, where other facilities in Europe have been mothballed or permanently closed.  Perhaps critical mass also plays a role, Germany is by far the largest electronics economy in Europe and has been traditionally loyal to its domestic sources.

Clearly another factor is the kind of business that has either not been outsourced or has not migrated east.  This kind of business includes the automotive sector which is substantial in Germany.  This sector especially, but also other sectors like aviation, defence and medical, share some key characteristics that make them likely to remain within Europe.

One such factor is the need for high reliability.  This, paired with lower cost pressure, means that the products can be manufactured in higher cost regions and that any change would take longer and be more considered.  Less price pressure is a result of the electronics not being a huge percentage of the product cost.  In a car or an aircraft or a piece of medical equipment, the cost of the electronics has far less impact than in a consumer product like an iPod or a notebook computer.

Another key factor in these sectors in the protection of intellectual property.  The OEMs involved in these markets are increasingly concerned about protecting what they see as a key part of their product's value proposition. 

This week I also heard a lot about traceability.  This is hugely important in these sectors with information being required for more than 10 years in many cases.

So, all this is good news for German electronics and good for the suppliers who provide the equipment they use.  The demands that the equipment makes reflects the markets they operate in.  A need exists for high mix equipment with short changeover times and high flexibility.  The equipment that is selling also reflects these needs to solve specific manufacturing or test requirements.

Don't forget Eastern Europe.
As well as many German visitors, electronica attracts many people from Eastern Europe and even further afield.   Eastern Europe is growing in competence as a manufacturing base, and with OEMs expressing a desire for a truly global footprint, it is also seeing more and more investment.  As business expands, so do the regions involved in manufacturing and we see more and more investment further east including the Ukraine.

Beyond Europe, electronica attracts both exhibitors and visitors from all around the world.  In the PCB halls (B1 & B2) there are increasing numbers of Asian manufacturers exhibiting alongside the local manufacturers, many of which promote partnerships with suppliers in Asia.

As well as the larger makers, there are many groups of smaller booths from Hong Kong, Taiwan and China.  These are the companies that are coming to Germany, and perhaps Europe, for the first time and are looking to develop new contacts and relationships.  These will be the partners of the local companies in the future and there is no shortage of them.

Today I will visit the booths of some of the larger EMS companies and report back tomorrow...