Surviving and winning in the PCB market
by Stefan Herr and Ben Kluge
Nov 26, 2002
Whilst it is true that, to be successful, a company’s business strategy must be tailored specifically for its own individual internal and external environments, it is also essential that PCB manufacturers find a way to cope with the factors that are common to them all. These are:
- Competitive situation
- Core competencies of all market players
- Distribution of PCB manufacturers and their customers
- Dominating technologies
- Applications and application-specific customer needs
In looking at these parameters, the future of the PCB sector is likely to comprise some or all of the following scenarios:
Mergers and new competitors
The mergers between PCB manufacturers which we have seen in recent years will increase. But there also will be increasing vertical integration, driven mainly by big EMS providers. Many years ago they were small "board stuffers", then they became contract manufacturers. Now they offer a full range of manufacturing services, from design to final assembly, and revenues have grown accordingly.
The risk for such global EMS providers is high, but their constitution also poses major risks for PCB manufacturers, for two reasons:
First, the PCB manufacturer’s customer base, once made up of numerous OEMs, is now increasingly dominated by EMS providers who, unlike OEMs, tend not to see the value in PCBs, viewing them as nothing more than "big components", so a PCB maker will not be viewed as partnership material.
Second, EMS providers are extending their value chains in both directions.
PCB manufacturers are also thinking about extending their value chains. In principal, the idea is good, but it is not without its challenges. In expanding the chain to include pre-production services, PCB manufacturers, for example, move into a competitive arena that is already populated by some big EMS providers such as Sanmina and Vogt.
Global player or specialist
Only two types of PCB manufacturer will survive: specialists and global players; specialists focusing regionally, or on customer segments, applications or technology. Once a company has decided which it will be, it must implement its strategy quickly and decisively – PCB manufacturers without a clear strategy and positioning will eventually disappear from the market.
HDI PCB production is becoming more widespread and there is a trend in some sectors towards lower priced "standard HDI PCBs" and mass production. This is especially true of the telecommunications sector, where product lifetimes are typically short – 2 or 3 years for mobile phones, and where almost 100% of mobiles use HDI boards.
The picture is different for automotive, avionics or medical applications, which are typically more demanding, and where lifetimes are longer. Here, where less than 10% of applications use HDI boards, we can expect many new opportunities to emerge for PCB manufacturers focused on non-telecommunications applications.
OEMs and EMS providers are being followed to China by some of the world’s largest PCB manufacturers. The products most likely to make the geographical shift are those produced in high volumes for PC, consumer and telecommunications applications. Those more likely to stay where they are include products for automotive, industrial, avionics and medical applications.
This is because whereas a PCB may represent 6% of the total costs of a mobile phone, that proportion drops significantly for, say, a production machine for industrial applications, or for an aircraft. Furthermore, the services of a distant EMS provider, while economically attractive for high volume production, become less attractive the lower the production volume. Given these facts, it becomes clear that OEMs that remain in highly industrialised countries require demanding products, and have
low to medium volume requirements. Depending on their products and markets, PCB manufacturers must decide whether to follow the move Eastwards, to stay where they are, or to establish mixed location production.
Development of new market segments
Segments which were once quite distinct from one another are merging and forming new segments. The "telematics" sector, for example, will be formed by merging mobile communications, automotive and information technology, while mobile communications, multimedia and electronic games are merging in UMTS or game-enabled mobile phones.
Where will the boards be made for these new sectors, and by whom? In the case of UMTS products, will it be European PCB manufacturers who are very experienced with the technical requirements of mobile communications and have good customer relationships within the sector. Or will it be the Asian PCB manufacturers who are very experienced in multimedia, games and consumer electronics?
Management of competitive advantages
A strategic competitive advantage is a performance parameter which is important to the customer, which is perceived by the customer as an advantage, and which is sustainable, i.e. competitors cannot replicate it easily. In order to be able to identify such advantages, businesses must think consistently about the triangle that they form with their customers and their competitors, and must be extremely conversant with all three corners of the triangle, and their relationships with each other. If a company finds its own performance superior to that of a competitor, but the customer, for whatever reason, does not, then the advantage does not count. Finally, we do not speak of a real competitive advantage if what renders a company superior to its competitors is only of short duration. This applies, for example, to price reductions which can easily be matched by the competition. If, on the other hand, price cuts are a reflection of sustained lower costs, and the competition can only match lower prices by selling at a loss, this is a true strategic competitive advantage.
Once a company knows its competitive advantages, these can be used as value drivers in the sales process. They should also be broadcast continuously through all communication and sales channels.
Recommendations and checklist
Due to the dramatic changes currently taking place in the PCB market, every PCB manufacturer should check its own strategy in order to define short- and long-term activities. The changes involve opportunities but also risks and these must be evaluated and balanced. The checklists in Fig. 1 can help PCB manufacturers in these tasks.
About the authors
Stefan Herr is a Director and Ben Kluge is a Consultant of the High-Tech Competence Center of Simon-Kucher & Partners Strategy & Marketing Consultants in Bonn, Germany.
Mr. Herr specialises in helping high-tech companies, particularly in the PCB and semiconductor industry, develop international market entry, competitive, and marketing strategies in Europe, North America, Asia, and Japan. He also focuses on pricing for products and services. He has written several strategy and marketing articles, many of which have been published in high-tech magazines.
Mr. Kluge specialises in creating and implementing international marketing strategies, particularly market entry and turn-around strategies for companies in Europe, North America, and Asia (particularly Japan), with a strong focus on innovative technologies. He has authored and co-authored various publications on innovation management.