India as a Destination Source for EMS
( Electronics Manufacturing Services )
presented to
Gathering of Indian EMS Executives New Delhi, India
by
Mark Zetter, President VentureOutsource.com
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EMS Evolution
v Over the next 10 to 15 years, the electronics HW industry will evolve into two primary business models
• product solutions companies • product innovation/development • customer channel relationships
• operations management companies • product concept/industrialization • process development, manufacturing, logistics
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Traditional EMS
Product Design ATO > Distr.
ATO > End-users/ Reverse Logistics
Cisco Palm IBM
Nokia
Reptron Arrow Avnet VARs
Component Suppliers
Flextronics Foxconn Solectron Celestica
Sanmina-SCI Jabil Circuit
PCB fab., Encls., Plastics
Fabrication/ Mech Assy
Back-end
Front-end Services
Backward Integration
Intel NEC
Motorola
Customer Direct Service Outlets Internet
Direct Mail
EMS Evolution
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EMS Evolution
v The technology outsource supply chain model is becoming the dominate model and can never be reversed
v Supply chain purchasing power has swung in favor of the outsource provider
v The larger outsource providers excel in the ability to rapidly advance and scale the art of process
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Drivers
v Outsourcing electronics manufacturing can have real economic benefits even in the absence of product cost savings
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(1) (2) (3) (4) (5) (6) (7) Dollars Percent Materials $76 $76 $76 $73 $72 $70 $70 $68 $8 11%
Labor $4 $4 $1 $1 $1 $1 $1 $1 $3 75% SG&A $6 $3 $3 $3 $3 $3 $2 $2 $4 67% Finance $2 $1 $1 $1 $1 $1 $1 $1 $1 50% Freight $4 $4 $5 $5 $4 $4 $4 $4 $0 0% Overhead $8 $6 $5 $4 $4 $4 $4 $4 $4 50%
EMS Profit $0 $4 $4 $4 $4 $4 $4 $4 -$4 n/a
Total OEM Cost $100 $98 $95 $91 $89 $87 $86 $84 $16 16%
Cumulative Savings --- Est. Costs to OEM by Outsourcing ---
Drivers Internal OEM
Operating Costs
(1) Shared resources = greater capacity utilization (2) Production in less expensive regions (3) Cost-efficient product redesigns
(4) Optimizing logistics (5) Co-locating suppliers (6) Controlling component supply through verticalization (7) Greater purchasing economies of scale
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Drivers
Revenue 325,000$ Revenue 325,000$ COGS 231,000$ COGS 231,000$ Gross Margin 94,000$ Gross Margin 94,000$ R&D 30,800$ R&D 30,800$ S,G&A 38,500$ S,G&A 38,500$ Other Expenses 3,082$ Other Expenses 3,082$ E.B.I.T. 21,618$ E.B.I.T. 21,618$
Inventories 196,000$ Inventories 39,200$ P,P&E Net 622,000$ P,P&E Net 155,500$ AR net of AP (25,000)$ AR net of AP (25,000)$ Net Working Capital 793,000$ Net Working Capital 169,700$
Working CapitalWorking Capital
Statement of Operations Statement of Operations Captive Manufacturing Outsourced Manufacturing
ROWC (21,618 x 4) 11% (21,618 x 4) 51% $ 793,000 $ 169,700 = = ROWC
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v Domestic market potential
v Inexpensive indirect labor
v Large skilled direct labor pool
v Language base
Indian EMS Strengths
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v Low electronics HW manufacturing capacity
v Lack of infrastructure
v Market responsiveness
Improvement Opportunities
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v Changing governmental policies
v Inadequate global marketing of manufacturing technologies
v Lack of cohesive R&D roadmap with little CapEx
Improvement Opportunities
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Productive Capacity
Tech
nolo
gica
l inf
rast
ruct
ure
India
Japan
USA
Israel
S Korea Taiwan
Malaysia Philippines Mexico
Indonesia Thailand
Singapore
China
High Low
High
Low
Competitiveness Source: IMF World Economic Outlook
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Physical Infrastructure
Man
agem
ent
Taiwan
Israel
India
Philippines Brazil
Mexico
Indonesia
Thailand
USA Japan
Malaysia S Korea
China
Low High
Low
High
Competitiveness Source: IMF World Economic Outlook
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v Advanced research conceptualization • regional vs international
v Component design (front-end services) • fuel component manufacturing • build EMS infrastructure
v New product introduction (NPI) • design-to-alpha, beta • embedded systems
Worth a Closer Look
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v New business development • branding
v Attracting/retaining OEM customers • manufacturing velocity • perceptions, quality
v Customer support • electronics HW reverse logistics
Worth a Closer Look
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v Universities and EMS/SMT technology centers
v Make a market (government and NGO)
• international and regional industry organizations • strategic partnerships, effective media utilization
v Regional and national government
v Private sector (mfg. operations, hi-volume EMS infrastructure) • facility locations consistent with international logistics • finance cost buckets, operations metrics/KOIs • program management (CFT, DRT, S/CAR, transfer protocols) • operations (DFT, MPI/TPI, GHK, IPA teams, alerts)
What’s Next?
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Accompanying articles Steps to develop and promote Indian EMS
http://ventureoutsource.com/india-ems
Discussion on Indian EMS http://ventureoutsource.com/india-ems-challenges