Past and Future of the European EMS Industry

The EMS Industry in Europe is still in a growth stage of its life cycle. But this doesn’t mean that there is enough space for everybody. Looking back over the last ten years, we have seen tremendous changes in the amount of companies, looking at every separate legal entity. Sweden and Italy have seen 22% of the EMS companies disappear, in Great Britain it was 25% in France 32% and in Belgium even 40%. At the same time Hungary and Slovakia got 16% more companies, Czech Republic 27%, Bulgaria 40% and Romania even 42%.

We all know the reasons, profit margins in the EMS industry are low, OEM’s expect the EMS to pull down their pants and show their price calculations in order to squeeze a little more. As material prices are today more or less global prices, the focus lies on labor costs. Most of the companies, who opened up in Eastern Europe are offsprings of Western European companies or international EMS/ODM manufacturers who want to get a foot into the European market.

Some of these companies now start complaining about the local governments increasing the minimum wage levels significantly. But let us be realistic, a 19% increase in Romania still is much less in absolute terms than a 4% increase in some Western countries and still leaves labor costs in Romania at just 25% of the Labor cost in the West. If the cost advantage was not valid anymore, new EMS companies wouldn’t pop up in the East.

Still more than 80% of all EMS companies are located in Western Europe and only 20% in the East. These 20% are getting close to having 50% of the production value of EMS in Europe. Growth rates in the East are double as high as in the West and it is just a matter of time, until the Czech production value will be bigger than the German revenues in the EMS industry. There are about 67 Czech EMS manufacturers whereas there are 461 in Germany. More than 20% of all EMS manufacturers in Germany booked losses in their P/L in the years 2013-2015 and in Scandinavia it has been even worse.

Entrepreneurs who are not willing to make dramatic changes will sooner or later be forced to leave the market. A first step to changes is to understand the market, to understand the own position with benchmark figures and to throw stomach feelings over board for real facts and numbers. Many of these facts will be available in the next in4ma EMS Market Analysis Europe, which will be available for purchase early November.

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This is a guest post by Dieter G. Weiss of www.in4ma.de