The most influential Megatrends set to shape the world through 2030, identified by Euromonitor International, help businesses better anticipate market developments and lead change for their industries.Learn More
The Western Electronics industry has long suffered, with poor prospects since production relocation to Asia intensified in the 2000s. This was a major gain for countries like China, which saw its electronics/electrics industry increasing by 13 times to US$2.4 trillion over 2000-2015. However, with the influence of cheap labour in this country fading and hardware becoming less important to consumers, this might be a perfect time for Western manufacturers to rise again.
Demand for global consumer electronics faces an uncertain future. Volume sales of consumer electronics grew by a 2% CAGR over 2010-2015, inflated by novel and fashionable products like smartphones and tablets. However, these growth engines are now struggling, with demand for tablets plummeting for the first time in 2015. Electronics companies have few answers for future growth and consumers are slow to purchase new personal computers, as mobility and digital services escalate.
New perspective segments, such as the Internet of Things (IoT), cloud computing, data storage devices, M2M communications products, automation devices, sensors and others, in contrast, are providing new opportunities for electronics companies. These products do not have to be produced in countries where labour is cheap, as proximity to consumers, maintenance and upgrades are an inseparable part of the product, with the product often little more than a base for service provision. This can benefit innovation-driven Western economies, as electronics are turning to high value-added activities, while the manufacturing of cheap consumer products declines in importance.
This trend is becoming increasingly evident, including among companies which flourished due to production boom in China. The Chinese Lenovo Group, for instance, which previously based its growth on its PC business, over 2015 completed IBM’s server business acquisition and started emphasising the importance of the IoT for the company’s future growth, illustrating a shift in demand towards innovative devices, rather than consumer products.
Changes in cost structures are also expected to change where products are manufactured. As of 2015, China produced 42% of all electronic/electric products in value terms globally. Although this share is still expected to rise over 2015-2020, this increase is expected to slow. The major factors for slowdown will be a shift in production to other low labour cost countries, coupled with the rising importance of developed regions which can offer manufacturers flexibility, proximity to consumers, manufacturing expertise and a strong educated consumer base for innovative equipment sales.
Western countries also have opportunities to make progress in mainstream product categories. Demand for computing products in developed countries tends to be volatile and having operations closer to consumers increasingly makes sense. Among recent examples, Lenovo Group opened a plant in the US, Motorola also tried the same, while third party manufacturers like Flextronics expanded facilities in Central Europe. As demand for consumer products is likely to remain at best limited in the future, and thus large scale production less important, such hubs are set to play increasingly important role.
In addition, developed countries are undergoing a fourth industrial revolution, called the Industry 4.0. The revolution is targeted at increasing automation and digitisation of manufacturing operations, helping to effectively reduce operational costs. For instance, in the German electronics/electrics products industry, which is one of frontrunners of the revolution, industry productivity (turnover generated per employee) increased by 6% over 2010-2015; notable growth was also recorded in other developed countries.
Source: Euromonitor International from national statistics
Changes are not going to come quickly. Consumer product manufacturing is still set to remain concentrated in cheap labour countries, China producing the bulk of global electronics, although with competition from Vietnam, India and other extremely low labour costs countries.
More efforts to have production bases close to buyers in developed countries, which start posting stronger economic growth, should also become evident. Because of this, Euromonitor International expects that over 2015-2020 electronics/electrics production in Western Europe will grow by a 3% value CAGR, compared to the 1% CAGR decline recorded over 2010-2015. The Japanese industry should also fare well, rising by a 5% CAGR, compared to a 7% CAGR drop over the review period.
Therefore, the global electronics industry is certainly set for changes and manufacturing based in developed countries should play a more important role than it does now. Countries such as Japan, the US and Germany have the most advanced base to adopt innovations like cloud computing that will drive electronics/electrics industry forward in the future and, therefore, become centres of such innovations. This is not the case, however, in developing regions with protectionist policies and underdeveloped infrastructure, such as China, Brazil or Vietnam.
More global trends in the computing equipment industry are analysed further in the global briefing Computers and Office Machinery: Trends, Developments and Prospects.