Last month’s announcement by circuit board maker TTM Technologies that it would acquire its rival, Viasystems Group, in a deal worth $927 million is the latest example of consolidation in the printed circuit board industry. It is also an example of the long-term impact that off-shoring has had on the North American electronics industry.
It's no secret that over the last 15 years or so, many North America-based electronics OEMs that design and build high-volume electronics equipment flocked to China and other low-cost Asian countries to take advantage of cheap labor and gain access to emerging markets for their products. Of course, major electronics manufacturing services (EMS) providers followed their OEM customers, as did semiconductor and other component and production materials suppliers.
Off-shoring helped those companies reduce their total cost of manufacturing, allowing them to be more competitive because they could reduce prices for their equipment, parts, and materials.
But the exodus of manufacturing to Asia resulted in fewer supplier choices for buyers in North America. The printed circuit board (PCB) industry is a good example of how outsourcing has led to supply base reduction and consolidation.
The Association Connecting Electronics Industries (IPC) says that 15 years ago there were 793 printed circuit board fabrication facilities in North America. Today there are just 310, as some board fabricators consolidated, while others move offshore or closed.
The production value of boards produced in North America has also declined from about $4.8 billion in 2006 to $3 billion in 2013, the association said.
“The trend in North American PCB production has been downward since 2001, mainly driven by the movement of electronics manufacturing to Asia,” a recent IPC report said.
The good news for the board industry—and for board buyers—is that it appears that the North American PCB market has stabilized because the rate of off-shoring has eased.
Some industry analysts say the North American board market has been “right-sized” to match the demand of the North America market. In fact, board production in North America was up about 1% in 2013, according to the IPC. There could be modest annual growth for the board industry for several years because of the defense and aerospace, industrial control, and medical industries that make up much of North American board manufacturers’ business.
Sharon Star, director of market research for IPC, said that those industries require much customization and need PCB fabricators to work closely with their customers in development and prototyping.
Some analysts say that because of rising labor and transportation costs in China and other Asian countries, electronics companies are rethinking their outsourcing strategies. Some may bring back manufacturing to North America for products that are to be sold in the United States, Canada, and Mexico. However, so far only a handful of companies have transitioned manufacturing back to North America. The on-shoring has been done by global EMS companies and OEMs, but there is little evidence of on-shoring by PCB fabricators, according to the IPC. On-shoring has had negligible impact on the North American supply base.
A shrinking supply base is never a good thing for buyers sourcing components and production materials for products their companies build in the United States, Mexico, and Canada. It means buyers need to monitor the financial health of their suppliers, work closely with them to reduce cost, and qualify new suppliers in the event of further consolidation.