Electronics innovation: Invest instead of outsource

Yesterday’s EMSNow.com lead story was an electronics-industry recovery forecast for fourth quarter this year. The industry will recover — it always does — and analysts’ projections about the timing of recovery are interesting if not always accurate. But the more important question is, what will you sell when demand returns?

Using a down market as an opportune time to innovate is what some of the smartest companies in the tech industry have done. When customer orders return, they have a competitively superior product or service to sell. You might be thinking, “But who has the resources to innovate with the budget cuts we’ve experienced?”

This week I conducted a seminar near Tel Aviv for 45 engineers whose companies’ innovations impressed me: from next-generation human-computer-interface to security products to even automated pool-cleaning units. And during the past year Israel experienced not only the global economic slowdown that affected everyone, but also economic challenges from missile defense, a continuing stream of immigrants, and providing among the best health care in the world. Even though Israel has capable global and local EMS companies, manufacturing is not as popular as innovation; many Israeli companies lean on Chinese manufacturing companies for (at least perceived) cost savings. Innovation is a strength to a fault, in that many foreign-based companies establish think tanks in Israel and manufacture the products elsewhere. But this reputation for in-house innovation is enviable.

Though outsourcing manufacturing is a near-ubiquitous strategy for companies around the globe, let’s take care not to outsource innovation completely. Electronic-product companies’ preference to use original design manufacturers (ODMs) to leverage other companies’ product designs continues to grow. Many mid- and large-sized electronics companies have a steady diet of acquiring companies with innovative solutions; notwithstanding “bargains,” these acquisitions can be tougher during lean economic times. Outsourcing and buying innovation are strategies that cannot stand alone.

Remember that innovation in our industry is not restricted to hardware design. This is an excellent time for innovations also in software (hint–more software than hardware is the way to go) and in organizational processes for the gamut: design, supply chain, manufacturing, fulfillment/logistics, distribution, facilities, human resources, and — yes — the process of innovation itself throughout the company.

What have you noticed about the world’s most innovative high-tech companies, in both rich and poor times?

Posted by Pamela J. Gordon, June 26th, 2009

Filed to Outsourcing