by Pamela Wiseman, TFI Senior Operations / Supply Chain Consultant, and contributing expert for TFI’s study in progress, Electronics Design and Manufacturing in Eastern Europe

Electronics manufacturing in Central and Eastern European is a hot topic these days, especially with questions at the forefront about social responsibility and rapidly rising labor rates in China, as well as volcanic disruptions to global supply chains in our recent memories. Hungary, the Czech Republic, and Poland have developed strong capabilities over the last decade with Romania, Estonia, and Turkey also active areas for some electronics companies. Someday soon, North Africa will likely become the new frontier.

The main interest in Central and Eastern European capabilities is — as you would expect — to access a ”low cost” solution to fulfill manufacturing and service requirements for European markets. Although in some of the region’s countries the transportation infrastructure is not as developed as we would like, there are some tax benefits as well as time, inventory, and logistics savings to be had. The labor cost cannot match China, but if your market is in Europe, it is definitely worth sharpening the pencil to seriously consider your manufacturing-location options. With the rapid rise in wages paid to Chinese EMS workers, the cost differential may not last forever. In the end, low cost (measured as price paid by the OEM to the EMS) is paramount in the manufacturing location selection process. Other elements such as quality and social responsibility play a role, but for some research respondents these factors continue to take a back seat because they are harder to quantify as a “cost.” In the ultimate review of an accurate business case, total costs considered must also include inventory investment, logistics expense, transportation time and risks, OEM travel time, and the value of the complexities required to manage cost, quality, and delivery from afar.

Electronics companies are continuing to expand sales, service, and distribution into the region with Poland, Romania, Hungary, Czech, Ukraine, Russia, and Turkey being of greatest interest. In Central and Eastern Europe, as well as Europe as a whole, markets are fragmented and cultures, languages, customs, and regulations can vary widely adding to the complexity. It’s important not to approach business with Europe as one “entity,” due to the distinct differences between the countries. Despite some hurdles, ease of doing business and infrastructure are thought of positively and are rated by our research respondents as “fair-to-good.” For other respondents, however, the significant positives of building and servicing product in Europe for European customers are not enough to sway the decision away from Asia, where the companies have grown accustomed to manufacturing. In especially the developing Central and Eastern European countries, the lack of logistics capabilities is so far an insurmountable barrier for some.

The ultimate question is, are we really considering and weighing all of the key elements accurately enough?

I’ve learned, from serving as VP of Operations at electronics companies for many years, that it is critical to develop a sound business case that considers all of the costs and benefits in the decision to choose a manufacturing supplier and location. Further complicating these decisions is that relative costs, benefits, and risks change rapidly within constantly evolving global economies. The right choice today may well be the wrong choice on a time scale measured in only months! Risk assessment is critical, and the risks often grow exponentially with the distance between manufacturer and customer due to all the complicating factors to consider!

For anyone contemplating doing business in the European market, it’s a must to seriously consider the relatively lower risk and the great benefits of manufacturing in Central and Eastern Europe.

Weigh in on your views about electronics design and manufacturing in Central and Eastern Europe! Our report so far features country-by-country OEMs, EMS/ODMs, and suppliers; economic insights and relative ease of doing business; skill of workforce; sales channels; service/recycling; prevalent electronics industries; and strategies up and down the supply chain. Reply to the blog, take our survey, or join in with the study’s sponsors.

Posted by Pamela J. Gordon, July 28th, 2010

Filed to Logistics, Outsourcing, Supply chain management

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