Outsourcing : Three year forecast

The world’s electronics industry is poised to increase sharply the work it gives to outsourcing companies, with India taking a much bigger share of the total, even though it will remain well behind China. Read original article

According to a study by Technology Forecasters, a California-based consultancy, by 2010 more than a quarter of all the manufacturing output of the world’s electronics industry will be done by specialist contractors operating most frequently in low-wage economies, up from less than a fifth two years ago.

Within this total outsourcing work, India is likely to be the big gainer, accounting for a projected 10 per cent of the total in 2010, up from 2 per cent in 2005.

China, which in the past 10 years has become the most important country for electronics manufacturing, will in 2010 account for 46 per cent of outsourcing work in this industry, down from 48 per cent two years ago.

Outsourcing has become the dominant manufacturing process in electronics production, an industry covering fields from computers to medical electronics, and with combined annual sales of about $2,000bn (€1,500bn, £1,000bn).

About 10 specialist electronics outsourcers do most of the work on behalf of large electronics groups such as Hewlett-Packard, Cisco, Nokia and Sony which sell to the final customer under their brand name but frequently do little of the physical manufacturing.

Specialist outsourcers include Hon Hai of Taiwan, Singapore-based Flextronics, Sanmina-SCI and Solectron of the US and Finland’s Elcoteq.

A bigger role for the outsourcing companies would fit in with branded electronics businesses’ desire to keep downward pressure on costs, according to Matt Chanoff, chief economist at Technology Forecasters.

The large increase in the work going to India is partly because electronics businesses are keen to increase sales in the country – demand is rising as India’s economy expands – and because they are interested in exploring the potential of the country as a low-wage manufacturing base.

Umasankar Pingali, managing director in India of Arrow Electronics, a large US-based distributor of electronic parts, which supplies many outsourcing companies, said: “The electronics industry in India is going through a big period of expansion which is going well beyond the area of consumer goods. We are seeing all-round growth taking in fields such as automotive electronics and industrial equipment.”

According to the projections, annual output in India of electronics outsourcing groups is likely to rise to $38.8bn in 2010, compared with $5bn in 2005.

Technology Forecasters’s study says total global electronics outsourced production is likely to expand to $377.7bn in 2010, from $208.9bn in 2005. The figures are expected to climb to 26 per cent of the total expected production of the electronics industry in 2010 of $1,451bn, up from 19.5 per cent of the $1,068bn total two years ago.