Electronics Manufacturing in Emerging Markets Will See Five-Year Growth of $60
Billion by 2005
As the electronics industry
struggles to reduce costs and find new growth markets, it is
increasingly shifting manufacturing operations to the developing
world, with China leading the pack. A new study by the
International Finance Corporation (IFC), the private sector arm
of the World Bank Group, and management consulting firm Booz
Allen Hamilton found that electronics production activity in
emerging markets will nearly double, from $65 billion in 2001 to
$125 billion by 2005 — and will account for 43% of total
worldwide manufacturing growth.
More than three-fourths (77%) of the growth in developing
countries will be in China, increasing its share of global
electronics production from 8% to 14%, according to Booz Allen
and IFC research, a growth rate that is twice as fast as any
other region. In fact, the study estimates that electronics
production in China will be an $80 billion business by 2005,
larger than the estimated $73 billion production in all of
Western Europe. Emerging market growth outside of China will be
primarily in other developing Southeast Asian countries, Eastern
European countries, and Mexico.
Gains in developing countries will not be limited to
manufacturing. Higher value services such as engineering and
design functions will increasingly migrate to developing nations
over the next few years, although this transition will trail the
more rapid shift in production. India and Russia in particular
have an abundance of highly skilled labor, with labor costs up
to 80% lower than in the developed world.
The SARS epidemic has raised concern about economic growth in
China and other emerging markets. However, a follow-up to the
original survey found that most respondents expect SARS to have
a very limited and only temporary effect on the shift of
electronics production towards developing markets. According to
22% of senior executives surveyed, SARS should have no impact on
the movement of electronics manufacturing to China, 64% expect
only a slight temporary impact, and only 14% expect it to have
even a moderate impact on this trend. None of the respondents
expect SARS to have a significant impact on the long-term growth
of electronics production in developing markets.
The findings were derived from 117 in-depth interviews with
electronics manufacturing firms of varying sizes and across all
regions of the world. In addition, extensive secondary research
was conducted to quantify the magnitude of the production shift
to developing countries. All elements of the manufacturing value
chain were covered in the survey. For the purposes of the
report, Booz Allen and IFC define emerging markets or developing
countries as all areas outside of North America, Western Europe,
Australia, Japan and other parts of the Asia Pacific region,
including Hong Kong, Korea, Singapore and Taiwan PRC.
"This dramatic increase in production clearly demonstrates
the growing strength of emerging markets," said Dick Ranken,
director of IFC's Global Manufacturing and Services Department.
"In fact, a main driver of this trend is the rising importance
of economies such as China as end-user markets for these
products, which increases their competitive advantage in the
||"Emerging markets offer cost savings that
are critical for survival in today's hyper-competitive
environment," said Barry Jaruzelski, Booz Allen Vice
President. "Large multinational corporations are leading the
drive to emerging markets — and taking their smaller
suppliers with them."
The report highlights several other major findings:
In emerging markets, final assembly, displays, and
semiconductors will provide the highest level of growth through
China will continue to hold commanding positions in key value
chain elements such as assembly, displays, and semiconductors,
as it evolves into the hub of electronics manufacturing. By
2005, 45% of all high volume assembly will occur in China.
The Asia Pacific region, particularly China, currently
dominates electronics manufacturing in emerging markets:
83% of electronic displays manufactured in emerging markets
are produced in the Asia Pacific region, with 44% from China;
For connectors and cables, 78% of the emerging markets'
output is from the Asia Pacific region, including 66% from
Eastern Europe and Latin America account for 25% and 16%,
respectively, of battery production in emerging markets.
By sector, production growth will be led by computers and
peripherals, with an estimated $47 billion increase between 2001
and 2005, followed by consumer electronics ($20 billion),
handheld devices ($16 billion), automotive electronics, and
telecom (both $11 billion).
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