The development trend of connector -- the influence of OEM on connector industry

Categories: Industry news



Time of issue:2021-09-15

【Summary description】 The development trend of connector -- the influence of OEM on connector industry

The development trend of connector -- the influence of OEM on connector industry

The OEM phenomenon in the electronic industry has a great impact on the connector market, which is mainly manifested in the following aspects:

. Dramatically change the relationship between brand customers (OEM customers) and connector suppliers.

. New customers emerge -- OEM factories with strong manufacturing capacity.

Accelerating the process of manufacturing globalization

The instability of OEM customers (compared with the original brand customers) - the original brand customers can sign different OEM factories - makes the sales channel of connectors more complex.

Diversified OEM channels and diversified hardware procurement channels.

It is no exaggeration to say that in the past three decades, the biggest impact on the electronics industry is the prevalence of OEM in the manufacturing industry. OEM has become a normal phenomenon, with a scale of more than trillions of dollars. Thirty years ago, brand enterprises did not invent the business strategy of OEM. When the internal capacity is insufficient, they often expand the production capacity by outsourcing.

Over the years, brand companies have OEM circuit boards and even complete system assemblies. The reason why OEM is adopted is because of the economic cost - better management of global supply chain, more resources and more energy devoted to product, market and customer development.  

In the electronic industry, the first large-scale OEM appeared in the circuit board industry. Before the appearance of OEM, brand companies produced circuit boards themselves. IBM was the technology leader of the industry at that time, and at & T was a large factory. Because the circuit boards at that time were specially made (not standardized), the production of circuit boards was considered as an inseparable part of the production of electronic equipment. In the mid-1980s, the situation changed, and the phenomenon of OEM gradually appeared: at first, some of the boards were OEM, then 100% of the boards were OEM, and then, PCB assembly also appeared in OEM factories. Sanmina (SCI) and Jabil were the best at that time.

IBM will OEM PCB and eventually PC (later sold to Lenovo). Celestica is from IBM, while Viasystems is separated from at & T circuit board business. In the 1990s, OEM accelerated in an all-round way.  

Other companies, such as Foxconn, are OEM giants - developed from the original EMS.  

From the beginning of the contract production (subcontracting), growth to industrial branches, and later to multi-level OEM, mainly including.

The following businesses:

.Circuit board assembly

. Subsystem production

. System production

. System debugging

. Special design / use in special product field

. Local, regional and global contract production
In Taiwan, enterprises recognize the advantages of specialization in product areas (such as laptops), and the corresponding words are also produced, ODM. The typical industry is personal computer, represented by quanta, Compal and Inventec. As Intel vigorously promotes the standardization of personal computers (Intel is also the biggest beneficiary), the specialization of personal computers has greatly reduced the production costs of the industry, so that large brand computer companies have to follow suit and encourage OEM companies to follow suit.

So why OEM with large-scale SMT production, production is highly automated. Brand companies often require high rate of return on equipment, and the cost of ensuring that they own the most advanced SMT equipment is very expensive. Not only will they invest heavily in advance, but also ensure the advanced nature of the equipment. This equipment needs repeated investment, which is not consistent with Brand Company's management philosophy. With the rapid development of technology, the life cycle of equipment is becoming shorter and shorter. The contradiction between the global production demand of brand companies and the strategy of owning the most advanced production equipment is becoming more and more prominent. The concept of OEM comes into being. Through specialized division of labor and OEM, the utilization rate of industrial resources is greatly improved. For brand companies, it can release more resources to the market, reduce labor costs, reduce the management of overseas production (the need of global operation), avoid legal disputes, and more adapt to foreign production Environmental Science. It can be seen that the reasons for choosing OEM are attractive enough. In addition, the OEM industry is becoming more and more mature, and there are more and more suppliers to choose from.

However, there are also those who oppose the OEM strategy. The reason is that OEM is actually training your future competitors how to produce your products and teach your production technology to your competitors. Once the foundry masters your previous production resources, you actually rely on your potential competitors. But they are very careful not to let their customers feel any competition from the OEM. The biggest risk of brand companies may be foreign resources, and their local market advantages may bring challenges to brand companies.

Of course, as long as you have the flexibility of production and the wisdom of how to divide production from the company (it's very difficult from the perspective of management cost and resource allocation), it's possible to minimize the cost of your own production.

Recently, some companies (though not very high) have reassessed the rationality of their OEM. The reasons are: material cost, product quality, supply chain control, new market cost. An alternative is to look for existing contract suppliers (rather than contract factories) in China or India.

Some companies have kept their own production plants, rim, Motorola, IBM and Dell have their own production plants. Rim is in Canada, IBM is in server, Motorola is in communications. Dell parts and some personal computer system assembly is OEM, most of the personal computer system assembly is completed by itself. In sharp contrast, with the shift of production base to Asia, the semiconductor industry with high technology content also adapts to the trend of OEM production.

From the perspective of brand companies, OEM can be summarized as follows:

Improve the rate of return on fixed assets.

. Reduce production costs.

. Reduce the management cost of their own production.

. Reduce the cost of a lot of labor.

The scale economy of the agent factory reduces the hardware cost and improves the production technology.

The assets of brand companies are more focused on customer development and market share.

Supply chain management.

. Quality control issues.

. Intellectual property protection.

Potential supply instability in developing countries.

Potential competitive threats, especially in developing countries.

The emergence of OEM has a great impact on electronic components. First of all, the customers who buy connectors change from brand companies to OEM companies. This also makes the channel of customer development more complex. Now there are at least two customers to manage, brand companies and OEM factories. Second, the connector development work is more complex, because OEM makes the design work hierarchical, location diversification, and customer concealment stronger.

Third, the original customer has become a global manufacturer, which has higher requirements for global supply of suppliers.

Generally speaking, the connector industry has adapted to the change of OEM. It can be said that the connector industry is more competitive, more globalized and experiencing greater overseas production pressure. For connector industry, OEM:

Make the situation of supply chain more complex and weaken the advantage of connector supplier in single supply chain or customer preference of original brand customers.

The ability to accelerate overseas production at all levels of the supply chain, as everyone is looking for the lowest cost and localization of production.
. to achieve lower costs, the parts in the purchase list may become less and more "authentic", adding pressure on qualified suppliers. The supplier of imitated products will make the OEM get better cost performance.

Further increase the pressure of parts standardization, or form the pressure of "de facto standard" to substitute the factory to obtain more abundant supply resources.

Strengthen the responsibility of inventory management and require local production support in Asia and China.

It means that the foundry needs more technical support - they are more assembly technology and lack design and development capabilities. This is both a challenge and an opportunity for the connector supplier, but in general, the supplier is a more valuable resource for the OEM.

The phenomenon of OEM has been confirmed and recognized by the times and will continue to develop

The OEM has been improving its automation production technology, and now it has reached the world-class level. This development direction is irreversible - brand companies have abandoned mass production facilities.

The success of ODM will create market segmentation for mobile devices (mobile phones, smart phones, digital cameras, navigator) and even OEM servers.

The manual assembly line in Chinese mainland will be updated to automation, which will create a more fearful production capacity.

However, the OEM is completely focused on product production, which will not avoid the cyclical fluctuations of industrial manufacturing. The next industrial recession will test them, because OEM is a high investment and low profit industry.

Too many Chinese mainland factories will add potential instability. Because it takes time for developing countries to mature.

Some people believe that the western market has strong adaptability and can restore competitive manufacturing capacity if necessary. This view is not correct, because Asia's manufacturing base is becoming more and more powerful with EDI and EDA capabilities.

The rapid rise of labor costs in China, the rise of new markets in other regions and other factors will stimulate the establishment and development of manufacturing industries in other regions, such as India, but this will also take time to develop, because the hardware and purchasing power are still immature.

The survey found that more and more engineering functions will be relocated to Asia, as new production bases require support from engineering sites. It is predicted that in 3C industry and other mass manufacturing industries, engineering technology will continue to favor Asia, China and other regions.

What will the West fill in after it transfers its production base? R & D, product development, product model, sample manufacturing. What kind of product engineering, manufacturing support, tooling technology, material technology, procurement engineering will be transferred next.

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