Q: How do you imagine the global E&M market landscape will look in future?
KD: The center of economic gravity is continuing to shift east, mainly fuelled by the growth of eastern economies. Numerous E&M companies have already moved large elements of production eastwards, profiting from lower wages and lower production costs. More importantly, these developing countries of the east are gaining significance as valuable sales regions.
Currently, our customers are starting to look beyond BRIC. Many report exploring available opportunities in new emerging countries such as Mexico, Indonesia, Nigeria, and Turkey. To succeed in these new markets and meet new local needs, these companies will require access to local R&D, production, and assembling facilities, and will need to establish regional supply chains. As a result of these shifts, E&M markets are likely to become geographically fragmented as the number of markets and sub-markets grows.
However, we also see counter trends of this development, i.e. re- and near-shoring. On smaller but still significant scale companies are moving production “back” to countries such as the US as some mature countries became cost-competitive in manufacturing again.
Q: What other forces could impact the E&M sector?
KD: Another key driver of change is the predicted labor skills shortage. Many E&M business leaders tell us they fear being unable to realize new business ideas or even maintain current levels of activity because of a shortage of skilled labor and a retiring workforce. Over a third of global companies today, across all industries, are reporting difficulties in filling positions, to the point in some cases that this is directly impacting the ability to meet customer needs.
Already the nature of manufacturing activity is changing, with increasing use of robotics and automated processes. This demands ever-increasing levels of technological skill from each worker, and sometimes entirely new skill sets. Employees who possess a combination of heterogeneous skill sets will be highly sought after…and increasingly rare.
Q: What impact will all this have on the supply chain?
KD: Doing business in emerging markets is not new for most E&M companies. Over past decades, almost all E&M companies have moved at least part of their production to emerging countries and have established export capabilities. We now even see more companies moving to remote locations. Examples include a customer that is setting up a mining site in rural Africa, another that’s building an offshore wind park in the Caspian Sea, and a further customer that’s establishing a power plant in remote Australia. These projects are becoming increasingly complex, and are planned without large buffers of time in the schedule. That’s why quality is of key importance! Any incoming parts to these remote sites – and I’m talking about large and growing shipments – must be delivered just in time according to the project plan. In some cases, this can also require shipments to be slowed down, to accommodate changes in the plan.
The ideal response is for E&M companies to develop regional supply chains. They should also design future supply chains to support greater agility and responsiveness, especially in the industrial projects business. There will be an increasing need to deal with unpredictable changes in demand, and to respond quickly and effectively to disruptions. I also anticipate that companies will have to rely more and more on the compliance of their service providers, particularly for vital health and safety compliance.
For more information, download the recently published DHL Engineering & Manufacturing white paper here.