Electronics contract manufacturers such as Foxconn are in for a tough year with revenues decreasing due to global economic uncertainty and increasing wage demands.
The electronics industry is feeling the force of the gathering clouds over the eurozone, with its knock on effects on the globalised economy halts growth, pushing revenues down this year.
IHS estimates that the total for contract manufacturers will hit $357 billion this year, meaning a one percent decline from the $360 billion seen last year. In comparison there was 4.7 percent growth seen during 2011.
Electronic manufacturing services (EMS) and original design manufacturers (ODMs) are both set to be hit by this. EMS revenues are set to remain flat this year with a tiny 0.3 percent upward adjustment from $206.8 billion last year to $207.5 billion in 2012.
More worryingly, ODMs will see a shrinking of 2.3 percent to $150.0 billion to $153.0 billion. This follows a 1.7 percent decline last after faltering growth in the second half of the year.
The main reason behind this is the lingering problems and lack of a solution to the problems seen in the eurozone. Amidst the Davos financial summit there was a lack of answers from top financial thinkers to gnawing economic questions. British PM David Cameron has also been demanding urgent action to push for growth.
While many products are often manufactured in eastern nations, it is in the west that many sales are made, so tightened purse strings in Europe and the US are beginning to reverberate up the supply chain. The UK economy for example is expected to contract by 0.2 percent in 2012.
According to IHS analysts there is not much that can be done by contract manufacturers other than hope that price increases can continue to help keep profits up through the looming lean period.
Of course there is hope that the slightly-less-desperate situation in Asia could help with revenues. China for example is a massive consumer of mobiles and PCs, so there is hope that its buoyant economy will allow growth.
Concerns about wages have concerned some. Part of the reason that many firms such as Apple outsource production to foreign countries is that there are much lower labour costs. However in the case of China there are increasingly demands for fairer wages from workers who want in on the booming economy.
Interestingly despite this analysts believe that there is little option but to accept these increasing labour costs.
In China there has been widespread unrest over wages, with manufacturing wages hitting a measly $2.19 per hour, though this still presented a substantial increase of 15 percent, an overheard that vendors have to consider. Foxconn, which doesn’t exactly have the greatest history of worker treatment, has been making a pig’s ear of attempts to placate workers by labelling them all “animals” recently.
However there is little evidence that there are other regions with sufficient infrastructure where manufacturing can be conducted on a large scale say analysts.
The problem of labour laws is likely to be cause more problems this year says IHS with the news that Apple will demand more clarity from its contractors following accusations of sweatshop-like conditions.