Materials and Cost Benchmarking

Outsourced Manufacturing Industry Set to Enjoy Modest Lift This Year

06 February 2013

Despite lingering weakness in the global economy and continuing market uncertainties, the outsourced manufacturing industry is expected to post moderate revenue growth this year-thanks to a fresh wave of collaborative activity between enterprises and consumer-facing companies seeking new avenues of expansion, according to insights from the IHS Outsourced Manufacturing Intelligence Service at information and analytics provider IHS.

Revenue in 2013 for the outsourced manufacturing industry is forecast to reach $404.5 billion, up 4.5 percent from $387.0 billion last year. While this year's growth is slightly down from the 5.0 percent rise that the industry enjoyed in 2012, the next few years ahead appear on track for solidly reliable-if unspectacular-rates of increase. By 2016, revenue will amount to $451.9 billion,  following the industry's recovery from the declines seen in 2008-09.

All eyes remain focused this year on some factors that could still potentially derail the industry, including the sovereign debt crisis in Europe and the U.S. response to government spending. Also of concern is the new leadership in China, home to some of the world's biggest original development manufacturers and electronics manufacturing services providers that form the backbone of the outsourced production space.

Customers square off with their manufacturers: each party has its own concerns

Looking at forecasts a year ago, estimates were higher than they are now, indicating how the industry has had to scale back initial optimism. Even so, expectations have come down so much that they can only move higher-possibly the one bright upside to a generally downbeat picture.

This year will also see the industry attempt to balance two key trends, each likely to pull in the opposite direction: customers wishing to lower their costs on one hand, versus suppliers hoping to see improved cash flow on the other.

From their end, customers will want to know what price is considered fair to pay an outsourced supplier in order to make their product-forming part of the client's effort to reduce overall manufacturing costs. For suppliers, on the other hand, concerns will revolve around how to reduce inventory in order to achieve a stronger balance sheet; how to do more with less, especially in the area of capital expenditures; and how to bring down operating costs as a whole.

In essence, how both themes play out-an intricate fugue between hard-nosed customer and cash-strapped manufacturer-will prove of great interest this year to observers and participants alike, IHS iSuppli believes.

Is the next big player waiting in the wings?

One issue of paramount interest to the entire industry revolves on which entity will become the next big player to drive the space. However, that answer is unknown at the moment, even in an industry where perceptible trends and key movers have left their mark.

In the past decade, for instance, particular customers or end markets fueled growth, only to be superseded by other actors and variables. Then came the consolidation of assets among original equipment manufacturers, followed by a shift to China as the hub of outsourced manufacturing, replaced next by the rise of consumer electronic items like smartphones and tablets, which served as palpable tickets to success for clients and their manufacturers alike. The industry then turned its attention to enterprise customers as a means to drive growth, with consumer-focused companies becoming the favored entities afterward.

Now the bet is being made on an alliance of sorts between those last two forces. Growth remains with consumer-oriented companies that make the gadgets desired by the purchasing public everywhere, but those companies in turn are spurring enterprises to help companies capitalize on new ways to grow. These new highways to growth include consumer traffic, commerce and data-avenues that can be exploited by devices like smartphones, tablets, PCs and interactive "smart" televisions. All these devices, for their part, are well within the purview of brands and their choice of outsourced manufacturers to make.

For outsourced manufacturers in particular, fulfilling the production needs of their customers continues to be paramount. As a result, many suppliers keep looking for opportunities to expand facilities. Taiwan's Hon Hai-whose major customers include Apple, Sony, Dell and Cisco-has announced it is purchasing land in Brazil. Wistron, also from Taiwan, is likewise exploring expansion into Brazil on behalf of a major customer.

Other manufacturers doing the same include Nam Tai Electronics, an EMS provider of telecom modules, expanding in its native China; and Wisconsin-based Plexus, engaged in wireline and networking electronics, opening new production facilities in Romania and the United Kingdom.

Read More >> Manufacturing & Pricing

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