Manufacture of low-volume high-value analogue components may not necessarily mean a fishing trip to the Far East to get the best deal. It might make better economic sense to have them made on your doorstep, even if you are based in Europe.
During The 1980s and 90s it was not a great time to be involved with UK electronics manufacturing industry, as lower costs drove many businesses to move their supply chain to the Far East.
Andy Longford is managing partner of PandA Europe, a technical and marketing consultancy specialising in electronic packaging and assembly. He says 80-90 per cent of the semiconductor, assembly and test industry has moved to Asia during the past three decades, especially high-volume consumer and commodity products. In Europe, even the major intelligent device manufacturers such as Infineon Technologies, STMicroelectronics, NXP and Robert Bosch have moved the majority of their packaging, assembly and test manufacturing to Asia.
Cue Ryanair chief executive Michael O'Leary, speaking on Radio Five Live's 'Wake up to Money': "Engineering should simply be left to the Chinese," he claims. "The UK economy is much more led by the service industries, whether it be tourism or the financial sector. And kids want to go where the money is. What young people want now are computer skills and service skills and the Chinese will do most of the engineering."
Jeremy Pearce, technology team leader at the International Tin Research Institute (ITRI) is a regular visitor to the Far East, providing technical support for the use of tin-rich, lead-free solders in electronics manufacturing. He notes a trend towards 'on-shoring', reversing previous strategies on Far East production. "Rising labour costs there are a big factor, plus extended supply chains have proved more of an issue than hoped," he says.
However Pearce considers that there must be questions about the feasibility of on-shoring: mainly the loss of in-house skills for design, and production. He has seen some "amazing sophistication" in globalised electronics production. "I visited Huwai in Shenzhen recently and saw their control centre, with a massive plasma screen showing global production sites and exactly how many components were being made in each, where the hold-ups were." He describes it as "just-in-time par excellence".
Pearce has seen rapid growth in technology in China. In solders for example, the transition to paste is now well on the way. "Compared to the West they are able to make large investments in R&D equipment. I have seen a lot of really nice new kit out there. Plus they have a sheer volume of technologists: there are more than 100 solder research teams in universities. They have an ambition to push out foreign OEMs in a few years' time and it looks to me as if that could very well be achievable."
Companies in the UK were left with a choice: accept defeat or learn how to compete. UK manufacturing refocused itself away from the volume markets that were dominated by east and south-east Asia.
EMS Manufacturing, based in Herne Bay, Kent, now claims to be seeing the benefits of that hard work. The company offers a range of contract electronics manufacturing services, including PCB assembly and prototyping, but also makes its own range of wire-free alarm and detector products for the UK fire and security industry.
"Recent indicators show that the UK has become the lowest cost manufacturer in Western Europe," says operations director Chris Mulvihill. "The UK was always an ideal place to design and develop a product before moving it overseas for manufacture. There is a broad base of manufacturing skill and capabilities within the UK that support the requirements of low to medium volume manufacturing. This in turn makes re-shoring an attractive proposition."
The primary benefit of onshore production is the proximity of the supplier to the customer. "Customers place great emphasis on the ability to work closely with manufacturing and supply chain staff. Factory visits allow both parties to truly understand the benefits that may be achieved and delivered at the levels of product manufacture, customised test and configuration and supply chain," adds Mulvihill.
This is echoed by Escatec, a Swiss-owned electronics manufacturing services company with a corporate HQ in Malaysia (where the company was founded) and two large mass production facilities in Penang and Johor Bahru. But 11 years ago, it acquired a manufacturing facility in Heerbrugg, in eastern Switzerland. It offers manufacturing, engineering and design services. Typically around 80 per cent by volume of its production is now conducted in Malaysia, representing about two-thirds of revenue. This makes the company well placed to compare the relative merits of local and distant manufacture.
"Quite often we have a conversation with customers about the best location for manufacture," says Martin Kingdon, director of business development. "There are lots of different parameters that affect that decision. One is the maturity of the product: if it's a product that is not designed yet, then clearly it needs to involve our design services team, which is managed and run from Switzerland. To do the opposite would condemn a customer to have to make all design-related interactions with a company 6,000 miles away, and that would be a nightmare. You have a big time difference, and not much opportunity to get together and meet face-to-face."
An example of a product that has moved through several stages of maturity is a solar power charging station for Azuri Technologies. It is designed for use in rural Africa, where the typical source of light is a kerosene lamp, which is not only unhealthy and dangerous, but also expensive. The Indigo unit has a solar panel, two LED lamps and control unit with a charging point for a mobile phone. It is now in mass production in Escatec's Malaysian plant. The design work was done in the UK and the initial low-volume production run in Switzerland, before transfer to the factory in Malaysia for volume runs.
"With a more mature product, other factors may come into play," Kingdon continues. "One is the price of freight and transportation, for which the physical nature of the product is important – things that are quite large will incur will incur quite substantial costs.
"So for low-volume, large products, especially those involving leading-edge technology, you may find that building close to the market makes more sense.
"Another factor is how complex the product is – if it needs to be customised for each individual end customer. We deal with products having optical, mechanical and electronic elements needing to be assembled in our MOEMS facility. Often, the investment required to move the production to Asia requires a huge volume, which might not exist in a niche application, so it makes sense to continue to do it in Europe."
An example is the intelligent adapters for network analysis that Escatec builds for Napatech. These are used by vendors of management, test and security systems for the telecoms, enterprise, financial and government sectors to guarantee the delivery of the data they need for analysis of what is happening in their networks. This needs to be provided in real time, at the highest speeds possible without any of the data being lost.
Bo Guldager, Napatech's operations manager, explains: "As our products are used for a wide variety of critical applications, such as securing networks against hackers and keeping track of financial transactions worth millions, it is important that we can keep up with the latest developments while also assuring the reliability of our products. There are high-security production and test areas within Escatec's Heerbrugg facility that are dedicated exclusively to our products, along with operational staff that are similarly dedicated to their production."
A high-security link between Napatech's HQ in Denmark and Escatec enables prototypes to be remotely tested for functionality the moment that they are assembled and software to be uploaded and debugged. "This can shave precious days off the time-to-market that aren't wasted couriering boards to and fro," explains Guldager.
Interestingly, Kingdon states that as a process becomes more highly automated, there is less differential between Asia and Europe. Asia wins when there are high volumes that require some manual intervention. But if the manual intervention can be automated with a robotic assembly system, then as the volumes go up, the cost base in Europe starts to level out again. Then, paradoxically it makes more sense to invest in an automated assembly process in Switzerland, rather than move production to Penang.
In 2013, Neelie Kroes, who was then European Commission Vice-President, launched an ambitious strategy to get 20 per cent of global semiconductor manufacturing back to Europe by 2020. This is to be achieved by an unprecedented public-private investment partnership: EUR10bn public and private funding for research and innovation plus €100bn from industry for manufacturing. The strategy will focus on European clusters of excellence (Dresden, Grenoble, Eindhoven/Leuven) and will cooperate with specialised clusters elsewhere.
Andy Longford has his doubts, though. "Europe does not have an existing specialised European Packaging, Assembly and Test (ESPAT) cluster of excellence yet, especially when talking about manufacturing," he says. "So the European players in this arena should consider the formation of such a cluster."
It was protection of intellectual property (IP), along with the problems of counterfeiting, that led battery producer Accutronics to retain its manufacturing in the UK.
Recent estimates by research organisation IHS show that up to 10 per cent of all electronics in the global supply chain are counterfeits. From entirely cloned products to devices with sub-par internal components, counterfeiting is thought to cost the electronics industry around $100bn in product sales and shows no signs of slowing down.
Counterfeits are readily available online at the click of a button; these highly convincing copies of genuine units can be purchased by consumers, medical professionals and military officials at a fraction of the cost of the real thing. However, in order to maximise profits, manufacturers of counterfeit batteries may take a variety of shortcuts to undercut genuine OEMs on price.
Although lithium-ion (Li-ion) batteries provide some of the highest commercially available energy densities, the cells in these batteries must use protection circuits and safety vents to prevent them from becoming volatile.
The Accutronics VR420 battery, which includes algorithmic security to combat counterfeiting, is manufactured in the UK.The company says there are other benefits of domestic production, including: complete control and verification (paper trail) of the manufacturing process; extensive in-house laboratory testing; compliance with European and international battery regulations (CE, FCC, IEC62133, UL2054, UN38.3), a process that involves destructive testing; and flexibility of providing custom labels, programming and case colours.
On balance, according to electronics engineer Tom Bush, these things would not be possible if the batteries were manufactured in Asia.
ULIS in France makes thermal image sensors for a number of niche markets, including thermography for predictive maintenance in plumbing; airport screening, currently being used to monitor for Ebola; night-time surveillance to protect buildings and critical infrastructure; search and rescue; and night-vision driving.
Micro80P is an 80x80 small-'pixel-'pitch high-sensitivity thermal sensor array that maximises energy efficiency in building automation for heating, ventilation and air conditioning or automatic lighting. It was developed within the scope of Mirtic, a €24.8m project set up in 2012. Mirtic project partners include CEA-Leti, a leading microelectronics and nanotechnology research centre; Integrated Systems Development, a global systems integrator; Metaio, a developer of augmented reality technology; and Schneider Electric, a global specialist in energy management. The project is now in the application development phase.
ULIS MD Jean Francois Delepau says the principal reasons for manufacturing in Europe are to protect its IP and to have control of production and its supply chain. "Because our technology is highly sophisticated, it requires highly specialised engineers across numerous scientific disciplines to manage," he says. "One of the clusters of excellence, Grenoble, provides the right ecosystem: innovation, leading research institutions, and a strong pool of academic talent."
But what of the companies providing the automation systems? Festo is one such global automation company and is organised into a worldwide network of technical engineering centres (TECs), global production centres (GPCs) and regional customer service centres (CSCs). The global production centres are located in Brazil, Bulgaria, the Czech Republic, Germany, Hungary, India, Switzerland and Ukraine.
As labour costs go up, Chinese industry is having to automate to counter Western companies re-shoring. "A focal point for us is China," says Dr Eberhard Veit, chairman of the management board of Festo AG. "With a population of 1.3 billion, this country is the world's largest market for automation."
Thus in 2012, a plant that Festo had acquired in Jinan, China, was successfully integrated into the Global Production Centre network after a programme of upgrading and expansion, making it the 11th base in the firm's worldwide manufacturing network. It demonstrates that the plant operates at a high standard of manufacturing quality and management, material flow and service, thus meeting stringent company requirements. The expansion makes further automation projects possible: the setting up of process lines for pneumatic and electric drives as well as for pneumatic valves and valve terminals.
Interestingly, Veit says Festo is also looking at the USA. "Many American companies are once more concentrating production activities on their home country and need support in the form of production expertise," he says.