Supply Chain: the Fabless mirage
In recent months, the dependence of our industry has been highlighted and has become a real concern and a real danger. At this time, producing in France and Europe must no longer be seen as an exploit, but as an actual strategy, respected and necessary.
“Fabless” is a term introduced in 2001 to announce a strategy of divestment of production centers in order to focus on product design. This word was perceived and received to mean “No manufacturing” or “We no longer manufacture here,” and had a very negative impact on the industry and the industrial education of the younger generations.
Until 2001, major industries in Europe, the United States and Japan often had their production centers and supply chain of subcontractors in their own countries. This was followed by the transfer of these centers. The major industrial groups focused on the design of their products and relocated everything related to manufacturing to China, and the links in the supply chains suffered greatly.
As a business leader, I have seen the process of re-localization take place. I will always remember the person who told me: “You don’t understand anything, we are a country of thinkers and designers and we will have everything manufactured elsewhere in cheap countries; but we will keep the research centers and the control of the product.” The research and the entire value chain eventually migrated along with the production, soon followed by the end product. Those who imagined that countries could simply manufacture and let others think have shown ignorance and contempt for those to whom they transferred the task of manufacturing.
Strategic decision
In welcoming production, China has been able to invest, develop research and its engineers, and be at the forefront of innovation by muscling all the links in the chain, all the way up to the final product. The Chinese and Asian peoples can be congratulated for their tremendous progress and the hundreds of millions of jobs they have created. What Asia has developed through the offshoring of manufacturing is a very good story.
But as far as we are concerned, in Europe, this must not translate into complete dependence and it is up to us to preserve the different links in the value chains at a level that does not compromise our independence. We also need to manufacture because production is a crucial step in the value chain, it accompanies innovation, and creates jobs all around it.
No more manufacturing would precipitate Europe into a phase of regression. It is a strategic decision that we need to adopt and a culture change that we need to imprint into all sectors. We need to revive our industry by addressing every link in the chain.
Job-bringing idea
In Europe, there is no medium-term commitment from major contractors in the electronic sector – except in the field of defense – nor a clearly expressed will of governments. Subcontractors in Asia, confident of being seen as strategic links by their government and customers, have invested and will invest in the best equipment and personnel. Asian countries make sets in the supply chain by connecting all the links in places close together in the form of a cluster.
European subcontractors are ready to invest and recruit, if the major contractors support them by forging lasting relationships and involving them in new programmes. For large companies, the preservation of a chain’s links can become a winning economic factor thanks to the added value of the supplier-customer relationship, created by proximity, and bringing value to both.
Producing in France and Europe must not be seen not as a feat, a stubbornness, an endless race against relocation, but as a real strategy, respected and necessary. Industrial recovery is a strong idea that brings jobs and added value and security for the entire chain.
Proximity as a value
In 2020, everything has changed. The last few months have changed everything, the dependence of our industry has been highlighted, and has become a real concern and a real danger. Tensions between China and the United States can lead to supply blockages in critical supply chain links. The Covid-19 pandemic has highlighted the need for strong, local links along the chain. In turbulent times, supply disruptions could jeopardize the entire chain. Proximity is an asset that regains its value.
The chain has its value, that of the weakest link. It is becoming dangerous to become only a Europe of consumers. The battle is not lost because the European industries that have survived relocation are active and of quality.
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The example of the printed circuit board in the electronic supply chain
To illustrate this article published recently, I will take as an example the sector that I worked in for 40 years : The Printed Circuit in the Electronic supply chain
The Printed Circuit is a link in the electronics manufacturing chain that is practically everywhere.
A Printed Circuit is a medium for electrically maintaining and connecting a set of electronic components to one another, with the aim of creating a complex electronic circuit. These are the green cards that you often see in equipment and on which the components are then welded. It is not a standard product. For each application, a custom circuit board is designed.
It is a strategic and highly technical link whose technology is evolving very quickly. Electronics is now everywhere, from toys to rockets and ventilators. The complexity of its circuit boards allows tens of thousands of interconnections in smartphones or in electric cars for example.
In 1990, there were 200 companies in France manufacturing circuit boards, 5000 direct jobs and high hopes for the future and a turnover estimated at 500 million dollars.
Since then, electronics has become now essential in almost all sectors: transport, telecom, medical, defense, consumer products …
However, in 2019, the turnover of printed circuits manufactured in France was only 150 million dollars (0.2% of the world’s production) with about fifteen remaining manufacturers while the world turnover of manufacturing of printed circuit boards was 70,000 Million dollars or 500 times more than in France.
Europe produces only $2,000 million, or 3% of world production
In 2020 in France there are 1500 jobs, 25,000 all over Europe and in Asia 3,000,000 jobs.
Current manufacturing in countries such as Thailand or Vietnam is superior to that of Europe.
The European circuit boards manufacturers surviving the effect of FABLESS are mainly high level companies, technically speaking, who, if they had a commitment to the future, could accompany the major developments to come and bring a lot to the table. It is not a question of relocating Asian production, but the small percentage kept and preserved of the European market will be beneficial in terms of control of the final product, innovation, employment and the preservation of independence.
Will they have their chance?
9 tips to leave the time of “fabless”
Change connections and commitments along the supply chain;
Conditioning the support provided by states to companies to respect a minimum production quota in the various links of their supply chain;
Promoting industrial education;
Helping to hire young people by taking care of part of the cost of apprentices/alternates/trainees;
Supporting investment and digital transformation;
Lower production taxes;
Helping collaborative projects between the links of the chains as well as with the research centers;
Focus on support to the links in industrial chains by creating industrial jobs in Europe, because every industrial job creates two more jobs around itself.
Tax exemptions for corporate income that is reinvested as equity or back into the company
Conclusion
What we have just lived through and the existing potential tensions must push us to change. The globalisation of the future must be accompanied by the preservation of our independence, the development of our industry and of jobs in Europe.
Bernard Bismuth
Paris, June 13th 2020
Bernard Bismuth
General Manager in the printed circuit board industry for 40 years. Currently Professor in the MBA program at HEC.
Part of this article was published in Les Echos in June 2020.
