EMS in Thailand
By Eric Miscoll, Technology Forecasters Inc.
Jun 07, 2004
Thailand could well be the rising star for electronic manufacturing services (EMS) outside of China.
from http://www.emsnow.com/npps/story.cfm?ID=5409 / archived here in case the page rot /”read full story”:http://ichris.ws/node/view/465
The country boasts large facilities maintained by multi-national EMS providers plus numerous indigenous EMS companies. The big draw is an educated stable workforce, low wages, and access to the Asian global supply chain.
Thailand is a constitutional monarchy. The monarch, King Bhumibol Adulyadej, Rama IX, is the longest reigning monarch in the world and an engineer by training. Thailand has a business friendly government, with stable rules for conducting business. The Thai government has set up several industrial parks located around Bangkok and in Northern Thailand, and direct foreign ownership is permitted with only very minimal (less than 1%) Thai ownership required.
The Thai government is also more transparent than is China with policies impacting the public. The SARS outbreak that impacted Asia a few years ago exemplifies this. In Thailand the government provided weekly updates on the spread of the disease and efforts to contain it. The government also tracked down the people who had visited infected areas and restricted them for two weeks so as to minimize their ability to spread the disease. In contrast, most people judged China’s initial handling of this crisis as secretive and ineffective.
Thailand boasts a very stable and content workforce of roughly 34 million people. The vast majority of Thai citizens (~95%) are Buddhist and are hard working, diligent, loyal people. The result is that there is little labor or political unrest in Thailand, unlike neighboring Malaysia with its mainly Muslim population. The Thai people are not very entrepreneurial in nature, so there are not many Thai start-ups.
The general infrastructure within Thailand in terms of communications, energy, and transportation is quite good. In fact there are over four thousand Japanese subsidiaries within Thailand that have helped grow the local supply base. The local supply base is well developed and it is easy to get materials in and out of the country.
Labor rates in Thailand are actually very comparable with China. Workers in the Bangkok area are on par with workers in Shanghai and Shenzhen, while workers in Northern Thailand are on par with workers in inner China.
There are two manufacturing industries that have done well in Thailand over the last 20 years: automotive and disk drives. Thailand is the largest automobile making country in Southeast Asia, and it exports mainly to other Asian countries as well as Australia. Automotive companies that are currently manufacturing in Thailand include Toyota, Mercedes, Nissan, Isuzu, Honda, and BMW. The disk drive industry accounts for approximately ten percent of all Thai exports. As the disk drive industry was developed in Thailand by companies such as Seagate, the requisite support industries such as metal machining, PCB, and mechanicals also developed.
In fact it was this disk drive industry that gave birth to one of the rising stars of the EMS industry in Thailand. Fabrinet is a tier two EMS provider that performs precision manufacturing of optical and opto-mechanical devices. Fabrinet was founded by Tom Mitchell who was also one of the founders of Seagate. In January 2000, Fabrinet acquired its main facility from Seagate and effectively borrowed the manufacturing skill sets and technology from the disk drive industry and applied them to optoelectronics contract manufacturing.
Fabrinet did not posses any optoelectronic know-how when they first began, but they did have the manufacturing skill sets. Their first customer was E-TEK Dynamics, whose COO, Sanjay Subhedar, saw that Fabrinet had the requisite skill sets for his manufacturing. Fabrinet also manufactured non-core sub-assemblies for Seagate, which accounted for about 30% of initial capacity.
When Fabrinet was created it acquired 1600 total employees from Seagate, of which 96 were engineers. Today they have about 3200 people, of which over 220 are engineers. These graduate level engineers have been educated in the US, Europe, or Australia and then return home to work.
Although Fabrinet prefers turnkey manufacture to consignment work, this is not a critical issue for the company. Fabrinet describes itself as agnostic when it comes to materials issues since they are not a materials driven organization. Their typical customer is not looking to get inventory off its books, but rather they are looking for relevant manufacturing technologies. Fabrinet’s value is not necessarily realized in a high-volume manufacturing environment, and therefore does not really complete with the other large EMS companies in this regard. According to Mark Schwartz, Fabrinet’s CFO, “The revenue opportunities in our niche are generally realized in smaller chunks than what Top-Tier EMS may be traditionally be looking for.”
The main competition that Fabrinet faces is with the OEM’s internal manufacturing. Some of their business does compete with other EMS companies such as Celestica, Pemstar and Benchmark, but the majority of the complex opto-mechanical devices they manufacture do not currently compete with other EMS providers.
Fabrinet’s focus on the opto-mechanical space is proving to be a good strategy. From 1998 to 2000 the optoelectronic industry growth was primarily in long haul telecommunications. The current growth is in the metro and access markets, with optical transceivers, primarily for the data-communications market, with signals that cover much smaller distances. The growth in this market is being driven by enterprises and business parks that are upgrading their communications infrastructure. New growth sectors for optical devices now include automotive (e.g., airbag sensors), industrial (e.g., oil and gas sensors), and imaging, with front and rear optical projection systems that compete with plasma (e.g., DLP (digital light processor) chips from Texas Instruments, and LCOS (liquid crystal on silicon)).
Due to the success of its business model, Fabrinet is currently expanding its footprint within Thailand. It just acquired a new facility and is building a new 200K square foot building that will be competed in 2005. Fabrinet does not subscribe to an “if you build it they will come” mentality. They will expand only as required by their business forecasts.
As the secular trend towards outsourcing continues, Thailand will attract increasing attention as a low cost manufacturing option. Its low cost labor, stable and experienced work force, and developed infrastructure make it a real option to manufacturing in China. Fabrinet is a great example of the world-class level manufacturing that this emerging geographic region has to offer.