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Global EMS Providers Market in Aerospace and Defense : Industry Trends and Opportunities that will Shape the Electronic Manufacturing Services Market

  • December 2014
  • 69 pages
  • Frost & Sullivan
Report ID: 2568511

Summary

Table of Contents

Introduction

•The executive summary of this research incorporates the challenges facing the aerospace and defense (A&D) industry, market drivers and restraints, technology trends, competitive analysis, growth opportunities, and required strategies.
•Electronic manufacturing service (EMS) providers are strategic supply chain partners that provide manufacturing services, raw materials procurement, design services, logistics planning, distribution, and various other value-added aftermarket services to original equipment manufacturers (OEM). The boundaries limiting the services expected from EMS providers are fast disappearing, and OEMs are increasingly relying on EMS providers to support them as they focus on marketing strategies and brand building.
•In the previous x years, OEMs have relied increasingly on EMS providers for various manufacturing; supply chain; logistics; distribution; aftermarket; maintenance, repair, and operations (MRO); and many other services.
•The A&D industry offers EMS providers higher margins than most other industries, leading to intense competition.
•The global defense sector will see many changes: the end of x significant wars in Afghanistan and Iraq and the budget cut downs in the US Department of Defense (DoD). The slow defense sector growth rate in Europe will cause a significant impact on the EMS providers market. The Asia-Pacific (APAC) defense sector will have the highest growth rate in the next 5 years.
•The commercial aerospace sector is set for tremendous growth in the next few years as the global gross domestic product (GDP) is improving and raw passenger kilometer (RPK)/air passenger traffic is growing, especially in Asian and Middle Eastern countries. The North American (NA) and European aerospace market, on the other hand, is growing at a moderate rate. Latin America (LATAM) will become the focus, especially in Brazil, as the potential for growth increases toward the end of the forecast period.
•EMS providers in A&D must comprehend the market scenario for the defense sector and aerospace sector and position themselves well strategically. In the future, margins will become higher, tempting more EMS providers to verge into A&D. As the competition tightens, EMS providers will be left behind if they are not focused on providing a wide variety of services, along with specialized and advanced technological capabilities that satisfy the needs of OEMs.
•More EMS providers are focusing on customer satisfaction as the key strategy to retain contracts. Traditionally, A&D OEMs have been wary to switch EMS providers as the cost associated with switching has been high. This trend will change during the forecast period as the competition intensifies and more Tier II and Tier III participants are equally equipped and capable of addressing the needs of OEMs. Moreover, the lower tier EMS providers participating in the A&D industry in the past years would have gained the recognition and experience that would, in turn, provide OEMs with many alternatives. This trend is more significant in the aerospace sector than in the defense sector.
•The defense sector in developed economies such as NA and Europe will be adverse to embracing new EMS providers during the forecast period and will continue to utilize the expertise of the providers with which they are familiar. Toward the end of the forecast period, however, the defense sector in these countries will be looking at other EMS providers with experience and capabilities, especially for the MRO services required for military aircrafts.
•The APAC defense sector, on the other hand, will see a boost in regional EMS providers to cater to the burgeoning defense sector. Established EMS providers in A&D looking to penetrate this sector will need to address political/legal impediments, along with the low manufacturing cost provided by regional APAC participants. However, their technological capabilities, skill sets, and expertise will enable them to penetrate this high growth potential market.

Definitions

•EMS providers are strategic supply chain partners that provide manufacturing services, raw materials procurement, design services, logistics planning, distribution, and various other value added aftermarket services to OEMs.
•Tier I EMS providers have annual revenue over $ x billion. They have a narrow profit margin; however, they achieve economies of scale because of their innovative and competitive strategies.
•Tier II EMS providers have annual revenue between $ x million and $ x billion.
•Tier III EMS providers have revenue less than $ x million.
•Original design manufacturers (ODM) provide design resources to OEMs and provide manufacturing services at a smaller scale, compared to EMS providers.
•The A&D industry includes the defense industry, military aerospace, and commercial aerospace.

Key Findings

•The global EMS providers market in A&D is set to grow at a CAGR of x % between 2014 and 2019.
•NA continues to be the largest revenue provider in the EMS providers market in A&D, with a revenue of $ x billion in 2014.
•The US Department of Defense (DoD) budget cut downs will have a global impact; however, other avenues of opportunities are opening up for EMS providers.
•The defense sector will experience a decline, and a downward trend is expected through the end of the forecast period as the US DoD sequestration and the flat European defense sector adversely impact the sector and, in turn, the EMS providers market.
•The defense sector has a few critical areas with a high growth potential as the budget cut downs will have less of an impact on these areas.
•APAC will have the highest growth rate in the defense sector, opening many opportunities for EMS providers.
•Commercial aerospace, on the other hand, is set to have a tremendous growth potential as the global GDP revives and as the air passenger traffic is set to increase by 4.9% every year during the forecast period.
•APAC will be in the limelight as commercial aerospace OEMs shift their focus to this region. Toward the end of the forecast period, the LATAM market, especially Brazil, is expected to start growing in the commercial aerospace sector.
•Over the next few years, lower tier EMS providers are expected to evolve to provide significant competition, gaining more contracts because of their quick response time and price competitiveness, which will threaten the dominance of Tier I EMS providers.
•OEMs will increasingly expect EMS providers to place more stringent measures against counterfeit products as the long-term trend will enable EMS providers to utilize the global presence and source high-quality products.
•EMS providers with a global presence, extensive and collaborative supply chain, and advanced technological capabilities yet cost effective solutions will have a huge advantage in the future.
•The supply chain will face numerous challenges as the boom in the aerospace sector has caused the overall A&D market to grow moderately, despite the dip in the defense sector. EMS providers should certainly invest in supply chain management tools to form an integrated supply chain with technology capable of mitigating and managing the risks.
•The trend is to focus on lean manufacturing and quality control through Six Sigma as just-in-time manufacturing can be implemented to shorten lead times and lessen inventory buildups.
•Overall, EMS providers in A&D will be successful if they are prepared to deal with market dynamics and strategically plan ahead for the future.

CEO’s Perspective

The aerospace and defense sectors are growing at different rates. The key is to focus on them individually.
Technological advancements and dedicated specialized services would give a competitive edge for EMS providers.
The focus will shift toward the APAC regions as their growth rate increases in both the aerospace and defense sectors.
Consolidations and mergers among A&D OEMs are imminent.
Responsive manufacturing is the current need as competition increases, and quick responsiveness and high quality will set EMS providers apart.

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