EL SEGUNDO, USA & BANGALORE, INDIA: According to a recent iSuppli report, the hard economic times could actually turn out to be a boon for contract manufacturers serving the LCD-TV market. The reason being that brand names are increasingly outsourcing production to reduce risk.

This invariably leads to the China factor, and whether that nation is dominating when iSuppli speaks about outsourcing to EMS and ODM companies.

Responding to this query, Jeffrey Wu, senior analyst, EMS/ODM, for iSuppli Corp., El Segundo, Calif., USA, says that the China factor consists of a few critical elements, such as cheap labor, localized supply chains, manufacturing clusters, government-planned trade zones, etc.

China backlash?
Wu adds: "In recent years, however, owing to: (a) rising labor costs (due to economic growth and the new labor laws in place), (b) increasing raw material costs (due to the price hike in crude oil), and (c) surging shipping and logistics costs (due to oil price increase), iSuppli has observed backlash in China.

"Nowadays, OEMs, EMS providers and ODMs factor in more considerations, besides the China factor, when calculating their total landed costs. For products that involve substantial tariffs (e.g. LCD TVs and mobile phones in India) and high shipping costs (industrial products such as factory automation equipment), companies tend to look beyond the China factor and set up manufacturing presences close to the end markets.

"For example, more and more companies establish new production plants in Eastern Europe to fulfill the demand in Western Europe and in India to support the demand in Southeast Asia, etc."

It is quite well known that the so-called hard economic times may not apply to China and India. How does iSuppli forsee LCD-TV manufacturing getting outsourced to places such as India?

India unlikely to become LCD TV hub
Wu adds: "Localized LCD TV production involves a few critical elements, including a sizable end market, high tariffs, supply chain readiness (especially panel supply and LCD module assembly) besides other factors.

"While localized LCD TV manufacturing in India is on the rise, the activities are limited to only final assembly India for the time being such that OEMs eschew tariffs. In other words, while the demand for LCD TVs in India has been growing, it is not high enough to justify localized LCD panel and module assembly for most panel suppliers, EMS providers and OEMs."

In short, iSuppli believes that more and more LCD TV production-related activities are taking place in India but India may not become the next LCD TV manufacturing hub in the near future.

Some Korean and Japanese makers are already present in India, and going very strong, such as LG, Panasonic and Samsung. Would they be required to rethink on their outsourcing strategies as well?

Overall outsourcing strategies
According to Wu, Japanese and Koreans traditionally like to maintain their production in-house for they see manufacturing as one of their core competences.

"Specific to the Indian market, these companies ship in CKD or SKD parts into India and administer the final assembly in India. As of right now, their strong performances in the India market do not affect their overall outsourcing strategies.

"However, as these OEMs, especially Korean OEMs, begin to strategize their approach to outsourcing on a global level, their operations in India may be affected in the future. For instance, they may outsource finally assembly activities to their would-be EMS partners in the future," he concludes.