New product development is key to EMS revenue growth in Canada
Some OEM buyers involved in outsourcing decisions are looking to EMS providers in Canada to help bring new products to market.
Electronics manufacturing services (EMS ) providers in Canada say while many OEMs choose to manufacture in Canada to sell products into the Canadian market, many are also turning to them to develop new products that will be sold globally.
In addition to state-of-the art manufacturing facilities, many EMS providers in Canada also have design centers or programs to support OEMs’ new product introduction efforts. The idea is to offer OEM customers greater value by assisting in the design of new products, building prototypes and then helping the OEM transition a new product into volume manufacturing.
For instance, global EMS provider Vexos, with manufacturing and engineering expertise in Markham, Ontario provides support to OEMs with design concept, advanced design engineering and new product introduction capabilities.
Other EMS providers also offer NPI and design help to OEMs developing products in Canada. For instance, Vexos is a global EMS provider with manufacturing in the U.S., China and Canada where it builds equipment for Canadian-based OEMs.
“Our business in Canada certainly has been growing,” said Wayne Hawkins, senior vice president and general manager for Vexos’ Markham manufacturing facility.
“We had strong growth over the last few years,” he said. “Last year revenue increased by about 10 per cent. It has been a very good environment over the last couple of years.”
He said Vexos builds printed circuit board assemblies as well as entire systems and we “do full test for the end application to make sure quality requirements are met.” Connectivity and RF products and industrial equipment “would be the majority of what we do in Markham,” said Hawkins. It also builds medical and security products.
He added that Vexos is seeing “a lot of new business opportunities because of the growth of Internet of Things” as more industrial products are being connected to the Internet.
OEM customers also want Vexos to help them develop new products.
“We are located close to design centers of our customers where quick turn NPI service” is needed to help customers launch new products, he said. There is a lot of new product development in the Toronto area as well as Kitchener and Ottawa.
He said Vexos works with OEMs building prototype products and then helps “them ramp up production to get their products to market.” The EMS provider assists OEMs in transitioning their new products from small production to volume production at its “sister location in Shenzhen, China to reap the benefits of lower-cost manufacturing if a customer needs to kick something to higher volumes to get cost efficiencies,” said Hawkins.
"Our business in Canada certainly has been growing. We’ve had strong growth over the last few years"
Seeking design support
Internet of Things and industrial customers are also seeking design support. “In our industrial segment, there is a connectivity evolution occurring with industrial products tying into IoT,” said Hawkins.
In addition, there are new customers with “niche products that are IoT applications,” he said. “A lot them are new ventures involving new emerging companies and a higher risk. It could be a great opportunity or a they could die quickly,” but some of the new IoT products will be part of Vexo’s future growth, said Hawkins.
There are also opportunities with traditional segments he said. “We are seeing more growth potential around security products,” said Hawkins.
There are new products involving security access controls and cyber security for the defense industry and businesses. Such products will be opportunities for EMS providers that have high level optical capabilities and manufacturing expertise with fine-pitch technology and flexible printed circuit board assemblies.
While helping OEM customers design and develop new products may be important to EMS revenue growth longterm, some EMS companies say recently imposed tariffs on Chinese goods imported to the U.S. may spur some short-term sales growth for some Canadian EMS providers.
Hawkins said Vexos is getting more quotes from U.S. companies inquiring about manufacturing in Canada since tariffs of Chinese goods went into effect in the U.S.
“U.S. companies are looking at a 25 per cent tariff of products coming from China,” he noted. “Some U.S. companies are asking ‘what are the “opportunities and options to avoid that?,’” said Hawkins. “Certainly, leveraging a Canadian EMS site to build products and ship them into the U.S. and avoid some tariffs” is an option, he said.
He noted that Canadian labor costs are lower than in the U.S. “There are some cost reduction opportunities utilizing Canadian EMS providers, maybe not to the extent of China or Mexico but you’re getting the benefit of a highly skilled workforce, engineering, and serviceability,” said Hawkins.
EMS industry in Canada is small but growing
The electronics manufacturing services industry in Canada is small compared to other regions such as China or the U.S., but many of the world’s largest EMS providers build electronic systems in Canada for the domestic market.
For instance, Vexos, which is headquartered in New York, has manufacturing facilities in Markham, Ontario.
The EMS industry in Canada had about $4.5 billion in revenue in 2017 which is about a tenth of the size of the U.S. EMS market, according to Randall Sherman, president and CEO of New Venture Research, based in Nevada City, Calif. The global EMS market totals about $365 billion. The Canadian EMS market grows about 3 per cent per year. By 2022 EMS sales revenue will reach $5.65 billion, he said. “Most of the production is for domestic purposes. There’s not a lot of export,” he said.
There’s also not a lot of high-volume manufacturing in Canada. “Cell phones, computers, networking equipment are not made in Canada,” said Sherman. It’s more low- to mid volume manufacturing high-complexity” products including medical and industrial products, aerospace systems, robotics, test and measurement and process control equipment, he said.
EMS providers in Canada tend to service smaller OEMs. Although there are exceptions, such as aerospace manufacturer Bombardier.
Although growth in the EMS industry has been modest, there could be an uptick in growth as more OEMs in Canada embrace the outsourcing model. “They have good quality manufacturing capacity in Canada,” said Sherman. In addition, the dollar value of the total available market (TAM) for electronics production in Canada including manufacturing by OEMs and EMS providers totals $63 billion. EMS providers in Canada could “capture a larger share of total available market over time,” said Sherman.
To read the full article, which appeared in the March 2019 issue of Electronic Outsourcing Magazine, click here
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Vexos, is a mid-size global Electronics Manufacturing Services (EMS) and Custom Material Solutions (CMS) company, providing complete end-to-end supply chain management solutions in electronic and mechanical products for Original Equipment Manufacturers (OEMs) and new emerging technology companies.
Vexos services extend over the entire electronic product life cycle, from value engineering services for product development to prototyping and New Product Introduction (NPI) through to the growth, maturity and end-of-life phases with a strong focus and commitment to quality and customer service satisfaction.
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