Jan. 21, 2002

Watching carefully the performance of a handful of international "EMS" firms which - in the total absence of own product developments - just own huge and ultramodern assembly facilities to perform Electronic Manufacturing Services in a most rational way for world famous brand companies that close down own factories to minimize risks in their higher labor regulated and taxed countries, some Taiwan brand manufacturers seemingly try to jump on the same bandwagon and offer ODM services, according to local newspaper reports.

The move is aimed a consolidating those companies' operations, better amortize their assets and diversifying their business in a crucial pitch to tide over growing competition.

Leading electronic groups, such as First International Computer Inc. Wistron Corp. and Asustek Computer Inc., haven taken the lead in transforming themselves into Taiwan-style EMS providers. Despite the fact that Taiwan already has become an high wage and high cost country, they implement this idea by greatly expanding their manufacturing bases in China, with the aim of taking the first mover advantages in global IT contract manufacturing.

ODM or "original design manufacturing " is the kind of contract production that provides services from design to production, with the standards of products decided by customers who give the orders, mainly IT brand manufacturers.

Now, Taiwan IT companies start to feel restricted in extending their reach because they lack contacts with products outside their touch. For instance, notebook computer ODM companies may be able to make LCD displays PDS, mobile phone etc., but are kept away from production for say, automotive or medical electronics.

Those companies that provide Electronic Manufacturing Services on a large basis will take charge of manufacturing products that have been completely standardized and designed by their customers. So they need not have design abilities, their strength being production efficiency based on the strength of their economies of scale. As they only have to produce what their customers require, they can concentrate on offering and further expanding this core competency, as they do not have conventional marketing as well. Due to this concentration, the scope they can explore is wider than that of ODM companies.

The ODM manufacturers, however, become in no way obsolete, because it is the usual practice for EMS customers to seek production of newly-developed products for low manufacturing costs, but once these products gain ground in the market, they tend to shift orders to ODM companies with competency in that particular category because they are able to over also bottom-up services from design to manufacture.

At present, the technology of desktop computers, notebook computers and PC-related products are mature enough to seek high end services from ODM firms, and this will benefit greatly Taiwan's IT industry, which has become quite dominant in the field, at present.

In order to widen their business, Taiwan ODM companies are actively expanding their manufacturing bases. While US-based EMS companies are hamstrung by operational bottlenecks, Taiwan ODM companies' ability to swiftly change manufacturing locations has demonstrated their attempt to take care of the business of EMS firms.

The acquisition by EMS companies with design-enabled companies is thereafter expected to become more and more popular. Recognizing the importance of design ability in cost efficiency, EMS companies will press ahead with their transformation, ad development that is likely to produce and increasing overlap of business between ODM and EMS suppliers.