Electronics Market: The long goodbye
Traditional consumer electronics molding has nearly gone the way of the horse and buggy in Canada. The companies that remain in the electronics business have survived by adopting different business and contract molding strategies, as well as diversifying into new markets.
November 1, 2002 by Bob MacKenzie
Despite the much-ballyhooed growth in sales of consumer electronic devices, Canadian plastics processors are making precious few of these components. Oh, there are some exceptions to the rule, but overall it’s much like not being able to make a silk purse from a sow’s ear. What once was a fairly substantial piece of work for some plastics manufacturers in Canada has mostly disappeared, and there is little indication that it will be returning any time soon.
Listen to Ernie Gourley, president of Comptec International Ltd. in Surrey, B.C: “Comptec was founded on computer technologies, hence its name, but that business has evaporated — not eroded, evaporated — in the last seven or eight years. We still do bits and pieces amounting to three or four million dollars a year, but it’s down from $20 million five years ago.”
Comptec primarily makes keypads for telephones and computers. These are older, analog products, which have experienced a slight resurgence in sales this past year.
Adds Gourley: “I guess the bigger fear for us is that we are not seeing any new tooling opportunities, and that is usually the final death knell in any program or relationship with a customer, where before we were getting an opportunity to quote on the new systems. I have to confess we are still running old platforms and have not seen any of the new stuff.”
Raj Mathur, president and CEO of Komtech Plastics Corp. in Kanata, ON, finds himself in a similar situation: “Production of consumer electronics parts in our plant has taken a beating. We’ve got some new projects, but the volume has totally vanished. I think it will stay there for at least two to three years before we see any signs of recovery.” Komtech makes electronic business telephones for Mitel.
And then there is the comment by Greg Howard, president of Columbia Plastics Ltd., also in Surrey: “Consumer electronics is down to less than 10 percent of our total production. I am thankful we diversified when we did.”
Coping with China
Not long ago, maybe two or three years back, there were concerns in North America about Far East pricing of plastic parts, but when things were going well this was not too bothersome. Back then, time to market was important and quality was very important, but now that the North American economy has gone into the dunk tank, these aspects seem to be less important than price. And when a fabricator in China or Singapore can produce finished parts for much less than the raw material costs in Canada, how does one compete?
Ernie Gourley’s answer is to move away from custom molding. Says Gourley: “We’ve changed our business. We’re moving more towards proprietary products where we think we can extend our life. Today, 50% of our revenues are generated from proprietary products where we own the concept and the design. For example, we acquired a company that makes swimwear goggles. We are doing extensive business in that, selling those products in North America and Europe, and we’re looking for medical, non-intrusive devices or things that we can acquire where there is still some degree of government regulation. That way, we can get some degree of ownership in the product and we’re not just competing on price. If we make a component for 40 cents and someone in China makes it for 20, customers are going to go to China.”
Raj Mathur sees a niche for Canadian processors, but even it is tempered with Far East reality: “We are working on a couple of projects that are more design-related. There are still opportunities for Canadian manufacturers to design new consumer electronic devices having a plastic housing and parts, and we could participate in the design and build the prototype, but I think that prospects are very bleak for actually running the production of the plastics for that product. That will be done in the Far East. I just came back from a plastics show in Mexico. Even there, production is being moved to Asia.”
Meanwhile Komtech just received QS9000 certification for the automotive industry, and Mathur reports that the company has landed some fairly major customers and large contracts with several auto companies.
Greg Howard said his company is sticking with custom molding, but “we have targeted the high-end tough stuff that not everyone can do. We have worked with exotic resins in the past and continue to do that. We’ve molded Teflon, polycarbonate, PEEK and other custom-blended materials. We also challenge and push the envelope of what moldmaking theory says you can do. We are trying to hold to ever-closer tolerances. This works out to be a business advantage for us because we are now known for being technically strong.”
A few years ago, whenever the issue of quality was raised, it was commonly believed that North American products were of higher quality than those made in Asia. Not so today. Says Gourley: “We can’t say any longer that our quality is better than theirs. I’m seeing tools coming out of China, which are equal to or better than ours in both design and manufacturing. All you need to do is walk into Canadian Tire and look at things that are made in China. They are excellent quality.”
Robin Richardson, vice-president of operations at Scott Plastics Ltd. in Sidney, BC, says he has probably heard as many complimentary stories as horror stories about dealing with Far East manufacturers: “We’ve had situations where molds that had been in the Far East have come back. People have experienced problems in terms of quality, consistency of supply, lead time, and delivery costs. When there has been a technical problem suddenly the English that was very good is not as good, so we’ve certainly got a couple of customers back that at one time went offshore.”
Even so, Richardson says it has been four or five years since the company has done fabricating for a local manufacturer of audio equipment.
Call for action
Clearly, there is some tough sledding ahead and it may take a variety of measures to get things back on track. Raj Mathur thinks we may need government intervention: “I think the cycle will come back to us when North Americans realize they are losing jobs, and those lost jobs mean lost sales. So, there will have to be some type of content regulations, and import restrictions will have to be put back on, just like they did for the auto industry.”
Adds Ernie Gourley: “I’d like to wrap myself in the Canadian flag and say there is still opportunity, but I still don’t think the playing field is equalized. Our very competitiveness and our futures are being shaken here. Unlike the early ’80s when we faced the Japanese, I think the playing field was level then, but I feel the field is tilted today. North American companies are even having their products designed in Asia. I recall from my days at Xerox when plastic manufacturers from Rochester, New York to Ontario’s Golden Horseshoe could always pick up the up-front prototyping, design and development, but the Asians have gone well past the days when they were just good copiers.”
Bob MacKenzie is a technical/science writer based in Victoria, BC.
Electronics consumption a long way from tanking
Despite the recent lag in the sales of computers, consumer electronics is still represents a huge market In North America. The relative health of this market is reflected in statistics supplied by the Consumer Electronics Association. According to CEA stats….
U.S. sales of consumer electronics goods from manufacturers to dealers topped US$93 billion in 2001 and should surpass US$95 billion this year.
Video products such as DVD players and digital televisions are selling the most briskly. DVD players achieved 25% household penetration faster than any other product in history.
Sales of mobile electronics are projected to reach $16.5 billion in 2002, with wireless phones accounting for $8.8 billion
Sales of digital cameras this year are expected to increase by 30% over 2001 to total of seven million units.