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108 SMT Magazine • July 2017 by Richard Kelly MC ASSEMBLY The past 50 years have seen the emergence of the EMS industry as OEMs outsourced in- creasingly more of their product to various global contract manufacturers. Originally con- centrated in the United States, the industry has blossomed into nearly $600 billion in sales and their growth shows no indication of slowing in the near future. The EMS industry was fed by acquisitions of manufacturing concerns from OEMs in the 1990s, followed by mergers of many EMS play- ers in the 2000s. The worldwide manufactur- ing landscape has changed forever. The days of OEMs owning large vertically integrated manu- facturing assets are gone and will probably nev- er return. Oddly, the large vertically integrated manufacturing capability of the OEMs started to be dismantled by the emergence of the EMS companies. Now, some of these same EMS com- panies are adopting the same, vertically inte- grated solutions themselves. Changes in EMS—ODM & Vertical Integration Even within the EMS world, the past 10 years have witnessed two significant changes. First, there was the emergence of the original design manufacturer (ODM) as third parties participat- ed more in the design and engineering of prod- uct on behalf of the OEMs, and then the merg- er of the ODM capability into the EMS players either through acquisitions or in-house devel- opment of the capability. Second, there was the broadening of manufacturing capability with- in EMS through vertical integration. Again, the vertical integration originated from the EMS' acquisition of existing technology manufactur- ers (such as metal fabrication and plastic injec- tion molding) or the in-house development of the capability. ODM The ODM factor immediately draws in the unwanted complication of intellectual property (IP) rights and protection of them. The fear of losing IP to competitors through undisciplined or unscrupulous ODMs is sufficient to justify customers' staying clear of EMS partners who rely heavily on this capability for revenue. The larger Tier-1 EMS players are heavily invested in customers with consumer products where small design developments can be a differentiation, but the life cycle of their product is so short, the need to maintain intellectual property se- curity is less critical. However, these same Tier- 1 players have some customers who are not part An Alternative Approach to Vertical Integration in Manufacturing ARTICLE

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