Low-cost labor and cheap logistics are no longer sufficient to assure the competitiveness of the Asia-Pacific electronics supply chain during the next business growth cycle. With increasing labor and logistics costs, many companies in Asia-Pacific may find themselves increasingly uncompetitive in overseas markets without significant adjustments to their management systems and processes which add value for their global customer base.

In this context, the large gap between market expectations for environmental compliance and sustainability and actual operational practices therefore poses a significant risk to the Asian electronics supply chain during this current business cycle.

Challenge #1: Gain control of compliance data
Major OEMs are under increasing pressure from product environmental regulations and the expectations of their customers for compliant products which provide a sustainable market advantage. Competitive offerings in the area of environmentally-compliant and more sustainable products is a key area where Asian suppliers can differentiate themselves, but WSP's research shows that most are not focused on this area despite the upcoming surge of new legislation in the European Union such as the chemical regulation REACH, the EuP Directive regulating power usage for electronics, and revisions to the EU RoHS Directive that regulates the use of hazardous substances used in electronics.

To better understand the competitive position of mid-sized Asia-Pacific-based electronics companies in this area, WSP conducted a survey at the 2008 Electronics Fair (Hong Kong) and the China High Tech Fair Elexcon 2008 (Shenzhen, China). The survey included over 100 electronics manufacturers of final product over a three-day period.

Today, since major sales in the electronics industry require that suppliers provide product environmental compliance data, its essential that the quality and management control of this data be very high.

However, what we saw in our research was that in the current market suppliers primarily claim 'green' and compliance by providing lab reports, with little or no effort to validate data accuracy. This pattern is reflected in our survey findings with 84% of those surveyed indicating sales depend on environmental compliance data, yet only 25% of companies are able to verify the compliance data they have received, and only 5% are using software tools to improve data management. To maintain and manage a database is considered a waste of resources for many Asian businesses.

With leading electronic companies looking to identify hazardous substances of concern and verify all materials in their supply chain—to become compliant with the EU's REACH requirements and revisions to the RoHS Directive, for example—suppliers who have robust processes and controls in place are well positioned to gain market share. While economic circumstances have apparently lead some suppliers to curtail or downsize their programs in this area, contamination or recall risks in the supply chain pose even more serious challenges to companies not well funded to weather the current economic downturn. Challenge #2: Focus on sustainability
When it comes to product sustainability, fully 92% of interviewees have never heard of nor considered setting an objective for reducing carbon emission, the most common metric for sustainability in today's business circles, and 30% consider being RoHS compliant to be their most significant environmental achievement. From an OEM perspective, reduced carbon emissions in the supply chain is increasingly recognized as a driver for operational efficiency which in turn is helping to reduce production costs, and improve margins and profitability, yet very few suppliers have set objectives in this regard.

While 77.5% of the suppliers surveyed indicated a desire to let their customers lead on new regulations and avoid taking action unless and until a customer specifies it, 'green' is now a well-established global market trend in almost every industry sector. Wal-Mart's November 2008 Sustainability Summit in Beijing reinforced the pervasiveness of 'green' purchasing requirements emanating from the world's largest retailer.

Manufacturers in Europe and North America are now taking action in streamlining their operations and driving operational efficiencies so they can compete with low-cost labor in Asia and sell more product in the key US and EU markets. Asian manufacturers will need to step up to the plate and take on environmental sustainability as a core business competitiveness issue in order to retain their competitive position in the next business growth cycle.

Going forward, WSP clients tell us that their business strategies must include the following key ingredients to keep their businesses competitive:

Regulations: Governments around the world are establishing product-related environmental regulations. These require product take-back and recycling, packaging optimization, energy efficiency, non-toxic chemical contents, environmental labeling, and more. Companies need to understand how these regulations impact the product lifecycle, from design through to end-of-life management, and be willing to prepare and manage credible compliance documentation.

Energy Strategy: There are a number of questions that management needs to answer if they expect to have a cogent long-term energy strategy: - Will rising costs of non-renewable energy make shifting reliance to renewable energy a smart move now? The answer depends on where production is located and what options are available, either from on-site generation or from utilities. Can on-site generation or energy-efficiency capital investment projects generate additional revenues for manufacturing operations? - Does your business rely on non-renewable energy such as petroleum or coal? Does your business have long-term alternative energy options if oil prices rise again or regulation tightens over the use of coal?

Logistics: - How can you reduce the airborne freight as a percent of total shipments? Can you reduce expediting shipments through better coordination with suppliers and customers? - How can airborne logistics costs be cut to cushion future volatility in the costs of jet fuel? -Can the packaging footprint be reduced to lower weight and reduce logistics costs?

Chemical content: - Have your company catalog the chemicals present in the products you make? Does the company have an appropriate process for testing and measurement for verification purposes? - Is the supply chain secure end to end, with manufacturing process and management controls, that together minimize the risk of chemical-related or hazardous substance product recall risk? - Can documentation and credible verification of chemical content be quickly provided to regulators or key customers upon request?

Carbon footprint: - Can you measure the carbon footprint of a unit of output you're your manufacturing operations? - Can you measure the carbon footprint of your business? - Do you use carbon-footprint information and analysis to drive operational efficiencies proactively

Go to the next page for the survey results. Survey Results: Asia-Pacific electronics manufacturers' green practices
WSP conducted a survey at the 2008 Electronics Fair (Hong Kong) and the China High Tech Fair Elexcon 2008 (Shenzhen, China). The survey included over 100 electronics manufacturers of final product over a three-day period.

Key metrics of the companies surveyed by WSP

- Company size averaged 885 employees and 1.8 manufacturing sites.

- Company headquarters locations: 70% Hong Kong, 20% China and 10% Taiwan.

- Products sold included: Speakers, keyboards, DVD players, home appliances, phones, clocks, radios, cables, batteries, USB drives, power supply adaptors, accessories, MP3 accessories, webcams, home theater, remote controls, fans, toys, translators, electronics games, and digital photo frames.

Key findings from the survey

What % of your sales is currently dependent on product environmental compliance data? - Average across all products was 84.8%. - Cable manufacturers reported 100% dependence on product environmental compliance data. - The lowest response to the survey question was 40% for a manufacturer of MP3 accessories, mobile phones, and digital frames - Lower responses generally correlated with higher volume of sales in China and Middle East.

How does your company validate the accuracy of compliance data provided by supplier?

- 20% responded that they used XRF testing, either using their own XRF scanning equipment, or by outsourcing the scans

- 80% responded they required lab tests or certifications of compliance.

- 2.5% responded that they required factory audits - 2.5% of respondents indicated they had their own in-house chemical analysis capabilities to test for compliance

(The responses exceeded 100% because some respondents indicated more than one validation approach.)

How does your company manage compliance data?

- 5% using software tool

- 30% file the hardcopies of the compliance data.

- 35% using spreadsheet

- 17.5% using combination of spreadsheet and manual filing

How many FTEs (full-time equivalent) employees are working on product data management?

- 5 FTEs average per each company, ranging from less than 1 to Max 59 FTEs

- 37.5% have 1-2 FTEs

- 17.5% have 10 FTEs or more

- 5% have less than 1 FTE

How do you learn about environmental regulations or standards?

- 77.5% from Customers

- 55% from Certification labs

- 40% from the internet sources

- 5% from suppliers

(The total exceeds 100% because some respondents indicated they have more than one source to learn the regulations and standards. )

What is your company's objective for reducing carbon emissions?

- 92% have no objective for carbon emissions reduction, many of whom have never heard of carbon emissions.

- 2.5 % have objective to reduce carbon emission at product levels.

- 5% have objective to reduce carbon emission in operation.

What's your company's most significant environmental achievement?

- 10% have phased out materials containing hazardous substance

- 15% are making their design more energy efficient.

- 30% said compliance to RoHS was their most significant environmental achievement

Source: WSP Group www.wspgroup.com

About the Authors and WSP
About the authors:

Chris Hazen - Based in Hong Kong, Chris has over 17 years of experience in China and the US in technology product development, supply chain management and manufacturing. He is fluent in Mandarin and Cantonese and is a technology transfer expert. As an environmental compliance consultant, Chris works with leading global electronics companies to improve compliance and sustainability performance and reduce supply chain risk. Contact Chris at Chris.Hazen@WSPGroup.com

Polly Leung - Based in Hong Kong, Polly is a veteran of quality and environmental data management in the South China electronics manufacturing sector. She consults in manufacturing processes and operations, in particular in the disk drive, cable assembly and PCB business. Most recently she's been working with a leading electronics manufacturer to manage their environmental documents and is auditing their product environmental compliance data. She also consults in compliance data management processes, contamination and recall risk control strategies, and sustainable manufacturing and supply chain management.

About WSP: WSP is a leading global provider of technical and management consulting services to manufacturing and industry. Headquartered in London, publicly-traded, and with over 1,100 staff worldwide, WSP's scientists, engineers and management consultants take a commercial approach to achieving business results through application of rigorous technical methods. WSP's clients include many of the leading global brands and top companies in the banking, electronics, textiles/apparel, food and beverage, mining and building/development industries. For more information visit www.wspgroup.com