A recent Web seminar hosted by research firm iSuppli Corp. revealed some pretty hefty electronic-component spending by EMS companies. Today, the EMS industry purchases roughly 20 to 25 percent of the total electronic components sold. The breakdown by component types shows just how important this industry is to suppliers and their distributors.

According to iSuppli, the EMS industry's spending on semiconductors is projected to grow from 25 percent of the total semiconductor market in 2000 to 28 percent in 2002. Spending in passive components is estimated to reach 23 percent of the total passives market this year, from 21 percent in 2000. And spending in the electromechanical sector will expand from 14.5 percent of the total market in 2000 to 16 percent in 2002. If the estimates are correct, EMS will grow to a $188 billion market in 2006, from $96.1 billion in 2002. That adds up to a lot of clout in the supply chain, no matter how you slice it.

A couple of key trends could have a significant impact on distributors. One is a migration by EMS companies to low-cost-labor regions, including Asia, Eastern Europe, Mexico and particularly China.

Today about 30 percent of the EMS industry's total production is manufactured in low-cost-labor regions. But most of the top-tier EMS companies want to migrate more than 60 to 70 percent of their total production to those regions by 2004, according to iSuppli.

Currently, iSuppli estimates that distribution is shipping roughly 40 to 50 percent of its North American shipments (in dollars) to the EMS industry. Global numbers aren't available. This translates into a decline in spending in North America and Europe as some of the EMS plants shift to Asia and other low-cost areas-but it also means that demand will be rising in Asia-Pacific, iSuppli said.

Ultimately, distribution will lose some business in the transition, and only the top-tier distributors with the most resources will be able to participate in the global business. Jeff Bloch, vice president, EMS market, for iSuppli, said that distributors need to look at what is evolving in the EMS industry, see how those changes fit into their current business model and get a clear picture of what they need to do.