Overseas Opportunities for EMC & Independent Laboratories
Mike Violette, Washington Laboratories
(first published in Interference Technology Magazine Annual Guide 2009)
There are various reasons to consider expansion into international markets. Factors that force companies to look across the border or across the ocean include obvious opportunities for product and/or service offerings, changing or shrinking domestic markets, and a need to “follow the customer”. The current state of the world will settle down to a new paradigm. Will US Laboratories be ready to greet international opportunities?
This article outlines some of the trends in developing markets, based on observations of the unwinding of the compliance market in Asia.
The development of laboratory opportunities follows the development of economies, markets and ultimately, technology. Economic development proceeds from an agrarian-based society to a low tech manufacturing to more sophisticated forms of manufacturing to R&D and, finally, to test and evaluation of the newly-developed products.
This progress drives the development of new technologies. As markets expand, the requirement and demand for standards pushes organizations to develop harmonized approaches for producing goods. This, in due course, creates demands for evaluation of those products to determine conformance with the standards. There blossoms opportunities for independent test labs.
There is an inherent balance, of sorts, between manufacturing and R&D. That is, when the economy has a lot of manufacturing, the historical trend is that the R&D expenditures are relatively low. This is usually because outside interests bring in the technology and, taking advantage of low labor rates, develop manufacturing capability.
This is a common story and has shaped the economic relationship between the US and Japan and the US and China over the past 30 years. The following graph is a qualitative representation of the trends. As a function of the level of development, the more an economy matures (and gets more complex), the lower the manufacturing as a portion of the economic activity. By the same token, the general trend is that the amount of R&D increases in some proportion to development.
This has absolutely a factor in the relationship between Taiwan and China. Much of the manufacturing has shifted from Taiwan to the PRC in the last 10 years. Taiwan still maintains a leadership role in developing the technologies that are made in China. But the paradigm is not fixed for very long. Chinese technologies are rapidly developing. The question is: what does Taiwan (or the US, for that matter) do in the future. The answer is simple: embrace the change and focus on innovation.
Wherefor art thou, Standards?
For developing nations, the experience of the United States (and the Western World) over the last 200 years has essentially been compressed and impressed upon developing countries as they transition from agriculture-based markets to consumer (and, later service-based) economies. The rise in standards of living makes goods more available and the demands for consistent supply of those goods creates the need to evaluate/regulate the process of creating these products and delivering them to the consumer. Who, then, is burdened with assuring that the processes are sound and that confidence in the product is assured? It is really a partnership of several entities, with the government standing at various places in the supply and delivery chain.
The Western world has developed a system of accreditations and certifications that is supposed to keep the system in balance. The governments, usually under the ministries of trade or commerce departments, maintain an oversight position that, even in the relatively-advanced United States, is admittedly uneven and not uniform across the various agencies charged with ensuring free trade while protecting the citizenry. In the West, the testing and evaluation of products is an open process wherein private laboratories compete for business based on a mix of capabilities and required accreditations.
In the Food business, this is called “Farm to Fork” wherein the process is (supposedly) vetted at various stages by a combination of internal validation and external auditing. A slip-up occurs when malfeasance is at play, such as the recent problems manifest in the salmonella-tainted peanut butter paste. In these cases, private labs and internal labs were (apparently) patently ignored.
(From our experience, it is unfortunate that sub-standard testing and duplicity of some Asia entities has put us on a suspicious footing.)
In developing countries the trend has been to adopt centralized control over the testing of products and, over time, letting the system evolve to an open-market based system. Of course, this creates an unfair, some might say, unreasonable approach in some of the developing countries, because no one is allowed to compete with government labs. However, this process is not really unreasonable; it is an evolution of the product conformity. Ultimately, the situation changes as the market expands and confidence builds in the local technical and regulatory environment, as has happened in Taiwan.
The Example of Taiwan
In the late 1980s, as the PC business was gaining speed, the requirement for the development of local testing capability was the province of the Taiwan government. It was a matter of practicality (as the resources for testing laboratories did not otherwise exist in the country), an evolution in test sophistication and in a not-insignificant way, a result of government control. Reviewing the fascinating history of Taiwan, Martial Law or as it was termed: “Temporary Provisions Effective During the Period of Communist Rebellion” was in effect from 1947 to 1987, a period of forty years. It was not until the country had gained sufficient economic stability and prosperity that martial law was lifted and democratic processes were put in place. The first democratically-held elections were held in 1992.
What does this have to do with testing? Well, testing often reveals bad news—and may force product recalls, product introduction delays and other unpalatable effects; only a stable society can collectively accept bad news (such as product testing failures) and absorb the critical self-examination that leads to positive change.
Thus, in Taiwan, several things happened over a very short period of time: the country evolved from an agrarian-based society in the 1950s to a low-value manufacturer in the 1960s and 1970s to a sophisticated producer of world-class technology—all in the span of about 30 years.
Currently over 30 independent test labs operate in Taiwan, each competing (quite aggressively) for market share with the capability of many of these labs rivaling any in the world.
As previously noted, China is on the same track and, while hard-liners would not admit it, is following Taiwan’s lead in many ways, but with the compression of process and technology development outpacing anything that has arguably happened anywhere at anytime in history.
Taiwan is used as an example because it has matured to the point where it has agreements on standards and conformance that allows for mutual exchange of data and test results between with the US (and other economies). It is difficult to predict the way that China will evolve, but given the track record and, barring some calamitous political or societal earthquake, China’s present system will open up too. For some product sectors (safety and radio frequency law), the government is the sole provider of final testing and approvals. In addition to natural evolution of open(ing) systems, these barriers are being eroded by requirements under the World Trade Organization (WTO) accords that require that various institutions and processes be opened and allow access and competition (product certification is one example, banking and insurance are others).
Looking beyond the examples of China and Taiwan (Japan and South Korea are also fine examples of the above-described evolution), if a lab is looking at expansion opportunities, it may indeed find them in the countries of the Association of South East Asian Nations (ASEAN).
The ASEAN Region
The ASEAN group is composed of the following countries:
Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam with a combined population of 570M people.
The level of development across the ASEAN group are as varied as the countries are culturally. At the top of the economic ladder is Singapore, a vibrant port and a beacon of prosperity—modern in every sense of the word and with a GDP, based on purchasing power parity (PPP) per capita of over $25,000 (2007). On the bottom rung is the dysfunctional Myanmar with a GDP per capita of about $2200. Vietnam, emerging as a fast horse in the development race is a step higher, with a GDP (PPP) of around $3800.
The position on the economic scale generally tracks a country’s sophistication in product testing and conformity assessment development. For example, few to no conformity assessment systems are to be found in places where development is not sufficiently advanced. To set up a laboratory (or to do business in general) is going to require “creative” arrangements.
The Asia-Pacific region market (which is wider than ASEAN) includes the 21 economies of Australia, Brunei Darussalam, Canada, Chile, China, Chinese Taipei, Hong Kong-China, Indonesia, Japan, Korea, New Zealand, Mexico, Malaysia, Papua New Guinea, Peru, Philippines, Russia, Singapore, Thailand, United States, and Vietnam. [1]
In our industry, Singapore, Japan and Taiwan are the most “developed” in terms of standards and functional mutual recognition arrangements; this is due to several key factors, including the cultural and business evolution and the development of these nations as technology-based markets.
That is not to say that the other countries do not have a developed testing infrastructure. A simple index is found by perusing the Test Site site listing on the FCC web site. Certainly, Japan is at the apex of the testing infrastructure development. However, as developed as Japan is, there is still not a true “open” process for placing products on the Japan market. At the time of this writing, however, Japan and the US are currently working through the details of a Mutual Recognition Agreement that would allow US Certification Bodies to certify for the Japanese market.
| Country | Number of FCC Sites |
| Japan | 135 |
| China | 92 |
| Taiwan | 68 |
| Korea | 40 |
| India | 8 |
| Singapore | 4 |
| Thailand | 3 |
| Malaysia | 2 |
| Philippines, Vietnam, Cambodia, Laos, Brunei | 0 |
So What About The Opportunities?
With the past as prologue, laboratories looking for the next opportunity are likely to look at a few key issues and, in most cases, be ready for the long haul. The critical factors in making an assessment and developing a plan are:
- Condition of market maturity
- Economic track, i.e., how is the country developing. WTO is an important factor because of the requirement to create transparent standards and conformity assessment systems
- Political stability
- Physical location
- Per capita income
When all this is squeezed together, the assessment can be made as to the short and medium term strategy for developing the testing market. My bet is on some of the ASEAN countries. If you view the flow of manufacturing, much of it is moving into the lower cost countries. Granted, much of this is “low tech” at this point, but if history gives us an example, the technologies will eventually flow into these developing countries.
The question is: which country? A piece of the economic part of the solution can be derived from a summary of simple statistics of the ASEAN countries.
| Country | Total land area | Total population3/ | Gross domestic product per capita at current prices |
|
| km2 | thousand | US$ | US$ PPP 5/ | |
| 2007 | 2007 | 2007 | 2007 | |
| Brunei Darussalam | 5,765 | 396 | 31,076.1 | 25,191.4 |
| Singapore | 704 | 4,589 | 35,206.1 | 37,359.9 |
| Malaysia | 330,252 | 27,174 | 6,880.2 | 14,256.4 |
| Thailand | 513,120 | 65,694 | 3,740.1 | 10,677.7 |
| The Philippines | 300,000 | 88,875 | 1,652.8 | 5,918.2 |
| Indonesia | 1,890,754 | 224,905 | 1,919.6 | 4,931.0 |
| Viet Nam | 329,315 | 85,205 | 836.7 | 3,835.7 |
| Cambodia1/ | 181,035 | 14,475 | 598.4 | 3,777.9 |
| Lao PDR | 236,800 | 5,608 | 736.1 | 2,839.5 |
| Myanmar2/ | 676,577 | 58,605 | 215.6 | 2,193.2 |
| ASEAN | 4,464,322 | 575,525 | 2,227.3 | 5,961.9 |
At the top of the heap, in terms of GDP is Brunei Darussalem. This country, however, is a kingdom based on oil revenues. I would cross that one off any list. The population is tiny at less than 400,000 souls. Singapore, as mentioned before, is certainly well-advanced, but expensive. The countries at the bottom of the list are affordable, but probably out of consideration because of overwhelming societal complications. Things can be too cheap. Indonesia, while sitting in the middle of the economic pack probably fails the political litmus test, at this time. The interesting group is probably somewhere in the middle of the list, Malaysia, The Philippines, Vietnam, Thailand.
Conclusion
There are many other factors to explore, including corporate will to engage and make the investment of time and money. The lesson that can be taken away, after observing what has happened in the dynamic markets of Asia is that the opportunities are huge, if the balance between informed conservatism and risk can be struck.
The only real way to figure it out, once the pack is narrowed, is to sit on a plane for 16 hours and find out for yourself.
[1] Mutual Recognition Agreements for Conformity Assessment: What Are They? Dan Hoolihan. EMCS Newsletter Spring 200
