By Shyam Mehta
Take a look at the multitude of electrical and electronic equipment in your home and office – your cellular phone, your television, your computer monitor, your fridge and your toaster – and examine the manufacturing imprint, A.K.A. the "made in" sign. If you tabulate your results, it's a fair bet that the list will be dominated by China, Taiwan, South Korea, Japan, Malaysia and the Philippines. The dominance of Asia as a global manufacturing center is hardly earth-shattering news in the absolute, and has been the status quo for some time.
But it acquires particular significance when considering the relatively low concentration of module production in Asia. Until recently – with the notable exception of Japan -- hardly any cell or module production came out of Asia through the first half of this decade. From roughly around 2005, however, we have witnessed a significant shift in this trend. Propelled by an influx of manufacturers with ambitious expansion plans (Suntech Power (NYSE:STP), Gintech, China Sunergy (NASDAQ:CSUN), Motech), China and Taiwan constituted 41 percent of global cell capacity; by 2012, they could make up half of crystalline-Si based producible cells. Material volumes are also expected from other Asian countries, such as India, Malaysia, Singapore and the Philippines, as facilities owned by global giants such as REC and Q-Cells ramp up production in those countries – a far cry from the days of European dominance.
As with other electrical and electronic goods, the decisions by these Europe-based firms to carry out large-scale expansion in Asia is suggestive of Asian-based production having a definite edge as far as costs are concerned. Consequently, just as is it is difficult to name a television, refrigerator or toaster brand manufactured in Europe – with the exception of a few of extremely high quality and price – so too may it be difficult to name a solar module brand manufactured in Europe in a decade, with the exception of a few of extremely high quality and price. This hardly means that European manufacturers will go out of business in the fashion of a wholesale market exit. Instead, it is likely that active manufacturers will retain headquarters in Europe but outsource their module production to Asia.
These results point to the dual trends of commoditization and specialization we expect to predominate as the industry heads into a "cost-plus" world. Rather than viewing the decline of the European module manufacturing as a negative, it may be viewed as a necessary step for the industry as it undergoes a necessary maturation through the increasingly likely event of a shakeout.