The Russian market of PCB: challenges and prospects
Interview for Zhivaya Electronica Rossii, 2020
Andrew Kucheryavy talks about the new plant and about PCB market.
First of all, let me congratulate you on your Zhivaya Electronica Rossii Award-2019 winning. Tell us about the project of a new PCB production and assembly plant in Zelenograd.
At what stage of the construction are you right now and when do you plan to start production?
The construction is proceeding as planned — at the beginning of the year we have finished the installation of wall panels, doors, windows and have started draft construction inside the premises and laying outdoor networks. At the end of 2020, we will begin to carry out the assembly of engineering equipment and finishing construction in the premises. If everything goes right, we will start the STM assembly in the summer of 2021, in order to produce PCBs in the first quarter of 2022.
Is "Rezonit" the only investor of this project, or are there any other co-investors? Have you used any support or co-financing programs?
The PCB&PCBA plant in Zelenograd is completely our project. Our company is the only investor. To implement this project, we have received a credit from one of the Moscow banks, and have also invested our own funds. We have not used any support or co-financing programs yet, but we are building the plant in the Special Economic Zone. This status means quite a serious support, such as providing land at a preferential rental rate, VAT exemption for the equipment imports, and the most important is that all the necessary engineering will be provided at the expense of SEZ (heat, electricity, water supply). We are planning to use leasing schemes and the subsidy of leasing rates program for the purchase of technological and engineering machines.
Who designed the technological part of the new plant project?
All the technology chain planning (both for the production and the assembly of printed circuit boards) was designed by our specialists, without the third-party engineering companies’ involvement. We have invested more than twenty years of our experience in the industry in the new plant and its technology, e.g. the technology of manufacturing and assembly of printed circuit boards, production organization, automatization and IT solutions.
Tell us a little about the technical specifications of the plant.
The production area of the 4-store building is about 15 thousand square meters. The projected number of employees is more than 400 people. The production of printed circuit boards will be located on the first two floors, an assembly site will be on the third floor, engineering and office space will occupy the fourth floor. The planned capacity of the printed circuit boards plant is about five million square decimeters per year.
The indicators which you mentioned before (production areas, design capacity) are very similar to the parameters of the new large plant in Dubna. We all know how that project ended. Why are you sure in your success in the project? Are you not afraid to repeat their experience?
I do not believe that the project of the large printed circuit boards plant in Dubna has been already finished. I believe, that colleagues have created an excellent production complex, and that sooner or later there will be an investor who would revive this project. The latest story about the crisis in China clearly showed that there is a serious lack of the production capacity in the country, and I think that the plant in Dubna that is unclaimed so far will be in demand soon.
Why do I believe that we will be able to implement such a large-scale project? In my opinion, we have all the key advantages for success: a great team of specialists, technology and expertise, experience in production organization, customer trust and a large order volume. Everything that I mentioned is the reason for us to look ahead with optimism.
Now we are investing in a technologically advanced plant with high labour productivity, so that we could provide designers with a single production platform for the production of competitive electronics products in Russia in the shortest time possible.
When you were presenting the project, you mentioned that the new plant will be mainly focused on the express services. Tell us more about them, please.
It is important to mention that we have been investing in the newest equipment among all existing plants for many years and we are constantly working on the optimization of production processes and IT infrastructure in order to create a better customer experience.
Our key competence is express services with consistently high-quality products in the shortest time possible. We are constantly working on reduction of lead time at all stages of the production process and on the interaction with clients, because we realize how crucial it is for designers to launch their product in time.
Today we can offer guaranteed minimum production times for printed circuit boards on the Russian market: for instance, the minimum lead time for the production of one-sided and double-sided printed circuit boards is one working day, for multi-layered PCB -three days, and for flexible and rigid-flex PCB the minimum is five working days. We carry out express assembly in three working days. Express delivery of orders to the majority of cities in the European part of Russia is implemented in one or two working days.
A comprehensive solution for the One-stop PCB Assembly Services has been in demand among our clients lately. It has a lead time of 10 days and includes the production of a printed circuit board, the supply of components and assembly. This service allows designers to reduce the launch time of new products and save on supply and production operations.
The company "Rezonit" already has a production site in Zubovo (Moscow region). Is the new plant in Zelenograd a replacement for the Technology Park in Zubovo, or is it an additional production capacity?
In addition to the Technology Park in Zubovo in the Klin district (Moscow region) we have a PCB production area and an assembly shop, which are located in Zelenograd (Moscow). Both of these production sites will be moved to a new one in the Special Economic Zone of Alabushevo at the end of 2021. After the new plant is constructed in Zelenograd, we are planning to multiply the production capacity in Klin. This will affect both the PCB production and the assembly of electronic components. We set a goal to reach a capacity of seven million square decimeters per year of printed circuit boards only in the Klin site.
These numbers are very impressive, but is a demand adequate for such a capacity? Sooner or later, the crisis in China will end, and the customer will return to the least expensive production.
We understand this perfectly clear. First of all, we must say that our company still places a significant part of orders in China (this applies to medium volume and mass production). After the launch of the new plant, we are planning to move the majority of these orders to Russia — if not mass orders, then at least all medium volume PCB production. In this segment, a significant part of the cost of PCB consists of fixed costs — expenses for engineer processing of orders, production of photo tools, pre-production, and technological equipment. We have managed to significantly reduce these costs through an automated processing and investing in up-to-date equipment and software. I think that as soon as our new plant starts working at its full capacity, we will be able to offer the market such terms and cost of goods, that Chinese manufacturers won't have anything to counter. I mean orders of up to 1000 square decimeters per part type.
What is more, while launching the new plant, we are planning to enter foreign markets — both European and American. In addition, I truly believe that in the nearest future, the Russian PCB market will be growing rapidly.
In your opinion, is it possible to displace China in the mass - production segment?
Are you talking about the production of printed circuit boards or about assembly? This is already happening in the assembly sector — many customers, who previously ordered PCB assembly in China, now are either actively transferring orders to the capacities of Russian EMS enterprises, or investing in their own production sites. Russian contract manufacturers are no longer inferior to their Chinese counterparts in terms of cost and quality, and they are significantly superior in terms of lead time.
If we are talking about printed circuit boards, I am afraid that it is still impossible to compete with Chinese manufacturers in cost, using only market methods. There are many factors that influence the situation, but first of all the effect of scale has its important contribution. The Russian PCB market is less than 0.4% of global production, while the Chinese market is more than 50%. In addition, Russia has historically had a lot of very small factories, which also does not allow us to talk about cost optimization. Interesting fact: Russia has more PCB manufacturing plants than Taiwan, but at the same time Taiwan accounts for 12.5% of the world's PCB production. On average, the printed circuit board production plant in Taiwan is 40 times larger than any plant in Russia.
According to my estimates, in order to be able to talk about real price competition with Chinese manufacturers in the mass-production segment, it is necessary to build a plant with a very high level of automation and with a production capacity of at least 30-40 million square decimeters per year. So far, there are simply no orders for this volume in the country. Thus, in order to fully talk about competition with China, the Russian market needs to grow several times.
Why is there no natural market consolidation in printed circuit boards in Russia, like bankruptcy of unprofitable enterprises and merge?
First of all, I must say that the absolute majority of PCB manufacturing plants in Russia are those factories, which do not function in the civilian market. They make quite complex and very high-quality boards, but the cost of the production and delivery time are not the strengths of these enterprises. The majority of factories constitute the part of large manufacturing concerns, where the PCB manufacturing is not considered to be a separate business. It is important for them to produce high quality products, so most companies are forced to put up with unprofitable production of printed circuit boards plants and with high cost for the sake of confidence in the efficiency of the product and its on-time production.
You said that you believe in a significant growth of the Russian PCB market. How can this growth be achieved?
At first, the printed circuit board market needs some support measures. In fact, this support is already being provided. I am talking about the program of production localization in Russia. Some customers are interested in this program, because they receive preferences from the state, as long as they manufacture their products in Russia. In my opinion, it is also necessary to use custom tariff regulation. After our country's accession to the WTO, there has been a zero rate of customs duty to the import of finished printed circuit boards, while imports of all materials, chemicals, and tools are taxable by 5% or higher of customs duty. Among other things, it gives competitive advantages to foreign manufacturers in our market. When a certain amount of production of boards in Russia is reached (some kind of critical mass), the market mechanisms will start to work, but at first, we can't do without support measures. As far as I am concerned, many major players in the electronics market are thinking about building their own printed circuit boards production plants in Russia. If all of our plans are implemented, the production of printed circuit boards in Russia will grow several times in the next five years. Time will tell.
Is it possible to ensure complete independence from China in the production of printed circuit boards?
The coronavirus situation has exposed a serious dependence on China for the entire range of supplies: from printed circuit boards to chemicals and basic materials. This applies not only to Russia. There is a heated discussion in the European and American specialized press on the topic "how could we be so dependent? and we have to do something with it". I think that some conclusions will be drawn. Now China is almost a monopoly in the production of glass-fiber laminate, copper foil and many other basic materials. What is more, China is actively conquering the market of the production of printed circuit boards equipment.
In Russia the production of basic materials has been traditionally working only for closed markets, while to produce civilian products there have been used mainly Chinese materials.
As far as I know, serious investments in the modernization of production have recently been made by fiberglass factories in Bobrovka and Tiraspol, the production of copper foil is being restored in Kyshtym, and the production of chemicals for printed circuit boards is being actively developed in Elmа. Something has started to change for the better, but, in my opinion, it is happening too slowly. The reasons are the same — the Russian market for printed circuit boards is still too small, which is the consequence of the generally low level of the industrialization of our country in the field of electronics. With the development of the electronics market, the PCB market will inevitably follow this trend, and with the proper influence of the regulator, the production of printed circuit boards in Russia will also grow. The market growth should lead to an increase of the attractiveness of investment in R&D and production of materials and equipment, which will eventually reduce the impact of external factors on the economy of our country.
"Rezonit" is a Russian company founded in 1997. It specializes in contract electronics manufacturing, PCB express orders, small and medium volume PCB production, mass-production orders, delivery of large-volume of PCB orders of any complexity, all types of PCBA and stencils production for SMT assembly. Today "Rezonit" is the largest PCB manufacturer in the country and one of the leaders on the EMS market in Russia. PCB plants and assembly sites of the company are located in Zelenograd (Moscow), Klin (Moscow region) and Saint Petersburg, and its products are used in various electronics industries, including telecommunications, automotive technology, medicine, LED technology, and consumer electronics.
Plants of "Rezonit" produce prototypes in Russia, small and medium series of up to 32 layers, including the production of hybrid multilayer printed circuit boards, boards made of high-temperature and microwave materials, flexible and rigid-flex printed circuit boards. Assembly capabilities allow to assemble 01005-size components, BGA, Flip-Chip, CSP, SIM and SD slots, and other complex packages.
"Rezonit" stands out in the market thanks to the lack of restrictions regarding PCB complexity and order volume, as well as to the unprecedented service delivery times. Quality management is a key element in the production process. All manufacturing steps at "Rezonit" are verified by its own multi-stage control program.