In 2025, the European Electronics Manufacturing Services (EMS) sector faces major technological, economic, and geopolitical challenges. Original equipment manufacturers (OEMs) must update their strategies and adapt quickly to stay competitive. Companies are prioritising supply chain resilience, quality control, and intellectual property protection amidst rising labour costs, talent shortages, and increasingly complex regulations, which often involves switching to European manufacturing.
This analysis explores the top seven challenges confronting the European EMS industry, which include supply chain vulnerabilities, environmental regulations, and emerging market dynamics.
Geopolitics and Trade Wars
The global electronics sector is undergoing a profound transformation as geopolitical tensions fracture previously interconnected supply chains into distinct regional networks. Nations are increasingly focused on achieving technological sovereignty, with leading powers reshaping global trade through targeted policy measures. A prime example is the United States’ stringent restrictions on semiconductor exports to China, signalling a departure from open-market principles toward more politically driven trade frameworks.
Simultaneously, ongoing conflicts—such as the war in Ukraine and rising tensions surrounding Taiwan, home to the world’s most advanced chip manufacturing—continue to destabilise global logistics and supply systems.
In response, European manufacturers are intensifying reshoring initiatives to minimise reliance on politically volatile regions and establish more robust, regionally anchored supply chains. To stay competitive in this shifting landscape, EMS firms must navigate complex trade regulations, cultivate strategic intra-European alliances, and protect vital technological assets.
Supply Chain Disruptions
The European electronics manufacturing sector remains highly exposed to supply chain fragilities, especially when it comes to procuring essential components such as printed circuit boards (PCBs). Europe's global share of PCB production has sharply declined—from 15–20% in 2000 to a mere 2.6% in 2023—while China has come to dominate the market with a commanding 58.7% share.
This heavy reliance on Asian suppliers significantly heightens the risk of disruption and security vulnerabilities, as starkly illustrated by the Covid-19 pandemic and ongoing geopolitical conflicts. The situation is particularly critical in defence-related applications: an estimated 60% of the PCBs used in European military systems are imported from outside the continent, raising concerns over intellectual property theft and the potential for sabotage within sensitive supply chains.
To mitigate these risks, manufacturers must diversify their supplier base, increase investment in local and nearshore production, and advocate for a unified European policy mandating that PCBs for critical sectors be sourced either domestically or from trusted allies.
Digitalisation of Internal Processes
As labour costs continue to rise across Europe, electronics manufacturing services (EMS) companies must accelerate the adoption of advanced automation and AI-driven process optimisation to remain competitive. Streamlining internal workflows and reducing administrative overheads through digital tools enables manufacturers to cut indirect costs and maintain pricing agility in an increasingly globalised market.
In today’s landscape, digital transformation is not a strategic luxury—it is a business imperative. Beyond boosting operational efficiency and reinforcing cost structures, digitalisation strengthens a company’s market positioning. It signals innovation and adaptability, enhancing brand perception and reinforcing the image of EMS providers as forward-thinking, agile industry leaders.
Sustainability and Renewable Energy Adoption
In today’s industrial landscape, sustainability is no longer merely a moral or regulatory consideration—it has become a core strategic lever for long-term business resilience and growth. As environmental regulations tighten and public demand for eco-conscious practices intensifies, European EMS companies must place sustainability at the heart of their operations.
With energy costs in Europe significantly higher than in many other global regions, the transition to renewable energy sources and the optimisation of energy consumption are critical to preserving competitiveness. Embracing sustainable practices not only ensures regulatory compliance but also enhances corporate reputation, supports customer loyalty, and unlocks operational efficiencies. In the long term, such initiatives drive cost savings through reduced emissions and improved resource management—positioning companies as responsible, future-ready players in the global market.
Uncertain Demand and Economic Volatility
Ongoing trade tensions and economic stagnation in key European markets—most notably Germany—have created an unpredictable environment for industrial demand, including in the electronics sector. Structural challenges such as limited innovation, persistently high energy costs, and mounting regulatory pressures related to sustainability continue to erode the EU’s industrial competitiveness.
A recent report by Mario Draghi underscores the urgency of comprehensive economic reform, calling for annual strategic investments of €750–800 billion to close Europe’s investment gap and reinvigorate growth, especially in high-potential sectors like green technology.
For EMS companies operating within this landscape, agility is paramount. Success will depend on the ability to adapt quickly to shifting market dynamics, invest in flexible manufacturing infrastructure, and champion innovation at all levels of the organisation. Coordinated, decisive action from both industry leaders and policymakers is essential to secure sustainable growth and safeguard Europe’s standing in the global industrial arena.
Talent Acquisition and Retention
The European EMS industry is facing an acute shortage of skilled labour, particularly in production and technical roles. This challenge is growing more severe as nations like Germany report approximately 700,000 vacancies, despite sluggish economic conditions. With unemployment rates remaining low across much of the EU, competition for qualified talent is intensifying—making it increasingly difficult for manufacturers to attract and retain the workforce they need.
As production shifts back to Europe and North America through reshoring efforts, bridging the talent gap becomes even more critical. EMS companies must respond by investing in workforce development initiatives, including targeted training programs, apprenticeships, and upskilling opportunities.
Beyond technical competencies, cultivating a supportive, inclusive work environment plays a vital role in employee satisfaction and retention. A motivated and skilled workforce drives operational efficiency, improves product quality, and enhances a company’s ability to innovate—ultimately reinforcing competitiveness in a rapidly evolving industry.
Regulatory Compliance and Evolving Standards: The Case for Deregulation
European EMS companies are increasingly burdened by a complex and expanding regulatory landscape. From environmental and product safety requirements to stringent labour standards, evolving EU regulations are driving up administrative costs and creating friction across manufacturing operations. While essential for ensuring high standards, these regulatory demands can reduce agility, delay time-to-market, and weaken competitiveness—particularly when compared to less-regulated global counterparts.
Industry leaders, including voices at the World Economic Forum, have called on the European Union to accelerate deregulation efforts in order to safeguard the region’s industrial future. As the U.S. continues to scale back regulatory constraints, Europe risks falling behind, especially in fast-moving sectors like artificial intelligence and advanced technology. Without a balanced regulatory approach, excessive compliance demands may stifle innovation, deter investment, and limit Europe’s ability to reclaim leadership in global manufacturing.
Final Thoughts
In 2025, European EMS providers are navigating a landscape shaped by deep geopolitical uncertainty, economic volatility, and persistent labour shortages—all of which are placing pressure on productivity and global competitiveness. Strengthening resilience through reshoring and local sourcing is no longer optional; it is a strategic necessity. At the same time, embracing digital transformation—through automation, AI-driven processes, and end-to-end digitalisation—can unlock substantial efficiency gains and long-term value.
Sustainability, too, is emerging as a critical growth lever, enabling companies to align with regulatory mandates while enhancing reputation and reducing operational costs.
To fully capitalise on these opportunities, Europe must also re-examine its regulatory environment. A measured move toward deregulation can reduce compliance burdens, enhance operational agility, and improve responsiveness to market dynamics—empowering EMS firms to compete more effectively on the global stage.
The text and data were prepared by Assel: https://asselems.com/
