Navigating Regulatory and Trade Challenges in the Electronic Components Industry

The global electronic components industry is a dynamic sector that spans countries, states, and provinces worldwide. While the industry’s expansive supply chain has helped enable the widespread use of these components, it is due to this large reach that the industry faces regulatory and trade hurdles. Over the last several years, geopolitical strife has been one of the biggest problems threatening supply chain stability and component availability. Escalating political polarization and globally consequential elections can have massive impacts on the supply chain through trade restrictions and evolving regulations.

Trade and regulatory challenges can significantly impact pricing, lead times, availability, and overall business operations. Each country may have different requirements for producing some materials, such as REACH and RoHS which ban or limit the use of specific chemicals or elements in semiconductor manufacturing. It can become even more complicated when countries have varying federal and state-level regulations.

Similarly, the ongoing trade war between the United States and China is affecting supply chain stability every few months. Increased tariffs or growing government restriction lists impact original component manufacturers (OCMs), original equipment manufacturers (OEMs), contract manufacturers (CMs), and electronic manufacturing service (EMS) providers alike. Some OCMs, like Nvidia, may try to get around certain trade restrictions by developing less powerful versions of products that face export bans.  

However, it is not a one size fits all solution. Regulations and trade issues can shift quickly, just like market demand, which impacts the supply chain to an equally disruptive degree. To successfully navigate these challenges rapidly and remain competitive, there are a few areas in which organizations should invest.

Stay Informed and Compliant with Regulations

The easiest way to remain ahead of regulatory changes is to keep up to date on the latest requirements by monitoring international trade laws, environmental regulations, and industry-specific standards. To ensure compliance on a grand scale, several international committees issue regulatory standards that dozens of countries recognize. This includes the International Organization for Standardization, ISO, which issues the most used certification regarding quality within the electronic components industry, ISO 9001:2015.  

Being certified by relevant international industry-specific governing bodies for electronic component distributors can help your organization remain compliant. These international governing bodies issue audits in a timely manner to ensure continued compliance, which helps keep organizations remain aware of any changes that occur to avoid penalties. Due to these regular audits, consistent employee training and robust documentation practices ensure conformity alongside a paper trail that can be quickly reviewed if necessary.  

OEMs, CMs, and EMS providers can ensure product compliance by procuring components from organizations that possess these specific certifications.  

Diversify Your Supply Chain

One of the biggest problems contributing to trade and regulatory hurdles is the lack of geopolitical diversification. Since the global supply chain is becoming increasingly vulnerable to geopolitical strife, procuring components from one supplier or suppliers in one geographical area carries heightened risks. The U.S.-China chip war exemplifies how susceptible regions of the global supply chain can be to export restrictions.  

Chinese OEMs, CMs, and EMS providers are currently struggling to advance domestic semiconductor manufacturing due to limited, or outright banned, access to advanced lithography machines by ASML. As a result, China has placed restrictions on critical raw materials, including gallium and germanium. Should tensions escalate, further suffocation of trade between allies of either country may amplify.  

Organizations should adopt multi-sourcing strategies for critical components to avoid these trade challenges and reduce dependency on single sources. This will provide greater flexibility in the face of supply chain disruptions that are caused by geopolitical conflict affecting trade.  

Practice Risk Management and Monitoring

Even the best-laid plans of mice and men often go awry, so it is pertinent for any organization to develop a risk management plan. This includes monitoring the geopolitical market to identify potential regulatory or trade risks. When a risk is found, mitigation strategies, such as alternative sourcing, are necessary to avoid a greater disruption to your supply chain.  

One of the most critical steps any OEM, CM, or EMS provider can take is removing risky components prone to disruption from their parts list. This includes sole sources, components that lack multiple suppliers or active alternates, making them a high risk for disruptions such as trade issues. Removing them from a bill-of-materials (BOM) can ensure greater stability and circumvent many trade challenges.

Similarly, organizations can take it further by joining industry associations or advocacy groups within the electronic sector to help build stronger relationships between suppliers and regulatory bodies. This can promote a better understanding between policymakers and electronic component organizations to create more effective responses to trade challenges and regulations.  

OEMs, CMs, and EMS providers can also utilize advanced technology to gain real-time access to supply chain data on inventory levels, lead times, and market trends, enabling proactive decision-making in a short time window. With predictive analytics, businesses can identify upcoming choke points where trade issues may cause component unavailability and develop management strategies to mitigate the fallout.

Adopt Sustainable Practices

As the world pushes towards net-zero emissions, more emphasis is being placed on sustainable practices. Continued implementation of green initiatives and environmental regulations will likely grow with each passing year. As sustainability is prioritized, adhering to international environmental standards will be paramount to ensure smooth global trade operations.

Now is the best time to demonstrate commitment to sustainability by adopting practices that reduce waste, use eco-friendly materials, and adhere to international standards. Making sustainability a company priority ensures that organizations do not run afoul of international environmental regulations. Furthermore, making sustainability a company-wide focus will aid in reducing waste, saving previously lost capital. Sustainable programs can also enhance a company’s reputation among customers, increasing the likelihood of more fortuitous business relations.  

Sustainable practices also keep an organization abreast of which chemicals or raw materials have been or will likely be added to prohibited materials lists, like REACH and RoHS. This helps keep organizations ahead of any regulatory challenges that may arise should a chemical or element be banned.

Use an Electronic Components Distributor to Help Navigate these Challenges

Overcoming regulatory and trade issues in the electronic components industry requires a proactive and strategic approach. It can be difficult for small OEMs, CMs, and EMS providers to remain aware of regulatory changes or trade challenges as they occur. Devoting resources to training and market monitoring can be instrumental in preparing for disruptions caused by trade and regulatory problems.  

However, preparing can be difficult if a business lacks the expertise or means to identify areas more susceptible to these disruptions. Sourceability’s digital tools, Sourcengine and Datalynq, can help organizations effectively navigate these challenges through real-time market monitoring and its global e-commerce platform, which can ship from anywhere to any destination.  

Sourceability’s experts ensure compliance with international standards as the company is certified in ISO 9001, ISO 14001, ANSI/ESD-S20.20, and AS6081. This ensures buyers have the documentation necessary to provide regulatory bodies, if necessary, should it be required. Similarly, because of Sourceability’s global team, we can help you get components for a lower price by shipping elsewhere if trade tariffs in your country are higher.  

Rising geopolitical volatility will likely continue to impact the electronic components supply chain, and trade wars will only add fuel to the fire. To navigate these problematic conditions, the best next step is to work with an electronic components distributor who can help you stay aware of issues. Get in touch with Sourcengine’s experts today.