In the process of enterprise operation, there will always be risks from various aspects, which often bring incalculable losses to the enterprise. Enterprises need to adopt effective risk management measures to address these risks and reduce the impact of uncertainty on their operations.
There are many types of risks for PCB enterprises, mainly including macroeconomic, financial, raw material, market, technological innovation, management, and environmental protection aspects. And enterprise managers can choose the most effective way to purposefully and systematically reduce risks, reduce or eliminate losses of the enterprise through understanding, measuring and analyzing risks. Below, we will analyze these risks one by one, hoping to help businesses prevent potential risks.
1、 The risk of macroeconomic fluctuations
PCB is a key electronic interconnect for electronic products, and its development is closely related to downstream industries and has a significant correlation with the global macroeconomic situation. Macroeconomic fluctuations will have varying degrees of impact on downstream industries such as industrial control, medical devices, automotive electronics, communication equipment, consumer electronics, etc., which in turn will affect the demand of the PCB industry.
Global economic growth is at risk of slowing down in 2023. The uncertainty of the economic outlook has increased, and the international economic situation is complex and ever-changing. If there are adverse changes or adjustments in the international and domestic macroeconomic situation, as well as in the country's fiscal policy, monetary policy, trade policy, and other macroeconomic policies, it may have an adverse impact on the company's operating performance.
Response measures: Continuously closely monitor and regularly analyze the potential impact of external economic environment changes on the company, and prepare response plans.
2、 Financial risk
Financial risk is one of the core contents of enterprise risk management. Specifically, it includes cash flow risk, financing risk, capital operation risk, and foreign exchange risk. Among them, cash flow risk also includes accounts receivable, etc. For PCB companies, many companies in the industry have reported an increase in accounts receivable.
Because PCB products are customized products, PCB companies usually provide downstream customers with a certain credit period. However, if customers are unable to pay for goods on time and request an extension of payment terms, the company's accounts receivable collection speed and capital turnover speed will be affected, and the company will face the risk of a decrease in accounts receivable turnover rate, and there may be a risk of bad debts in accounts receivable.
Response measures: Through regular inspections and other means, closely monitor the business dynamics and credit changes of downstream customers, and actively adopt effective response plans; Continue to strengthen accounts receivable management, increase cash flow protection, and effectively control potential bad debt risks; Purchase commercial credit insurance for trade with customers, and have the insurance company compensate for accounts receivable losses according to the agreement, in order to effectively avoid the risk of bad debts in accounts receivable.
3、 Market risk
Market operation risk refers to the risk caused by errors in business management decisions or changes in business opportunities, resulting in corresponding changes in market conditions. The most obvious and likely occurrence is the elimination of old technologies due to the emergence of new technologies, and the industrial chain also changes accordingly.
The PCB industry has low concentration, with numerous manufacturers and ample market competition, resulting in low market concentration. Faced with a large number of PCB manufacturers worldwide, the market competition in the PCB industry is still intensifying. If the company cannot continuously improve its technological level, production management capabilities, and product quality to cope with market competition in the future, there is a risk of declining business performance or being surpassed by market competitors.
Response measures: In accordance with the established development strategy and business plan, carry out in-depth market development, product research and development, and talent development, continuously enhance the company's core competitive advantages, and continuously strengthen its market competitiveness; Based on the macro environment and market development trends, timely formulate the next development strategy and business plan, continuously develop advantageous products, enhance service capabilities, actively create new performance driving factors, and actively respond to market competition and challenges.
4、 Raw material risk
The PCB industry is not only a heavy asset industry, with large initial investment and heavy assets, but also raw materials account for a large part of the manufacturing cost of PCBs. According to relevant data, most PCB companies have direct materials accounting for over 50% to 70% or even more of their main business costs.
The main raw materials used in the production and operation of PCB production companies include copper-clad laminates, copper balls, copper foils, dry films, semi cured sheets, inks, and gold salts. The procurement cost of the main raw materials is affected by factors such as the prices of bulk commodities such as copper, oil, and gold, market supply and demand relationships, and phased environmental regulatory policies. Due to the slower transmission speed and price increase compared to the increase in raw material prices, if the company cannot transfer the risk to downstream customers when the prices of major raw materials rise significantly, it will have an adverse impact on the company's business performance.
Response measures: Continuously optimize product structure, enhance product added value, continuously improve core competitiveness and bargaining power; Strengthen refined management capabilities, optimize production processes, improve production efficiency, and further reduce operating costs; Continue to increase market promotion and customer development efforts, effectively improving the company's market share and revenue level; Establish long-term strategic partnerships with core suppliers, with the goal of win-win cooperation, to jointly address the adverse effects of changes in raw material costs.
5、 Product and Technology Innovation Risks
Product innovation is the core for enterprises to maintain competitiveness and achieve sustained growth. However, the product development process is very complex and uncertain, and at the same time, the changes in the market environment are also very drastic, posing extremely high risks to product development. Enterprises should always pay attention to the consistency between research and development results and market demand during the R&D process, and adjust the R&D direction in a timely manner according to market trends. Otherwise, the risks caused by R&D failure may have a significant impact on the subsequent stages of the enterprise lifecycle. The risks of research and development mainly come from market, technology, management, and other aspects.
Nowadays, PCB companies are increasingly emphasizing innovation and continuously increasing investment in research and development. Due to the special nature of PCB products, PCB product research and development and large-scale production require the integration of multidisciplinary technologies such as electronics, machinery, computer science, optics, materials, and chemical engineering, which belong to technology intensive industries. The optimization and upgrading of processes, the development and updating of products, and the improvement of product performance all rely on innovation. Technological innovation and product innovation play an important role in maintaining and enhancing the company's market position. However, due to the uncertainty of innovation, if a company's future innovation deviates from customer needs or industry development trends, or if the transformation of innovative achievements fails, it will result in the company's innovation not achieving the expected results, which will have a negative impact on the company's competitive position and business operations.
Response measures: Always adhere to independent research and development, continuously increase R&D investment and efforts to transform achievements; Pay close attention to changes in the demand for terminal products in downstream application fields, actively select areas with good development prospects that match the company's development strategy, and focus on layout, proactive innovation, and technological reserves; Deepen product technology cooperation and exchange in emerging market fields, and further build a high-quality R&D talent team.
6、 Manage risks
Managing risks mainly involves human risks, including shareholder management, customer management, supply chain management, and internal personnel management within the enterprise. The main risks for shareholders are the risk of cooperation breakdown caused by incompatible values, the main risks for customers are market risks caused by product quality issues and decreased service satisfaction, the main risks for the supply chain are penalty risks caused by material delivery quality and time, and the main risks for internal personnel of the enterprise are labor disputes, litigation, etc. Regardless of the type of risk management, incentive and constraint mechanisms are necessary, which must be agreed upon in advance, adjusted through consultation, and transparent in the operational process. Management itself also carries risks, which manifest as information asymmetry, poor management, and decision-making errors within the enterprise. The main sources of risk management include decision-making errors by enterprise managers, complex organizational structure, lack of corporate culture, and imbalanced management processes. Due to the fact that management is an art of human beings, the production and operation activities of enterprises highly rely on managers, and the decisions of managers are directly related to the future survival and development of enterprises. Therefore, managers are the main source of enterprise management risks.
Response measures: Enterprises should conduct a thorough assessment of internal and external management risks and establish a set of agreement systems that are suitable for business development and meet the main interests and demands of all parties.
7、 Environmental related risks
The production process of the printed circuit board industry involves various physical, chemical and other industrial links, including electroplating, etching and other processes, which generate various pollutants such as wastewater, exhaust gas, noise and solid waste. The production process has high requirements for environmental protection. With the increasing attention of the country to environmental protection and the continuous improvement of public environmental awareness, the country may raise environmental standards and impose more severe penalties on the responsible parties for environmental pollution incidents. The continuous increase in environmental investment may have an impact on the company's performance; If the company is held responsible for environmental pollution incidents, it may have adverse effects on the company's production and operation.
Response measures: Strictly follow the requirements of laws and regulations such as the Environmental Protection Law of the People's Republic of China for environmental protection, monitor and handle pollutant emissions in accordance with laws and regulations; Continuously improve the company's environmental protection system and related prevention and control measures, actively carry out clean production supervision and audit work, and reduce pollutant emissions from the source of production; Continuously strengthen investment in environmental protection, increase or renovate the company's environmental protection equipment and facilities, and improve the ability to handle and dispose of pollutants and waste; In response to the national "dual carbon" strategy, we actively promote ISO14064 and ISO50001 certification, with a focus on green infrastructure, clean production processes, circular resource utilization, low-carbon energy utilization, and other aspects. We will further make positive efforts to save energy and reduce emissions, promote carbon peak and carbon neutrality goals.
8、 Trade friction risk
Especially for companies whose products are mainly exported, they mainly sell to regions such as Europe, America, and Asia. Although China has become the world's largest PCB production base with strong capacity to digest production. However, if international trade frictions lead to restrictive policies, increased tariffs, and other forms of trade protectionism against China's PCB products by relevant countries, it will have a certain impact on China's PCB industry, which may have an adverse effect on the company's business development.
Response measures: On the basis of stabilizing existing overseas market business, the company fully considers the advantages of various regions at home and abroad, expands globally, and increases the development and introduction of high-quality domestic customers to reduce the risks brought by trade frictions.
9、 Risk of Human Resource Loss
Talents are the foundation of enterprise development. PCB products are customized products, therefore requiring high production flexibility and difficult management. There is a strong demand for excellent management talents and high-end R&D talents, as well as high-quality frontline technical workers to ensure the provision of high-quality products to customers.
With the continuous advancement of urbanization and the acceleration of population aging, the contradiction between labor supply and demand is becoming increasingly prominent. The rise in labor costs will directly increase the cost burden on enterprises and squeeze their operating profits. If the company cannot attract or retain outstanding talents in the future, it may face a shortage of talent, which will have a negative impact on the company's ability to maintain innovation and growth.
Response measures: The company should attach great importance to human resources work, continuously improve and enhance employee compensation and benefits, continuously improve talent incentive systems, and implement equity incentive plans and high potential talent training plans for middle and senior level and core backbone employees. Professional management consulting teams should be hired to regularly hold leadership training courses to enhance the leadership ability of the company's management team; Simultaneously adopting measures such as salary and performance evaluation mechanisms to maximize the effectiveness of management; We can strengthen the establishment of long-term and stable school enterprise cooperation with well-known domestic universities, and continuously introduce high-quality talents for the company's future development; In addition, digital and intelligent construction can be strengthened to reduce enterprise employment.
10、 Risk of inability to digest production capacity
In addition to the above risks, there is also a risk that new energy production capacity cannot be digested. In recent years, the PCB industry has expanded its production capacity significantly, and there is a risk that new energy production capacity cannot be digested due to macroeconomic fluctuations, changes in market demand, intensified industry competition, and ineffective business expansion. In response to this, PCB companies can strengthen their marketing efforts, dig deep into existing customer orders and undertake new customer orders, while controlling the pace of capacity release based on market and order conditions.
In addition, for enterprises with a large proportion of product exports, the risk of exchange rate fluctuations has a significant impact. If there is a significant fluctuation in the exchange rate, it will directly affect the company's import raw material costs and export product prices, resulting in exchange gains and losses, which in turn will affect the company's net profit. It is recommended that these companies monitor exchange rate trends in real-time, collaborate with the business department and procurement management department, and combine with the company's future production planning to flexibly change trade settlement methods to reasonably arrange foreign currency structure and quantity, balance foreign currency income and expenditure, and appropriately carry out foreign exchange derivative transactions to lock in costs, in order to control and avoid exchange rate risks and reduce the adverse impact of exchange gains and losses on business performance.
The specific situation and risk management needs of each enterprise may vary, therefore, it is recommended that enterprises consider their own actual situation comprehensively when formulating risk management strategies. In the face of ubiquitous risks, it is hoped that all PCB companies can actively engage in risk management, anticipate risks in advance, and respond accordingly, rather than passively accepting risks.