How does regulation impact the electronics sector?

Many electronics sector companies are tightly-regulated. There are a huge number of environmental and product quality regulations around the world. For many companies, these regulations cause substantial costs to the supply chain. Complying with government regulations may require the use of specialized inspections, software and equipment.

Regulations have a significant impact on electronics companies. Businesses must factor these costs into expenses and pay significant fines for non-compliance with regulations. Other countries also regulate the industry at varying levels. Some countries have little or no electronics industry regulation, while others heavily regulate pollution and environmental impact.

Supply chain expenses for electronics sector companies are typically very high and increase whenever new regulations place a higher strain on production. Regulations contribute to higher supply chain costs by increasing expenses associated with production, packaging, distribution and electronic equipment disposal. Environmental regulations often specify how raw materials are obtained and purified for use.

Some laws restrict acquiring materials from conflict zones. These regulations are intended to reduce funds that support terrorism and funding for restrictive regimes. Other guidelines dictate how toxic substances should be used in an effort to better protect consumers and provide a safer workplace for employees. While they provide benefits at one level, these guidelines increase expenses and often cause higher product prices.

To maintain compliance with government regulations, many companies must evaluate their supply chains using outside resources and consultants. This process may be expensive, and changes to the supply chain may require using different production methods and materials. Some of these changes introduce inefficiencies and increase production costs for the business. The higher costs may reduce a company's profitability and competitiveness.

According to a report from the National Association of Manufacturers (NAM), typical large American companies with more than 100 employees paid around $9,083 per employee in regulatory costs during 2012. In total, regulation across the electronics sector and other American industries amounted to at least $2.03 trillion in 2012.

Many of these regulations tend to be stronger in the United States and European countries. The European Union adopted substantially increased environmental regulations in 2003, and California quickly followed with a law similar to the EU version. These laws restrict the use of certain substances known to be toxic. Restrictions apply to the manufacturing of consumer goods and their proper disposal.

Outside the United States, many countries lightly regulate environmental impact but increasingly regulate pollution occurring during production. As electronic manufacturing grows within these emerging economies, additional regulations are passed to reduce any negative environmental impact associated with production. Electronic waste is regulated in China, South Korea and India, and these countries increasingly regulate toxic materials. Japan requires labels with detailed ingredients and a list of toxic substances in electronics products. Latin American countries generally have more limited laws for regulating electronic waste and waste disposal than some of the other major economic regions of the world.