Ad
Ad
Ad
Ad
Ad
Ad
Ad
Ad
Electronics Production |

Is the Migration of Electronics Manufacturing to Asia Slowing?

This is a question that seems to be on people's minds. There are effectively three issues that are slowing the migration of electronics manufacturing to Asia: rising labor costs in China, greater consideration of proper Total Cost of Ownership analysis in outsourcing decisions, and the new trend of insourcing by certain OEMs.

According to analysis by Charlie Barnhart & Associates, since the end of CY06, the average, non-weighted cost (i.e., the cost to the EMS) of Fully Burdened Labor in China for PCBA is up over 50% and over 100% for Box Build. This rising cost of labor in the most popular destination for electronics manufacturing outsourcing has resulted in other countries, notably Mexico, India, and Vietnam, becoming more cost competitive. Mexico should benefit from this trend especially for goods destined for the U.S. market. The electronics manufacturing industry has for years pursued the lowest labor rates around the planet in hopes of providing their OEM customers with a lower cost solution. This worked well in some cases and countries for some years, but once fuel prices skyrocketed the risks associated with this approach became clear and OEMs began to rethink their cross hemispheric outsourcing solutions. In a proper Total Cost of Ownership analysis, direct labor rates are one of many issues considered, and the cost improvement it can offer can be quickly eliminated when considering other important issues like transportation, support, and inventory costs. A significant yet still minor trend in the industry is that of some OEMs returning to a degree of “self build.” Most OEMs always maintained in-house manufacturing capabilities, even while outsourcing a majority of their printed circuit board assembly, which is the primary service of the EMS industry. OEMs had also established their own facilities in the same low cost regions as their EMS suppliers. Whether or not OEMs return to greater self build is subject to debate in the industry. Charlie Barnhart has already stated his opinion that the pendulum towards outsourcing will start to return in 2Q 2012. The issue here is that OEMs are starting to reconsider the impact that outsourcing of their electronics manufacturing has had on their cost structures and product quality levels, and some are deciding that they can do it better than the EMS industry can. In the meantime, the pursuit of the next low cost region continues with countries like India, Vietnam, Ukraine, Tunisia, and Macedonia garnering the attention of the industry. CBA's recommendation has been and continues to be that no two engagements are alike, and lemming-like behavior in search of 'low cost labor' can lead to expensive mistakes in outsourcing. OEMs should consider a proper 'FIT' – flexibility, integration, and timing – when designing a supply solution for their electronic products. ----- Author: Eric Miscoll, Charlie Barnhart & Associates

Ad
Ad
Load more news
March 28 2024 10:16 am V22.4.20-1
Ad
Ad