EMSs are now more flexible, leveraging hybrid manufacturing models that offer the benefits of Far East manufacturing capabilities and associated cost, while maintaining most of the benefits of onshoring.
After enjoying years of growth, the Chinese economy is losing steam. Exports as a share of GDP are at a record low regardless of the undervalued Yuan. Nonetheless, the country’s service sector has expanded as a result of increasing wages and disposable incomes. In total, the average worker's take home pay has tripled in a decade, making times tricky for firms that base their off shoring models on low labour cost.
Some are quick to declare the demise of offshore electronics manufacturing in China, an opinion which is compounded by concerns over political instability, lack of transparency and rising costs. Movement of offshore production back home is likely, but talk of China's impending collapse is hyperbolic.
Taiwan went through a similar transition 14 years ago, moving from a manufacturing to a tertiary economy. As a result, industrial output shrank to under a third of the country's GDP. While offshored electronics manufacture in Taiwan survived, its domestic firms, however, have lost their innovative edge due to shortcomings in Taiwan's education system. The country's electrical manufacturing strength lies in its skilled labour force and the cheap raw material costs in the region.
Electronic manufacturing services (EMS) and original equipment manufacturers (OEMs) wishing to cut costs have a number of options. Some will 'near-shore,' moving their production closer to their existing markets, avoiding domestic locales and choosing underdeveloped neighbours. Balazs Csorjan, an investment promotion specialist, identifies that a number of German electronics manufacturers are leaving the Far East and forming clusters in Central and Eastern Europe, close to the region's leading universities. This provides a healthy middle ground between access to market and cost of production that seems ripe for continued growth. About 400,000 people are presently employed in electronics manufacture in Poland, Hungary and the Czech Republic; a drop in the ocean compared to China's 7.51 million headcount in 2005.
Figure 1: EMSs are now more flexible, leveraging hybrid manufacturing models that offer the benefits of Far East manufacturing capabilities and associated cost, while maintaining most of the benefits of onshoring.
General Electric has taken steps into re-shore their operations domestically. Increasing labour costs, oil prices and faster production processes mean that moving production to Kentucky outweighs the benefits of manufacture overseas. Additionally, consumer demand for 'Made in America' has driven these decisions among brands that are choosing domestic production.
EMSs are able to operate with greater flexibility, allowing some to turn to hybrid manufacturing models that offer customers the benefits of Far East manufacturing capabilities and associated cost, while maintaining the majority of the benefits of onshoring. Depending on the organisation, various models may be appropriate. For example, some choose to manufacture domestically and then shift as volume requirements increase. A blended model allows products to be built partially offshore and then completed at home, where they can be subjected to rigorous testing to ensure quality.
Firms that have begun to use hybrid manufacturing model include Apple, Electrolux and Lantronix, who have begun to reorder their Chinese operations. Lantronix is a particularly interesting case since their model ships finished goods to European and Asian Markets, but sends semi-finished products to Los Angeles, saving on shipping cost and ensuring maximum flexibility in the competitive U.S. market.
Innovative use of offshore hybrid systems can give your business a strong competitive advantage that can be adapted to changing market conditions. The traditional dichotomy between on and offshore is a thing of the past with electronics manufacturers increasingly adopting creative shoring solutions that suit the requirements of their businesses.