If you work for an electronics product company, contract manufacturer, or component supplier, then you may ponder over which places in the world you should have your products made, or where you should establish manufacturing facilities or sales offices. Since I started tracking the electronics-manufacturing industry in 1985, I’ve witnessed mad dashes from one region to another: race from the USA to Mexico and to Scotland and Ireland. Afterward, flee from Mexico to China, grab lower-labor rates in Eastern Europe, then establish manufacturing in Vietnam. Later, it’s back to Mexico, build in India, then back to China, back to the USA, still in China. It’s quite the soap opera.
Here are some examples of electronics-manufacturing moves in recent history, by region:
Europe: Elcoteq opens a plant in Estonia, Nokia Siemens lays off 450 employees in Finland.
India: Jabil opens a plant in Chennai 2007; closes it in 2009.
North America: Celestica closes a plant in USA (Nashville); Foxconn expands in Mexico for Dell
China: CEC Telecom lays off a quarter of its China employees; Flextronics develops new facility in Suzhou (Wuzhong)
–Confused about which regions are hot and which are not? Let’s look at this strategically: in general, the hottest regions in which to manufacture are those where end customers reside. Regional manufacturing strategies can be best for bottom-line performance by allowing greater efficiencies in logistics, reducing costs and carbon emissions, decreasing supply-chain risk (through reduced lead times and improved responsiveness), and reducing total cost of ownership (when distance and risk overshadow lower labor rates).
Close-to-the-customer thinking also applies when the customers are product designers. It’s wise for electronics contract manufacturers to set up prototype facilities and for component companies to establish sales centers near electronic-product companies’ designers. (Our clients in sales and marketing have been trying to convince their management of this for years.)
In the mid-1990s when writing one of TFI’s Contract Manufacturing from a Global Perspective reports, my team and I debated whether Greenland would be the next hot region for electronics manufacturing. It was mostly in jest to underscore how far-flung manufacturing locations were becoming. Of course, with regional-manufacturing thinking, we don’t recommend setting up manufacturing in areas for only 55,000 potential customers (which is the population there).
What are your thoughts about regional manufacturing? Are you willing to eschew manufacturing where few if any customers reside?
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Ironically, Greenland is physically much closer to European and American demand centers than China. At first glance, Greenland might look like a great, strategic location.
But distance to markets is only one measure of desirability.
Availability and cost of logistical support, local manufacturing resources, and local demand all must figure into site selection too. This is why we see such concentrations in other locales instead.
When the customer is small and just getting started with their electronics, it is necessary for the manufacturer to be close to the customer. As the customer becomes larger, and the products more mature, it becomes cost effective to move manufacturing to lower cost regions of the world such as China. And in many cases there is the hybrid model where the board level production is done in China and the final integration (box build) is done back here in the U.S. close to the customer. This is the way it’s commonly done and it makes sense.
What a great world we live in today, when the delivery of goods and services can be scaled to where the business opportunities are!
- Use an ODM to design and seemlessly manufacture,
- Find a CM near your customer to do final assembly and distribute, or
- Engage a 3PL service to handle the expensive warehousing and logistics tasks
while YOU concentrate on building a regional business!