Charlie Barnhart & Associates has been reporting for several years on the trend toward regionalization — building products in the same region as the end market — in electronics manufacturing. What began as a trickle has become more like a torrent. OEMs in Western Europe are moving to Eastern Europe. Those in the US and Canada are moving to Mexico, and some projects are moving from China to other Asian countries. There are several reasons for these decisions.
Rising cost is a primary driver. The costs of Chinese labor, fuel, and transportation are all increasing faster than most expected. A total cost of outsourcing analysis puts China and Mexico near parity, according to a recent ONC Special Report comparing the two places.
A second driver is increasing global risk. Charlie's series identifies nine risk factors that OEMs are responding to, including No. 5, Concentration of Supply Chain in Asia.
But there's another driver. CBA is finding the level of satisfaction among midmarket OEMs with their EMS supply solutions at an all-time low. At the same time, expectations have never been higher. Combine these two perceptions, and many midmarket OEMs are abandoning their cross-hemispheric global supply chains and opting for one that involves fewer time zones. It's like consumers getting fed up with Wal-Mart and deciding to pay a little more for a neighborhood shop, or those who want local food sources and are willing to pay more for community-supported agriculture.
Customer service, reliability, and freedom from global risk are premium factors that midmarket OEMs increasingly value. Regional EMS companies are the winners in this analysis. These companies are able to get better margins than their larger peers, and they focus on narrower niches that enable higher levels of customer satisfaction. Watch for major shifts in the EMS industry's core value proposition in 2012.
For more information about CBA's next report, “Beyond Outsourcing,” contact .