Strategic Purchasing

EMS growth in North America will be modest

Over the last several years, there has been much discussion at trade shows and conferences about how electronics manufacturing is moving back from China to North America because of increasing labor rates in China and higher costs for transportation.

About 10 years ago, labor rates in China were the cheapest in the world and many electronics companies relocated their manufacturing from Mexico, the United States, Canada, and Europe to China to reduce overall manufacturing costs. However, as some industry analysts correctly predicted, labor rates in China increased dramatically. Most analysts say wages in China are increasing by about 20% per year and will continue to rise over the next several years.

As a result, when transportation and other costs are factored in, China is no longer the lowest cost manufacturing country for many companies for products that are sold outside of Asia.

Many electronics OEMs now are adopting a regional strategy for manufacturing. They are building their equipment in or near the markets where the products will be sold. In some cases, some manufacturing is heading back to North America from China. In other cases, OEMs are opting to build new versions of products in North America, including the United States if those products are to be sold in North America.

For instance, Apple is building its new MacPro computer in Austin, Texas, and key components for the computer are also manufactured in the United States. Lenovo, the world’s second-largest PC vendor, last year opened a computer production facility in Whitsett, N.C., to build the ThinkPad and other computers. GE has moved production of some appliances from China to its Appliance Park in Louisville, Kentucky. Google Glass, the wearable computer with a head mounted display, will be launched in 2014 and will be built by electronics manufacturing services (EMS) provider Foxconn in California.

Although some companies are expanding or beginning production of some electronics equipment in North America and using EMS providers, researcher IHS forecasts moderate EMS growth in the Americas. The researcher says in 2014 EMS growth in the Americas will be $45.5 billion, a 0.4% decline from 2013 when EMS revenue was pegged at $45.7 billion. (North America accounts for about 90% of EMS revenue in the Americas). Over the next five years, EMS revenue in the Americas region will grow a modest 2% per year.

One reason for the limited growth is that production of high-volume equipment, such as cell phones, laptops and media tablets, won't transition back to the North American market. Rather, production of low- to mid-volume, higher-value equipment will expand in North America or migrate back from China.

What does this mean for electronics buyers? It depends on what their companies’ manufacturing strategies are. For companies expanding manufacturing in North America, buyers may need to strengthen relationships with distributors or forge new alliances with suppliers they have not done business with before in North America to make sure their companies get all the support that they need.

Buyers may also have to qualify new suppliers for non-electronic parts that need to be built near manufacturing facilities.

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