Re-shoring—the return of electronics manufacturing from low labor-cost countries to North America-- may cause some purchasers at OEMs and electronics manufacturing services (EMS) providers to rethink their sourcing and distribution strategies.
Though the amount of manufacturing that has returned from China and other low-cost countries has not been overwhelming, some electronics companies are bringing back production to the United States, Mexico, and China. Rising labor costs in Asia, high transportation costs, and long lead times are often cited as reasons for re-shoring. In addition, some electronics companies that had considered moving manufacturing to China or other Southeast Asian countries are opting to keep production in North America for those reasons.
Large-volume electronics manufacturing has not returned to North America, and most executives in the electronics supply chain say it never will. However, some medium-volume manufacturing has returned and more will likely return over the next several years, according to distributors and EMS industry analysts.
Some large distributors say that electronics manufacturers that build 50,000 to 250,000 units per year are most likely to bring back manufacturing to North America. However, manufacturing involving millions of units, such as cell phones and media tablets, will remain in Asia.
Lindsley Ruth, executive vice president for distributor Future Electronics, recently told me that the manufacturing that is coming back to North America is for equipment that “probably should not have been taken offshore to begin with” because it was not high-volume equipment.
He added that re-shoring will provide “an impetus for growth in Mexico, although manufacturing may not come back to the U.S.”
“You'll see a shift of a lot of electronics to Mexico from Asia for consumption in the United States,” said Ruth.
At first glance, the return of any amount of electronics manufacturing would be welcome news for North American-based distributors and EMS providers, but the trend could benefit some distributors and providers more than others.
Electronics buyers at companies that re-shore will likely purchase components and other production materials from North American distributors. However, most large North American distributors have a global presence and likely are already supplying parts to manufacturers in China and other Asian countries. If manufacturing returns to North America, large distributors could retain business, but their sales would not necessarily increase—and they probably would not have a net gain in revenue.
The same is true with large EMS providers that have a global presence. They may keep business as the OEM returns manufacturing to North America, but they would not necessarily see a net increase in business.
In fact, there is a potential for both larger distributors and EMS providers to lose business when manufacturing returns to North America. Buyers at small to mid-sized OEMs that re-shore may feel compelled to reconsider their EMS options and may opt to use a small regional EMS provider that specializes in smaller production runs rather than a large global manufacturer that has production facilities in North America.
Small to mid-sized OEMs often use smaller or mid-sized EMS providers because they may get better service and support from the smaller manufacturer. A mid-sized OEM’s business may be more important to a smaller EMS provider than a large global manufacturer with hundreds of customers.
Smaller non-global EMS providers may also purchase parts from smaller distributors in addition to buying from large global distributors.
Return of manufacturing to North America will be an opportunity for smaller EMS providers to win more business and could also be good news for small distributors that the EMS providers use.