It’s not just about China anymore
By Jim Carbone -- Purchasing, 9/28/2006 1:19:00 PM
It’s no secret that many electronics companies use China as a location for low-cost manufacturing. However, buyers involved in outsourcing decisions should also make sure their companies have manufacturing in other low-cost countries.
“It’s not just all about China” says Mike Andrade, senior vice president of communications and global accounts for electronics manufacturing services (EMS) provider Celestica in Toronto. Having manufacturing in one low-cost area can be risky for a variety of reasons, including geopolitical unrest and catastrophic weather events among others. “It has been a China or bust attitude in the last little while and it shouldn’t be,” says Andrade.
He says Celestica’s strategy is to have manufacturing in multiple low- cost regions such as China, India, Mexico and Central and Eastern Europe.
“In the fourth quarter we will have 80% of our business in low-cost regions,” says Andrade. “Five years ago, only about 20% of our manufacturing was in those regions and the rest in North America. This has been conscious decision for us. We see the future of electronics manufacturing supply chain in those regions,” he says.
There are challenges when OEMs or EMS companies face when moving into low-cost regions including finding competent suppliers and dealing with tariffs and duties.
Often certain regions will have a supply base for low-tech commodity materials. For instance EMS provider Jabil Circuits has factories in Hungary, Poland and the Ukraine. Chief Operating Officer Mark Mondello says the supply base in Eastern Europe is mature “far as the types of commodities we need.” That includes sheet metal, plastics and tooling. Most electronic components are shipped in from Western Europe and Asia.
“I don’t envision a time in the next five years where we will have a completely local supply chains,” says Mondello. “It will always be a blend of local and global supply,” he says.
Andrade says there are other challenges in doing business in Eastern Europe besides finding reliable suppliers. “It’s a bit like the Wild West. Call it the Wild East,” he says. Celestica is in Central and Eastern Europe. “The farther east you go the crazier it gets. Wages get lower, but ability to find people and stability for work environment starts to be a problem.” he says. Tariffs and duties also come into play. “In the Czech Republic you can ship consumer goods with no dramatic amount of tariffs and duties, but with places like Romania or more eastern countries that’s not necessarily so,” says Andrade. “Romania is on the brink between the Wild East and Central Europe.”
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