For hundreds of OEMs and EMS providers in the United States, Europe, Japan, Taiwan, and elsewhere in Asia, the allure of China's vast low-cost labor pool has proven irresistible. However, the savings realized by paying Chinese factory workers $1 a day may be so intoxicating that they are masking new costs and supply chain management issues that manufacturers are finding convenient to overlook.
This is not to say that China isn't a land of great opportunity for the electronics industry. Indeed, the world has barely begun to feel its real influence.
The problem lies in the false perception that low-cost production can fully compensate for other shortcomings. And the irony is that when they move to China, companies that persist in this mind-set will find that they are even more exposed to the vicissitudes of the global supply chain.
Several recent articles published in EBN have called out issues that, collectively, demand close attention. Instability in the global oil market, for example, is contributing to higher air and ocean freight prices, while a shortage of landing slots at China's principal airports is putting pressure on carriers to keep up with demand for their services.
Additionally, OEMs that have shifted procurement responsibilities to their EMS providers in Asia are having to dedicate management resources to ensure that their contract partners pass along savings made possible by their access to lower-cost components.
Indeed, the trend toward "localized" component purchasing could trigger other, more significant ramifications for manufacturers.
While many Asian parts vendors have lower operating costs than their U.S. and European counterparts, the danger is that they have few other virtues. Many are small and have never operated in a global marketplace and most have no supply chain infrastructure and will likely rely on their customers to manage this end of the relationship.
Moreover, OEMs consistently complain about Asian component makers' lack of quality controls, which can lead to higher test costs and compromise time-to-market advantages.
In other words, there is a cost of doing business that extends beyond the obvious fact that Asian chipmakers have lower prices, and this cost may become more apparent as worldwide business conditions improve.
Does this mean companies should re-evaluate their decision to shift manufacturing overseas? In many cases, no. But these same companies also have a responsibility to their customers, employees, and shareholders to run all the numbers--not just those associated with hourly wages.
E-mail comments to Andrew MacLellan at firstname.lastname@example.org.