HEERBRUGG, Switzerland -- Across North America and Western Europe, electronics manufacturers of varying sizes are taking steps to differentiate themselves and hold their own against the "Made in China" juggernaut of the last 15 years. These manufacturers are helping to erase the notion that the West is not competitive while providing a glimmer of hope for the future of Western manufacturing.
We recently visited EMS Escatec, the Swiss specialist in advanced electronics production, custom designs and cradle-to-grave manufacturing and supply chain services. Despite its relatively small size -- about $200 million in annual sales -- Escatec is demonstrating with some modest success why electronics production is still viable in high-cost locations in Western Europe and North America.
[Get a 10% discount on ARM TechCon 2012 conference passes by using promo code EDIT. Click here to learn about the show and register.]
Escatec's offerings include telecom equipment so sophisticated that it requires high-level security encryption. That means manufacturing the gear anywhere outside of the West is simply not an option.
Then there are products that require precision engineering, meaning that outsourcing of production to Asia is a non-starter for OEM vendors and equipment users. Much of this sensitive equipment is used by governments, the military and the security-conscious financial services industry. Chinese and other Asian contract manufacturers may offer lower costs for such equipment, but as long as security remains a top priority, production will remain at Western companies able to guarantee security and precision.
"Some production will never leave the West," said Daniel Pfeifer, global R&D manager at Escatec. "What we do in Switzerland is make higher value, high-mix and low-volume products that are critical to the customer's operations. There are some products that we make here that the customer won't let us ship even to the United States.”
Escatec's structure and business strategy reveals the future of Western manufacturing. The company is owned by a Swiss entrepreneur but has operations in both Europe and Asia as well as partnerships in North America. It offers international clients design, project management, prototyping, testing and regulatory approval for equipment used for critical applications. While volumes are typically small (sometimes only a few hundred units), the cost of its services can be high as can Escatec’s profit margins.
@jackOfManyTrades: We still make a fair bit of stuff here. The question is just what.
The manufacturing that migrated off shore was high volume, low price commodity products, like semi-conductor electronics. The manufacturing that stayed was higher up the value chain, commanding higher prices, or was the sort of thing that had to be made close to where it would be used. (As an example of the latter, there are several outfits near me that manufacture custom doors and windows. You give the measurements, they make and install. That's not something doable overseas.)
Another example is auto assembly, where a complete car *could* be made overseas, but it's cheaper and faster to market to assemble the finished product here and ship to the seller, because of the customization the buyer can specify when they place an order.
The issue with volume is where it goes. If the market is large enough that you can sell everything you make in your own country, you're fine. If you need to export, you may have issues because others can make things cheaper than you can, and you can't compete on price.
It is received wisdom in the UK that "we don't make anything anymore". But received wisdom doesn't match reality: the UK is the 6th largest manufacturing nation in the world and UK manufacturing output reached an all time high in 2007, just before the recession. I suspect there's a similar situation in the US, too: I bet your manufacturing industry is much larger than is commonly supposed.
This type of business strategy is built on the same IP concepts that Apple exerted in their case against Samsung. If you take these manufacturing techniques to Asia they will be copied, destroying your value proposition and differentiation. Will folks stand up and protect the IP legal infrastructure or cherry pick destroying it for all. It may be emotionally cathartic to throw Apple under the bus but in so doing, you're slitting the manufacturing throat of the West.
Join our online Radio Show on Friday 11th July starting at 2:00pm Eastern, when EETimes editor of all things fun and interesting, Max Maxfield, and embedded systems expert, Jack Ganssle, will debate as to just what is, and is not, and embedded system.