Onshoring Continues to Gain Ground

The talk has ended and the deeds have started: Global companies are choosing a new location for low-cost manufacturing -- North America. That's the big news in IPC's third-annual report, "OnShoring in the North American Electronics Industry."

The significant change since IPC's first report is that we now have a handful of major companies that have built production facilities in North America. "This year the question was how onshoring has affected the operation of the companies that actually did it," Sharon Starr, research director at IPC, tells Design News. "A lot of companies are interested in the idea and they're considering it or planning it, but there are also a few that have actually put their toe in the water."

She notes that in the past IPC asked whether companies were considering onshoring. This time around, the firm asked how it's working it. "At first we asked whether it was really happening and what the drivers and determents were." This time, IPC is asked how it's working out. "About half said they experienced increases in direct cost. The other half said they did not see any increases in direct costs. All of them saw decreases in management costs and management time."

Even while IPC is documenting the reality of the shift in manufacturing back to North America, the report also notes this is still a very recent trend. "It's quite new for all of them," says Starr. "This has only been going on for the last year and a half, so the jury is still out on how successful it is to bring manufacturing back."

Reasons for returning manufacturing to North America vary. The report found a number, including "dramatic increases in wages for Chinese workers in recent years." Wages in China have nearly doubled since 2008, and the minimum wage is set to increase 13% per year for the next five years. The report also pointed to "high productivity rates in the US." They are significantly higher in the US than in most other countries.

The report also pointed to "substantial hidden costs" in offshore manufacturing. While labor may be cheaper, components are often more expensive, especially if they have to be shipped to the manufacturing location from other markets. Companies also pointed to the difficulty of managing production that is half a world away.

Mexico becomes a beneficiary of reshoring
Not all companies that bring their production back to North America are looking at a US location. Mexico has become a hot production spot. Just this year, Mexico's labor costs have fallen below Chinese labor rates. For US companies, Mexico looks attractive for its proximity as well as its low wages. The close proximity means reduced shipping costs. Mexico also provides time-zone friendliness. Executives who find themselves spending half the day on the phone with their production facility mangers prefer to be on the same time zone.

Japan moves counter-trend
While North American companies are bringing manufacturing home -- or at least considering the option -- offshoring has recently started to catch fire in Japan. Japan has long resisted offshore production in favor of supporting Japanese workers. Yet in recent years the lure of low labor costs has worn away resistance to outside manufacturing.

Companies that have recently started onshoring production include GE, Toyota, Motorola, Apple, and Lantronix, among others. The movement to onshoring also takes some interesting twists. There are some companies that are opening their first plants in North America. In June 2013, China-based Lenovo opened a US PC production facility in North Carolina. The reasoning behind the US location is that it can provide specialized services valued by North American customers.

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