China Advantage Wanes for OEMs
Once the go-to low cost manufacturing location for the electronics industry, China’s reign may be waning as the top pick. In fact, some OEMs are heading back to the U.S. hoping to get supply chain advantages and better total cost.
Although currently reductions in manufacturing are just a small blip in the bigger picture, it’s a trend that points to a larger reality. “The HSBC China Manufacturing PMI rose to 49.7 in the final reading for January, from 49.6 in December, and revised down from the flash reading of 49.8,” said Hongbin Qu, chief economist, China & co-head of Asian Economic Research at HSBC said, commenting on the China Manufacturing PMI survey published in February 2015. “Both new orders and new export orders saw downward revisions, but still signaled marginal expansion. We think demand in the manufacturing sector remains weak and more aggressive monetary and fiscal easing measures will be needed to prevent another sharp slowdown in growth.”
Today, there are new and emerging lower cost markets that beat China. For example, for electronics OEMs, Mexico is now cheaper than China to the point where Asian electronics companies such as Foxconn and Sharp are expanding production there rather than in their home country, according to a Boston Consulting Group white paper titled The Shifting Economics of Global Manufacturing: How Cost Competitiveness Is Changing Worldwide.
The United States is another go-to location for manufacturers looking for new cost competitive locations. This reality is explored in the infographic below, created by Pepperdine University Graziadio School of Business and Management.