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Is re-shoring electronics manufacturing all hype?

By Steve Linahan

Unless you’re living under a rock you’ve heard about the ongoing debate on re-shoring electronics manufacturing on U.S. soil.

From an industry veteran’s perspective — being very active in outsourcing within the technology sector for many years and I remain actively engaged in outsourcing today – it won’t happen.

Any considerations for executives to seriously think about reversing their outsourced manufacturing models and returning noteworthy volumes of U.S. manufacturing back to our shores must be met with trepidation.

Manufacturing executives have been sending manufacturing jobs overseas since the early 90’s with only a slight fall off, recently. And during this period it’s important to note there have been phenomenally massive numbers of U.S. jobs lost as a result of offshoring. Some impact examples resulting from this jobs shift:

  • U.S. factory labor pools have gone elsewhere with many (most?) today holding new jobs.
  • Factory managers, middle managers are retiring or moved on to new industries.
  • Outdated skills as both technology and equipment have advanced. (Nothing stands still)
  • Component supply is now predominantly in Asia, because most of it is made there where there is a cost advantage.
  • We are still off-shoring jobs and especially high-tech factory related positions to other locales like India, central China and Vietnam at a considerably faster rate than we are creating U.S. based manufacturing positions. Get used to it. We are still in a U.S. manufacturing job growth decline.

 

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The brain drain on U.S. manufacturing is real and it is deep as well as pervasive. Time is not an ally that can help reverse this because ranks for those who have relevant manufacturing expertise is getting thinner as time passes.

 

Chinese high-tech assembly line workers. Image courtesy jurvetson via flickr.

 

Yes, there are still manufacturing talent pools in the U.S. to draw from but depth and scale of manufacturing talent capabilities have both shrunk considerably.

Many will argue with this logic and shout we can support re-shoring. After all…we do know there are still U.S. based contract electronics manufacturers such as Flextronics and Jabil still offering significant manufacturing capacity in the U.S..

Plus, providers like these are still capable of scaling manufacturing operations to accept additional manufacturing programs, previously outsourced, returning from offshore. The same can be said for capacity for many U.S. based technology OEMs.

Yet, with all of this capability and discussion we still run into the same obstacle. Scale.

I urge you to ask yourselves: Are we talking about a product family, or perhaps one particular product? Or, are we being ignorantly hopeful discussions really are centered around resurrecting an entire manufacturing culture and industry?

The truth is, we are face to face with an immense job and business loss on a historical scale that has been going on for years.

This loss is not akin with what is needed to offset that capacity needed to restore U.S. manufacturing to a dominant manufacturing position based on few potential EMS providers, OEM’s or vendors and suppliers.

 

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Yes, there are some mutant, off-shoring green shoots that sometime poke through the soil’s surface affecting or, that might further drive the re-shoring engine, such as decreased freight costs and time-to-market improvements which can be valid depending on a number of important considerations.

And, technology IP protection can be a clear differentiator since China has different views on patent protection. Just ask anyone who has gone to patent court in China.

The deck is not stacked in re-shoring’s favor
There are huge re-shoring obstacles such as China’s ability to supply cheap capital (Great Wall), plus capital equipment and other investment ROIs not requiring justifications but, instead empowered by Chinese government incentives that aren’t rational in our view of public responsibility.

Any major increase in U.S. technology manufacturing as a result of re-shoring may be successful temporarily with the help of local, state and federal incentives which may positively affect blue collar job seekers (temporarily), but such progress is limited in scope.

 

Manufacturing Reshoring

 

Can we bring back large volumes of high-tech manufacturing? The answer is no.

Alas, a fighting chance might exist if Washington career-ending political barriers are erected and a serious nationalistic (read: protectionism) wind of change occurs.
 

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To change directions U.S. consumers / taxpayers would need to be willing to pay more for items; tip the import / export scale and bar foreign imports of competing U.S. products while placing a much higher tax on foreign content goods, incentivize capital investment, demand that goods sold in U.S. have a higher portion of U.S. content…

Regardless, I still find all of this rather improbable when we have issues with just passing a budget.

 




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