So many considerations go into choosing an offshore manufacturing location that it's easy to get overwhelmed, particularly for small and midsized manufacturers. Set aside the noise and controversy over China, Mexico, or any other popular location, and start with areas that smooth the way for business setups.
This is particularly important for small to midsized manufacturers that don't have the resources available to what's popularly called the “Goliath fringe” in electronics manufacturing.
“Globalization means different things to midmarket OEMs and EMS companies than to goliath multinational enterprises (MNEs),” according to consultancy Charlie Barnhart & Associates in its latest report. “Opportunities must be carefully assessed and each company must exercise due diligence to determine if, when and how it should attempt to do business in emerging markets. OEMs should start with a clean slate in setting up a manufacturing solution.”
In addition to location, labor, and logistics, companies must consider how easy it is to conduct business within a global region. This has been a major sticking point for companies manufacturing in China. Today's New York Times reports that access to China’s domestic market will be a leading topic of conversation at a series of high-level meetings this week between President Obama and Chinese President Hu Jintao.
Ease-of-business considerations include starting a business, obtaining construction permits, protection of shareholders, securing credit, property registration, and ease of cross-border trade. CBA used rankings compiled by the World Bank Group for 18 offshore regions. Two of the basics — securing credit and registering property — are rated here:
Securing credit, a major consideration for midmarket companies, is easiest in Malaysia, South Africa, Singapore, the US, Australia, Romania, Vietnam, India, and Ukraine. Some of the toughest areas: Indonesia, Brazil, the Russian Federation, and Morocco.
Registering property, both physical and intellectual, is another major consideration. Regions that make this easy are: Belarus, US, Singapore, Thailand, Australia, Turkey, Vietnam, and Chile. The toughest areas include: Ukraine, Morocco, Brazil, and Argentina.
Ease of doing business is not just a regional consideration: OEMs and EMS companies have to see eye to eye on everything — including the value of offshore manufacturing.
“The less adversarial the relationship the easier it will be to avoid gamesmanship and subterfuge,” according to CBA. “The EMS industry is still a very low margin business, where the investment community has little faith in reasonable returns, meaning the cost of money is probably higher than what the OEM experiences. OEMs can’t expect quarterly cost reductions indefinitely, or the EMS will go out of business or relegate the account.”