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.

— Hailey Lynne McKeefry, Editor in Chief, EBN Circle me on Google+ Follow me on Twitter Visit my LinkedIn page Friend me on Facebook

2 comments on “China Advantage Wanes for OEMs

  1. ETisME
    May 15, 2015

    This is a well conducted research, however I believe you have reached the wrong conclusion.

    As the living standard and economy grows, (as well as industry standard such as safety and regulation), the cost will inevitably increase.

    What this also means is that China is not going to aim for low low cost of production, they are aiming for higher quality, mediumly priced and employ labours which are more educated, healthier, basically more productive in another word.

    I won't be surprised that the demand for China production has fallen off, it is expected as the results of all those combined factors.  

    However China will merely move towards a different market segment and it will no longer needed to be the sweatshops of the world.

  2. Hailey Lynne McKeefry
    May 16, 2015

    @ETisME, you make very good points–and i agree. I don't think it's mutually exclusively. Clearly, there are some examples of big OEMs moving or trying to move production to the US (perhaps because we are moving as an industry to looking at the total cost of serving goods to the customer, rather than simply the cost of making the goods). In addition, Mexico is regaining popularity for some types of electroncis manufacturing. These various twists and turns underline the need for OEMs to remain flexible and creative in managing their supply chains. Thanks for weiighing in.

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