Regionalization & the Future of Outsourcing

Charlie Barnhart & Associates has been reporting for several years on the trend toward regionalization — building products in the same region as the end market — in electronics manufacturing. What began as a trickle has become more like a torrent. OEMs in Western Europe are moving to Eastern Europe. Those in the US and Canada are moving to Mexico, and some projects are moving from China to other Asian countries. There are several reasons for these decisions.

Rising cost is a primary driver. The costs of Chinese labor, fuel, and transportation are all increasing faster than most expected. A total cost of outsourcing analysis puts China and Mexico near parity, according to a recent ONC Special Report comparing the two places.

A second driver is increasing global risk. Charlie's series identifies nine risk factors that OEMs are responding to, including No. 5, Concentration of Supply Chain in Asia.

But there's another driver. CBA is finding the level of satisfaction among midmarket OEMs with their EMS supply solutions at an all-time low. At the same time, expectations have never been higher. Combine these two perceptions, and many midmarket OEMs are abandoning their cross-hemispheric global supply chains and opting for one that involves fewer time zones. It's like consumers getting fed up with Wal-Mart and deciding to pay a little more for a neighborhood shop, or those who want local food sources and are willing to pay more for community-supported agriculture.

Customer service, reliability, and freedom from global risk are premium factors that midmarket OEMs increasingly value. Regional EMS companies are the winners in this analysis. These companies are able to get better margins than their larger peers, and they focus on narrower niches that enable higher levels of customer satisfaction. Watch for major shifts in the EMS industry's core value proposition in 2012.

For more information about CBA's next report, “Beyond Outsourcing,” contact .

18 comments on “Regionalization & the Future of Outsourcing

  1. stochastic excursion
    November 17, 2011

    The US is reported to be the world's largest importer, giving it the status of being the world's largest end market.  Does this mean the trend will bring significant electronics industry onshoring?

    November 17, 2011

    I cannot believe end consumers care where their product is built as long as it is cool, cheap, available, easy to use and reliable.  I am not sure how any of this is affected by local sourcing.

  3. AnalyzeThis
    November 17, 2011

    @FLYINGSCOT, well, yes and no. But I do agree that I think with consumer electronics specifically, consumers do indeed care very little.

    Obviously there are “issues” with how Apple's products are produced in China, but even despite the fact that a good chunk of Apple users are likely to care about such things… it's not as if there is widespread outrage and Apple certainly isn't likely to move operations to America.

    But outside of consumer electronics, yes, of course consumers care where their product is from. I personally realized something I had been eating was made in China, and no longer purchase it. Obviously, it DOES matter where the product came from in some cases.

  4. Barbara Jorgensen
    November 17, 2011

    There's no shortage of small to midsize EMS companies willing to bring offshore business “back home.” It won't require building a massive infrastructure either. China has benefited from the influx of manufacturing and will continue to add to its infrastructure. We already have it. Regionalization should be pretty seamless in most areas of the Americas and the EU.

  5. garyk
    November 17, 2011

    Flyingscot, What type work do you do? Detail cars, Sport Authority,Game Boy, Game Stop Game Dude. I know people who won't buy products made in CHINA because they want to keep job's in there country.

  6. jbond
    November 18, 2011

    Saying people won't buy products made in China because people want to keep their jobs is being closed minded and not looking at the big world picture. The United States is not only one of the largest importers of goods, we are also the largest exporter of goods. If the rest of the worlds population said they weren't buying anything from any other country, the U.S. included, then nobody would be importing or exporting. In fact, just because you bought an “American Car”, doesn't mean all of the parts are manufactured in the U.S.

    You want a prime example, the U.S. is the worlds largest wheat exporter. People talk about how bad the farmers have it, if they couldn't export their crops, this country would have even more financial issues.

  7. garyk
    November 18, 2011

    jbond, your right! But CHINA wants to control all the free worlds manufacturing, not there fair share. All the free world country's have lose of job's. What imports does CHINA let into there country? Your comment about American cars is interesting, what car is an American car? Japan, Germany build cars in the US, but they don't use US parts! The US builds cars in other county's, but don't use all US parts? Do you see the big picture?

  8. jbond
    November 18, 2011

    Here is a link to some of those statistics that people always overlook.

    As for American cars, I was refering to American brands and all of the talk about losing jobs because you're driving a Honda or Toyota instead of a Chevrolet or Ford.


    Table 6: China's Top Imports, 2010 ($ billion)

    *Calculated by USCBC
    Source: PRC General Administration of Customs, China's Customs Statistics
    HS# Commodity description Volume % change over 2009
    85 Electrical machinery and equipment 314.4 29.0
    27 Mineral fuel and oil 188.7 52.1
    84 Power generation equipment 172.3 39.4
    26 Ores, slag and ash 108.6 54.9
    90 Optics and medical equipment 89.8 34.1
    39 Plastics and articles thereof 63.7 31.3
    28, 29 Inorganic and organic chemicals 58.2* 37.2*
    87 Vehicles, excluding rail 49.5 74.5
    74 Copper and articles thereof 46.1 55.8
    72, 73 Iron and steel 34.5* -6.1*
  9. garyk
    November 18, 2011

    Jbond, Good information! Lets study the Table, Machinery to copy, the rest of the stuff is to keep there manufacturing going. Chevy is part of Toyota or Toyota is part of Chevy? We're driving Honda and Toyota because of reliability! Can 80% of people people driving foreign cars, Honda and Toyota all be wrong? When your on the FWY look to the right and left and the percentage of foreign cars!

    How about CHINA IMPORTS of shoes, shiirts, cloths in general,  sports equipment, books, after market replacement parts for cars, not to mention all the counterfieting thats going on in CHINA!  

  10. tioluwa
    November 18, 2011

    I think the concept of Regoionalization is sufering from over generalization.

    Not everything can be outsourced, and not everything can be gotten locally.

    It is hard to find a manufactured product that was 100% made in one country.

    i guess the point is to run things in sucha  way that a large chunk of the money stayins home rather than being spend on outsourcing.

    I however find China's import statiscs interesting.

  11. Daniel
    November 20, 2011

    “Rising cost is a primary driver………….A second driver is increasing global risk”

    Jennifer, yes the labour cost is increasing in China and this makes a second thought to most of the investors. Now a day’s most of the investments are happening to nearby Asian countries and Philippines. The second factor global rise is common for all the investments irrespective of location.

  12. Anand
    November 21, 2011

    The costs of Chinese labor, fuel, and transportation are all increasing faster than most expected.

    @Jennifer, thanks for the post. I think inflation is bigger threat to not only china but to all the developing nations. For example in India also GDP growth has reduced drastically because of inflation. Weakening currency is one of the major reasons why inflation is so high in developing nations.

  13. Anand
    November 21, 2011

    Saying people won't buy products made in China because people want to keep their jobs is being closed minded and not looking at the big world picture.

    @jbond, I totally agree with your observation. Globalization is the reality everyone has to live with irrespective of whether they like it or not. One good thing about globalization is there is global competition between companies which makes them to innovate to stay in the competition. Thus because of globalization some countries might gain, some countries might loose but in the end customer wins.

  14. Houngbo_Hospice
    November 23, 2011

    “Saying people won't buy products made in China because people want to keep their jobs is being closed minded and not looking at the big world picture.”

    Actually, business rules are not as simple like that. A company is first accountable  to its shareholders, not to its country. But there is nothing wrong about people wish to see some of the oversea jobs come back home.

  15. Kunmi
    November 25, 2011

    Majority of us that want these manufacturing companies to come back home are in the consuming end. To the shareholders, as long as the returns are great, they will like it to stay off shore. Country's pride of having them at home is not paramont in the heart of the shareholders except they recieve certain level of acceptability that can make their investment yield as expected. We will continue to dream it and say it perhaps one day our dreams will come true. We absolutely need to minimize outsourcing and bring these jobs back to the country. Factors that may effect this change may be enormous but it is possible.

  16. Kunmi
    November 25, 2011

    If rising cost of labor is posing a challenge in China, then the fear of Quality product may be another and this may pose a challenge to the shareholders. Global economic challenges stand to be another thing that will affect the production level hence determining the cost of goods made and sold.

  17. Taimoor Zubar
    November 26, 2011

    In the case of bulky electronic equipment, the transportation cost of shipping the manufactured products may be very high. Companies may find it more profitable to ship raw materials to the other country and manufacture the final product there. I think this may be the reason why regionalization is increasing.

  18. electronics862
    November 30, 2011

    It is well known fact that the manufacturing costs a same product will vary the regional where it is coming from. It is mainly because cost of the product is function of several parameters like labor, raw material, electricity, transportation required to transfer raw material. These are basic reasons are which are causing regionalization.

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