The calls for re-shoring are becoming louder – most recently
from the UK’s Prime Minister, David Cameron at the World Economic Forum. Rising
labor costs in China, high transportation costs and improving economies in the
West have resulted in this growing trend.
According to China’s National Bureau of Statistics, labor
costs have shot up by as much as 500% in the past 15 years. The average annual
urban income jumped to 41,799 Yuan ($6,850) in 2011, up from 24,721 Yuan ($4,070)
in 2007.
Another factor is that of production costs. In 2011, the
Boston Consulting Group noted that within five years, the total cost of
production for many products will be only about 10% to 15% less in Chinese
coastal cities than in some parts of the US.
But perhaps one of the more interesting trends occurring is
best described as “going local to stay local”.
A survey from the Reshoring Initiative noted that 75% of respondents
indicated the primary reason for being in China was to serve the Chinese
market; this was up from 72% in 2012. US companies such as GE, Ford and
Caterpillar have also noted this trend as among the reasons for bringing back
some manufacturing to the US. But it’s not only US companies that are doing
this.
In November, Hon Hai Precision Industry Company, the biggest
company in Taiwan’s Foxconn group, announced plans to spend $30 million in
Pennsylvania through Foxconn Interconnect, a division which develops connectors
used in computers and smartphones. This was followed up in January when its Foxconn
Technology Group, a major supplier of Apple Inc.'s iPhones and iPads, announced
it may build high-tech factories in the United States.
The move into the US will bring a change to the high tech
supply chain as Foxconn will be closer to its supply chain partners such as Applied
Materials Inc. and Corning Inc. It will also be closer to such customers as
Apple, Microsoft, Amazon.com, Dell and Hewlett-Packard, even though work for
these customers is done mostly at its China facilities. It could possibly take
advantage of its geographic proximity in both the US and Mexico for possible additional business.
Foxconn is not the only Asian high-tech company interested
in the US market. Lenovo has recently acquired IBM’s low-end server business
and also Motorola Mobility from Google. The Motorola Mobility deal in
particular is of interest as Lenovo has been trying to expand its smartphone
business internationally; more than 90% of its sales are still in China. With
this acquisition, Lenovo will become the world's third-largest smartphone maker
behind Samsung and Apple and importantly, it gets access to the valuable US
smartphone market and the fast-growing Latin America region.
As companies such as Foxconn, Lenovo and others expand into
the US market, the high tech supply chain will change. Perhaps favoring building
or expanding logistics clusters around particular US cities. Transportation
requirements will also likely shift favoring road more so – trucking and rail. However,
the supply chain will still encompass Asia and other geographic regions due to
the fact that the types of manufacturing coming to the US is not based on
low-cost labor but rather knowledge-based.
Interested in the high-tech supply chain? Be sure and check out the High Tech Supply & Demand Summit to be held in San Francisco April 8-9. Visit the Summit's website to learn more.
High-Tech Supply & Demand Summit
High-Tech Supply & Demand Summit
