It is 11:00 pm on a Wednesday night and one by one my design team joins a scheduled conference call with our client’s off-shore contract manufacturing (CM) vendor as we prepare for what is to become one of many meetings to discuss their production run. The CM has one individual who speaks English fairly well however, most of the CM staff speak broken English or no English at all. The conversation becomes a long discussion attempting to describe the requirements for a final system test unit strategy only complicated by misinterpretations. I long for the days when on-site and local manufacturing was an integral part of my client’s production strategy. Recent data indicates that day is upon us.
The lure to Chinese contract manufacturing began during the 1980’s as an expanded infrastructure coupled with quality improvements and low labor rates began to take hold in China. Add to this, significant Chinese government incentives and an artificially inflated currency and the machine is set in motion. Sadly, many of the local high tech companies with newly integrated SMT facilities were faced with facility closings and equipment auctions. Given the significant differential in production costs, the inconveniences associated with managing an off-shore facility became tolerated and accepted as the normal production strategy. Throughout my 24 years in business I heard the complaints ranging from long delivery dates, travel inconveniences, IP theft and time differences.
Over the past 10 years we have seen a gradual increase in labor costs in China where we find the Chinese labor/cost advantage being only 40 % to that of the US. Labor rates excelled at a much faster pace than productivity. This coupled with transportation costs, currency increases, electricity costs and duty costs; the total cost of production for a number of product lines is averaging around 15% less in China. Given the aforementioned inconveniencies and risks associated with off-shore manufacturing, the 15% savings is negligible and resulting in US companies re-visiting their production strategy. I can finally get some sleep.
Tri-Star Design, Inc.