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Reshoring Electronic Component Industry Association. May 8, 2013. Sanmina Profile. Founded in 1980 in San Jose, California Global footprint: 75 facilities in 25 countries ~44,000 employees $6.1B annual revenue (FY’12) High technology, high complexity products.
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Reshoring Electronic Component Industry Association • May 8, 2013
Sanmina Profile • Founded in 1980 in San Jose, California • Global footprint: 75 facilities in 25 countries • ~44,000 employees • $6.1B annual revenue (FY’12) • High technology, high complexity products Global, Leading-edge Technology, Engineering, Manufacturing and Services Solutions Company Argentina • Australia • Brazil • Canada • China • Colombia • Czech Republic • England • Finland • France • Germany • Hungary • India Indonesia • Ireland • Israel • Japan • Malaysia • Mexico • Scotland • Singapore • South Africa • Sweden • Thailand • United States
Units Shipped in 2012: 940,220,665 • Top Level Part Numbers: 283K • 3409 Product Transfers in 2012 • Over 9000 Active Suppliers
What is “reshoring”? • Strictly speaking… • The repatriation of manufacturing operations from a low-cost country back to the home country • In Washington… • The repatriation of manufacturing operations from CHINA back to the US • Emphasis is on job creation in the US and US manufacturing revival • Size of the reshore doesn’t matter… its jobs • The reason for reshoring is never really understood • Manufacturing expansion in the US is often “confused” with reshoring Sanmina Confidential
What is “reshoring”? (cont’d) • In much of the US press… • The repatriation of manufacturing operations from a low-cost country back to the US • Emphasis is on US manufacturing revival “TREND” • Most often, size is irrelevant • i.e., each instance is proof of the trend • Manufacturing expansion in the US is often “confused” with reshoring • The low-cost country is most often understood to be CHINA • MEXICO enjoys a dual status • Offshoring from the US to a low-cost country, OR • “Reshoring” when production does not quite make it back to the US from Asia… Sanmina Confidential
What is “reshoring”? (cont’d) • In reality… • The transfer of SOME manufacturing production • From a low-cost country back to the home country OR to another country, low-cost or not • Applies to in-house AND outsourced manufacturing • Several factors make up the decision to move • Wage gap is NEVER the only reason • In all cases, the move makes BUSINESS sense • The production transfer is most often program/product AND region/market specific • Typically affects a product intended for a specific market Sanmina Confidential
What is “reshoring”? (cont’d) • In reality… (cont’d) • Reshoring is “largely a US phenomenon”—The Economist • In Europe • There was less offshoring to begin with • Many European companies are family owned • Natural allegiance to home country • Workforce is “still inflexible and costly”—The Economist • Labor laws in some countries are very restrictive • Very difficult and expensive to lay people off • And many European companies are “near-shoring” to Eastern Europe & now Morocco • Equivalent to Mexico for US companies Sanmina Confidential
Why reshore? • Typically several factors that make sound business sense • Manufacturing wages • Rising fast in China, SAP • Substantially lower post-financial crisis in the US • Use of two-tier wage structure (GE, Ford, GM, etc.) • Rising transportation costs • Proximity to end market • R&D specific to market, faster time to market • Falling energy costs in the US • US productivity is very high • And can be increased still through automation • Government incentives—US stimulus, Canada FIT program Sanmina Confidential
Why reshore? (cont’d) • Cost gaps, then & now Sanmina Confidential
Why reshore? (cont’d) • Primary decision drivers Sanmina Confidential
The Tipping Point Seven Sectors in 5 years will reach a Tipping Point where the rising costs of producing in China will make it more economical to manufacture goods consumed in the US to the US. Sanmina Confidential
Why reshore? (cont’d) • When to reshore where Sanmina Confidential
How much reshoring? • “Mostly isolated & anecdotal evidence” • “The idea that American manufacturing is on the cusp of a renaissance is everywhere these days—except in the hard numbers.”—WSJ, Apr 2013 • “The number of firms known to have ‘reshored’ manufacturing to America is well under 100”—The Economist, Jan 2013 • “The continued outflow of capacity from advanced economies will more than offset any capacity being reshored.”—The Hackett Group, May 2012 Sanmina Confidential
How much reshoring? (cont’d) • Moves between low-cost countries trump reshoring… Sanmina Confidential
How much reshoring? (cont’d) • From tiny companies… • Chesapeake Bay Candle Glen Burnie, MD • Rising labor costs in China + improve response time to customers • ET Water Systems San Jose, CAirrigation controls • To improve quality & response time to customers • K’NexHatfield, PAplastic toys • To protect remaining jobs at its US factory • Sleek Audio Bradenton, FLearphones • To improve quality Sanmina Confidential
How much reshoring? (cont’d) • To industrial giants… • Caterpillar Texasexcavators • Emerson Mexico & N. America • For customer proximity • Ford Michigan & Ohiomedium-duty trucks • To save jobs at existing production facilities • Otis S. Carolina elevators • To stay close to R&D + reduce logistics costs • GE Kentuckyhome appliances • To stay close to R&D Sanmina Confidential
Obstacles to reshoring • More than wages… • “As the gap in worldwide wage rates narrows further, it will become more obvious that other factors, such as • skills, labour law, clusters of industries, infrastructure, tax and regulation • are playing an ever more important role when companies decide where to put their production.” Sanmina Confidential The Economist, “Outsourcing & Offshoring,” Jan 2013
Obstacles to reshoring (cont’d) • It’s not easy to “come home” • Inadequate supply chain • Not all components are available in the US today • Need for further automation of existing manufacturing process • Need to redesign product to accommodate • The new process • The supply chain holes • The local market tastes • Willingness to accept less than 100% “Made in America” Sanmina Confidential
Obstacles to reshoring (cont’d) • Case study—K’Nex, plastic toy maker, PA • Reshored most of its production in order to stave off major layoffs at manufacturing facility in Hatfield, PA • Obstacles • Redesigned some of the toys to minimize manual labor required • Switched some parts from wood to plastic • Other parts redesigned to snap together & kids perform final assembly • Supply chain constraints—unable to source competitively in the US • Battery-powered motors, wooden log cabins, parts with rubberized coating • Automated packaging process—now done by Baxter (Rethink Robotics) • Benefits • Faster response to customer demand • Greater control over quality & materials • Grew its US workforce 33% over last 4 years • “MOSTLY Made in America” toys Sanmina Confidential
“Regionalization” is the real trend… • Offshoring has evolved into regionalization • “The notion of offshoring is an odd one for a truly international company. The ‘home shore’ for Siemens is now as much China and India as it is Germany or America.”—Peter Löscher, CEO, Siemens (The Economist) • Many global companies would agree… • That’s because “low-cost” countries have become markets of their own and, as such, require local manufacturing • Airbus, Bombardier, Caterpillar, Ford, GE Aviation & GE Healthcare, Philips Medical are only a few of the global OEMs that • May reshore “pertinent” production, BUT • Are also expanding “manufacturing in China for the sake of China”—The Economist Sanmina Confidential
“Regionalization” is the real trend… (cont’d) • Foreign global OEMs choose the US for “regional” production too… • And are establishing, or expanding, a manufacturing footprint • Airbus First plant Alabama A319/320/321 • The US is its largest market for these aircraft • Lenovo First plant N. Carolina PCs • Toyota Expanding Kentucky Lexus ES • The US is its largest market for this model • Vallourec New plant Ohio Steel tubes • The French industrial is growing in the US oil & gas market Sanmina Confidential
Summary • Benefits • Rising labor rates in Asia will drive reshoring • Timing is about 5 years out • Rising transportation costs • Proximity to end market • Falling energy costs • US productivity is very high • Challenges • Skilled labor will continue to be an issue • Supply chain challenges will remain Sanmina Confidential
Sources • The Hackett Group, Reshoring Global Manufacturing: Myths & Realities, May 2012 • The Economist, Special Report: “Outsourcing & Offshoring,” January 2013 • Bloomberg BusinessWeek, “Reshoring of Jobs Looks Meager,” July 2012 • Financial Times • “GE takes $1bn risk in bringing jobs home,” April 2012 • “Reshoring Jobs from China won’t happen,” October 2011 • IndustryWeek, “Reshoring is Not a Trend,” March 2013 • Manufacturing.Net, “The Cost Gap and Reshoring Of Chinese Manufacturing Jobs,” May 2012 • Thomas.Net Industry Market Trends, “Offshoring vs. Reshoring: The Business Perspective,” July 2012 • Wall Street Journal • “Signs of Factory Revival Hard to Spot,” April 2013 • “Toyota to Start Making Lexuses in U.S.,” April 2013 • “Offshored Jobs are Coming Back. But How Many?,” March 2013 • “A Toy Maker Comes Home to the U.S.A.,” March 2013 • Company websites Sanmina Confidential