Contract electronics manufacturing services (EMS) executives are sharing with us the realities of increased tariffs on their factories and businesses located in China for made in China products and components.
While we are seeing no slowdown in the amount of interest by OEMs outsourcing their electronics design and manufacturing needs China is losing favor to alternative contract manufacturing locations in Asia as OEMs seek CMs with low or no tariffs and OEM interest in North American and European contract manufacturing locations is on the rise.
Some China alternatives OEMs are considering include Mexico, Vietnam, Philippines and other Asian locations like India.
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But tariffs for made in China electronics products and components are not the only concern for manufacturing executives. (Read also: When outsourcing is not the answer)
China factory direct labor (workers on the production floor) have been rising for some time. And while direct labor will always be a small percent of MCOGs, some EMS providers are forecasting direct labor in Mexico will be 30% cheaper than direct labor in China in five years and direct labor in Vietnam will be one-half the cost of direct labor in China within that same time period.
Direct v. indirect labor
OEMs often mistakenly focus on reducing the coefficient for direct labor costs in their contract manufacturing decision-making. (Read more here)
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