Multiple contract electronics manufacturing services (EMS) providers and OEM (brand owner firms) have reached out for help in developing, validating, or executing plans to relocate portions of their operations and supply chains out of China. In addition to many China EMS PCB assembly factories burdened with high customer concentrations, the primary catalyst for change is risk from tariffs, eclipsing increasing China labor costs.
One European-based EMS provider with a factory in China is being forced by their OEM customer to move $18 million annual spend out of their China facility to an alternate non-China factory. A Silicon Valley EMS provider is moving $120 million from their factory in Shenzhen to an alternate ASEAN location.
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Still, there are other stories from OEMs and EMS providers alike. And more to come. Publicly, EMS/ODM firms such as Wistron, Inventec, Quanta, AAC, ASE, Delta, and Pegatron have already disclosed intent to move some production capacity out of China, with more to announce.
Depending whether OEM customer programs are low-volume or high-volume products, product size and weight, and where OEM FGI is shipped (China-domestic, or foreign) are also contributing factors relocating production from China.
Higher value-add manufacturing programs with China-domestic demand are less likely to move. The same goes for higher technology and high CapEx sector programs needing a more complex and diverse manufacturing base. Despite the current tariff environment, Shenzhen still remains one of the best places for manufacturing production of highly complex electronics.
China remains at the top of the list when it comes to electronics supply chain ecosystem maturity.
Map: China distribution of semiconductor wafer fabrication, packaging, and test factories
No loyalty among OEM customers of EMS services providers
Yet tariff changes and actions by OEMs and contract manufacturers alike underpin the importance of cost as one of the most important factors for OEMs when selecting EMS partners. As EMS providers with a large China presence look to diversify their manufacturing base, discussions reveal there are attractive candidates we keep placing on EMS geography short lists depending on OEM customer program specifics. Several ASEAN peers are good alternates, with reasonably good infrastructure similar to China. While others are similar, yet require significant infrastructure investment.
In your search results, you can further target provider End Markets and/or Services.
In addition to China, Venture Outsource has detailed information on tariffs, infrastructure, EMS technical supply chain capabilities and more on the following EMS destinations across Asia, geographic locations, below.
- Korea
- Taiwan
- Thailand
- Vietnam
- Sri Lanka
- Pakistan
- Singapore
- Hong Kong
- Malaysia
- Japan
- Indonesia
- India
- Philippines
- Bangladesh
OEMs wanting to locate contract electronics providers anywhere in the world can request a list of providers using this form here.
Supply chain considerations
As key tariffs impact some geographies (like China) and markets more than others, other aspects OEM decision makers need to consider is the amount of available labor (or shortage) and if there is high attrition in non-China locations. Knowing whether there is strict regulation on importing used SMT and PCB assembly equipment (for OEM and EMS providers) from overseas is also a concern, especially for EMS joint ventures as China-based EMS providers look to create sudden partnerships with non-China EMS factories. Often, in doing so, OEM customer pick up the tab in terms of added costs for relocating programs from China.
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Then, there is the issue with local suppliers and the maturity of an existing supply and vendor base per vertical (think: industrial electronics, medical electronics…), and the cost of direct labor and its efficiency are also considered.
Plus, fiber infrastructure (more so for developing nations) is also important for ASEAN locations, and land access issues and pricing across Asia are rising faster in some areas compared to others.
As a result we are also seeing an increase in EMS M&A interest to add non-China manufacturing for greater footprint diversity although this will increase CapEx downstream for such EMS providers. This is good info for OEMs because knowing when an EMS partner has set up its China alternative locations can determine how pressed for ROI the EMS firm is to make operations produce cash. and how flexible that EMS provider might be when negotiating with and on-boarding new OEM prospects.
All of this is important to the manufacturing industry for executives on both sides of the negotiating table because EMS providers are reporting to us lost OEM opportunities from potential new customers plus, EMS firms are losing opportunity to bid on additional business with existing customers – primarily because they do not have a non-China option and many OEMs don’t want a China solution.
Four OEM supply chain relocation scenarios
The trend of OEM decision makers seeking non-China locations for outsourcing their electronics manufacturing is not likely to let up soon. US electronics OEM equipment business models desiring to create new or alternate, anti-China extended EMS manufacturing supply chains include:
- US-based OEMs with production in one region, yet product consumption takes place in another region
- US-based OEMs with local production that sell locally
- Foreign OEM companies with local production that also sell locally
- US-based companies with production in the US and consumption predominantly takes place in the US
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