Why Electronics Manufacturing Nearshoring is on the Rise
The 2021 Kearney Reshoring Index indicates that 79% of executives with manufacturing operations in China have already reshored or plan to reshore some or all of their manufacturing, and 15% are evaluating a move.
What Reshoring & Nearshoring Means
The electronics manufacturing industry has long been dominated by China and other Asian countries. Low wages and government incentives in Asia originally attracted North American businesses to move their operations to the region. But that’s changing. Many U.S. firms have found in recent years that offshore manufacturing is less valuable because of the following hidden costs.
- Quality Control Issues
- Rising Tariffs
- Monitoring Costs
- Unclear IP Protection
Whether nearshoring or reshoring, both strategies result in bringing some or all of existing PCBA manufacturing processes closer to home. There is, however, a distinction between the two terms.
Reshoring refers to bringing manufacturing back to the organization’s home country, for example a US company reshores to the US.
Nearshoring also brings manufacturing back to North America, but this time to a nearby country. Mexico pcb manufacturers are a popular choice for many electronics companies looking to nearshore, thanks to its established manufacturing industry and strong education system. With an average of 110,000 engineers graduating each year, Mexico is rapidly producing an expanding and highly-skilled manufacturing workforce.
Why Companies Are Moving Out of Asia
A shift is occurring, and for what was once an off-shore manufacturing haven for US companies, the benefits of getting products made in Asia are now starting to erode. Zero-tolerance shutdowns and rising fuel prices have created chaos and impacted predictability in costs and lead times. Moreover, the backlog of deliveries caused by driver shortages, warehouse space shortfalls, and inefficient shipping and container handling seems to be unending.
According to Kearney's 2021 Reshoring Index, 94% of manufacturing executives with operations in China have either reshored or are considering doing so. It has been dubbed “the great rebalancing.” This movement away from offshoring is happening for many reasons, including:
- Quality, rework, and warranty issues
- Delivery performance is unreliable
- Concerns about intellectual property protection
- Increased risk of supply chain disruptions and severe weather
- Freight costs and tariffs are on the rise
- Result-affecting policies and political instability
Why Production is Changing Location
When returning to the North American market, companies can choose between working with contract manufacturers in Mexico or the USA. Both countries have a skilled and productive manufacturing workforce, and trade relations allow US firms to import goods easily after PCB assembly in Mexico. Each has unique strengths and challenges.
Compared to China, nearshoring to Mexico offers significantly lower labor rates and visiting facilities from US locations is relatively convenient. But there are barriers to entering and tapping into this market.
Traditional entry into Mexico’s contract manufacturing industry can take more time, research, and effort than companies may be willing to devote. In addition, Mexico’s electronics manufacturing facilities primarily specialize in medium- to high-volume production involving manual labor (for example, boards with through-hole components or manual parts assembly) since it is this factor that drives the most cost savings, thereby making it less attractive to companies that require low volume jobs or jobs that can be automated.
In contrast, US manufacturing can handle smaller, more complex jobs more efficiently while still offering advantages to medium- and large-scale producers. The American workforce has one of the highest levels of skill and productivity in the world and is supported by world-class manufacturing facilities that lead the way in automation and technology. In addition, the USA maintains a leading-edge infrastructure system, with access to trucking, rail, air, and maritime routes.
How to Begin the Nearshoring Process
Moving production anywhere always involves risks and costs, as well as critical decisions about resources, strategy, technology, and people. However, careful planning minimizes these challenges and optimizes the benefits of nearshoring or reshoring. The majority of businesses that reshore or nearshore do so in one of two ways.
As an alternative, working with a contract manufacturer with a proven quality record and established production availability in Mexico, Canada, and the United States makes this transition far smoother and faster. With this approach, companies can build a single CM partnership while maintaining the flexibility and control to place production on different factory lines across North America and remain aligned with the high-level objectives of the business.
The Risks and Benefits of Nearshoring
The deglobalization process is accelerating. Worldwide, companies have realized the problems catalyzed by the COVID-19 pandemic won't go away and are taking proactive steps to mitigate them for the long-term benefit of the business.
However, reshoring is a major decision that demands careful consideration. It is not a knee-jerk reaction, but rather a long-term strategy for managing known and unknown risks. Common factors driving reshoring and nearshoring initiatives include:
Reduced lead times and shipping costs
Fewer import tariffs
Improved IP protection
More oversight and control
With the above needs addressed, however, be aware that partnering with any US-based contract manufacturer carries its own set of risks. You'll want to check and make sure any potential partner's work is guaranteed.
Furthermore, can they provide the factory capacity they are promising, the supply chain visibility, and the services your business requires? You will rely on your CM partner's quality and consistency to protect your reputation, so prior to any initiatives, make sure your potential partner has the skills and experience to back up their promises.
The Best Time to Nearshore is Now
A recent report by the National Institute of Standards and Technology indicates that 41% of American-based companies have already reshored some or all of their manufacturing. In the coming years, the CHIPS Act and other initiatives will improve the domestic supply chain and attract even more companies back to North American shores.
Now is a great time to move forward with a strategic plan to move some or all of production out of Asia, keep you ahead of the competition, and stake your claim closer to home. As more and more reshore, electronics factory capacity across Mexico and the USA will become increasingly utilized, and that will only make things more difficult and competitive in the future.
Make your supply chain more resilient through reshoring and reap the benefits of the switch for years to come by acting now.