India’s third major grid loss in a short period this month has left 600 million without train service, running water and electricity to operate A/C systems or even factories. One must wonder how carefully OEM, EMS, and fabricators evaluate infrastructure when seeking the “lowest cost” for production sites. I can clearly remember the chairman of an EMS client company pass on India for just this reason. His concern was that of potential component supply chain problems due to lack of sufficient local infrastructure as well as a dearth of sufficient local volume inventories and JIT deliveries capabilities for the hundreds of different components used each day.

Offshoring lesson learned: The lowest cost of labor or factory construction is not necessarily the lowest, best, or most reliable source for manufacturing products in the global marketplace.

A recycled idea

Some first-tier Taiwanese motherboard players are reported to be cooperating with second-tier players to jointly purchase components to lower their costs and counter rising raw material and labor expenses.

Weak global PC demand, rising costs for key components such as PCBs and IC chips, as well as increasing wages in China are all impacting motherboard makers’ profitability.
With the cooperation on component purchasing, sources believe that the players will be able to save an additional 5%, as costs for IC chips to see significant drops.
DigiTimes reports that the joint purchasing is mainly handled by the first-tier motherboard players with volumes of each order to be at least one million units. After acquiring better prices, the first-tier players then re-sell the components to their partnered second-tier players.

We tried a similar program in the US with board fabricators (modeled after a “neutral” buyer’s co-op) a few years ago, but could not overcome the lack of trust between potential participants.

Change

We need a radical change to ensure the future of our electronics industry – and our nation. The president of a leading electronics trade association said that he noticed a domestic dearth of young people in the association as well as in our industry. He asked if I noticed this and had any ideas as to how to attract young engineers and scientists to our field.

The timing of this discussion was amazing. Just a few days later there was a news story in the Washington Post about education citing the fact that 1 in 4 college students in South Korea are engineering majors versus 1 in 20 in the US. Korea also has tough national standards in their public schools. We have regional, uncoordinated standards. According to the Post, South Korea also far outpaces the United States in the percentage of young adults with college degrees—63 versus 41%—and its K-12 students routinely outperform US children on international assessments.

Do you have any ideas as to how to solve this problem and arrest the decline in our electronics industry? Short term? Long term? Please send your comments and ideas to me at [email protected]