Asian outsourcing considerations
01 September 2009
More and more companies with electronic manufacturing needs are outsourcing to Asia each year. Not only can these companies reduce expenses, but they may also benefit from Asia’s fast-growing economies and EMS markets. John Molloy explains more.
Furthermore, Asian countries such as China and Malaysia are constantly striving to raise their medical, aerospace, and industrial standards and regulations in order to attract more foreign companies.
With a growing number of Asian economies competing to attract outsourced manufacturing from western OEMs, how do you decide where to go? China is without doubt the biggest and best known, with a market share of around 36%. However, other nations like Malaysia remain viable, low-cost outsourcing options.
The manufacturing infrastructure in Malaysia is among the highest in the region with physical and technical infrastructure that complements experiences of markets worldwide. More importantly, Malaysia’s ‘EMS-driven’, government leadership provides for a smooth and conducive business environment, backed by appropriate focus on information security, minimal custom controls, attractive tax incentives, relaxed monetary exchange controls, and attractive incentives for R&D.
In addition, Malaysia represents a regional market of over half a billion consumers, averaging a combined gross domestic product of $737 billion. The country’s purchasing power is amongst the highest in Asia, and continues to reflect a growing and strengthening middle class. Both China and Malaysia have an excellent base of electronic manufacturing skills set, and direct and indirect labour costs are comparable.
Some of the direct and indirect benefits of China and Malaysia manufacturing include:
• Reduced overall product cost
• Access to the emerging Asia consumer market
• Increased operating leverage
• State of the art operations in high quality environments
• Flexible contracts
• Low cost high-tech design capabilities
• Exposure to a local, competitive supply chain
TT electronics is upgrading the level of its services and standards, and in April 2009, the Suzhou (China) facility was awarded the AS9100 standard; an enhanced version of ISO9001:2000 that is used amongst aerospace companies and suppliers. This certification enables TT electronics to assure potential aerospace customers, as well as other customers, that the quality of their products and manufacturing capabilities exceed industry standards.
All TT electronics integrated manufacturing services employees are educated on the AS9100 additional requirements and how it relates to each job function.
The Kuantan (Malaysia) facility successfully secured ISO14001:2004 standard, which recognises that they have developed and implemented a formal Environmental Management System (EMS) that comprehensively addresses environmental protection and pollution prevention through the execution of continuous improvement initiatives within a disciplined management framework. This is an internationally accepted specification for environmental management systems created by the International Organisation for Standardisation to help organisations minimise how their operations affect the environment and comply with related laws, regulations and requirements.
TT electronics offers ‘mirror’ sites – manufacturing locations in the UK, China, Malaysia and elsewhere with identical equipment – allowing a product to be transferred from site to site at minimal cost and very low risk. The same product can even be manufactured at multiple sites, to minimise onward shipment costs
An additional benefit offered by TT electronics is that the front end of the relationship can be a project management team in the UK. The communication intensive prototype and first batch manufacturing stages can be handled at a local site accessible to the customer. When stability is achieved, production can be transferred to one or more overseas sites to achieve the best economics.
The Asian outsourcing market is mature, offering Western OEMs a range of stable and cost-effective opportunities for manufacturing at reduced cost. For high mix, low volume customers, partnering with a global Tier 2 with a portfolio of sites provides the best economics, the minimum risk and the lowest overall relationship cost.
John Molloy is Divisional Director at TT electronics integrated manufacturing services
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