Industry Market Trends

Is the U.S. Electronics Manufacturing Resurgence All Hype?

Oct 08, 2013

With the launch of the Moto X factory in Fort Worth, Texas, and Apple's announcement that they will also assemble a Mac Pro stateside with a few components to be manufactured in the U.S., there is some optimism that the U.S. has established a new foothold in electronics manufacturing. Is this resurgence realistic, and if so, how long would it take?  

Harry Moser, president and founder of the Reshoring Initiative, a non-profit organization that assists manufacturers in returning production to the U.S., identifies other companies such as Lenovo and Flextronics, recent initiatives that might shift the eco-system so that more end-product companies will produce Made in America.

"The best proof that it can happen is that it is happening," Moser told IMT. "To get from almost nothing in consumer electronics five years ago when it was unthinkable that Apple or Lenovo or Motorola would produce in the U.S., to every month or so somebody announces a fairly major consumer electronic factory here... My case is that the U.S. is making incredibly good progress along that course."

Gary Pisano, Harvard University professor and co-author of "Producing Prosperity: Why America Needs a Manufacturing Renaissance," counts himself among the pessimistic. "There are some things coming back because of factors like wages going up in China plus some distributions costs, but those are factor costs that can change, blow with the wind, and be in a different place in five years.

"While we'll continue to see the factory here and there, which is welcome news, I personally don't see it as a title wave that suddenly five or ten years from now this is the global center of electronics manufacturing," said Pisano.

Final assembly is just the tip of the iceberg, Pisano explained. The supply base is not here. Logistic costs, circuit board assembly, and supply chains have been gravitating to Asia over several decades. "It doesn't happen in one day," he said. "It's decades of erosion."

Virtually all complex electronic products utilize a printed circuit board (PCB). Taiwan along with Japan now dominate PCB production with almost 60 percent of the international market.

Hayao Nakahara, an analyst at N.T. Information Ltd., noted that in the PCB industry, seven companies are making products overseas and they command the lion's share of production by volume. "There is nobody capable of manufacturing PCBs in the United States in large volumes," he said.

"What's happening is a screw driver industry here," he said. While Apple is starting to make MacPros in Texas, 99 percent of the components are imported from Asia, he explained.

Nakahara told IMT there's a tremendous amount of infrastructure that China has developed "equipment that is totally unbeatable" during the past 30 years. "Once we start building anything here in the U.S. for PCB manufacturing, we will have to start importing material and equipment from China," he said.

He asserted that, in the U.S., "The capacity is lost ... and in my business, capacity is the key."

Explaining the enormity of the manufacturing challenge, Nakahara pointed out a drilling machine is important equipment for making a print circuit panel. "The Taiwanese, Japanese, Chinese are buying 100 or 200. If you buy one or two machines ... it's a big, big, purchase."

Suppliers go where the technical capital equipment is -- that's where the production engineers are and where the component supply chains are, and thus the skill base shifts, Pisano told IMT.

He went on to say that the U.S. should worry about the kinds of manufacturing that are fairly skill-intensive, complex and highly related to the R&D process.

"Competiveness is about building a skill base, a knowledge base in an economy and that's the point we're not addressing. We're not training workers who can do these things, were not making those kind of investments," Pisano said.

Nakahara said the electronics industry requires a lot of knowhow. "And the second generation of the founders is not interested in succeeding their father, because the PCB industry once glorious is no longer in glory," he said.

He noted that wasn't the case 20 years ago; it has completely reversed. "Today we have lost the battle," he said. "We used to have 20 percent of production 20 years ago, but now it has dwindled down to 5 percent of the entire world. How can you reverse that? Impossible."

Moser admits it's going to be a slow process to build electronics manufacturing back up after decades of decline. "It's going to fight its way back up," he said. "It's going to take training and tool makers and a lot of things, infrastructure, and factory building."

Pisano said that with the government reaching new levels of dysfunctionality, what's frightening for electronics is that there's almost no chance for a long-term strategy of investment in basic science and applied technology -- the kind of stuff that's propelled the U.S. economy, particularly electronics, during the post war period for decades.

"I can't see that they [the U.S.] are coming back in a large way," said Nakahara. "It took 20 years for the U.S. to lose it, and it will take 20 years to get it back."