Re-shoring the Electronic Connector Industry
The idea of bringing electronics manufacturing jobs back to the US has great appeal. But the realities are complicated.
A lot of conversation about how to “Make America Great Again” includes bringing manufacturing jobs back to the United States. In the recent past, the US was recognized as a global manufacturing powerhouse, but there is little doubt that a significant number of manufacturing jobs have been moved to other countries, primarily in Asia. According to the Bureau of US Labor Statistics, manufacturing employment in all categories peaked in 1979 at 19.6 million and has steadily declined to about 12 million today. Fewer than 9% of US employees are now involved in manufacturing. American consumers often express preference for products that are made in the US, but the choices continue to dwindle.
Starting in the late 1980s, electronic contract manufacturers began outsourcing manufacturing to reduce costs as well as concentrate resources on design engineering and marketing. The result was that the industry exported advanced manufacturing technology as well as expertise. It was only a matter of time before offshore manufacturers seized the opportunity to cut out the middleman.
The loss of manufacturing in the US has been attributed to a variety of factors, including access to lower cost labor, proximity to large and rapidly growing markets, unfavorable taxes and regulation, reduced delivery time to local customers, and the availability of critical materials and workers with specific skills. The creation of extensive offshore supply chains would now be difficult to replicate in the US. Not long ago, the technology required to fabricate a 40-layer precision printed circuit board was the exclusive domain of a few American-based manufacturers. Today, a global host of suppliers can offer 40+ layer PCBs with high quality. For instance, Fujitsu Interconnect Technologies claims they can build boards consisting of 20 to 72 layers.
Offshoring manufacturing jobs has not always gone well. Shipping a finished product back to the US adds significant cost and lead times, and may require companies to maintain larger inventories. Quality control has been a recognized problem as well, and often requires costly onsite management. It can also be difficult to implement design changes quickly. Communication issues between globally and culturally separated design engineering and manufacturing personnel have been at the root of well more than one failed product.
Companies have responded by moving engineering and product management personnel offshore. The Wall Street Journal reported that Apple Inc. will build two new research and development centers in China, increasing their total R&D investment in China to $500 million. However, manufacturers in Southeast Asia have been criticized for labor and social problems, including long working hours, isolating workers from families, and dense onsite living conditions. The emergence of new global manufacturing points, such as Vietnam, has intensified competition for the title of low-cost labor leader while demands for higher wages in China intensify.
The debate rages on about what conditions could bring manufacturing back to the US. Part of the answer may be to develop a workforce with the necessary advanced skills. Over the past few years, we have seen a renewed call for an increase in science, technology, engineering, and math (STEM) classes at every level of the US educational system. In spite of being the world’s leader in technology, US students have fallen far behind those in countries where education is more highly valued, and US training programs for critical skills are still declining. The Department of Labor reported that there were 21,000 apprenticeship programs in the US in 2016, down from 33,000 in 2001. Technology employers have found it difficult to fill high-tech jobs, and have been forced to rely on importing skilled personnel using H-1B visas to fill the expertise gap. Recent proposed moratoriums on immigration have further complicated this issue, resulting in a drop in H-1B applications.
Another big question is: If manufacturing were to be brought back to the United States, would it be done by people or robots? And we may find out in Wisconsin. Foxconn Technology Group recently pledged to build a $10 billion LCD display panel plant in Wisconsin, its first US-based manufacturing facility. The company hopes to open the plant with 3,000 workers. However, the scenario is complicated by the fact that the state promised the Taiwanese company $2.85 billion in state tax credits, which means that Wisconsin tax payers will be subsidizing the company and its workers for more than 25 years — an eternity in the fast-changing electronics world. The state is also providing $408 million for freeway rebuilding costs around the plant, and exempting sales tax costs of $139 million. In addition, the company is exempted from environmental regulations, meaning any cleanup costs will fall on the shoulders of taxpayers as well. So, while the idea of reshoring electronics manufacturing jobs has great appeal, the financial reality of this particular deal has raised questions.
Interviews with several leading connector manufacturers indicate that a large majority of connector manufacturing has already shifted offshore. The availability of low-cost assembly labor has become less of an incentive as Asian manufacturers step up their automation. Foxconn, for example, has become one of the largest global consumers of robotic assembly equipment. The primary incentive for offshoring today is to locate manufacturing in close proximity to the customer to provide product at the lowest landed cost. As expected, the largest users of commodity interfaces, such as USB, are located in Asia, but even high-performance backplane and I/O connectors are now fabricated there. Advanced new connectors may still be developed and prototyped in the US, but will quickly be offshored for production. Protecting the sensitive intellectual property required to build these high-speed interfaces remains a concern, but has not yet prevented their transfer. It appears that only products that are covered by the International Traffic in Arms Regulations (ITAR) are guaranteed to stay in the US.
What would it take to bring connector manufacturing back to the US in a big way? President Trump has threatened higher import taxes and tariffs, as well as punishing companies that send manufacturing jobs offshore. Several domestic initiatives have been created to encourage manufacturing in the US as well. The Made in America Movement provides support to companies considering reshoring manufacturing, and the Reshoring Initiative, founded in early 2010, helps manufacturers realize that local production can reduce their total cost. Additionally, John MacWilliams, a contributor to Bishop & Associates publications, created the US Manufacturing Renaissance initiative, which focuses attention on the consequences of losing our domestic manufacturing resources. He is hopeful that industry and government recognition of the problems associated with offshoring will result in policies that will stem the trend. His observation, “connector manufacturing will not come back until the manufacture of electronic equipment returns to the US,” sums up the challenge.
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