As business news channels are filled yet again with stories of rioting at China's infamous Foxconn electronics plant, it's time to again consider the benefits of reshoring and bringing contract electronic assembly back to the United States.
For years, conventional wisdom said that it's simply not possible for US-manufactured electronics to compete with devices assembled overseas. When you're comparing labor costs between workers receiving less than a dollar an hour, to those made by workers enjoying US minimum wage regulations, the costs add up in a hurry.
However, things are changing overseas. China's cost of living is rising, and they're beginning to experience workforce shortages which are driving up the prices of contract electronic assembly. Whereas China used to be the go-to country for cheap industrial labor, costs are now beginning to rise nearly to the same level as for US workers.
The Equation Has Changed
As business consultant Harold L. Sirkin said in a recent New York Times Article:
“At 58 cents an hour, bringing manufacturing back was impossible, but at $3 to $6 an hour, where wages are today in coastal China, all of a sudden the equation changes.”
How much has the equation changed? So much that Google is now producing new Nexus products, including the Nexus 7 Smartphone and the Nexus Q media center, directly in Silicon Valley using American contract electronic manufacturers assembly. Their products proudly proclaim themselves to be both designed and assembled in the USA.
With Apple well-known to be among Foxconn's biggest customers, how goes Google hope to leverage reshoring to compete in the mobile device market?
The Google Gamble
We won't sugar-coat this one: Google is making a big gamble. Their current line of US-manufactured Nexus products are being sold at cost, even a bit below cost. The $199 price tag for the Nexus 7 – which well undercuts Apple's offerings – does not even factor marketing costs into the equation.
We've seen this before in the consumer electronics manufacturing services industry. Video game systems, for example, have long used a similar marketing strategy where the consoles are sold below cost for the sake of gaining market share, and the strategy has worked out well for Sony and Microsoft. Google appears to be adopting this same idea to put as many Android devices into people's hands as possible.
Is it working?
Well, these US-made Nexus products are currently selling like hotcakes. Google is now saying they'll ship as many as eight million Nexus 7 tablets in 2012, way up from their
original estimate of three million. In fact, in the last year, Android tablets have made huge inroads into Apple's seemingly insurmountable tablet domination. In only a year, Android has
gone from owning 15% of the tablet market to controlling 48% of it.
In short, while these increases are undoubtedly due to a number of market factors, Google's strategy of reshoring Nexus manufacturing appears to be both cost-effective AND gaining traction with their customers.
But, what about you? Are you as optimistic about this trend as we are? Let us know below!