Compared to other industries, the technology industry has a truly cross-regional reach. Supply chains for products like semi-conductors, consumer electronics, mobile devices, PCs, tablets and printers are global in nature, as parts are being supplied from across the world.
However, there is a shift in production and consumption as the attractiveness of emerging markets continues to grow. For example, in 2006, approximately 25 percent of mobile phones were produced in high-income countries but by 2010 that number was reduced to 18 percent.
At the same time, the technology sector is significantly more reliant on China than any other industry sector. As a result, technology supply chains are anchored in Asia, with an extremely large and often still growing share of manufacturing based in China. Despite its dominance, China’s role in the global technology supply chain is changing. Fueled by increasing Chinese labor wages and rising pressures to reduce costs, technology companies are establishing new low-cost locations for their manufacturing in Asia.
For example Samsung, following Intel and Nokia, recently shifted some manufacturing plants from China to Vietnam, where the company expects to deliver more than 40 percent of its phones by 2015. However, the current change in technology supply chains goes beyond Asia. For nearly two decades, trade flows have been long-distance and east-west oriented, but these long-distance supply chains are being replaced, at least partially, by shorter, regionally based trade flows to meet the new global demand and changing market dynamics. The regionalized global supply chain, in which goods are produced and sold/consumed in the same geographic region, is emerging as the new paradigm.
The challenge of meeting this regional demand, while managing short product life cycles, makes the tech sector an ideal candidate for the adoption of near-shoring and/or on-shoring. In this practice, companies shift their manufacturing bases closer to the end consumer in an effort to reduce risk and transportation costs, and improve customer service cycle times – while avoiding increased labor wages in China.
“China’s shift towards being both a producer/ manufacturer and a very high-growth consumer of technology products will continue to drive a strong market for high tech products. Domestic Chinese brands in certain tech categories such as smartphones are growing at exponential rates within China and will soon expand outward to the rest of the world,” said Victor Mok, CEO, North Asia, DHL Supply Chain.
For example in 2013, both Apple and Motorola announced plans tomove a portion of their manufacturing to the United States as part of a change in their supply chain strategy. Apple is opening up a new production facility in Texas, which will take over some of the company’s laptop production activities. This represents a significant shift for Apple, which has not manufactured a technological device in the United States for retail sale since the 1990s. Similarly, Motorola’s new Lenovo-owned smartphone production program will be based solely in Texas.
Additionally, the increased frequencyThe number of complete cycles or vibrations per unit of time. Rate of alternation in an AC current. Expressed in cycles per second or hertz (Hz). of unknowns in emerging markets has fueled the regionalization trend. In Brazil, for example, customs process inefficiencies and high taxes (up to 60 percent) on imported electronic goods (maintained to boost the country’s own manufacturing sector) are prompting multinational companies to build production capacity in-country.
While Asia, and especially China, will remain the tech sector manufacturing powerhouse, “Companies realize they need a more balanced approach,” said Jan-Thido Karlshaus VP, Strategy & Business Development, Global Technology Sector, DHL Supply Chain. “Evidence suggests that a more flexible, hybrid model is emerging, in which companies leverage the benefits of manufacturing in China but also operate production hubs elsewhere, closer to the developing consumer markets or in other low-cost markets.”