The cost-benefit of selecting an offshore electronics manufacturing services partner (EMS) makes dollars and “sense,” but the real magic happens when your EMS partner possesses these 5 “must-haves.” 

1. Original Equipment Manufacturer (OEM) and EMS Fit  

As an #Electronics #OEM, consider whether your product design complexity and volumes are the right fit for an EMS partner. Do your designs and product require sizeable engineering support or is it rock solid with all the kinks ironed out? Are your products highly complex, requiring troubleshooting even after handoff to production? If so, discuss these challenges with the EMS partner and make sure they have the in-house engineering to handle such requests.

You will be surprised to find an EMS partner offering end-to-end engineering capabilities, even for medium or smaller volumes of electronics manufacturing. They use the latest development tools, load firmware, build custom test fixtures and jigs and even maintain Board Support Package (#BSP) and version control. The right EMS partner could fill a big capability gap that is typically only possible with large Original Design Manufacturers (ODMs).

2. Pricing Power

There’s price and then there’s priceless!  If your EMS partner already has a “negotiated price” for Integrated Circuits (ICs) and pricey class-A parts, chances are you stand to gain significantly from receiving those cost benefits by default, despite your lower volume! Such an offer could be a game-changer when you are launching a new product in the market. It could be a strategic advantage over your #competitors who don’t have access to this pricing power.  Another bonus!

3. USA Contracts and IP Protection

A key concern with using a potential offshore EMS is whether you might risk losing your product differentiation. Do you really want a knockoff of your product at 75% discount trying to steal your customers away?

A good way to combat this—a bit of a twist from the typical #ElectronicsSupplyChain alternative—is to retain a US company with carefully curated offshore EMS factory operations.  You get the best of both worlds–offshore cost advantages and IP protection! The US company assumes responsibility for protecting your IP; the company must abide by US laws and is on the hook to safeguard your designs despite offshore manufacturing. 

4. Communication and Collaboration

Is your primary interface with the EMS provider in a different time zone? Many companies underestimate the cost that is involved in effectively transferring New Product Introduction (NPI) to production, which can often span weeks if not months of time spent in travel to streamline volume production.

Leverage a US company to own the communication and accountability for their offshore factory operations and ensure your turnaround times are met.  While this may not give you the lowest cost to build, it can be key in achieving your time to market, especially if you are hindered by fewer engineering resources to handhold design to production.

5. Geopolitical Stability and Tariffs

Today, more than ever, it is imperative that you weigh the geopolitical stability of the offshore EMS’ resident country when you are vetting them. Failure to do so could easily impact your multi-year business strategy in the event tariffs are imposed that cannot be sustained in cost to build your product.

Do any of these points resonate with you–or do you have other insights?  If so, we want to hear from you. Please reach out.

This is the first blog post in a series that will guide you through the process of outsourcing your electronics manufacturing and electronics contract manufacturing. Starting with the question of “should you outsource your manufacturing?” and stepping through the final qualification of products associated with your decision.

Here are some definitions of sourcing your electronics manufacturing:

•  Insourced (doing it inhouse),
•  Outsourced (hire a 3^rd party),
•  Offshoring (outside of North America),
•  Nearshoring (USA, Canada, Mexico), or moving from Outsourced back to Insourced

Let us begin with the several reasons to consider outsourcing your electronics manufacturing:

Cost Effectiveness/Improvement: Cost may not be the reason why you are considering outsourcing, but if it is, here are a few cost areas that might be improved:

Lower direct labor cost (less need for internal new hires, reallocate current resources).

Reduce overhead rates (both internally and possibly with lower overhead rates at a 3^rd party).

Leveraging supplier materials spend (as appropriate – keep in mind that the size of the company(s) that you are considering may not contribute improvements to component costs. Additionally, many of the materials costs may be “negotiated” between you and the manufacturers, and in many cases, your new partner may not be able to improve on them).

Resilience: Your electronics manufacturing services partner specializes in this area and should have robust processes and supply chains established that will provide you a much-needed resilience in your own business.

Logistics: For many years, there has been a need to move manufacturing closer to your customers by manufacturing in region.  This reduces transportation costs, should improve lead-times (transportation), and possibly on-time-delivery performance.

Technology: Many times, this could be the main or even the sole reason to find a partner, specifically if you do not have the resources or expertise that you need internally and/or the investment is too great.

Knowledge: Allows you to gain access to knowledge & expertise, you may not have expertise or the skill set, in engineering, manufacturing, supply-chain, or other areas such as Marketing, Payroll, HR, and others.

Scalability: As companies grow, having the ability to quickly scale production to meet demand can be a distraction, cause delays, be a drain on your current work force, and require expensive talent.

Resource Constraints: Internal talent utilization & focus, creates flexibility with resources.

Investment: Cannot fund internal factory improvements, additional space, technology development, talent development.

Risk Controls: Provides business continuity / risk management by allowing the use of additional resources, facilities, data, and personnel in other regions, both local and internationally.

Core Competencies: Outsourcing will allow the company to stay focused on their core competencies (such as innovation, branding and marketing, and sales), and not become distracted by trying to do too many things at one time.  This is especially important and critical during a start-up and/or expansion phase.

Time to Revenue: Improves “Time to Revenue” by not having to wait for new resources to be identified, onboarded, and trained, acquiring, and installing new equipment, tooling, processes, technology, and systems.

As with any business decision, there can be potential disadvantages:

• Loss of Control of Quality: A recommended best practice is for you to have mechanisms in place with your electronics manufacturing partner that will allow you to monitor various critical phases, inspections, and/or tests during your process.
• Hidden Costs: There are hidden costs that you should consider – material liability, services for a fee (know what is not included), travel, additional freight, duty, or tariffs.
• Contract and Commitments: There may be detailed contractual agreements & commitments to work through. This is a critical process and helps to set the type of relationship you will have.   Trust but verify.
• Moral Dilemma: Perceived or actual loss of local jobs, impact to local community, backlash from customers and investors, etc.
•   Delegating: Handing off your supply-chain and associated personal relationships to others. This can be difficult to work through.  You will be handing off a critical and strategic piece of your ownership.  Yes, you will still have relationships with your manufacturers and suppliers, but that relationship will change.
•   Security: You must protect your IP, privacy, special processes, risk of your products being copied, etc.  This must be built into your vetting, diligence, and selection process.
• Lost in Translation: Working across time zones, language, and culture can lead to loss of time, money, and more.

Next, we will discuss understanding your current costs for what you might consider outsourcing or insourcing. Know your costs and elements for Activity Based Costing:

• Material.
• Labor.
• Overhead.
• Processes (Testing, Assembly, etc.)
• Capital needs.
• Freight / Logistics (raw material, finished product.)
• Travel.
• Supply-chain transfer (localization, new tooling, qualification, etc.)
• USA vs. lower cost region cost trends.
• Risks (supply-chain continuity, geopolitical, nature, acquisition, etc.)

Located in South East Asia, in the subcontinent, India is the world’s largest democracy. With a large population, India is on a quest to grow its economy and create jobs for its largely growing population.

Product Expertise & Experience
India brings deep expertise and experience in research & development, engineering & design, software, and a rapidly scaling up supply chain & manufacturing industry.

With carefully curated partners, the country has the capability to provide you with single accountability across these disciplines, resulting in a solid long-term #ElectronicsSupplyChain alternative.

Intellectual Property (IP)
India has adequate copyright laws. India has been a World Trade Organization (WTO) member since 1995 and if you are doing business with India, you will find similarities between local IP law and enforcement procedures, and those enforced in the UK. India is also a signatory to various international treaties on IP rights. Furthermore, rights such as trademarks, designs, patents, and copyright can be protected through registration. These rights are enforceable through the Indian courts, which, in the event of infringement, can provide interim remedies such as injunctions relatively quickly. The courts can also instruct perpetrators to account for profits generated from their infringement. IP risks can be further mitigated by doing business with a US company with operations in India, like ours.

Talent Pool
India’s emphasis on affordable and accessible education, especially at the college level generates a large pool of talent annually. A surplus of extra manpower is driven by a growing, younger working population. The country currently has a median age of around 26.8 years old. This is a prime age for the working class. Also, despite the average age of the world population’s prediction to rise in the next couple of decades, India’s median age is expected to be just 31 years by 2030. This is a huge supply of talent compared to the aging population in China, Japan, or the US.

English Language Skills
English is the second official language in India and executives have embraced it to conduct business. In contrast to China, India incorporates British customs and legal systems, ensuring a smaller culture gap that needs to be bridged.

Political Stability
India has a stable and progressive government headed by Prime Minister, Narendra Modi. The country’s political stability and policy continuity make it an attractive destination for global investors and foreign companies seeking to establish a technology and manufacturing base. According to heritage.org, “India has become a major exporter of information technology services, business outsourcing services, and software workers.” USA businesses take comfort that a political downfall will not occur and that stability in the country will be maintained.

Business Friendly
Thereare many initiatives by the Government of India to encourage companies to manufacture in India and incentivize dedicated investments in different sectors:
Digital India: Digital India is a flagship program of the Government of India with a vision to transform India into a digitally empowered society and knowledge economy.
Make in India: This is a major national program of the Government of India designed to facilitate investment, foster innovation, enhance skill development, protect intellectual property and build best in class manufacturing infrastructure in the country. The primary objective of this initiative is to attract investments from across the globe and strengthen India’s manufacturing sector.

Infrastructure
Recognizing infrastructure as a key driver for India’s economic growth and for attracting Foreign Direct Investment (FDI), the Government of India continues to invest in the infrastructure sector, mainly railways; highways and rural roads; renewable energy; electricity generation; and port modernization. You may mitigate any infrastructure risks by vetting that the potential Indian business partner has easy access to air and seaports and is self-sufficient for electricity generation. India is also planning on incorporating more sustainable efforts into its infrastructure by 2022. This displays that they are environmentally cautious and globally-minded.

People Transportation
From the perspective of visiting India to tour or otherwise access supplier facilities:
Air Travel: India has major modern international airports served by the US, European, and Asian carriers.
Stay: The country is served by international and national hotel chains, including familiar names, like Hilton, Hyatt, Intercontinental, Marriott, and Radisson.
Ground Transport: The hotel will be happy to provide you with access to modern ground transport, such as a hotel car. Please note that Uber is widely available as are government and private taxis. Your Uber account is expected to work the same way in India, providing a seamless experience while there.
Communications: Most major US carriers have roaming agreements with Indian carriers so your GSM cell phone can be expected to operate seamlessly in India for voice, data, and messaging.
Financial Transactions: The legal tender currency is the Indian Rupee (INR). Electronic payments are prevalent, with Amex, Visa, and Mastercard freely accepted. ATMs are available at the airport and throughout the country for access to cash, as needed.

Freight & Logistics
India is served by all major international and regional air and ocean logistics and freight organizations so that your goods from the factory can be delivered to your dock.

Price Competitive
India offers competitive labor costs for #EngineeringDesign, #ElectronicsSupplyChain and #ElectronicsManufacturing, and #Software. Specifically, India’s manufacturing labor is more competitive when compared to China. However, it is important to consider the additional costs such as reliability of power and transportation, and ensuring during your due diligence process that your supply chain partner(s) have mitigated related risks.

In summary, India represents a viable low-cost region destination for your design, supply chain and manufacturing, software, product support, value engineering, and sustaining engineering needs. To name just a few, international companies like Apple, Samsung, and Xiaomi have established production sites in India.

Our recommendation is that potential supply chain partners be carefully vetted (due diligence) to ensure that they understand your business and your needs deeply, and deliver value accordingly while identifying and mitigating country-specific risks on behalf of your business.