With manufacturing costs increasing in emerging markets such as China and Indonesia, Flextronics CEO Mike McNamara said the U.S. is becoming more appealing.
McNamara's comments, delivered on a conference call on Tuesday, come days after Apple said it would manufacture in the U.S. Flextronics is a large contract equipment manufacturer for technology vendors. Flextronics said Monday that it will acquire Google's Motorola Mobility plants in Tianjin, China and Jaguariuna, Brazil. Flextronics will absorb both employees and assets used to manufacture Android devices.
The Google-Motorola transaction will be a "multibillion-dollar" deal. "We are certainly excited about the possibilities and happy to be a proud partner in that Google ecosystem," said McNamara.
However, the big picture here is that the U.S. is looking like a more feasible manufacturing locale for tech. A weak dollar is one reason, but inflation in emerging markets is also pushing changes. McNamara said:
I think, moving production back to U.S. is a process, or it is a journey, almost. What you are seeing is you are seeing the cost in China go up 20% a year, and we would anticipate the cost in China to continue to go up 20% a year for the next five years. We have seen our rates in Malaysia go up about 30% this year.
We have seen just last week the rates in Indonesia were announced that they went up more than 40%. As our costs become pressured, it makes other choices more interesting. What that is going to do is probably push more work into Mexico. And, over time, as those costs continue to go up, you'll probably see more things get pushed back in the U.S.
As you see things that get pushed back into the U.S., a la the Apple comment -- as you see things get pushed back into the U.S., it is more than just having the right cost structure. You also have to design for more automation and more different kinds of productivity. So, it is an evolution; it is not just flipping a switch. You actually have to spend a lot of work in the design, all the way through to the manufacturing process, knowing where you are going to manufacture. I think it is going to take time.
But I think with the costs continuing to go up around the world like they are, and with the cost in the United States staying relatively flat over the last few years, I would expect you would to see a little bit more coming back.
McNamara's comments about automation are notable. Why? If robots wind up replacing human labor, locations such as China, which has a manufacturing base built on employing a billion people, may lose some luster.
Here's a look at the Flextronics manufacturing footprint.