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Mexico v. China Electronics Manufacturing Services (EMS) SWOT Analysis

17 Oct 2011

Charlie Barnhart & Associates is a  firm that offers strategic consulting, research and training programs targeted at addressing issues at the intersection of the electronics OEM and its outsourced manufacturing providers.   The firm has recently published a report entitled China v. Mexico: An Objective Comparison for Midmarket Electronics OEMs.

Over the next several weeks, The Offshore Group's blog will contain excerpts from this informative and important document.

The first installation that appears below is from Chapter 7 of the study which is comprised of a SWOT Analysis of the Strengths, Weaknesses, Opportunities and Threats related to engaging in electronics manufacturing services in China and in Mexico.  In order to get a copy of the entire document, visit the Charlie Barnhart & Associates website.


China Mexico EMS (Electronic Manufacturing services) SWOT ANALYSIS


A SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or business venture, and it considers both internal and external factors.  The following SWOT analyses are prepared for electronics manufacturing in both China and Mexico in relation to serving a midmarket OEM based in the USA.


7.1       China EMS SWOT Analysis


  • Strengths
    • Still competitively low electronics manufacturing services direct labor rates
    • Large labor pool with growing concentration of engineering talent
    • EMS component supply base is in China
    • An abundance of EMS companies with available capacity
    • Government support for domestic EMS (Electronics Manufacturing Services) companies
    • High volume and continual flow EMS manufacturing
    • Improving technical capabilities
    • Emphasis on education and developing appropriate skills
  • Weaknesses
    • Legal environment that allows EMS IP theft to continue unabated
    • Cost of support higher due to time zone factor
    • Communications can be challenging due to language, cultural and distance issues
    • EMS manufacturing quality concerns continue
    • Counterfeit component issue poses increasing risk
    • Export taxes have risen
    • EMS direct labor rates are increasing
    • Longer supply chain for products shipped to US market
  • Opportunities
    • Domestic consumption could be a driver of world economy in future as this is a stated focus of China’s current Five Year plan
    • Improving technical capabilities in the electronics manufacturing services industry and the ability to provide a more complete “one stop” manufacturing solution
    • The 18th National Congress in China scheduled for 2012 could bring the biggest leadership shuffle in China in over a decade.
  • Threats
    • Rising EMS labor rates
    • Geopolitical and related civil unrest issues, especially in rural areas
    • Changing attitudes of a younger more connected generation
    • Aging population and generational imbalance caused by “one child” policy
    • Increasing sentiment to reestablish domestic electronics manufacturing services in other global regions
    • Higher fuel costs have negative impact on TCO analysis
    • Burnout risk for US based employees working “around the clock” to manage/oversee manufacturing operations in China
    • Potential national debt problem based on government overspending
    • Continuation of a failed political model (i.e., communism)and the resentment it fosters in the majority of the population who are not members of the Communist Party

7.2       Mexico EMS SWOT Analysis


  • Strengths
    • Proximity to USA results in:
      • Shorter EMS supply chain for products being shipped to US market
      • Lower transportation costs
      • Easier communication and oversight in the electronics manufacturing services industry in Mexico
      • Quicker response time
      • Mexico has less inventory in supply chain compared to China
    • Same time zone as US and ease of travel between US and Mexico
    • The numbers and  characters used in Spanish and English languages are the same
    • Lower and more stable fully burdened EMS direct labor rates than China
    • Greater flexibility and responsiveness
    • Good Mexico supply base for metal and plastics
    • More experienced with Mexico lower volume and high mix manufacturing
    • Lower logistics cost relative to China for products shipped to US
    • Still available capacity
    • IP rights enforced by law in Mexico
  • Weaknesses
    • Physical safety due to ongoing war against drug cartels adds anxiety to companies working there.
    • Basic educational system needs improvement
    • The bureaucracy can be very frustrating to work with.  It is still as the German naturalist and explorer Alexander von Humboldt commented in the early 1800’s: “Mexicans love to envelop their most insignificant acts in mystery.”
    • High cost of acquiring electronic components and mechanical parts from Asia
    • High labor turnover especially in border zone facilities
    • Limited Mexico PCB fabrication alternatives
  • Opportunities
    • Continue to focus on higher value added, higher technology EMS products in Mexico
    • Develop more domestic capacity for manufacture of electronic components and PCB fabrication
    • Invest more in training and education
    • Attract more foreign companies wishing to leverage Mexican manufacturing for products to be sold into USA/Canada
  • Threats
    • Mexican economy is tightly bound with the USA/Canada
    • Prevalence of monopolies in most industries within Mexico hurts competitiveness, costs, and service quality
    • Systemic corruption adds hidden costs and frustrates foreigners
    • Burden that current tax system places on industry


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