Circuits Assembly - March 2008 - (Page 56)

Offshore Expansion The Road Abroad – Strategic Alliance or Greenfield Facility? By Paul Plante One eliminates the learning curve, but also impairs visibility and communication. MS providers use a range of business models to satisfy customer needs. To support the need for access to lower-cost labor regions, Western EMS providers have primarily two choices: build their own facility or develop a strategic alliance with an existing manufacturer in the region. Both have advantages and disadvantages. This author is in the position of having viewed both models from a management perspective. While I was CEO of Reptron Manufacturing Services, RMS chose the strategic alliance path. RMS was later acquired by Kimball Electronics Group (KEG), which chose to open a greenfield operation in Nanjing, China. Here we look at some distinct advantages and disadvantages to each model. E Figure 1. An SMT production line in Kimball’s facility in Nanjing. The Case for Strategic Alliance In the RMS example, the driver for a Chinabased manufacturing option was a desire to maintain relationships and provide a solution for customers that felt a portion of their production needed to move to China. RMS was a U.S. manufacturer without sufficient customer demand or resources to establish a wholly owned global footprint. RMS shared the concerns of many domestic manufacturers that if key customers established their own manufacturing relationships with Chinabased competitors – even on a small scale for margin-sensitive product – they risked the loss of additional business moving offshore. A strategic alliance permitted margin-sensitive product to move offshore without creating a competitive tug-of-war for the total basket of business. Establishing an offshore greenfield facility came with a learning curve. The strategic alliance model eliminated that learning curve. Production personnel were already recruited and trained, and supplier relationships already established. Underutilized capacity concerns, common when greenfield operations start production, are eliminated because the domestic partner pays only for the resources they use. However, the model is not without disadvantages. EMS providers are typically accountable for the performance of the alliance partner, even though the production resources are not completely under their control. Both the EMS provider and its partner’s need for profitability often result in a markup on top of 56 Circuits Assembly MARCH 2008 circuitsassembly.com http://circuitsassembly.com

Table of Contents Feed for the Digital Edition of Circuits Assembly - March 2008

Circuits Assembly - March 2008 Caveat Lector Letters Industry News Market Watch Talking Heads Focus on Business On the Forefront Screen Printing What Drives the Crowd? Mastering ESD Control in Automated Handling Systems Beating the RoHS Heat Trade Secrets True to Its Roots The Road Abroad - Strategic Alliance or Greenfield Facility? Tech Tips Wave Soldering Test and Inspection Process Doctor Pb-Free Lessons Learned Getting Lean Materials World Equipment Advances Apex Product Preview Ad Index Assembly Insider Technical Abstracts

Circuits Assembly - March 2008

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