Editor's Note: This column originally appeared in the June issue of The PCB Magazine.
I’ve read quite a few articles about the return of manufacturing to the U.S., and what it would take to make that happen. In fact, we’ve published a few ourselves. It’s an intriguing idea and certainly plays well in the mainstream press and on Capitol Hill. As much as I like the idea, I can’t see how it would work for PCBs; it’s a lot more complicated than it seems on the surface. In fact, it’s way too little, too late.
Yes, China has had, and continues to have, unfair advantages such as manipulated currency exchange rates designed to favor their producers over the rest of the world, and subsidies, which have encouraged exports over the last decade. Both of these scenarios have spurred a huge shift of wealth from, mostly, the U.S. and Europe. However, as you can read in the mainstream and trade press, things are changing. Labor rates are increasing and the RMB (China’s currency) is under pressure from most of the developed world, resulting in a couple-point rise in the exchange rate over the last year or two. That’s not enough, but it’s a start. China has also come down hard on industries like PCBs, which use a lot of water and discharge a significant amount of heavy metals into their streams and rivers. This has slowed the unbridled expansion of the industry (at least in the East) and increased costs for compliance. It’s a slow process, but it does show that the tide is starting to turn. Still, it’s going take more than that before the PCB multinationals start to look at bringing work back home.
In a recent earnings report, Viasystems mentioned the rise of the cost of labor in China, which has increased 18-20% over the last year. In an interview, CEO David Sindelar gave this quote: "We don't like inflation and our customers don't like inflation, but it will take a long time before our costs in China get up to Western World levels."
Companies like Viasystems are in China for the long haul and won’t be moving PCB production back to the U.S. any time soon. They’ve made big investments in China and continue to do so (Viasystems just announced $100 million in capacity expansions).
Consumer Electronics Inertia
Ipods, iPhones and iPads don’t represent all the electronics China produces, but the consumer electronics industry has been the life-blood of the Chinese PCB factories and represents the lion’s share of the business there. The Chinese have used lower-cost consumer electronics to develop their electronics-manufacturing base, following the examples left by the Japanese in the ‘70s and ‘80s, and the four tigers in the ‘80s and ‘90s. This massive effort by the Chinese has allowed the country to build an electronics infrastructure that is self-sustaining; they have almost all they need, including Rare Earth Metals (China produces 95% of the world’s supply).
Another thing they have going for them is their huge middle class, which will buy more and more consumer products in the years to come. (Chinese consumers already buy more PCs than U.S. consumers.) As a result, product manufacturers, EMS and OEMs not only get the benefit of low-cost PCBs, but also lower-cost components, assemblies and box builds. Additionally, the PCB fabs buy their materials from multinational suppliers at Chinese prices. This, along with the growth of their own consumer market, is why we won’t see the return of volume PCBs to the U.S. or Europe anytime soon.
As you can see, the PCB is only part of the story. Without the rest of the supply chain to support lower-cost consumer products, there’s little chance for the resurgence of consumer PCBs in the West.