As the seasons changed, so did the economic winds.
Housing price increases had outpaced the demand curve, as unit sales slowed and new starts cooled. Automotive sales dived for the longest stretch in years. The stock market tanked. Interest rates ticked up. The bond yield curve inverted, suggesting investors had turned pessimistic about short-term prospects for the economy. Foreign investment stalled. The government, having primed the consumer economic pump through huge capital inflows to the domestic economy, struggled over hard choices of whether to borrow even more in the hopes of stemming a potential recession.
Faced with all of the above, coupled with rising labor costs, a cascade of confusing new government rules, and an increasingly treacherous trade environment, manufacturers started looking for friendlier climes.
It was 2001, a lifetime ago in electronics design and manufacturing, but plenty people in the West still bear the scars.
Will the machinations of that painful time repeat in 2019? It certainly feels that way.
Indeed, many of the same warning signs are emerging. Last time around, after years of new peaks, sales of houses and durables toppled. President George Bush authorized a tax cut in the hopes of stimulating the economy. Yet the economy fell into recession. Industry, faced with ever-longer lead times and rapidly escalating labor costs, fled for offshore.
With the expiration of the overseas currency repatriation act and no tax cuts on the horizon, there may be no more pump-priming to be had. Yet the scenario playing out today is more global. This time, China is no longer in the catbird seat, waiting to pick through the spoils of desperate foreign companies.
Indeed, China may suffer the fall.
Its leadership is assuming an active stance. Last month it proposed additional stimulus measures after contractions in its trade and factory activity startled government officials. And it pumped billions into domestic banks. Still, the Communist Party charged with managing the Chinese economy appears flummoxed by the sudden financial shifts, uncertain how to respond to oppressive US tariffs, and ill at ease over taking on new debt that might put it under the thumb of foreign entities.
It may be too late. Pegatron, Wistron, Key Tronic, VS Industry, ATA IMS, All Circuits and Foxconn (if it can be believed) all opened or announced plans for large new factories – none in China. Most cited the ongoing US-China trade wars as impetus for the migration.
Which nation might benefit? Vietnam? Indonesia? India? Malaysia? Mexico? They all have their advantages and drawbacks. Most often, it’s the need for viable local supply chains that holds up investment outside today’s primary geographical centers for electronics. And while it seems hard to believe the manufacturing supply chain will simply up and leave, walking away from years of investment, keep in mind the original centers of industrial manufacturing – Shanghai and Shenzhen – are giving way (or, in Shanghai’s case, has given way) to new outposts in the center of the country. Those supply chains are more flexible than they might appear.
The low labor rates of Vietnam and Indonesia are attractive. India’s massive population, not to mention its slew of well-educated English-speaking engineers, can’t be dismissed. Neither can Malaysia’s robust electronics market. And Mexico is cost-competitive with offshore nations but has the advantage of being a truck ride away from its largest trading partner.
It feels like 2001 all over again … but for China. Who will capitalize this time?
Data transfer format transfer. As we were going to press, Israeli media were reporting Orbotech has acquired all outstanding shares in Frontline PCB Solutions. Orbotech’s longstanding partner in the CAM tool provider has been, of course, Mentor, which itself is now part of Siemens.
Given Frontline’s position as a major supplier of PCB fabrication software, what does this mean for the future of data transfer formats? ODB++ (Mentor) and IPC-2581 (IPC) have been locked for years in a struggle to gain traction against the de facto Gerber standard. Frontline has been in the uncomfortable position of having to meet the demands of customers calling for IPC-2581 while its co-parent company was author of ODB++. Without Mentor’s influence, will Frontline be more inclined to support a consortium-led effort?
P.S. See us at IPC Apex Expo, booth 2501!