News, Insights and Best Practices for Manufacturing in Mexico

SWOT Analysis of Mexico and China EMS Industry

17 Oct 2011

Category: Manufacturing in Mexico

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.

 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 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

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.

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

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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