Asian Manufacturing: from ‘Four Tigers’ to ‘Four Octopi’
by By Pamela J. Gordon and Bob Wyckoff
Jan 28, 2004
Technology Forecasters, Inc. Senior Outsourcing Consulting Bob Wyckoff returned last month from touring several electronics manufacturing companies in Singapore and Thailand.
For 22 years he has been helping OEMs set and execute outsourcing strategies throughout Asia, as well as Europe and North America. But this Fall’s trip convinced Wyckoff that Singapore, Thailand, Taiwan, and Hong Kong could be called the "Four Octopi." (The term "Four Tigers" for many years has described the manufacturing strength of Korea, Taiwan, Singapore, and Hong Kong.) Each "Octopus" now has strong command centers for design and high-tech manufacturing with arms reaching into lower-cost manufacturing regions elsewhere in Asia: especially China, but also Philippines, India, and Vietnam.
Today, the lower-cost regions into which the Four Octopi reach have business or manufacturing challenges that the Four Octopi previously had overcome: incomplete infrastructures for electronics, transportation, and/or utilities; expensive logistics; corruption; and/or too few skilled managers or technically-trained workers. (Managers and skilled workers abound in India, however, where upper classes are exceptionally well educated). These lower-cost regions are on their way to developing efficient infrastructure, first-class business environments, and educated managers/workers to stand alone in today’s competitive electronics industry: demonstrating excellent quality, delivery, and flexibility. In the meantime, electronics companies in the Four Octopi provide all of this competitiveness by combining their own advanced electronics capabilities and business acumen with lower-cost labor in other Asian countries. Let’s look briefly at each.
The business climate in Thailand has improved greatly since Wyckoff’s previous visits there. Bangkok’s earlier traffic congestion and pollution have abated somewhat, the country has heavily invested in infrastructure, corruption is minimal and waning (becoming more like Singapore, says Wyckoff), and customs now run a bit more smoothly. Starting in 1983 Tom Mitchell (then at Seagate and now CEO of Bangkok-based Fabrinet) assisted the Thai customs department in developing practices to foster business effectiveness and be a model for others to follow. Wyckoff toured Fabrinet, which provides engineering and manufacturing services for optomechanical, precision electromechanical, and optoelectronic industries including communications, automotive and aeronautics, industrial, medical, and consumer electronics—an example of the higher-tech capability in the Four Octopi. Automotive companies are conducting subassembly there (e.g., Toyota Motors is moving assembly plants from Japan to Thailand, and Izuzu may follow); Thailand could become the Detroit of the East. One dissenting opinion of including Thailand in the Four Octopi comes from Mark Schwartz, Sr. VP. Strategy & Corporate Affairs at Fabrinet: Loaded labor rates for operators through engineers in Thailand compare favorably to those in China, and are many times lower than in Malaysia or Singapore, he says. But certain he agrees that Thailand’s infrastructure, business culture, and higher technologies are ahead of China’s and therefore can be considered a center for management and manufacturing for higher-technology products.
Singapore is perhaps the prime Asian country to which companies have outsourced electronics manufacturing for 20 years, says Wyckoff, and by now is extremely high on the technology curve. Years ago, US and Europeans OEMs would train Singapore workers and managers in the latest technologies. For example, when he helped form Seagate before starting Fabrinet, Tom Mitchell trained Singapore engineers in building disk drives. Singapore was the disk drive manufacturing center of the world, as evidenced also by contract manufacturer Flextronics building millions of disk drives in Singapore in the second half of the 1980s. Since then, Singapore has moved beyond consumer electronics and computer peripherals into manufacturing some of the world’s most advanced electronics technologies. For example, says Wyckoff, "Pemstar in Singapore is building ATMI’s emissions-abatement equipment--something you wouldn’t send to China because of quality and managerial issues. At one point, Pemstar might have the opportunity to send this product to China as China develops along the technology curve." As labor rates have increased in Singapore owing to skilled labor and limited population, Singapore companies have utilized lower-cost regions such as Malaysia (many Malaysians commute into Singapore daily) and the Philippines.
Taiwan and Hong Kong
Originally, Taiwan’s electronics forte centered on components, power supplies, and lower-technology systems. From having taken over much of the world’s computer motherboard assembly in the 1980s, however, Taiwan’s manufacturing technology increased; e.g., Dell would buy from Acer and other Taiwan companies an Intel motherboard built housed within its cabinet in Taiwan. Today, Taiwan and Hong Kong are headquarters for the world’s largest Original Design Manufacturers, conducting higher-technology and mid-to-low volume assemblies in Taiwan, with high-volume manufacturing mainly in China. Product manufacturing managed out of in Hong Kong are mainly consumer products: personal digital assistants, phones, and toys; the factories are in China.
Recommendations to OEMs
If you work for a a small or mid-tier OEM company and you want access to China and other very-low-cost regions, consider using Singapore, Taiwan, and Hong Kong as gateway countries, instead of working with companies the developing countries directly. An additional advantage of working with suppliers having arms reaching into China and India especially is that the consumer market is large and growing; manufacturing there not only leverages the region’s low-paid workers but also proximity to customers and avoidance of some taxes/duties. If your products today are not consumed in the China and India markets, they may be some year soon.
Of course, a natural way of leveraging low-cost centers other than setting up your own facilities in the Four Octopi or directly in China, India, Vietnam, and other low-cost regions is to outsource manufacturing to a strategically selected global EMS company serving you locally in your region.
Pamela J. Gordon, Certified Management Consultant, is president of Technology Forecasters, Inc.--the leading consulting firm in electronics manufacturing outsourcing and supply chain. Bob Wyckoff is Senior Outsourcing Consultant, helping TFI’s OEM clients since 1995 make better global outsourcing decisions, faster, and with continuing cost reductions.