HP Follows Other Consumer Electronics Producers in De-Prioritizing Chinese Production, but Second Sourcing Requires Careful Consideration

By Michael Larner | 3Q 2024 | IN-7485

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Hewlett Packard (HP) has announced changes to its strategy for manufacturing Personal Computers (PCs) with a move away from Chinese-based production. Apple, Dell, and Microsoft have also announced plans to commence production in Southeast Asia at the expense of China. HP's chosen location is Thailand, and the announcement isn't a big surprise to those that have been closely watching. For others, it shows what needs to be in place on the ground, but responses from over 150 individuals (senior managers, plant managers, Information Technology (IT) professionals, and engineers) based in Malaysia to ABI Research's "Manufacturers' Technology Adoption & Attitudes Survey" reveals several issues facing manufacturers looking for a second sourcing location.

ABI Insight "Despite the China Plus One Strategy, Chinese Manufacturers Will Strengthen the Country's Manufacturing Markets with Increased Adoption of New Technologies" outlined that Southeast Asian nations are an attractive manufacturing location due to their relatively low costs of labor and that countries such as Indonesia, Malaysia, the Philippines, Thailand, Singapore, and Vietnam are, for the time being at least, successfully maintaining a neutral position when it comes to the geopolitical rivalry between China and the United States.

It has been reported that prior to the announcement of the move away from China that some of HP's suppliers have been building manufacturing and warehousing facilities in Thailand already. For many years, consumer electronics firms have remained in China due to the entire production value chain being in close proximity. But the advantages of Chinese-based manufacturing are fraying with increasing labor costs and wariness of how Chinese authorities will view international, and certainly U.S.-headquartered, manufacturers in the coming years.

Manufacturers considering a change in manufacturing location should not make knee-jerk decisions because critical component suppliers, skilled labor, and distribution partners may not be readily available.

ABI Research's Digital Transformation of Electronics Manufacturing report (PT-3146) highlighted that spending by manufacturers in the Asia-Pacific region on digitalization is fueled by competition between countries and the manufacturers located within them to win business from the major brands.

It's not enough to be a cheap location; manufacturers need to be confident that they can replicate or improve their Chinese-based manufacturing operations. In the case of the Malaysia-based survey respondents to ABI Research's "Manufacturers' Technology Adoption & Attitudes Survey," they were looking to Autonomous Mobile Robots (AMRs) and Automated Guided Vehicles (AGVs) as part of quality improvement programs contradicting the narrative that a labor arbitrage is a reason to set up facilities in the country. Furthermore, these respondents matched their counterparts in the United States and Germany when it comes to investment priorities (Robotic Process Automation (RPA) and Enterprise Resource Planning (ERP) software for improving productivity), implementing 4G/Long Term Evolution (LTE) networks, cloud infrastructure, and cloud-based software applications, and introducing Internet of Things (IoT) devices into their facilities.

But all might not be as positive as it seems because respondents reported that wage expectations of potential recruits, the price of components, and supply chain performance were also operational concerns. Some challenges seem to be in place regardless of the location.