May 112012

If you watch TV regularly, you might have noticed a dramatic change in the type of products advertised in the last few years. Compared to only five years ago, we are getting bombarded with TV advertisement for smartphones and other communication devices. This striking change is a definite indicator that mobile communication is a high growth industry – both on the hardware as well as on the software side.

Whether simple phones, smart phones, tablet computers, high-end industrial equipment or technologies protecting the environment, they all have one important attribute in common, they use electronic components which are all manufactured and assembled in Mainland China. Does this mean that manufacturing jobs in the US are gone for good?

We here at Cherrypal developed a blueprint in early 2010 for creating highly competitve assembly plants for mobile phones, tablet and laptop computers here in the US. In my presentation at the Commonwealth Club on September 16th, 2010, I outlined how small and highly optimized assembly plants in the US would be cost neutral compared to the huge assembly plants of Chinese contract manufacturers in Shenzhen. Foxconn, assembler for Apple, Dell, HP and other consumer electronic brands, employs more than 400,000 workers in Shenzhen, Mainland China, just about half an hour by train from Hong Kong.

We talked to several communities, from Detroit, Michigan to Sacramento and Oakland in California, how to go about creating jobs in neighborhoods with high unemployment. The idea was met with much excitement, however it was not followed by the necessary actions. The generated interest and excitement fell short when we asked for loans or loan guarantees in return for new jobs. As a privately non-Venture-Capital funded company we can only pull off projects of this magnitude through close collaboration with strong partners and the necessary financial backing. After all, that is how China was able to get its manufacturing and assembly industry started: what most people don’t know is that China’s main competitive advantage is not its cheap labor, but rather, government supplied loan guarantees in return for job creation.

Despite the lack of interest in the States we continued to develop the concept, it is now called “Made in Suburbia”. It provides the operating plan and financial models and analysis of how a MISAP (Made in Suburbia Assembly Plant) can be operated profitably and very beneficially to the local community.

Each MISAP has between 100 to 500 workers employed in sustainable, fairly paid and clean jobs in assembly, logistics and administration. Unlike traditional large scale Chinese assembly plants MISAPs will also act as a local support and logistics hubs, handle returns, replacements, repairs. MISAPs also maintain a community center, engage with local schools and provide insight into electrical and mechanical engineering, software development, and customer support. For every MISAP job created, an additional 7 jobs outside of the assembly plant will be created, adding another 700 to 3500 new jobs to the local economy.

MISAPs are a very compact, highly productive and low-overhead finished-goods-creation facilities, making them cost neutral compared to the low-labor cost and loan subsidized facilities in China. Corporate managers of other consumer electronics brands are aware of the benefits of local assembly, however, nobody has the guts to execute on it. Who would possibly want to explain to Wall Street that their company decided to manufacture consumer electronics in Michigan although labor cost in China is just a fraction? It would require a lot of explaining and the stock price would still go down.

Americans love to watch ABC’s “Good Morning America”, the Emmy award-winning morning news program. Another simple way to create jobs would be to produce a TV show called “Good bye America”, hosted by a  “Simon Cowell”-like type judge. The show’s premise could be to let America select the most ignorant, “irrelevant”, “forgettable” and incompetent corporate manager or politician. It would be painful, highly entertaining, an American reality show at its best.

Seriously though, China and India are “in” – America has fallen out of fashion as a place to assemble goods – perception becomes reality. Is the perspective on stock valuation by Wall Street and corporate America still good enough?

In the 2008 presidential campaign politicians show-cased  “Joe the Plumber”, a hard-working plumber who’s job cannot be outsourced to China. Isn’t it time to talk about “Bill the unemployed assembly plant worker” in 2012? Politicians know how to bail out banks, but when it comes to job creation for ordinary people they are clueless, or at least not very motivated.

We are looking for MISAP partners globally, from the United States to Canada, Mexico, South America, Africa, Eastern Europe, Africa but also Asia. There is no logical reason why consumer electronics should only be assembled in China – other than lack of entrepreneurial imagination and ignorance. Every MISAP is the seed for a micro-Silicon-Valley-like ecosystem. MISAPs are going to be very successful in Africa – welcome “Made in Africa” for consumer electronic devices and applications.

Dec 212011

First the bad news. Everything is manufactured in China.

The entire consumer electronics industry silently closed all assembly plants in North America and Europe in the last 10 years. Today more than 95% of this products are manufactured in Mainland China, whether it’s Apple or Dell or HP or Cherrypal or Amazon or Epesitec, they all assemble in Shenzhen, about half an hour by train from Hong Kong.

Since all products (phones, tablets and laptop computers) are manufactured in China is there any difference in quality?

Overly simplified it very much depends who designed the products and who is watching the assembly/manufacturing process. Chinese manufacturers usually design their products for the local market, with very little consideration or understanding of the quality and usability expectations in North America and Europe. Believe it or not, the average Chinese consumer has very little appreciation for product quality. The only buying criteria is price. That’s also the reason for the incredible low prices for authentic Chinese consumer electronic products on eBay and other sites – low price – low quality – delivered as promised.

Well, differences in design are very obvious to the consumer. What’s not that obvious are guidelines how workers are treated and how environmentally friendly the assembly/manufacturing process is handled. Some Chinese contract manufacturers are famous for burning out their workers and polluting the environment at their discretion. Workers usually don’t speak up. There are hundreds of millions of Chinese farm workers waiting to get a better paid job in booming Shenzhen.

Companies like Apple and others are facing a lot of questions from the public. The true reason for the miserable working conditions is not related to cost pressure at all. The average factory worker makes about $100 a month and most factories actually employ too many workers due to generous government incentive programs. The root cause of the problem is poorly trained management and lack of interest to make the necessary changes.

Epesitec is an ODM (Origninal Design Manufacturer), headquartered in the States, with assembly facilities in China.

Like Apple, Dell, HP and the other major brands the products are designed here in the States and manufactured in Mainland China. Epesitec though is not a consumer facing brand, it designs and manufactures products that are branded by mobile phone carriers and others.

Here is what Epesitec considers “good enough” in order to assemble high quality and low cost products:

  • The more quality controls the lower the cost. Poor quality is not good enough and causes costly return  and replacements.
  • Treat workers well and with respect, enforce breaks, provide incentives and benefits, no physical punishment.
  • Minimize exposure for the environment, use less energy, less waste, think now so you don’t have to pay later.

Now the good news, manufacturing locally, I call it “homemade tastes better”, is not just possible, it’s even desirable.

Epesitec started with assembly/manufacturing in Mainland China like everyone else, but there is ample proof that placing assembly as close as possible to the engineering and design process will increase product quality with very little impact on cost for finished goods.

Epesitec will start with “Made in America” assembly in 2012, improve product quality even further and keep cost low. Ironically most politicians are not very interested in manufacturing jobs locally, go figure.

Ever wondered why next to nothing is manufactured in North America anymore? If cheap labor is the only criteria why is nothing manufactured in Africa, for that matter. Will share more another time.