An alternative avenue of help can come through existing business relationships in Europe. Just over a year ago the Abacus Group (Newbury, England), a pan-European component distributor, opened a subsidiary operation in Hong Kong and recruited of long-time distribution executive, John Harlow, to run it.
Abacus was already shipping product to the region for a growing number of its European customers, and this business got to the level where it was necessary to provide local support. As well as facilitating shipments from Abacus direct to customers, the Asian manufacturing operation aims to provide a competitive solution and help resolve purchasing and logistical challenges. The local operation can also help with tracking designs in the local manufacturing operations.
“When one of our customers considers moving their production we like to assist them through the whole process, and very often I will visit the customer with our sales people in Europe” said Harlow. “Firstly, we will present the possible obstacles and downside of the move as it is not always in the customer’s best interest.” These downsides can vary from the obvious of communications/distance and quality control to possible tax implications and health scares.
“It’s interesting that the major cost saving in moving production offshore is not on the cost of the component – in fact this can increase cost and also give production headaches if sourced 100 percent in Asia – but on labor. So the majority of our business still remains as ‘invoiced in Europe and shipped to Asia’ either by the customer or us.”
The other key area is matching the customer size requirements to the CEM said Harlow. Volumes are huge in Asia and it is always a disaster if this is a mismatch. “We work very closely with around eight CEMs who can cater for any requirements our customers may have. We audit the CEM and also assist with all the logistics when the customer visits them. We are, of course, as business develops the customer’s eyes and ears in their chosen CEM.”
“In fact our involvement removes the extra cost when a third party is sometimes used for this type of service, as the end choice of the CEM is entirely the customer’s. Our interest is simply supplying the component to the customer and ensuring he uses the best possible CEM for his requirements.”
Abacus now has six employees in Asia, three of whom are in Hong Kong plus three design engineers in Shenzhen who work with the Asian suppliers on complex designs for customers in Europe.
Harlow said Abacus’ European engineering design support has been a key driver in retaining business that goes offshore, and is continuous during the complete production cycles and new generations of end product.
One company that has recent experience of setting up a manufacturing deal in China is RadioScape Ltd. (London), the developer and licensor of DAB software stacks that run on TI DSPs. In 2003 it decided that to encourage the proliferation of DAB it would design modules that could be incorporated in radios with marginal added design requirements. Initially it used its experience of the licensing model used for its software for its DAB radio modules. In March 2003 it signed up GyroSignal Technology Co. Ltd. (Taiwan) to build the modules and provide local support and customization and in December 2003 it appointed a second module-manufacturing partner, Kwang Sung Electronics Ltd. (South Korea).
However, in March 2005 it shifted this approach to a direct subcontract arrangement with manufacturers in China.
“We decided to move up the value chain, and in doing so we had to take on responsibility for the materials supply chain, logistics, quality and distribution,” said Phil Smith, senior vice president for sales and operations at RadioScape. “We set up an office in Hong Kong that now is the base for all hardware design.”
Smith used his more than 25 years’ experience of manufacturing in the Far East to implement the change in manufacturing strategy. “I was responsible for the manufacture of Acorn computers and also worked for a mobile phone manufacturer and set up design center in Hong Kong.”
“I used my contacts and we use Zastron, a subsidiary of Nam Tai Electronics that is quoted on NASDAQ and has sales approaching $1 billion.”The subcontractors buy components that are on RadioScape’s approved bill of materials; any alternatives have to go through its in-house engineering group.
Zastron, which is certified to the ISO14001 standard, tests the modules using test software and jigs supplied by RadioScape before shipping to its warehouse in Hong Kong. “We also have our own quality engineer permanently on site in the factory,” said Smith, emphasizing that “rather than just price it is important to look at the overall cost of ownership.”
Smith said that local expertise in choosing a manufacturing partner is critical. “It can be a nightmare. If you don’t have people that are really experienced in the area there can be many pitfalls. You have to take references and let them tell you what exactly is needed and they will save you a fortune. My advice would be not to use an agent but recruit an expert and they will save you money. People think that by using an agent they will save the overheads costs but this is a false economy.”
“You need people with a real track record, and not just in one environment. They have to be able to set up credit lines, supply chain, buffer stocks and returns process.”