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Outsourcing Practices and Ethics Scrutinized
December 31, 1969 |Estimated reading time: 3 minutes
By Meredith Courtemanche, assistant editor
Outsourcing is commonly perceived as a de-facto practice among consumer electronics manufacturers. Despite this outside view, there is actually no de-facto standard of its practice across the various electronics manufacturing markets. A recent Webinar, hosted by Jeffery Wu, an analyst with iSuppli, challenges the homogenous conception through a study of the major groups participating in the manufacture of mobile PCs and phones. In "Apples to Pomegranates, Outsourcing Across the Mobile Phone and PC Industries," Wu found that the two sectors, though "equally attention-grabbing" within and outside the industry, do not behave similarly in the outsourcing realm.
The manufacturing value for both industries is similar, according to Wu. Handsets generated $82B in 2006, and should grow to $95B in 2010, iSuppli researchers estimate. Similarly, the mobile PC market could reach $100B in 2010 ¡ up from $51B at present. Wu accounts for these numbers by noting the higher unit price of mobile PCs and the sector's more active growth rate. Because the sectors can anticipate drawing even in market value in 2010, Wu draws an "apples to pomegranates" comparison the sectors look alike from an outside perspective, though, "slice by slice," they follow two different practices.
Nearly 80% of mobile PC manufacturing is outsourced, mostly to ODMs in southeastern China. Wu sees this percentage increasing to more than 90% by 2010. As the industry grows, it will outsource more and retain less assembly in-house. In contrast, the wireless handset market outsources 34% of its manufacturing; this should rise to about 46% in 2010. EMS providers will still maintain the majority of manufacturing in-house in this mature sector. While ODMs participate in mobile phone assembly, their penetration is small compared to that of ODMs in the mobile PC market.
iSuppli's analyst sees this disparity between similar sectors of consumer electronics manufacturers, partially, as a result of location. "ODMs are concentrated in southeastern China; OEMs are not." Southeastern China is home to the Yangtze River Delta, a dynamic, booming region with clusters of electronics and other manufacturing houses. Some OEMs are equally engaged in China and other areas, while others maintain facilities in different parts of the world with few, if any, in China. Wu notes that, while OEMs manufacturing mobile PCs can control costs by creating competition between ODMs, handset manufacturers are primarily located in low-cost regions, and thus control costs by keeping manufacturing in-house.
The question of cost control invariably initiates a discussion regarding worker conditions, pay rates, etc., in low-labor-cost regions. Wu's analysis of mobile phone and PC markets defines sectors using inexpensive labor, and in what manner; however, it also generates many questions within the assembly industry. Should we generate a clear, precise map of who is outsourcing what product before creating blanket industry standards regarding outsourcing ethics? How will industry groups regulate worker standards for companies that outsource; will it be different from those that manufacture in-house in low-labor-cost regions? Is a sector that's likely to grow 17% in the next few years under more or less scrutiny than one with a steady, 4% projected increase?
The Technology Forecasters, Inc. (TFI) quarterly forum taking place in Boston this week will address such outsourcing-related questions. Corporate social responsibility (CSR), implications for unfair treatment of factory workers, and the definition of sweatshop conditions will take center stage in a panel on the labor practices within electronics manufacturing facilities overseas.
OEMs and EMS providers realize that CSR is not simply a public relations issue. The business rationale for outsourcing manufacturing in search of lower costs must be qualified against meaningful ethnical guidelines, explained Bruce Rayner, director of research and consulting at TFI. The panel will focus on CSR programs, and whether or not they provide sufficient governance and regulatory power to ensure fair labor practices. Topics up for debate will include if current investments in CSR programs are creating effective solutions, if labor standards should be global or adjusted according to geographical region, efficient modes of enforcing compliance to an ethics program, and more.
Considering Wu's analysis of the divergent methods of manufacturing in various sectors, the most controversial issues for the panel may be how a diverse industry defines such standards. Company size, location, percent of assembly outsourced, and other variations may all affect the stringency of regulations imposed. TFI's panelist will also question the relevance of individual corporate labor codes in comparison to industry-wide programs such as the Electronics Industry Code of Conduct. The group will focus a due amount on the external perception of corporate social responsibility allegations of sweatshop conditions, whether true or not, can create a consumer backlash strong enough to decimate cost-savings that were originally generated through outsourcing practices.
Meredith Courtemanche, assistant editor, SMT Magazine, may be contacted at (603) 891-9176; mcourtemanche@pennwell.com.