By Noel Randewich and Alexei Oreskovic
SAN FRANCISCO, July 2 When Google Inc
decided to build its Nexus Q home entertainment device in
Silicon Valley rather than in China, it was not fretting about
the bottom line. It was fretting about speed.
"We wanted to innovate fast. This is the first end-to-end
hardware product that Google has ever put out," said John
Lagerling, Google's senior director of Android global
The cost of building the orb-shaped Nexus Q, a cross between
a streaming video box like Apple TV and a stereo amplifier, "was
not the No. 1 priority," Lagerling said. "We wanted to see if we
could do fast (design iterations) rather than having our
engineers fly across the world."
"This is not this big initiative that things had to be made
in the USA," he said.
Google's decision to go with a local manufacturer is a
striking departure from the made-in-China model that Apple Inc
and other consumer electronics manufacturers have long
considered essential to their competitiveness.
Google's move reflects a nascent trend of "reshoring"
manufacturing operations to the United States. While such
actions are largely driven by soaring labor costs in China,
other benefits of manufacturing locally are shorter lead times,
more responsive partners and better protection of intellectual
The Nexus Q will also likely sell in limited quantities,
which made finding the cheapest possible manufacturer less
important. BGC analyst Colin Gillis said Google would probably
not sell more than 100,000 of the devices, which he said are
pricey compared with products like Apple's set-top box.
MADE IN CHINA, REVISITED
China has become the world's factory floor over the past
decade as incentives, low wages and entry into the World Trade
Organization made it a highly efficient workshop for everything
from shoes to electronics.
An exodus of American manufacturing jobs has created
political tension in the United States and put pressure on U.S.
companies to at least acknowledge the issue.
In May, Apple Chief Executive Tim Cook said he would like to
see more of the company's products assembled in the United
States instead of China, but he qualified that by saying there
was a shortage of expertise in America in some areas.
Economics and not politics are likely to drive any larger
shift in manufacturing, and wages in China could be the biggest
factor. Hourly Chinese factory wages, which averaged 52 cents an
hour in 2000, are expected to rise to $4.51 an hour by 2015,
according to the Boston Consulting Group.
By 2015, the total labor-cost savings on manufacturing many
types of goods in China will stand at around 10 to 15 percent.
Hal Sirkin, a senior partner at Boston Consulting, said that
once logistics, supply-chain management and transport costs were
factored in, the benefit of making things in China will become
marginal for more companies, especially those making bulkier or
A February survey by Boston Consulting of 106 U.S.-based
manufacturing executives whose companies had annual sales
greater than $1 billion showed that 37 percent of them were
considering or planning on moving production back to the United
States from China.
Still, the complex web of component suppliers that are an
integral part of the electronics manufacturing process will help
keep vendors such as Apple glued to China.
"The supply chain is so geared toward building that product
in China that even with the labor rate up, it's hard to reorient
that big supply chain and say, 'Oh yeah, we're just going to
build the entire thing here in the U.S.'," said IHS iSuppli
analyst Thomas Dinges.
Companies facing high shipping costs from China or making
goods in small quantities are more likely than major consumer
electronics makers to see benefits in returning to the United
BENEFITS OF BUILDING LOCALLY
Lagerling declined to say what it was costing Google to make
each Nexus Q, but IHS iSuppli analyst Andrew Rassweiler
estimated the company was spending $150 on components per item.
Rassweiler cautioned that he had not personally examined the
Dinges estimated that a high-volume Asian manufacturer might
have charged Google about $8 to assemble each device, while a
smaller-lot U.S. contract manufacturer might charge double that
amount. The device sells for $299.
Lagerling declined to say which contract manufacturer was
making the Nexus Q, citing security and confidentiality, but the
New York Times reported last week that the manufacturer was near
Google's Mountain View, California, headquarters.
Jeff Moss, co-owner of contract manufacturer Quality Circuit
Assembly in San Jose, California, said many U.S. companies
underestimate the sometimes fuzzy costs of moving their
"The problem was people initially just looked at unit cost
and not the total cost," Moss said. "You have to take into
account your additional lead times, your freight costs, and then
the extra hand-holding it takes to deal with a supplier in
LED lighting maker NeuTex is in the final stages of moving
production of its core products to Houston, Texas. The
family-owned company manufactured in China for more than four
years. Among NeuTex's considerations for making the switch were
quality and goods damaged in transportation.
NeuTex will operate the U.S. plant to which it is moving its
manufacturing operations. Cofounder John Higgins said that
taking into account increased automation at the plant, he now
spends about 30 percent more on labor than he did in China. But
factoring in shorter shipping time, fewer defects and increasing
automation, he expects to bring the overall additional cost of
manufacturing in the United States down to about 4 percent.
He believes that demand created by "Made in the USA" on his
products will more than offset additional manufacturing costs.
Peerless-AV, which makes wall mounts for TVs, recently moved
its manufacturing to Chicago from China because the company grew
tired of its designs be illegally copied.
"A lot of the increase in cost of wages has been offset by
the money we've saved by having our design group here instead of
going back and forth," said Marketing Manager Mike Larmon.