Google sees advantage in making new gadget in the US

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 partnerships.

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 labour costs in China, other benefits of manufacturing locally are shorter lead times, more responsive partners and better protection of intellectual property.

The Nexus Q will also likely sell in limited quantities, which made finding the cheapest possible manufacturer less important.

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 US 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 US$4.51 an hour by 2015, according to the Boston Consulting Group.

By 2015, the total labour-cost savings on manufacturing many types of goods in China will stand at around 10 to 15 per cent.

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 heavy products.

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.Reuters