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Outsourcing: New Buzzword Among Electronics Firms

The word is out and it’s paying off huge for all the local electronics companies involved , as if no one’s heard.

Outsourcing has become a major focus of the electronics landscape. Electronic companies outsource product manufacturing to contractors with the capabilities, work force and machinery, to make and test the final goods of those companies.

That allows the electronic companies to focus on product development, marketing and sales while electronic manufacturing contractors focus on materials management and equipment.

It’s almost an industry within an industry and it’s only getting bigger, said an electronic company analyst and executives from companies on the San Diego Business Journal’s List of Largest Electronics Companies this year.

“If you were looking for one big buzzword for 1999-2000, it was outsourcing,” said Kevin Carroll, executive director of the San Diego chapter of the American Electronics Association. “It’s not just outsourcing the contract manufacturing end of it, it’s design and testing. Outsourcing is now running the gamut.”

Local companies are finding San Diego “has a pretty good community of contract manufacturers and maquiladoras right across the border here.” Companies can save money by outsourcing production and not making the capital investments in-house production requires.

So far it has benefited all involved, Carroll said, but will it continue? Absolutely, he said.

“Without a doubt and even getting stronger because of the (tight labor market) issue, finding the qualified workers and it’s just easier to outsource,” he said.

Qtron, Inc., No. 16 on The List this year, is a production outsourcer benefiting from the success of other San Diego electronic companies.

“We do not make any products that have our name on it,” said the firm’s CFO, Chris Witt. “We only make products for other companies.”

Qtron provides all production materials, management, procurement, storage, assembly and finally testing, Witt said. When Qualcomm, No. 1 on The List this year, was making handsets a few years ago it would outsource production to Qtron.

From its founding in 1993, Qtron was designed as an outsource contractor. Since then, Witt said Qtron has watched the electronic production contracting business evolve into a major player in the “landscape of the electronics industry here” and not just because of the tight labor market.

“I think more and more companies will continue to move in the direction of outsourcing their production and materials management because finding those (qualified) people and employing those people and keeping them is very hard and expensive,” he said.

– Clients Can Focus

On Promotions, Design

Qtron doubled in size last year to 270 employees from 150 in 1999. In large part, Witt said, because of its attractive value in terms of keeping costs down for electronic companies. That, in turn, allows Qtron clients to focus on sales, marketing and product design.

“They don’t have to worry about the headaches of buying materials, stocking materials, making capital investments in plant and equipment and employing hundreds of assemblers,” he said. “We do that for them.”

Maxwell Technologies, Inc., No. 9 on The List this year, contracts production to all parts of the world and areas within the county, said Mike Sund, vice president of corporate communications and investor relations.

It would seem outsourcing production was made for Maxwell. The company develops, manufactures and markets products and services for the aerospace industry, telecommunication/communication industry, defense industry, other electronic companies and specialized component production while employing only 890.

Sund said it’s easier, financially and logistically, for Maxwell to outsource production.

“In many cases you can tap into the manufacturing infrastructure of another company that specializes in something that can produce certain parts or materials more economically than we can and if it’s offshore, or in the case of the maquiladoras, can take advantage of very favorable labor rates,” he said.

The savings generated by the reduction in capital expenditures not only benefits departments such as product development, sales and marketing, but in Maxwell’s case, secures that any future technological developments or customer needs will be filled.

“If you’re outsourcing parts and materials externally and your needs change it’s a lot easier to change suppliers then it is to retool a factory,” he said.

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