At least 80 percent of Lucent Technologies' products are made by EMS companies across Asia—mostly, although not exclusively, in China.

But the communications equipment company also has products made by EMS companies in Romania, the Czech Republic, Mexico and Brazil. Lucent even makes about 5 percent of its products in the few internal plants it still owns in North Carolina, Ohio and Massachusetts.

"The type of product, the customer, the need to protect IP, the landed costs, the latest exchange rates, tariffs and duties—these all dictate how we source our manufacturing," says Mike Jones, Lucent's vice president of global integrated operations for supply chain.

Case in point: Lucent uses its North Carolina plant to build end-of-lifecycle legacy systems; it has its branded gear made in Brazil for that market, because of import tariffs, and it is about to open a plant in Poland to handle late-lifecycle products that will soon fall under new European Union recycling laws. And it relies on EMS plants in Romania and the Czech Republic to pick up the slack during the Chinese New Year.

A considerable amount of manufacturing is going to parts of the world other than China, for many reasons. Among the six EMS companies that Lehman Brothers Equity Research Group classifies as "top tier," only two derived more than half of their revenue from operations in Asia (see chart below). Although China is the location of choice much of the time, alternative manufacturing sites in Europe, Brazil, Mexico and Southeast Asia are better choices in many cases, particularly if they are closer to the intended markets.

Some EMS executives say they are encouraged that most OEM customers now want a strategy that takes advantage of not only labor costs but also skill sets, proximity to markets and other factors. OEM and EMS executives agree that figuring out what goes where requires a detailed analysis rather than a knee-jerk reaction to Wall Street pressure or screaming headlines about today's cheapest labor.

"It was very fashionable to talk about China in 2004, but in 2005 we had questions from people who had outsourced to China and were deciding to pull back closer to their markets," says Jan Lindholm, director of corporate marketing for Elcoteq, a telecom EMS based in Finland with plants around the globe.

Jabil Circuit is among the EMS providers that has found success in Ukraine, where it opened a plant in 2005 to manufacture consumer electronics.

"As European markets move farther east, Ukraine becomes cost-competitive with our most competitive places," says Bill Muir, Jabil's regional president for Asia.

Ukraine is strategic for customers that want to enter the large Russian market. The workforce has proved more stable than the Chinese, where workers frequently job-hop for higher wages, Muir says. The Ukrainians are skilled and train well. Flextronics, a rival of Jabil, also recently opened a plant in Ukraine.

Like most top-tier EMS players, Jabil is always looking for new low-cost locations. Among global EMS, it has the most plants in India. It already had two plants when it recently acquired three more through the acquisition of Celetronix, an Indian manufacturer. "We do consumer products for India, white-good products for India and medical products for India and export," Muir says.

OEMs are discovering that the world is full of other options (see story below). When selecting a location to manufacture products, the experts say, you need to consider myriad factors.

"Chasing low-cost labor around the world doesn't always give you the best bang for the buck," says Charlie Barnhart, a consultant with Technology Forecasters, a supply chain consulting firm. "In about two thirds of my case studies of China, it would have been cheaper to go elsewhere on a true total-cost basis," adds Barnhart, who offers a manufacturing pricing strategy workshop to industry professionals.

The factors you need to consider include logistics, risk mitigation and quality issues. For instance, a Mexican manufacturing facility with a failure rate of 0.5 percent is a better economic and quality choice to a North American OEM than moving its manufacturing to a facility in China with a failure rate of 1.5 percent.

The overriding challenge has to do with the big picture: OEMs need to conduct in-depth analysis that's based on a multitude of factors, with labor cost as one of them, to determine the best place to manufacture.

There are few aspects of running an electronics OEM in the 21st century that are as complicated as figuring out where to manufacture product and retaining the flexibility to constantly adjust the strategy. It is a bit of an oversimplification, but what usually offsets low wages has to do with location: of the market, of the supply chain, of base materials, of the best skilled labor and of transportation hubs. Transportation often gets overlooked.

"Transportation is one cost that somehow gets hidden as you model these things," says Muir of Jabil Circuit. "If you were building in Mexico and it took two days to get to the United States and now you are building in China, it will take three to four weeks by sea."

Major EMS providers and most large OEMs use sophisticated tools to help them determine the best geographic mix for a particular product. Lucent, for example, is using a tool developed by its corporate sibling, Bell Labs, to help it winnow down its EMS partners from five to two and its manufacturing sites from 40 to 12, Jones says. The tool helps it model where to produce communications equipment, based on customer location and customer needs, he adds.

Lucent keeps much of its high-end, highly configured production in the U.S. at internal plants and opened its own facility in Poland to handle late-life products that will be subjected to EU recycling regulations. "That's one niche the high-volume EMS companies don't play well in," says Jones.

EMS executives also sometimes encounter another challenge. "A lot of times, we see a division between business managers and purchasing staffs," says David Cooper, vice president of global program management at Solectron. "Typical purchasing organizations are tasked with reducing costs. Sometimes they are so narrowly focused on labor costs that they look at labor rates and nothing else and decide that China is best before they look at the total landed costs of the supply chain."

Rob Sellers, vice president for business development at Celestica, another top-tier EMS, agrees. "There has been a very strong interest in China and a mandatory requirement for a lot of purchasing agents to do everything possible to make sure they are not leaving any money on the table," he says.

But when all is said and done, consider this: Huawei, a Chinese network equipment OEM, will soon open a manufacturing plant in Hungary to be closer to the European market. It appears that even the Chinese understand that China is not always the best place to manufacture.

Where are the EMS providers you are considering located? Send your thoughts to feedback@reedbusiness.com.