Lenovo this month confirmed that it will begin manufacturing all x86 servers and other datacentre equipment consumed by its EMEA clients in Hungary, rather than China.
Starting this summer, x86 servers, as well as the full range of storage and networking products for datacentre environments, will now be assembled at a plant in Sarvar by Flextronics, which makes Lenovo's ThinkServers and PCs for the region.
Recent reports have suggested rising labour costs in China mean the benefits of manufacturing there are becoming more marginal. But in a Q&A with CRN, Lenovo's Wilfredo Sotolongo said bringing manufacturing to Europe was driven primarily by a desire to slash delivery times and boost local service, rather than any shift in geopolitical dynamics.
Why are you moving production to Europe?
It's fairly simple. We want to improve our service levels to our clients and the time it takes to get our solutions into their hands. When you have a local presence, you have options you don't get when most of your manufacturing is overseas. That's the first motivation.
The second, and unexpected one, is that we think we can do it without increasing our costs. Even though most people think of manufacturing overseas as a lower-cost option, there are lower-cost options here in Europe we can leverage, and this is one of those scenarios. We actually suspect we may even be able to improve our costs because of this.
How will this affect delivery times for UK customers?
It will cut them from two working weeks to one working week.
What impact will resellers feel?
It's the same benefit, in the sense that, as a 95 per cent channel company, we rely on channel inventory to fulfil our clients. Having near-term access to our manufacturing footprint gives partners more flexibility. Sometimes, our partners have to rush stuff in aeroplanes from China to meet a client's requirements; now they won't have to do that as it will just happen naturally. They will have more flexibility in managing their inventory and managing their customer relationships.
Parts for service will also be local so they won't have to go back to either the US or China for any parts.
Where were the x86 servers made before?
In Shenzhen, near Hong Kong – it was a factory that transferred as part of the IBM divestiture to Lenovo. We are doing this so they can dedicate that factory more and more to local requirements.
How many x86 servers will the Sarvar plant manufacture?
Up to a quarter of a million a year. It's a ramp-up, so right now almost everything is being shipped from China, but by this time next year almost nothing will be shipped [into EMEA] from China.
You've talked in the past about 'bringing back production to Europe', so does this mean IBM used to make x86 servers in Europe?
When we were at IBM, a significant portion of our European consumption was manufactured in Europe – not at this factory but another one. We moved out of Europe about two and a half years ago.
Labour costs in China are reportedly on the rise, making the cost benefit of manufacturing there more marginal. How much of a bearing did that have on the decision?
We did our due diligence. While China still has the advantage on labour costs, the logistics benefits of manufacturing in mainland Europe more than outweigh the labour cost advantages of China in this particular case. We didn't expect this – we were doing it primarily for service-level improvements.
I wouldn't make this a geopolitical discussion about manufacturing in China and manufacturing in Europe. It's more about transportation and logistics benefits. For instance, if you manufacture in Hungary, you can put things in trucks, which is more cost-effective than an aeroplane, and that's where the benefit comes in.
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