If you open the paper, it is hard not to read about a major company establishing manufacturing facilities in a foreign country. Intel’s announcements about facilities in China and Vietnam are recent examples of this phenomenon. Clearly, Asia has been the most attractive region for locating manufacturing facilities for industry in general. However, the instrument industry has yet to wholly embrace China as a manufacturing location. While there are a number of companies with production facilities in China, a wide range of firms still choose to manufacture elsewhere. The reasons for this choice vary: there may be a concern for intellectual property rights, better incentives in other countries or preexisting locations obtained through acquisitions.

It has been some time since IBO last wrote about manufacturing trends (see IBO 4/15/02). For this article, IBO examined the manufacturing operations of selected companies among the top 25 instrument makers. The subject of specific manufacturing locations of products proved to be a sensitive topic for a number of companies IBO contacted. IBO noted that several companies were unwilling to specify—or in a few cases, discuss—the products made at their manufacturing facilities. This came as a surprise, because most companies were very quick to respond with detailed information. Whatever the reason, these companies’ reticence reveals how important this information may be.

Globalization notwithstanding, North America produces the majority of the analytical and life science instruments: according to figures from Strategic Directions International’s 2006 Global Assessment Report, North American–produced products accounted for 53.1%, or $16.3 billion, of the $30.8 billion world trade of analytical and life science instruments in 2005. Asia, particularly China, is rapidly emerging as both a manufacturing site and a fast-growing market (see IBO 9/15/06); however, products manufactured in China only accounted for 1.5%, or $461 million, of the world instrument trade.

This is not to say that China has been ignored by the instrument industry. Thermo Fisher Scientific has a growing presence in China and opened a second manufacturing facility in China in December 2004 (see IBO 1/15/05). Agilent, one of the leaders among the companies in moving to China, established Agilent Technologies Trading (Shanghai) in 2004; the company currently manufactures all of its gas chromatographs and UV-Vis instruments in China. Mettler-Toledo has been manufacturing in China for over 20 years and has three production facilities in the country. Western companies are not the only ones interested in Chinese manufacturing operations: diversified Japanese instrument companies are also building manufacturing facilities in China. Although easier access to the Chinese market, which is often motivates American and European companies to manufacture in China, may be a component of Japanese companies’ decisions to manufacture in China, given the geographical proximity of the two nations, cost savings may play a greater role in this case. JEOL began building a three-story production facility in Beijing last November, which will be operational by June (see IBO 2/28/07). Horiba finished construction of its second manufacturing plant in China in October 2006 (see IBO 11/30/06). Shimadzu and Hitachi High-Technologies also have manufacturing facilities in China.

China offers numerous cost savings, including lower labor rates and sourcing savings. Production plants in China also afford companies an easier entry to the fast-growing Asian market. Hitachi High-Technologies’ Chinese manufacturing locations produce electron microscopes and analytical systems for the Asian market. Agilent sells the 6820 gas chromatograph, designed and produced in China, in the Chinese market. In a similar fashion, Shimadzu manufactures gas chromatograph/mass spectrometer and high-performance liquid chromatography systems in the US for the western market, but it also produces the same systems at their facilities in Japan.

One theory about manufacturing in China is that companies are frequently willing to relocate the manufacture of their less-advanced technologies to China, but because of China’s lax intellectual property regulations, these same companies are unwilling to relocate the manufacture of more sophisticated technologies to China. For example, Shimadzu’s plant in Suzhou, China currently produces spectroscopy and total organic carbon analyzers. Other companies follow a similar pattern: Thermo Fisher uses its Chinese manufacturing facilities to produce atomic absorbance instruments, plate readers, sample prep equipment and environmental instruments, none of which require sophisticated manufacturing. The gas chromatographs that Agilent manufactures in China are based on a mature technology. This theory about manufacturing in China may explain some notable absences in China: Varian, the Bruker group and Waters do not have manufacturing facilities in the country.

A number of these companies use other locations to serve the Asian market. Varian, for example, manufactures many of its products in Australia. Singapore is also a popular location for manufacturing. Singapore has a stronger record for defending intellectual property rights, and companies that choose to locate manufacturing there can also take advantage of government incentives. For example, the government of Singapore provides income tax breaks for companies engaged in high-technology activities. Waters’s decision to manufacture its Alliance HPLC systems in Singapore is an example of this phenomenon (see IBO 5/31/06). Another example of this movement is Affymetrix’s location of some of its microarray production to Singapore. The Alliance is not Waters’s most technologically advanced HPLC system, but microarray production is a more sophisticated process; clearly Affymetrix trusts Singapore’s more stringent policies regarding intellectual property rights. PerkinElmer also has a manufacturing presence in Singapore.

In some cases, the location of companies’ manufacturing facilities is dictated not so much by consolidation or relocation to regions that offer cost savings, but by acquisitions. Acquistions are one factor in the sizable presence of instrument manufacturing in the UK. Shimadzu, Varian, PerkinElmer and Waters all have manufacturing facilities in the UK. The Kratos x-ray spectrometry unit of Shimadzu, based in Manchester, came from the company that Shimadzu acquired in 1989. Waters’s mass spectrometry manufacturing is based in the UK as a result of its acquisition of MicroMass (see IBO 9/15/97). Another example of this phenomenon are Varian’s NMR magnets, which are made in a facility in Yarnton, which Varian gained when it acquired Magnex Scientific (see IBO 11/15/04).

Companies have also been able to establish a manufacturing presence in Japan through acquisition. Agilent’s acquisition of Yokogawa Analytical Systems, which had previously been a joint venture between Agilent and Yokogawa Electric (see IBO 1/31/06), gave Agilent a manufacturing location for its ICP-MS systems. Bruker AXS’ purchase of MAC Science in April 2002 provided Bruker AXS with a plant in Yokohama (see IBO 4/30/02).

The acquisition of US manufacturing locations by foreign companies is a trend that can be seen in the case of Mettler-Toledo. The company’s Autochem division, which specializes in products that accelerate the production of chemical compounds, contains many US-based brands whose manufacturing operations Mettler-Toledo has maintained. Berger Instruments, acquired in 2000, has manufacturing facilities in Newark, Delaware, and Lasentec, acquired in 2001, has a production plant in Redmond, Washington. Rainin, part of Mettler-Toledo’s Laboratory division, was acquired in 2001 and manufactures in Emeryville, California..

Without a doubt, the pace of globalization shows no signs of slackening. It will be interesting to see whether more companies establish manufacturing locations in China, and whether these companies use these locations to produce their “higher-end” systems. Another question yet to be answered is whether companies will choose to use their acquired manufacturing facilities, or rely on consolidation and relocation as a manufacturing strategy.