Atlanta-based East West Manufacturing has purchased a North Carolina factory in what it hopes will be the beginning of a string of acquisitions to beef up its domestic presence.
The company has built its reputation as a contract manufacturer sourcing products and components from a diverse array of Asian contract suppliers as well as from some of its own factories in China, Vietnam and India.
The idea has never been to outsource jobs but to help domestic companies stay competitive by lowering the cost of inputs.
Buying Team Manufacturing, an electronic parts producer near Raleigh, is a chance to be involved earlier in that process, helping “incubate” overall products in partnership with larger domestic customers instead of just supplying components on the back end, said Scott Ellyson, East West’s CEO.
“At that early stage of development, speed to market is typically more important than cost. We’ve always felt that we’re really good at cost and quality, but we’re not as good at speed to market” being across the world in Asia, Mr. Ellyson told Global Atlanta.
Growing a domestic factory base will change that, giving East West the ability to “offer our customers domestic, higher mix, lower volume, quick turn electronic manufacturing services,” Mr. Ellyson said in a news release.
He added in the Global Atlanta interview that the newly acquired companies would now have access to East West’s global supply chains.
“We think we can help these domestic manufacturers be more competitive out of the gate,” he said.
When the scale and lead time for the product does get to a point where Asia makes more sense, East West can provide a seamless transition, rather than touching off a disruptive process of finding a new, unrelated supplier across the world.
Mr. Ellyson concedes that expanding from Asia into the U.S. isn’t the typical trajectory of an American-owned company.
“We’re kind of going in the opposite direction,” he said.
But it’s the next logical step for East West in a world growing more globally integrated despite the rising tide of protectionism.
Mr. Ellyson said the U.S. strategy was in place before the outbreak of President Trump’s recent trade war, which has precipitated a wave of tariffs on Chinese parts and products (incidentally helping his Vietnam factory.)
“This was well in play before the tariffs and the tariffs probably only reinforced it,” he said.
He’s skeptical that temporary tax increases will set off meaningful factory relocations — the economics keeping them in place are just too strong to shift based on the whims of one elected politician. Besides, many companies can skirt tariffs by shipping kits or components to third countries — or blunt their impact by simply passing the price increases on to the final consumer.
“I think capitalism is always going to be smarter than politics,” he said.
The rationale for East West’s U.S. expansion is more about being a larger part of the overall value creation process. Now backed by private equity fund Heritage Growth Partners LLC, East West looks to acquire more factories in what Mr. Ellyson calls “NFL cities” across the country.
“I’d love to own five plants across the U.S. that are high-tech companies incubating products, particularly in the area of robotics and connected devices,” he said.
Sourcing these devices at the right cost will be essential to ensuring their adoption and viability, he said.
“There is a lot of technology today that we want — products that make the world a better place — and these are products that in order to get traction need global supply chains so the cost justification makes sense. What you do is pick the area that’s best suited for your product given your product profile.”
East West can still hire multiple Vietnam factory workers for the cost of solely providing health care to one American. And his factory in Ho Chi Minh City has been a runaway success, bolstering the headquarters here in Atlanta.
“We make motors in Vietnam that get sold in China that East West in Atlanta makes money off of,” he said, noting that he also supplies other multinationals making parts in Vietnam, including keyless entry systems for locally produced motorbikes.
The terms of the Team acquisition were not disclosed.