China's Oversized Clout in My Supply Chain

It is common knowledge that China has become the world's fastest-growing major economy. It is quickly overtaking the United States, by both nominal GDP and purchasing power parity (PPP).

China's influence in global economy and international affairs is growing rapidly. It is the second-largest importer of goods and the world's largest exporter. China's army numbers around 2.5 million soldiers and they have nuclear weapons. They are only second to the United States in terms of defense spending. China has also launched manned space missions and that puts them almost on par with the United States and former Soviet Union space programs. China has been characterized as a potential superpower by a number of academics, military analysts, and public policy and economics analysts.

So, what does all this mean for the electronics supply chain? China is a leading player in electronics manufacturing and its growing clout means all segments of the supply chain are being impacted by events in the country. Currently, I am working on a bill of material for a 4X6 printed circuit card assembly. I thought it might be interesting to see how many parts on this board were either made by or purchased from China. To make it a bit more interesting, I am including the parts that are manufactured in China for other countries.

So, if Texas Instruments has a manufacturing facility in China, then that part will be included on my list. In order to guarantee that every part listed on the BOM was the part manufactured in China, I looked at each manufacturer's Website. So here is the conclusion of this quick study: Out of 59 unique part numbers and manufacturers, only two did not have a manufacturing location in China. What does this mean for my supply chain on this particular board assembly?

Well, I'll be out of business if China turns up its economic nose at the US. If I cannot source the same or alternate parts from another non-China based manufacturing site, then I am in deep Kung Pao. So, what should I do now? I can get all hot and bothered and start looking for non-China manufactured parts, or I can take the position that most everyone is taking... "If it ain't broke, don't fix it." Well, because I have other more immediate things to be concerned about, I will let this one boil over on the back burner.

Should I now have to consider my next design with this concern in mind? No. Not yet. Because if my operations go down because I can't get parts from China, it will already be too late for everyone else using parts manufactured in and exported from China. If China decides to increase their manufacturing costs to OEMs reselling parts in top level products, then there will be more pain and less gain for the consumer.

When the OEMs get pinched, they have to pinch their customers or absorb the loss due to the higher cost of goods. Unfortunately, price increases do get passed along to recoup any losses and that is why I am at the mercy of my supply chain. And, that is why every company's supply chain that has links through China should be a major concern and they need to start figuring this into their long-term risk analysis exercises.

The escalating US debt is not just a threat to the residents of the US, but if China believes that the US is getting to the point where we cannot even service the debt, then the backfill for the uncollectable funds will first show up in higher manufactured part's pricing due to import tariffs that have been added to help ease the debt burden. We will not escape some degree of suffering due to the imbalance in our trading with and dependency upon China's goods and services.

Global purchase power parity results will continue to devalue the US dollar and with that my parts' cost can move up. Now, my customers will be enticed to buy a product like mine directly from China and at a much lower price. If this happens across a number of products from a number of companies, then the backbone of our economy, being our combined corporation's strengths and clout, will be put under such a strain that we will not be able to stand up straight and tall for roll call when the world's economic superpowers are summoned to the negotiating tables.