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High-Tech Sun Rising and Setting in China

Wal-Mart Stores Inc. has its corporate office in Bentonville, Arkansas, but the $405 billion revenue company's chief procurement officer is based in Shenzhen, China.

For most high-tech procurement professionals the road to plum career job nowadays runs right through China and, in many cases, will terminate in China. The shift of procurement functions to China began more than a decade ago but it has accelerated in recent years to the point where most major Western electronic manufacturers now have their key operatives living and working in south East Asia. Favored locations, aside from Shenzhen, include Beijing, Hong Kong, Singapore and even Kuala Lumpur.

This is part of a trend in the electronics supply chain and there are significant implications for all players in the industry. While I focus in this blog on procurement employees, other elements of the supply chain have followed manufacturing — the first major part of the electronics industry to shift to southeast Asia starting in the 1980s. Component distributors and semiconductor vendors have raised their investment in the region with {complink 453|Arrow Electronics Inc.} and {complink 577|Avnet Inc.} now growing faster in Asia than anywhere else.

Arrow and Avnet are leaders in the North American and European distribution markets but the No. 1 player in their sector in Asia is Taiwan-based {complink 12835|WPG Holdings}. In a development symptomatic of events in the industry, WPG is poised in 2011 to become the world's biggest electronic component distributor, according to {complink 7427|iSuppli Corp.}. More of such firsts are on the way for Asian companies, especially those in China.

Ages ago, then Milpitas, Calif.-based {complink 5087|Solectron Corp.} was the world's biggest EMS provider before it was first overtaken and then acquired by Singapore's {complink 2085|Flextronics Corp.}. In turn, Flextronics has been dwarfed now by {complink 2125|Foxconn Electronics Inc.}, which now accounts for more than 50 percent of the EMS market, and while supposedly based in Taiwan, employs more people in China than most of its rivals combined.

To put it bluntly, the future of the electronics supply chain as it is currently structured isn't in the West but in China. This can change but I don't see any movement in that direction.

As the process of supply chain redistricting and adjustment has intensified, however, other regional locations and professions have been hollowed out. The last holdout, product design, is caving in and within the next 10 years — my unscientific forecast — Asia will employ more engineers who focus on design than Europe, North America and Japan combined. OEMs and other players in the Western electronic supply chain will dispute this assessment but that is to be expected; murmurings against outsourcing have turned into loud grumbling sounds.

It's not difficult to see why companies continue to ignore Western workers' protests about the shift of production and ancillary services to Asia. China is no longer just the world's manufacturing location but also a fast-growing market. In a report, the Economist said: “For American firms setting up in China, the chief attraction these days is not its cheap labor but its increasingly affluent consumers. In a recent survey of American firms in China by the American Chamber of Commerce there, 63% said they were there to sell to locals, whereas only 9% said they were there to sell things back to America.”

What this means is that the electronics supply chain is in the throes of a monumental change; manufacturing moved, support services followed, design is on the way, the consuming market is racing to catch up and employees of all stripes and expertise are not too far behind, all heading to China and other parts of Asia. Not only does the sun rise in the East, it's also beginning to set there as well.

What position does your company occupy in this changing environment?

7 comments on “High-Tech Sun Rising and Setting in China

  1. Barbara Jorgensen
    January 4, 2011

    I agree 100 percent Bolaji that China is the economic powerhouse in tech and in most other areas. I think the West is going to continue to have problems accepting that fact because the rules of capitalism are part of our DNA. In China, it's not the market that dictates price, enables competition and sets the ground rules for the winners and losers. It's the government. Whether it's right or wrong, the fact is the rules are different there.

    One could argue that the US government has played too big a role in our economic future with bailouts (GM) and loans (TARP) and even healthcare reform. I see it more as enablement (most of the loans are being paid back and GM is turning a profit) versus control. I've got mixed feelings on this. But the situation is what it is and the West has to figure out how to deal with it or we will continue to beating our heads against the Great Wall.

  2. eemom
    January 4, 2011

    While I agree with your assessment, I must say that I found the article quite disheartening.  The question remains:  Will US OEMs continue to do nothing??  Where is the future of our county if we continue sending hi tech jobs to the Far East?  Maybe the US government needs to step in and start offering the incentives needed for these OEMs to keep/generate jobs in the US.  It may not solve the problem in the short term but it may make the long term a little less gloomy.

    We also should analyze whey people in China are more affluent and able to spend more than people here in the US.  I believe this is a product of our own doing.  We send the jobs there, therefore, people there have more money to spend.

     

  3. hwong
    January 4, 2011

    There is bubbles everywhere in China but it's not going explode any time soon, maybe will never happen since the central government has tons of cash to play with it. There are at least 2 billion of people living below poverty and it means demand from them in the future can provide more growth. Other than the few major metropolitan cities, infrastructure is still lacking in the rest. All those tell us the west will keep doing same thing for a foreseable future to please them for the martket share 'cause the fat meat just getting fatter day by day.

  4. bolaji ojo
    January 4, 2011

    Eemom, Don't be disheartened. My follow up report is going to have a positive take on why manufacturing can thrive in the West. There are institutions in the West now taking a deeper look into how the West can be competitive in manufacturing. One such organ is located at MIT, which recently set it up to examine how the US can be competitive in manufacturing. By the way, Susan Burger, the MIT professor who is chair of the panel, cited several European countries that have a higher level of manufacturing than the U.S.

  5. eemom
    January 4, 2011

    ok, I feel a little bit better but I still think that OEMs are trying to be aggressive in cutting costs and until there is an incentive for them to stay in the West, the future is a bit grim.

     

  6. proent
    January 8, 2011

    Well, I am pretty known and used before many products category from different parts of world such as China, Japan, US, Europe, Taiwan etc… Each has its strong and weak points.

    Nevertherless, it cannot be denied especially a lot of people not only from the Western but also other parts of world are focusing on China is getting growing up fast and vast that they are buying their own products rather the outside world products. It is really a unbalanced economy trench that other parts of the world money is pouring in for the case of investments and products sold to outside world, created a scenario that China is most of the time money flow in but very less money flow out.

    In actual, the products made in China, for my personal experince, it is of lower quality and less reliable. Even it is of foreign OEM or ODM made in China, it is of any how is a lower grade ones. Definitely those China own design ones are even worst cases, but China products gain market base on nobody made products penetrate into your country that products do not made in your own country that make interest to for you try it because it is of excellent features and functions but of low quality and poor reliability and you like to try it, this is the problem.

    Cannot deny that Asia is the largest population in the world that when the cost of living becomes higher means it is an enormous market for the western products to sell in Asia. Of course provided western products are still competitive in quality and at reasonable pricing or it is a superior technology products from Intel, IBM, Apples and Microsoft etc…. I can see there are a lot of products from Germany, Japan, Korea, Taiwan, Switzerland selling pretty well in Asia, why not others Western makers survey on these companies' policy and strategy and its product nature ?

     

  7. jbond
    January 9, 2011

    We all know that China is the worlds most populous country and in being so they also have the fastest growing market and economy in the world. There are still drawbacks to this 1 – the government has a large control of how the economy and how resources are imported and exported in China. Even though more people in China are gaining a larger income their annual income is still well below living comfortably. Chinas population still has more have nots than people with expendable income. Take for instance Harley Davidson, recently they ventured into the Chinese market. The cheapest motorcycle they are selling over there is still retailing for $9000.00 USD. For the majority of the population this is 4 to 5 times their yearly income and they are taking a large risk trying to expand into this market.

    As for the quality of goods manufactured and sold in China not being of a high quality, think about this. In today’s global society we live in a throw away market. Electronics i.e. cell phones, televisions, even computers are have all become so cheap that we expect their life span to be 2-5 years and if something goes wrong it is cheaper for us to throw them away then pay someone to repair it.

    So as an expanding economy many Chinese that are finally able to buy some of these items are more concerned with having them than with the longevity of them.

     

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