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Local Distributors Take a Bigger Slice of the Pie in China

The majority of OEMs producing electronics in China have traditionally relied on foreign distributors for their component needs, but that could soon change due to a number of factors.

According to Global Sources, China's electronics manufacturers are expected to purchase 26 percent more components from local distributors in 2014 than they did in 2013.

The study also revealed that 41 percent of those surveyed — consisting of more than 2,300 managers, engineers, and other electronic industry executives — prefer to purchase components from local distributors, compared to 25 percent in 2013.

But as more electronics buyers in China opt to buy locally, they increasingly care less about the location and nationality of their distributors. This year, 22 percent of those surveyed said the nationality of distributors did not factor into their buying decisions, compared to 12 percent of those surveyed last year.

A distributor's game, too
Distributors surveyed reported they would increasingly carry components from local suppliers this year, although most of the components they sell will come from foreign sources. The majority (59 percent) of distributors will carry international brands this year, versus 68 percent last year, Global Sources reported. Also, 28 percent of distributors surveyed indicated that they would carry more components from Chinese brands, compared to 21 percent in 2013.

Product quality, price, and delivery lead time are manufacturers' top concerns when choosing franchise distributors in China, Global Sources reported. The jump in preference for local component sourcing can be attributed to how Chinese distributors are seen as being able to meet the specific needs of electronic component purchasers.

Pricing, understandably, remains the largest concern among most buyers in China. According to Global Sources, 70 percent of those surveyed said pricing represented “by far the top consideration” when purchasing components. Purchasing decisions based largely on pricing constraints were a “contributing factor in the growing popularity of local distributors and component brands.”

Fab availability, industry relationships, and proximity to the OEMs all factored into how distributors can potentially beat foreign distributors in pricing, Brandon Smith, an analyst for Global Sources, says. “Many domestic producers have set up shop in the location of the buyer.”

China-based distributors are growing in number and inventories, thanks largely to an increase in local fab availability and educational progress in China. A new generation of Chinese executives and industry workers in the distribution sector are taking advantage of educational opportunities to fill in the local talent gap, according to Smith.

Growth continues in China
For both local and international distributors as well as their customers, times are good in China. OEMs are expected to purchase $34 million worth of components on average in 2014, representing an increase of 26 percent compared to 2013, Global Sources reported.

Components distributors in China and Hong Kong also report that they expect their revenues to grow in 2014, Global Sources said, as China's electronics production growth remains the highest worldwide.

Global Sources expects the average profit margin of distributors operating in China to total 18 percent this year, which is 5 percentage points higher than last year.

“By revamping business operations and strategies, some surveyed distributors have successfully differentiated themselves from the competition as well as expanded into new markets,” says Smith.

He attributes the increase in preference for local distributors to a rising confidence among local players throughout the entire electronics industry in China: “A factor not to be dismissed, and the real story, in my opinion, is the enthusiasm and force-of-will that these local innovators wield in spades.”

Smith notes that during an industry event three years ago a local designer challenged his peers, including his competitors, to become the next Texas Instruments one day. “As a leading marketing channel in China, I see many of the local design houses marketing more and more aggressively,” says Smith. “They are acting like they already have a dominant market share. They don't yet, but if the foreign firms aren't careful, it won't be long.”

Like their electronic designer counterparts, Chinese distributors are certainly more aggressive and successful than they used to be in their home market — and their efforts are paying off.

4 comments on “Local Distributors Take a Bigger Slice of the Pie in China

  1. SP
    August 18, 2014

    Chinese are known to support business locally so that their economy gets the maximum advantage. They are also big national supporter. So its not a big surprise if the percentage of local demand increased. And believe me it would be a Government's decision.

  2. t.alex
    August 18, 2014

    that China distributors play an important role in global market. They do give good customer service in term of logitstics or products consultant. However when it comes to urgency, i still prefer local distributor over than going thousand miles away to purchase a product.

  3. Daniel
    August 19, 2014

    “The majority of OEMs producing electronics in China have traditionally relied on foreign distributors for their component needs, but that could soon change due to a number of factors. According to Global Sources, China's electronics manufacturers are expected to purchase 26 percent more components from local distributors in 2014 than they did in 2013”

    Bruce, you may be right because local manufacturing units/hubs are becomes stronger due to various factors. Moreover if they are meeting international standards and quality; sourcing from local hubs becomes more economical.

  4. Daniel
    August 19, 2014

    “Chinese are known to support business locally so that their economy gets the maximum advantage. They are also big national supporter. So its not a big surprise if the percentage of local demand increased. And believe me it would be a Government's decision.”

    SP, in china local government is encouraging/promoting such small and medium scale industries with various incentives and financial aids for promoting business. The aim is to encourage more peoples in to this segment for creating employment and financial stability within them.

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