Industry News

China Will Continue To Dominate Electronics Manufacturing

Here are some compelling reasons why China will continue to dominate electronics manufacturing globally:

●     The electronics manufacturing industry in China is the source of more than half of all electronics manufactured in the whole world.

●     China is the core of the entire global supply chain in electronics manufacturing.

●     While China does import electronic chips and components from other countries, the electronic devices are assembled and finished in China.

●     More than half of the world’s mobile phones are manufactured in China.  Almost all of the printed circuit boards are made in China.  Chinese factories install two-fifths of the world’s semiconductors.

●     Finished devices, gadgets and core components used in industrial applications are sent around the world, from China.

Originally, China became the most desirable place for manufacturing electronics because of cheap labor.  It’s true that labor costs have gone up in recent years so countries such as India, Vietnam and Korea are able to offer a lower cost alternative.  But there is more to electronics manufacturing than just the cost of labor.

In order to manufacture electronic gadgets or components, you need an easily accessible infrastructure for talented people to do the work.  You also need easily available components and supplies.  Transportation corridors to make the supplies readily available to factories must be present in order to keep the cost of production down.

Once manufactured, you need an efficient global shipping system to bring the product to market at a low cost.

China is so well established in all these areas that it will take other countries more than 50 years to be taken seriously as competitors, assuming the political will and focus is there to make it all happen.

One of the biggest centers for this type of infrastructure is in the Shenzhen area, just an hour from Hong Kong.  Shenzhen’s ecosystem pulls in more hardware-makers the bigger it gets—just as Silicon Valley’s dense network of venture-capital funds, law firms and other service providers has attracted more and more startups.

“Made in China 2025”

In May 2015, Chinese Premier Li Keqiang announced an ambitious plan to increase China’s competitiveness in cutting edge industries.  The plan aims to break China’s reliance on foreign technology and pull its hi-tech industries up to Western levels.

As the country’s electronics manufacturing moves up the value chain, they get the benefit of higher profit margins.  This will allow them to increase margins so Chinese workers can get a higher income.

While in the past the average Chinese worker received wages well below the poverty line, the ‘Made In China 2025’ plan would move the majority of China’s workers into the middle class.  This would increase the country’s economic stability because a large proportion of businesses would thrive simply by servicing and supplying domestic demand.

China wants to cut its reliance on foreign technology, and a core goal of Made in China 2025 is to increase the domestic content of core materials to 40 percent by 2020 and to 70 percent by 2025.

Made in China 2025 Manufacturing – An Opportunity For You?

Companies looking to produce products can benefit from China’s investment in:

●     Huge government subsidies for factories investing in technology,

●     Heavy investment by the government in research and innovation, and

●     Targets for local manufacturing content to bring the cost of production down.

●     Building on earlier government policies encouraging or requiring foreign companies seeking to access the Chinese market to enter into joint ventures with, and transfer technology to, domestic firms.

While many countries see this move as a threat to their own industries, China states that ‘Made in China 2025’ is in line with World Trade Organization (WTO) rules, since the plan is:

●     Open to foreign participation,

●     transparent, and

●     Defined by “instructive” rather than mandatory targets.

What Will Happen To China’s Low-Cost Manufacturing Advantage?

While the origin of China’s dominance lay in cheap labor, more and more simple, repetitive tasks can be automated by machines.  If the work still needs human hands and brains to make it happen, where else are you going to be able to get hundreds of thousands of workers at a reasonable cost?  For example:  Foxconn, Apple’s main contract manufacturer, employs 250,000 people in Shenzhen.

Flying into Shenzhen and taking the subway to Huaqiangbei is a breeze. An ecosystem of firms is there to provide everything from logistics to prototyping. Although high-end components, such as processors and memory chips must still be imported, most other things can be sourced locally.  The total production cost is still lower than elsewhere.

The ‘Made In China 2025’ is designed specifically to take away the weaknesses in the Chinese manufacturing proposition while still maintaining their traditional competitive advantages.

Source: http://arcadiasourcing.net/blog/electronic-manufacturing-companies-in-china-dominate/