Component distribution alive in China

Tag : Electronics Distribution

It is my belief that the formation of a local trade association forthe electronic components supply chain will help speed processesalready underway such as an increased focus on sophisticatedproducts and the flotation of local distributors on the ShenzhenStock Exchange.
Improving product quality and adding more corporate governance willbenefit everyone, but will of course, add substantial cost into tothe Chinese supply network.
The process is already well underway. During my time in China Ivisited local distributors with $100m plus annual sales and notedthat they were apparently organised in a very similar way tocompanies in Europe and North America.
Some companies operate state of the art facilities and providetheir workforce with heavily subsidised in-house restaurants, gymsetc. In contrast, I also saw companies operating from tables inhuge shopping malls that housed many hundreds of otherdistributors. Western quality control procedures in these places,in particular ESD protection, were noticeable only by theirabsence.
Inner Strength
In what I took as a practical manifestation of the Chineseprinciples of "Inner Strength" I was fascinated by the number oflarger Chinese distributors who operated out of premises thatappeared stark and utilitarian from the outside but once enteredrevealed spotless marble floors.
A number of meetings with companies revealed that the same issuesaffect electronic component distributors in China as affectdistributors elsewhere in the world.
The Chinese are also concerned with issues such as franchiseaversion, design-win protection issues, cost escalation and marginerosion, although the latter from a much lower base as - with thenotable exception of catalogue-based distributors - gross marginsin China currently rarely exceed 10%.
Distributors in China also find it difficult to get good technicalstaff and struggle to keep up with what they perceive to beinflationary wage demands, although manufacturing labour in Chinacan still be hired for around $120 per month and with largelyunregulated conditions of employment.
Government's role
The Chinese government is making changes to the tax regimes and asthese start to bite it will be interesting to see whether theChinese electronics industry manages to achieve its growth goalsover the next couple of years.
Historically the tax rate for inward investing companies has been15% whereas the local companies had to pay 33%. Over a five yeartransition period the standard rate for Chinese industry ischanging to 25% except for 'hi-tech' companies, both domestic andinternational, who will benefit from a reduced rate of 15%.
Planned changes in the government ministries responsible for thelocal industry are designed to increase the focus of Chinesemanufacturing on key areas such as aerospace, medical and some hightech end user markets.
All these changes should, over time, benefit Chinese componentdistributors. With an electronics distribution available market(DTAM), not including DRAM, in excess of $15bn, which is not farshort of that of the US, there is ample scope for domestic growth.
Gary Kibblewhite is honorary president of Afdec and chairman of IDEA .
See also :
No unauthorised access to components
UK manufacturer opens sales hub in China