ChinaistheworldlargestelectronicsmanufacturingbaseforPCs,handsets,TVs,andotherdigital-portableproducts.Atpresent,(electronicsmanufacturingservices),includinginternational,Taiwanese,andlocalplayers,representsamajorbusinessinChina.However,ChineseOhavestartedoutsourcingtoreducecost,makinguseofnewmanufacturingprocessestoreachnewmarkets.OutsourcingisbecomingmoreandmorepopularinChina,notonlyfrominternationalOtoChinesecompanies,butalsofromChineseOtointernationalproviders,aswellasfromChineseOtoChinesecompanies.Yetevengiventhesetrends,alookatthelistoftheworld¡¯stopcompaniesrevealsthatChinalacksbigplayers.
Whyisoutsourcingsopopular?
Originalbrandmanufacturing(OBM)isgainingpenetrationinChina.Bigelectronicschainstores¡ªGomeandSuning,forexample¡ªoutsourcebothdesignandmanufacturingofconsumerelectronicstotopChinesemanufacturers.Chineseexportersoutsourcebasedonwhatorderstheyhavefrominternationalbuyers.Chinesegovernmentdatashowsthatelectronicschainstorestook23percentofthedomesticmarketand73percentoftheChina-madeelectronicsservingexportmarketsin2006.ThisispotentialOBMbusinessdemand,suchasdigitalportableconsumerproducts,handsets,LCDTV,andwhite-goodsproducts.
Chinesecompaniesthatwanttofocusonproductdevelopmentdon¡¯twanttoinvestmoreonproductmanufacturing.Asaresult,theywouldliketousethirdpartiestodothemanufacturing.MajorChineseOusuallykeepmission-criticalmanufacturinginhouse,butoutsourceothermanufacturingtolocalO.OtherChineseOusetheinternationalmanufacturingnetworktoreachnewmarketsortomakeuseofcutting-edgemanufacturingprocesses.Handsets,set-top-boxes,portabledigitaldevices,andotherconsumer-electronicsproductssuchasTVsareoutsourcedformanufacturinganddevelopment.
Semiconductorsarealsoamajorcategoryofoutsourcing.Chinesefablesscompanieshavelongoutsourcedfoundry,packaging,andtestingfunctionstoTaiwaneseandChineseserviceproviders.Now,someChinesefablessplayershavestartedtooutsourcesemiconductordesigntobothTaiwaneseandlocalICdesignhousesinordertoacceleratetime-to-marketandintegratenewdesignprocesses.FablessandICdesignhousesareactivelyinvolvedinoutsourcingthesupplychain.
Nohomegrown
Eventhoughmany/OBMcompaniesoutsourcetoprovidersinChina,thenationhasfewbigcompanies.ThissituationisquitedifferentfromthatinTaiwan,whichhostslargeglobalcompanies.
Accordingtomarketanalysts,thelackofcompaniesstfrominadequatesupply-chainmanagement,concernoverintellectual-propertyprotection,lackofquality-controlsyst,andlackofmanufacturingcapacity.
Taiwancompanieshavegainedexperienceinbalancingandtheirownbusiness.WecanseesuccessfulexamplesfromAcer,BenQandFoxconn,butconflictsoverbalancinguseofmanufacturingcapacitystillhappen.Atthesametime,Taiwan¡¯sintentionofpromotingitsownbrandedproductsalsocausesittoloseordersfrominternationalcompanies.
TPVtechnology,thelargestserviceproviderformonitorproducts,hadsuchanexperience.Tosatisfytheneedsofoutsourcingorders,TPVhadtoreducetheoutputofitsownbrandnameproducts,resultinginthefailureofsellingitsownbrandproducts.Currently,TPVrunstwobrandnames:AOCandEnvision.
Inaddition,it¡¯scommonforTaiwanesecompaniestocarefullywatchproductqualityandIPrightsprotectionbecausetheymustmaintainrelationshipswithinternationalcompanies.
Chinesecompanies,bycontrast,wanttobeO.Althoughtheydoprovideservicestointernationalcompanies,theirgoalisalwaystoproduceproductwiththeirownbrandname.AsinanoldChinesesaying,¡°It¡¯salwaysbettertobetheheadofaroosterthantothetailofaphoenix,¡±China-basedcompanies,nomatterhowsmall,alwaysprefertohavetheirownbrands.SometopChineseOdonottakeordersordonotdisclosetheirbusinesstothepublic.
Meanwhile,governmentpolicymainlyplacesemphasisontechnologyinnovation,whichencouragesbusinessandprovidesnomotivationforbusinessinthesupplychain.
Nevertheless,manyChinesecompaniesareprovidingservicestointernationalanddomesticcompaniesinordertosurviveinthemarket.CompanieslikeBio-TechElectronicsandKongyuElectronicsareleadingcompaniesinChina,andareaggressiveatgrowingtheirbusinesses.Manysuchcompaniesplantoswitchtobusinessassoonastheyfeeltheyareready,buttheyfacethechallengetomaintaintheirlong-term-businessrelationships.
Opportunitiesandchallenges
China¡¯sbusinesshasgreatpotentialtogrowbecauseChinahasbecomeanimportantmanufacturingcenter.However,becauseofChina¡¯simmaturebusinessenvironment,Chinesemanufacturerswillbechallengedtodemonstratesustainedbusinesscommitmenttocustomers.
Outsourcingcanmovemid-mixandmid-volumeproductstoWestChinabecausemanygovernmentmanufacturingfacilitieswillbereleasedtothefreemarket,becomingnewresourcesforinternationalOtopenetratetheChinamarketinelectronicsequipment.NowconsumerelectronicsproductswillbecomethenextmarketdriverofbusinessinChina.
Atthesametime,becauseofculturalreasonsandgovernmentpolicies,localChinesecompanieslackpassiontogrowinthedirection.Inaddition,poorprotectionofintellectualpropertywillremainanobstacletogrowth,despitethegrowingneedforoutsourcinginChina.
Consequently,Chinesecompaniesdon¡¯thavelong-termplanstoplayinsectors,andChinawilllackmajorcompaniesforthenextfiveor10years.EM
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