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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