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Despite Slowing Growth, New Trends Emerge in China

March 4, 2016
Supply chain trends shaping the market in Asia include the growing strength of China’s second-tier ODMs and the emergence of a new class of technology incubators that are making it easier to bring new electronics ideas to market.

A changing Chinese economy is making it easier to get products designed, developed, and built in China than ever before, creating new opportunities for designers, start-ups, and companies looking to produce smaller-scale projects. This comes despite slowing growth in the region that has some companies feeling the effects of a less robust economy.

“I track most of the electronics manufacturing companies [in China] and, year-over-year, [business is] largely flat,” says Dan Panzica, a senior analyst with market research firm IHS Technology. “With [roughly] 70% of the ODM companies reporting, it looks like the electronics manufacturing, year-over-year, business will be up [about] 2% on the average.” 

He notes that much of that is due to weakness in the mobile market and a general slowing of the overall growth of the Chinese economy. China’s economy grew 6.9% in 2015, its slowest rate in 25 years and a slowdown from the 7.3% growth the government reported in 2014.

Other changes are occurring as well, especially in the electronics supply chain. The growth of tier-two original design manufacturing (ODM) firms, many of which are able to take on smaller projects that their larger counterparts cannot accommodate, represents a major change in the region, Panzica adds.

“Much has to do with that there is so much business for the larger [ODMs] that these smaller guys are getting traction,” he says, pointing to their flexibility and eagerness to take on projects with smaller production runs, start-ups, or pieces of a design. “These smaller, hungrier, equally competent companies [are out there]. It’s a competent, growing industry. And it represents a major, major change in China’s capabilities.”

Panzica says this trend is gaining the most traction in “me-too” technologies such as cell phones, certain wearable electronic devices, and other consumer items, giving designers and entrepreneurs a wider variety of manufacturing options in China.

The worldwide Electronics Manufacturing Services and Original Design Manufacturing market grew 3% in 2015, according to a report last year by market researcher RerportsnReports. The group’s Global and China EMS/ODM Industry Report, 2014-2015 pointed to a 5% surge in the market in 2014 and predicted a slowing of growth between 2015 and 2019.

Another trend to watch is the growth of technology incubator firms that are helping companies even earlier in the design process—from inception on through to design, production, and fulfillment. Panzica points to PCH International as a case in point. The custom design manufacturing company launched a hardware incubator firm called Highway 1 in 2013, as one example. Designed to help early hardware startups get their ideas off the ground and develop into strong companies, the program works with innovators and entrepreneurs on everything from design and production on through to supply chain, inventory, and pitching their products. The program includes a two-week module taught in Shenzhen, China, that explores the region’s electronics supply chain and manufacturing industry. Based in Ireland, PCH’s operational headquarters is in Shenzhen, China.

Such organizations are creating environments so that “the kid out of Stanford can sit down and build his new (product), even though he many not know much about manufacturing or design,” Panzica explains.

“That is really the next wave,” he says, “Not just out of China, but in the world too.”

Despite Opportunities, Growth Slows

China’s changing economic landscape is overshadowed by reports of the country’s slowing growth. Many suppy chain companies point to a slowdown in China’s industrial base as one concern. In its most recent quarterly earnings announcement, distributor Avnet, Inc. pointed to a softening in its business in both the Americas and Asia, noting a slowdown in its high-volume production business in Asia, in particular. Avnet EM’s fiscal second-quarter sales in Asia fell roughly 9%.

“[Over the] last 10 months, PMI has been negative in China, so there is a concern,” Gerry Fay, president of Avnet Electronics Marketing global said in a February interview following the release of the company’s fiscal second quarter earnings report, released January 28. “Even at [slower] growth, however, it is higher than pretty much anywhere else in the world. We’ve seen a slowing in the core industrial space … but alternative energy is taking off there. It’s a big growth opportunity.”

Large distributor Arrow Electronics reported better results in the region in its fourth-quarter earnings report, released February 4. The distributor reported 6% growth in its electronic components business in Asia, though sales declined nearly 4% in the region as adjusted for the impact of changes in foreign currencies and acquisitions.

Looking ahead, most economists expect growth to continue slowing in China, in particular. The country’s annual GPD growth began to slide in 2010, and the country is expected to lose more economic momentum this year, as GDP growth is expected to slow from the 7.3% and 6.9% growth of the last two years, to 6.3% growth in 2016, according to reports. 

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About the Author

Victoria Kickham | Distribution Editor

Victoria Kickham is the distribution editor for Electronic Design magazine, SourceESB and, where she covers issues related to the electronics supply chain. Victoria started out as a general assignment reporter for several Boston-area newspapers before joining Industrial Distribution magazine, where she spent 14 years covering industrial markets. She served as ID’s managing editor from 2000 to 2010. Victoria has a bachelor’s degree in English from the University of New Hampshire and a master’s degree in English from Northeastern University.