Expect opportunity, risk in China's supply chain

James Carbone -- Purchasing, 5/20/2004

For many electronics purchasers, China has become a huge sourcing opportunity as well as a significant challenge. It is an opportunity because the amount of electronic components including passives, connectors, semiconductors and printed circuit boards being made in China continues to grow. For instance, the worldwide electronic connector market grew 11.2% in 2003. However, China led all regions of the world with a 30.6% growth rate, according to connector industry researcher Bishop & Associates.

Many U.S., Japanese and European suppliers have opened factories in China to take advantage of low-cost labor and to support the growing electronics equipment manufacturing industry in Asia. Some component companies have entered into joint ventures with Chinese companies to produce parts.

The growth of component manufacturing in China is the reason that component prices have continued to fall even though unit shipments are rising.

However, while many low-cost components can be sourced in China, there are issues that often can be a thorn in the side to buyers. Product quality from indigenous suppliers is often an issue. Price is often the main concern and component quality takes a back seat.

Counterfeit components continue to be a problem. In some cases components being sold in China are just shells, or sometimes a part may not have the performance requirements that they are supposed to have. In other cases, a part carries the name of a leading manufacturer, but it is in fact a knockoff.

Another challenge is a lack of understanding of how business in the West is done. Western companies often require a supplier to provide a lot of information about its operations before deciding to do business with the vendor. In China, indigenous suppliers are often leery of providing detailed information about their operations.

The issues involved in sourcing in China can be daunting for any size OEM or EMS provider. However, large OEMs are often better able to deal with the issues because they have more resources. Often they have international procurement offices (IPO) to evaluate and manage suppliers.

But purchasers at smaller companies often lack the resources to do the supplier evaluation needed to avoid getting stuck with defective or counterfeit parts. However, there are strategies that any size company can employ to reduce risk when sourcing in China...