China’s meteoric rise to becoming the “world’s factory” began at the end of the 70s.
After Mao, China was stuck with a lot of very poor people. Deng Xiao Ping then started to open up China to lure businesses there with low labor costs.
So, how did this ‘opening up’ lead to today, where most electronic products are designed and manufactured in China, and is there a chance of this changing any time soon?
Table of Contents
CHINA’S LOW-COST BEGINNINGS LOCKED DOWN THE MANUFACTURING INDUSTRY
Due to Deng Xiao Ping’s order to open China up for business, almost all Western and Japanese electronics firms either set up their own factory there or outsourced to China ODM factories.
That’s how a whole generation of workers and engineers in China got trained, and when they had learned a certain trade many started their own little factory, often focusing on some component or other.
Low cost was their competitive advantage, and with tons of factories in China working hard to ‘out-cheap’ their neighbor, China became the cost leader in Manufacturing of nearly everything.
At the same time, many Western companies followed the strategy du jour to focus on their core competencies, often marketing and branding, and outsource non-core activities such as manufacturing to the best value for money provider.
It was also seen as a natural evolution. In the past 60% of the population was working in agriculture, but that got reduced to 4%.
Therefore, it was logical that manufacturing would follow the same trend. Europe and the US focused on the next wave: Service industries such as advertising, accounting, law, and medicine.
CHINA’S UNRIVALED MANUFACTURING ECOSYSTEM
Right now the reason such a large percentage of electronics are made in China is no longer cheap labor, but because China has the most complete and cost-effective ecosystem of component manufacturers in the world.
A lot of different parts are needed to build a product such as a smartphone: batteries, touch screens, camera modules, circuit boards, and plastic housings.
Many of these are custom made in China, and unfortunately, for many of these parts there are simply no suppliers left in the US
In terms of wages, China is no longer the cheapest and other Asian countries have started to eat into China’s overall manufacturing ‘market-share’ for very labor-intensive products such as clothing and shoes.
For more complex products, especially electronics, China continues to rule.
WHY THE FINAL ASSEMBLY OF ELECTRONICS WON’T RETURN TO THE WEST
Trying to do final assembly in the US of, say, an iPhone is a logistical nightmare.
Let’s take an example of what would happen if the final assembly of Chinese components were to take place in the USA:
If the first shipment of 10,000 displays has a wire which turns out to be a little too long, in China you just send them back to the factory 5 minutes down the road, and they will send the fixed units back within 2 days.
If those same displaysLCD’s would have been shipped to the US it would be in a batch of 100,000, the shipment could take 3 weeks, and they would all have to be sent back and forth again: the production line is dead for 6 weeks.
Oh, and during those 3 weeks it took before they noticed the cable problem, the display factory would have continued to produce another 200,000 displays with incorrect cables… See What would happen if we stopped Buying Electronics from China?
Besides the display, a phone may need some 37 other custom parts, 32 of which are made in China.
Every custom part is a new product in itself, which, especially in the beginning, will need some adjustments. One part missing or wrong will block your assembly line for weeks.
THE FINAL ASSEMBLY SHOULD BE DONE AS CLOSE TO THE FACTORIES MAKING THE CUSTOM PARTS AS POSSIBLE.
When Foxconn opens a new factory, it demands their top 20 suppliers to set up a new factory next to that assembly plant.
This also means that the most effective way to design and engineer electronics is to do it in China or Taiwan, so you can directly discuss, coordinate, and optimize with all these suppliers.
NEED HELP TO GET YOUR ELECTRONIC PRODUCT TO MARKET?
Titoma provides B2B companies with the complete design and manufacturing of custom electronic products in China and Taiwan.
We engineer our products in Taiwan and have a proven network of reliable Chinese component suppliers who we involve from the start of the design.
We make sure everybody is aligned and by avoiding surprises we avoid delays, assuring the fastest possible time to market (hence our name Titoma).
Talk with one of our design experts by hitting the button below, and learn how we can enable your business with a custom device, without the worries.
