Chinese Electronics: Getting Ahead of the Game

Travelling the Silicon RoadSHENZHEN, China — It seems wherever you go in China’s cities, north south, east or west, business and government are looking for foreign partners and investments.

Start-ups, local and central government, well-established domestic companies alike, all discuss the possibilities of establishing a win-win relationship with companies from the West, particularly the United States. These efforts are still relatively nascent in China’s chip industry, with a few notable exceptions like foundry Semiconductor Manufacturing International Corp.

And on the other side, many are just as eager. In some cases, they’ve already been here for years, like Agilent or Applied Materials. Or they are just now looking to get involved in the booming Chinese market, and might not be sure who to partner with – venture capital firms, for example, look at the raft of Chinese chip and technology start-ups, and are bewildered about which ones to choose.

But China’s electronics manufacturing industry is considerably more developed than its chip industry. While developing intellectual property and bringing it to market might not be a Chinese strongpoint, manufacturing is, so it is only natural that China’s electronics manufacturing industry is humming along strongly and has been for years.

While the semiconductor content of Chinese electronic components may come from beyond China, the rest of the content that goes into making an electronic product can be found locally here in China, be it cables, boards, connectors or whatever. In many cases a product can be sourced entirely here in Shenzhen and that, along with cheap human resources, is why manufacturing is inexpensive here compared to the rest of the developed world.

Look at the cost of manufacturing a television. Thirty years ago, it cost about 3,000 yuan; today it costs about 500 yuan to produce a TV in China, noted Chao Getu, a general manager at Shenzhen Deren Electronic Co. Ltd. That’s about 62 bucks.

“The same thing will happen in the field of white goods and household electronic appliances, sooner or later,” Chao observed. “The advantage of China lies in the whole [electronics] supply chain.

And when it comes to doing business with the West, China’s electronics companies are also ahead of the game. Deren Electronic is a good example.

A privately held company created in 1992, Deren is focused on R&D and production of electronic connectors. It has a solid foot in the middle layer of the electronics supply chain in Asia and the world; its revenue this year should be around $87.5 million (700 million yuan). It has seven factories around China, and has an impressive list of domestic and foreign customers.

Among its Chinese customers are giants like home appliance manufacturer Haier and television maker Konka. Among its foreign customers most notably are big Japanese names in electronics: Toshiba, Sony and Sanyo – a notably tough market to crack, even now.

How the company got into Toshiba and the Japanese market initially, was its competitive price, said Chao. While the Western supply chain is open to foreign suppliers, the Japanese electronics supply chain is still relatively closed, at least until a few years ago.

To get more solid footing in that market, Deren went a step further, hiring Japanese engineers and setting up a new business division specifically to interface with Toshiba and Japanese customers, one that operated like a Japanese business; Deren recruited staff for that division from Japanese companies.

“This was a good start for Deren,” said Chao; it led to its business with Sony and Sanyo.

Deren has also been able to lure the business of U.S. giant Tyco Electronics. The two companies announced their partnership in January of this year, signing a strategic agreement for connectors to be used in home electronic appliances and communications equipment. Deren agreed to manufacture and distribute certain Tyco brands within China; in addition to this OEM agreement it also serves as a distributor for other Tyco products.

For Tyco, which was at one time naturally a competitor of Deren, it gained a local foothold in the blossoming Chinese market, a place it had struggled to penetrate previously. By partnering with Deren and offering its technology, it suddenly was inside China’s large home appliance market.

Meanwhile, Tyco is supplying Deren with patented electronic connector technology, advanced management techniques and brand marketing, and more importantly an entry into the top-level of its target customer base.

Essentially, the deal represented the localization of Tyco – an important step for foreign companies doing business here – and a step toward the globalization of Deren Electronic. Tyco brought in staff from Taiwan to train Deren employees, gaining access to people with business experience overseas.

As Chao observed, “We need more cultivation than utilization.”

Electronic News Travels to ChinaThe company has already learned a lot from Tyco in less than a year, he said. Its human resources management and factory production and product design have all seen great improvements. While the cooperation on a sales and marketing level remains somewhat lower by comparison, Deren hopes to raise that level going forward.

It’s not resting on its laurels either; it is currently courting a large European company as well, hoping to duplicate its relationship with Tyco and continue its foray into global markets.

Editor’s Note: As explained at length elsewhere on this site, this is a news story written by me that originally appeared on the now-defunct Electronic News’ website, which is long gone. It’s former sister pub Electronic Design News (EDN) currently holds the copyright to all Electronic News copy (to the best of my knowledge). You can still see a copy of this story at EDN.

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