Most of China’s tech producers die in their teens

factoryAn interesting bit of research cropped up on one of the few English language sites covering Chinese news in this region, Taiwan’s WantChinaTimes, claiming the average lifespan of a Chinese electronics manufacturer is a shade over 13 years.

Now this sounded pretty low to me, not having anything to compare it to, but it struck as an interesting stat which serves to illuminate a lot of the pressures Chinese manufacturers are facing today, and where the country wants to be in a few decades time.

The research itself came from a Chinese manufacturer called Global Market Group, which interviewed over 1,000 firms in the economic zones of the Pearl River Delta and the Yangtze River Delta. It’s not a huge sample, given the sheer size of the industry in the PRC, but it’ll have to do.

The first thing to note is that 13.2 years is much longer than the average for survey respondents of 11.1 years – the report argues that this could be because electronics makers are forced to adapt quickly to changing tech to keep afloat.

More generally, though, 13.2 years doesn’t seem like a long time for a firm to be in business. But it does illustrate the rapid pace of change in the tech industry – where many fall by the way side in time because they simply can’t keep up with the latest trends.

It also shows, as Forrester analyst Dane Anderson told me, the intense pressure on Chinese manufacturers burdened with rising labour and energy costs and competition from other low cost suppliers in Asia.

US politicians and loathsome right wing media outlets often make out China to be the bad guy – taking American jobs by offering  brand owners by far the lowest cost of production. However, increasingly it’s becoming a more complex picture than this.

“The perception in the West is often that the manufacturing industry in China is a bullet-proof juggernaut, but this view is inaccurate,” said Anderson. “It is a dynamic and highly competitive sector squeezed by thin margins and demanding customers.”

Too true.

But as China looks to move up the stack, away from being a land of contract manufacturers mass producing at low prices in incredibly competitive market conditions, things might change, according to IDG’s senior research manager William Lee.

“The electronics industry is typically a high clockspeed industry, meaning the average product lifecycle time span is shorter than say automotive, aerospace, industrial equipment. So electronics manufacturing companies’ lifespan is typically shorter than other companies in other industry,” he told me.

“However when the manufacturing industries mature and many of these companies begin to evolve to brand owners, the average lifespan will increase.”

With China still some way behind Taiwan, South Korea and other countries, it will be a while before this happens, but it surely will, as this is the direction the Chinese government wants it to go in. It recently announced ambitious plans to create eight super-companies in the tech space each the size of Lenovo ($100bn in revenues per year), which would have globally recognised brands.

When that finally happens, and the sweat-shops move out to Vietnam, Indonesia and elsewhere, maybe the US will have to invent another bogeyman.

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