China has become a major source of foreign suppliers of electronics components. As a result, the local industry has developed its own supply chain, with suppliers coming from a variety of countries.
In the electronics industry, suppliers typically share a common build-and-maintain-and-sell chain. Even so, the number of Chinese suppliers in this arena has increased significantly over the past few years, in part as a result of the government’s efforts to promote local content in an effort to reduce imports.
But in recent months, two key hardware suppliers to manufacturers in China have stepped away from that common build-and-sell chain. The first was Pegatron Corporation, maker of the popular Pegatron-branded camera phones. The second was Wuxi Wince Electronics, which supplied cameras and other components to Pegatron.
Both companies suspended production at two of their largest factories in China, citing safety concerns. The concern was not whether they could produce the components effectively. Instead, they said, they believed the plants could not meet production standards.
In its statement, Pegatron said it was “aware of recent speculation regarding its production facilities in China.” The company said it “remains fully engaged in its production of electronic components in China, and has not been required or asked to suspend production at any of its facilities.”
It clarified that it had no intention of halting its production in China. Rather, it said the factories
There are two main causes of safety concerns among Chinese manufacturers, according to the American National Standards Institute (ANSI), an organization that develops and maintains industry standards.
The first is a lack of a safety culture in the factories, which is addressed by cultural change. The second is a lack of a supply chain in place to tracing components back to their suppliers, which is addressed by traceability systems.
The issue regarding the safety culture in the factories stems from a lack of employee training in the critical areas of health and safety. While each Chinese factory has its own safety department, they are not required to adhere to the same standards as other departments within the company. As a result, some safety hazards may be overlooked or underreported, particularly when production is not being rushed.
The second Chinese supplier to halt production
In addition to Pegatron and Wuxi Wince Electronics, manufacturing giant Foxconn has also halted production at two of its biggest suppliers in China. As part of an initiative to increase local content in its supply chain, Foxconn has begun sourcing components from China’s second-biggest supplier, Wince.
But construction on the second plant in Wuxi, which was due to begin production in late 2019, has been put on hold due to safety concerns. The same factory was scheduled to produce electronic components for Pegatron, but those shipments are currently unaffected.
The impact on suppliers
Some of the major electronics manufacturers in the United States have cut ties with Chinese suppliers in recent months. Among them is Apple, which has replaced a number of Chinese suppliers with American partners.
According to an Apple spokesman, the company has replaced more than 90 percent of its Chinese suppliers over the last decade. However, it has replaced a smaller number of suppliers during the past 12 months.
The Apple statement said the company had “partnered with a few Chinese suppliers in the past” but had found them “stale, slow and bureaucratic,” and it had removed them from its supplier relationship management system.
The government needs to take action
The American and Chinese companies cutting ties are only the tip of the iceberg when it comes to suppliers in China. According to an industry source, “There are probably a lot more companies that have been having trouble” because of safety or other concerns.
The source added, “The government needs to take the lead. It needs to get some kind of a law passed or an action plan in place to deal with this situation.”
China needs to encourage production of local content
More than anything, policymakers in China and around the world should encourage more domestic production of electronic components. China’s economy grew at a rate of 9.1 percent in the first quarter of this year, powered by manufacturing.
But according to data from the Chinese government, only 26 percent of that growth was due to domestic production. The rest came from imports.
The electronics supply chain has become increasingly complex, with more suppliers and a broader range of materials coming into play. As a result, it is critical for the industry to have an effective system for tracking products.
But even with the progress made in recent years, efforts must be made to increase the supply of electronic components in China. With the shift to a more digital economy, manufacturers are looking for ways to reduce costs and increase productivity.