Don't Fear China…

For many electronics manufacturers, the specter of China is very scary in terms of competitive pressure, geographical distance and cultural differences. However, industry experts continue to encourage companies to expand in this region and open shops in China to capitalize on its fertile environment for electronics production. China has a 10-year plan to control technology, dominate the industry and fund military expansion. These developments have led to comparisons of today's China with yesterday's Soviet Union.

China has a large-scale, government-run industrial policy similar to the ones developed by Japan and Taiwan in the 1970s. Intellectual property regulations are virtually non-existent in China, 100 million Chinese are currently dislocated or homeless, and there are still hundreds of sociopolitical uprisings taking place that the outside world does not see. Industry analysts believe that many Chinese banks are bankrupt, unethical, or both. There is also an ongoing debate on how fast the Chinese people will become consumers at a comparable level to the US, Western Europe and Japan.

Despite all of these negative factors, there are a myriad of pressures for global electronics manufacturers to set up shop in China now, in preparation for long term growth forecasts. Driven primarily by the abundance of low-cost labor, a new manufacturing plant opens in China approximately every 12 hours. Compare that to Mexico, where a new plant opens every two days, or more significantly, to the U.S., Canada or Western Europe where an existing manufacturing plant probably closes for every two facilities being brought on-line in China.

Many believe that Asia will be the most important market in the world very soon, and all major electronics manufacturing concerns should have a significant Chinese presence in the very near term. Chinese electronics manufacturing representatives from the Shaanxi province have met with US, Latin American and European officials to discuss potential expansion into the Chinese market. Mexican officials have visited China in the last six months and have fostered significant relationships in regard to electronics production and trade. Ironically, many maquiladoras left Mexico for China starting in 2000, and now China is interested in new investments in Mexico based on its proximity to the U.S. market.

China is set to overtake Japan in 2006 as the third-largest export market for the U.S. Exports to China grew 36.5 percent in the first five months of 2006 compared to the same period in 2005, and all indicators point to China surpassing Japan this year.

While there are many cultural, infrastructure, language and logistics issues facing electronics manufacturing in China today, the benefits of setting up shop in this exceptionally large and complex market appear to outweigh the risks. With over 300 installations of QAD Enterprise Applications in China and nearly 100 additional manufacturing sites in Hong Kong , QAD is an acknowledged ERP market leader in the region.

For more information on expanding your electronics business in the Chinese market, or for details on QAD's electronics vertical, please contact Dave Parrish at djp@qad.com.