Chinese electronics manufacturers no longer seek the cheapest parts.
As the Chinese electronics market gains enormous purchasing power, it demands not only lower prices but also higher quality parts.
As China becomes the world’s biggest IT market, even global corporations are struggling to cater to the demands of their Chinese clients. Korean materials and parts suppliers need to respond to their Chinese partners who are becoming more and more fastidious.
According to industry reports released on August 13, Chinese mobile phone and TV makers are demanding parts specifications similar to those used by Korean companies. At the same time, they are demanding prices lower than the prices in the domestic Korean market.
Chinese set makers have been able to lower prices and demand higher quality materials and parts by simplifying their product models. They focus on a single model and order a large quantity of parts, getting a steep discount on prices.
For example, the price of optical film used in mobile phones halved in only a year. Global corporations such as 3M joined the Korean film suppliers in heated competition for the Chinese market, lowering prices.
“There are too many different models in Korea, so it’s difficult to make profits proportional to the total volume. In China, the prices are low, but I can make a profit on a simple model. That’s the reason I need to trade with China,” explained the owner of one film exporter.
Chinese display makers are centralizing purchase activities to increase their negotiation power. BOE has manufacturing facilities all across China, but all purchases are made through their headquarters. With increased volume, they are able to better negotiate prices. Standards are higher too. Key parts are selected directly by the display makers. In effect, they are even controlling the secondary and tertiary partner firms.
Chinese display makers who used to make midsize and small panels for low-priced devices such as Shanzai phones have started manufacturing displays for mobile phones. Small and mid-sized companies that have secured most of their materials and parts in the domestic market are now reaching outside their borders to manufacture high-end products. This market is difficult as well. There are so many partner firms in China that it’s difficult to receive fair prices for high-quality products.
Semiconductor exporters need to compete with local Chinese manufacturers or Taiwanese suppliers. Chinese set makers demand quality comparable to products supplied to Samsung and LG, but set the prices similar to those provided by Taiwanese suppliers.
“China has so many partner firms that the moment I can’t meet their prices, I’m out,” said another industry personnel. “I need to be in the Chinese market, but if their purchase policy favors local partners, I might need to abandon the business altogether,” he added.