China's electronics industry eagerly awaits the end of the trade war

By Polly Chen

China's electronics industry is currently the world's largest. But the trade war has hit this industry hard.

Exhibitors at this year's Hong Kong Electronics Fair reported fewer international buyers than previous years. Importers from the US are looking for suppliers from Vietnam, Indonesia and other Asian countries outside China.

There was also a sharp slump in China’ electronics exports. From January to August, exports of hi-tech products declined 2.1 percent. Exports of LCD panels dropped 6.6 percent. And exports of mobile phones and parts dropped by a staggering 15.1 percent.

But many Chinese-made consumer electronic goods have yet to face US tariffs—tariffs are expected to roll out for many such products on December 15. But the trade dispute has already pushed many foreign buyers away from their Chinese suppliers.

Chinese electronics companies struggling to stay afloat

For many Chinese electronics manufacturers, sales have plummeted since the trade war started. They are now seeking ways to recover their order volumes, though the trade war shows no signs of a resolution anytime soon.

Chinese electronics manufacturer SZ Telstar moved its factory from Shenzhen, China to Vietnam in July. The “Made in Vietnam” label requires at least 40 percent of a product's value to be added in Vietnam. But raw materials cost 30 to 60 percent more in Vietnam than in China. The company is now struggling to purchase more materials from China to lower production cost.

Infrastructure and logistics outside China also leave something to be desired. The company still can't find qualified local freight fowarders three months after relocation.

Rather than relocating, another Chinese electronics company called iStar chose to expand into the domestic market. The company hopes the huge Chinese domestic market will help them offset the losses in overseas sales due to the trade war.

However, some Chinese players' cost advantage has helped them thrive in spite of the growing tariffs. Shenzhen-based endoscope manufacturer Avanline kept its order book full even under the escalating trade war. According to Josie Chen, Avanline's salesperson in Hong Kong:

For the same product, our price is around one-tenth that of [Japanese competitor] Olympus. Our US buyers just paid the tariffs and did not ask us to lower the prices.

How can you manage your quality concerns outside of China?

Whether your Chinese supplier has relocated or you're now sourcing outside China, there's no guarantee of victory. Sourcing outside China often not only means lower costs, but also less-skilled labor and lower productivity. Those factors will likely cause potential quality problems that can hurt your business.

Product quality is a top priority for most importers. Higher defect rates will result in lower customer satisfaction and lower sales.

So, how can you manage your quality concerns outside China? Here are four steps you can take to prevent product defects before they appear in your products:

• Conduct an audit. An audit can help you check the factory's internal quality management. An ISO 9001 standard audit is commonly used.
• Aim for negotiating the best (not always the lowest) price. Different parts and materials and levels of quality demand different price points. Pushing too hard on price typically encourages suppliers to cut costs at the expense of quality.
• Establish a golden sample. A golden sample enables you to provide feedback to your supplier and resolve any quality issues before mass production.
• Set a tolerance for defects. An AQL table can help you communicate to your suppliers the types and quantities of various defects you can accept, as well as define the scope of inspection that you need.

The views, opinions and images in this article are purely the author's own. Global Sources does not own responsibility for what is presented in the article.

Polly Chen is a Client Manager at InTouch Manufacturing Services, a QC firm that performs product inspections and factory audits in Asia for clients in the US, EU and Australia.