Killer competition in electronic device market claims another victim

By Chai Hua and Gao Yuan (China Daily) Updated: 2015-11-10 09:49

Fierce competition means that large corporations such as Huawei and ZTE leave "extremely feeble profits" to their suppliers, said Li Honghui, senior vice-president of Shenzhen-based Comtech, a provider of electronic components and solutions.

Xiang agreed that a slowing market growth is set to pile on more pressure on suppliers.

Companies that don't adapt quickly, rework their business model and upgrade technology risk closure, said experts.

Li of Comtech said companies with excess production capacity and those that rely on low-value, standardized products will not survive the current situation.

An IDC report indicated Chinese companies are moving to higher-end markets as the profit margin in sub-1,000 yuan devices has become extremely thin due to years of tough competition.

In addition, rising labor costs in southern China are also squeezing their profit margins. From 2012 to 2015, the average wage in Shenzhen surged 55 percent from 4,918 yuan to 7,631 yuan.

In retrospect, some say the Fu Chang disaster was waiting to happen. Yang, its employee, said the company once used waste and left over materials in re-injecting molds.

Qin, another employee, said the company was fined several times by Huawei because it used substandard goods that did not meet required quality standards.

Worse was to befall Fu Chang. After the massive explosions at a Tianjin chemical storage unit in August, the Shenzhen administration tightened fire control supervision. This hurt Fu Chang badly as it had to shift its painting shop from the top floor of its factory building to other companies at a substantial cost.

While Huawei and ZTE apparently agreed to accept Fu Chang's existing products if they pass quality tests, new orders would be made only upon satisfactory appraisal of both the new management and the company's R&D set-up.

Fu Chang's middle-level managers will be retained and its suppliers will have a say in the selection of the company's general manager.

But Yang remains concerned. "There is uncertainty over the factory reopening. But I can't afford to wait anymore."

That's the attitude of Fu Chang's suppliers as well. As of now, a game of basketball at Fu Chang's staff facility appears unlikely in the near future.