China’s electronic manufacturing and design (EMD) services are set to expand at an annual rate of 14.3 per cent through to 2010, according to a new study from Technology Forecasters in Santa Clara, California.
The report identifies EMD as a combination of traditional EMS and original design manufacturing (ODM) services. Together, these services will compete effectively against North American and European services because of China’s “virtually unlimited pool of low-cost labour.”
The total value of Chinese EMD services is forecast to grow from $38.3bn in 2005 to a total of $74.7bn in 2010, nearly doubling. During the same period, global growth of combined EMS and ODM services is expected to climb from $202.4bn in 2005 to $380bn in 2010, a slightly slower growth curve, showing China capturing global marketshare.
Interestingly, the report assumes a slowdown in economic growth in the United States and the rest of the world in 2006 and 2007, followed by a return to stronger growth in 2008 through 2010 as shipping costs and oil prices drop due to slowing global demand. China is expected to continue growing through the economic slowdown, just as it did during the 2001 through 2003 slowdown.
The report points to “a flood of new engineering graduates” produced by China as one of the positive factors in China’s manufacturing growth in electronics. The US National Science Foundation estimates that China graduates more than 200,000 engineers each year, while the United States graduates fewer than 60,000 annually.
The report also notes that China is rapidly expanding its number of institutions of higher education which should produce even larger numbers of engineering graduates in coming years.
The report’s author, Clive Jones, senior consultant at Technology Forecasters, points out that China’s design services are becoming more sophisticated. “They started out designing motherboards and laptops, but now they’re taking an idea and creating the whole product.”
He attributes this to the growing competence of Chinese engineers, particularly in Taiwan. “They’re graduating tens of thousands of electrical engineers, and their engineering skills are unsurpassed,” says Jones. “They’ve been through the ropes and worked for ten years [to develop their design capabilities].”
He notes that most of the original design work takes place in Taiwan, while the engineering services on mainland China are still mostly focused on design for manufacturing.
Jones believes that intellectual property issues will continue to be a problem in China, particularly for small US and European manufacturers outsourcing to China. “If you’re a big company, you can pressure the Chinese government to help you with IP violations,” says Jones. “But if you’re a small company, you may only have one idea with little ability to protect it.”
