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Manufacturers in China are expected to spend, on average, $34 million on components in 2014, according to a new report by Global Sources and eMedia Asia. That figure represents an increase of 26 percent over 2013 purchases, and more of that spend is going through the distribution channel.
By all accounts, the use of the channel in China is increasing – manufacturers purchased 60 percent of their components through distribution in 2013. Another 51 percent of manufacturers say they plan to increase their sourcing from distribution in the future.
Western distributors have been building their presence in China for decades, adding products and services proven to work in the Americas and the EU. In spite of these efforts, local distributors are gaining popularity, Global Sources says, with 41 percent of manufacturers saying they preferred China distributors from 25 percent in 2013. Twenty-two percent of respondents had no preference by distributors' headquarters location (2013: 12 percent); and the proportion of respondents preferring international, Hong Kong and Taiwan distributors have dropped.
Pricing is likely a factor in the growing popularity of local distributors, Global Sources said. Price is by far the top consideration (more than 70 percent) for manufacturers when purchasing components. Local components are also gaining favor. This year, 28 percent of distributors indicated that they would carry more China brands (2013: 21 percent); although the majority (59 percent) still said they would carry more international brands (2013: 68 percent). Complementing existing product lines (52 percent, 2013: 43 percent) has overtaken brand awareness (49 percent, 2013: 53 percent) as the major consideration when choosing new brands to carry.
Components distributors seem bullish about the China and Hong Kong markets and anticipate revenue growth of 22 percent in 2014 on average as the global economy slowly recovers. They put their 2013 revenue growth at 19 percent (2012: 17 percent) on average, with the top three markets remaining the same as the previous year: consumer electronics, industrial electronics, and network and communications systems. The average profit margin was 18 percent, which was 5 percentage points higher than that indicated in last year's survey, although 31 percent of distributors stated shrinking profit margin as one of the top three challenges they faced.
"By revamping business operations and strategies, some surveyed distributors have successfully differentiated themselves from the competition as well as expanded into new markets. As many as 8 percent of distributors surveyed this year had profit margins of 40 percent or higher," said eMedia Asia President Brandon Smith.
Manufacturers surveyed said that the main challenges in components sourcing were inaccurate demand forecast (61 percent), product quality (35 percent) and delayed delivery (34 percent). In response, they are strengthening partnerships with suppliers (58 percent), building safety stock (32 percent), and working with strong and all-round distributors (30 percent).
The two main challenges distributors face have been the same over the past few years: softening market demand (40 percent) and disorderly competition (34 percent). To address these, they are developing new application markets, expanding customer base as well as adding product lines.
The challenges that have intensified most are fluctuating market demand (8 percentage points higher in 2013 than 2012), difficulty in securing franchise brands (7 percentage points higher) and high logistics costs (3 percentage points higher).
Online transactions increasing, albeit slowly
The study also found the proportion of online transactions in distributors' total revenues, at 13 percent on average in 2013, has been increasing for three years (2012: 11 percent). Online transactions are still mainly for small-volume purchases. As many as 49 percent of manufacturers used online platforms for sourcing, mostly for component models search, inventory search and product inquiries.
A total of 179 senior managers working for leading components distributors in China and 2,260 managers and engineers from China's electronics manufacturers participated in the survey.
Top distributors in China unveiled
The survey results were unveiled at Electronics Supply & Manufacturing-China’s Aannual Supply Chain Forum and Distributor Survey Awards held in the Songshan Lake Hi-tech Park in Dongguan, Guangdong Province. The top components distributors were selected through online voting by managers of China's electronics manufacturers.
Winners of each category (in alphabetical order) are:
- Top 10 International Distributors: Arrow Electronics, Avnet, Cytech Technology, Digi-Key Electronics, Excelpoint Systems (HK), Future Electronics, HK Baite (Group), Jetronic Technology, Mouser Electronics, Willas-Array Electronics, and WPG Holdings.
- Top 10 Local Distributors: Asiacom Technology, Burnon International, CEAC, Comtech Group, Fengbao Electronic, Fortune Techgroup, Honestar Electronics, Mornsun Electronics, Powertek Group, and Sekorm.
- Top 5 Most Promising Distributors: Ample Solutions, Hi-Hone, Mission Electronics, Sigma Technology, and Vadas International.
- Top 3 Best e-Commerce Distributors: Shanghai Galaxy Electronics, Shenzhen Shenmei Technology, and RightIC.
- Top 3 Best Technical Support Distributors: EDOM Technology, Lierda Science and Technology, and WT Microelectronics.
- Top 3 Best Logistics Service Distributors: Advanced MP, America II, and RS Components.
- Top 3 Rising Star Distributors: Heilind Asia Pacific (Hong Kong), Succeed International Trade, and Yang Cheng Electronics International.
- Analyst's Choice - Outstanding Executive of the Year: Frederick Fu, Regional President, China, Avnet Electronics Marketing.
For more information on the 14th Annual Electronic Components Distributor Survey, please contact Cindy Hu, Chief Analyst of ESM-China at cindyhu@esmchina.com or read the detailed Survey reports at www.emrgresearch.com.
More information about Global Sources is available on the company's corporate site (http://www.corporate.globalsources.com).
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