Firms diversifying, moving to cheaper cities in response to downturn
Some Shenzhen-based original equipment manufacturers (OEMs) have faced shrinking profits since the beginning of the year due to rising production costs and rising land prices.
Raw materials and components for electronic devices, including smartphones and tablets, are in short supply because of the Taiwan earthquake in February, said Shen You, sales director at Xingyuan Electronic Technology Co Ltd, a Shenzhen-based screen manufacturer.
"In addition, some tech giants such as Samsung and LG have been upgrading their display technologies, which has caused screen costs to increase by two to fivefold for various products recently," he told the Global Times on Monday.
Shenzhen, a city in South China's Guangdong Province located in the Pearl River Delta region, is a leading center for OEM manufacturing. However, a number of factories have shutdown since the beginning of the year due to a decline in orders which caused cash flow problems for companies. For example, a Shenzhen-based display supplier for several electronics firms, including Samsung, Motorola and Nokia, with a registered capital of $28.8 million announced the closure of its manufacturing lines in August, the media report noted.
"It's not a surprise for us," Shen said, noting that other components, such as control panels, have also become more expensive and some factories have had to cut down on orders.
Tackling the downturn
As land prices and raw material costs keep rising, some factories have chosen to move out of Shenzhen, while others have focused on diversifying their business.
Factory rental fees increased roughly 5 to 10 percent in 2016, which has weighed on operations, Zeng Feiqiang, vice president of Shenzhen Langmei Technology Co, a local OEM for smartphones and tablets, told the Global Times on Sunday.
"Also, the local government hasn't supported OEMs as much as they used to, and at least seven companies have gone bankrupt since the beginning of this year, as far as I know," he said.
In an effort to counter their shrinking business, he said the company has moved some manufacturing facilities to neighboring cities like Huizhou, and that it is further considering relocating to provinces in central and western China where more favorable investment policies are emerging.
"For example, in Southwest China's Guizhou Province, the local government offers favorable policies such as a reduction in taxes and rental fees, which is likely to encourage OEMs to establish plants there," he noted.
The sluggish global economic recovery has also had an impact on electronics sales, but the market has not been oversaturated as demand has been diversified, for example, demand for smartphones has been growing steadily but has been declining for tablets, Tao Chuanliang, industry expert at Beijing-based CCID Consulting, told the Global Times on Wednesday.
"Some downstream enterprises might feel pressure if they can't meet the demand by adjusting their corporate strategies," he said.
Adjusting plans
The worldwide tablet market continued its slump as vendors shipped 43 million units in the third quarter of 2016, represented a year-on-year decline of 14.7 percent, market intelligence firm International Data Corp said on October 31.
The total number of orders have decreased by about 20 percent this year, the head of a factory surnamed Wu, who works as a supplier for Langmei Technology, told the Global Times on Monday. "What we do now is try to reach out to more customers so we can diversify our orders and become more flexible in making production plans," he said, noting that if there are less orders for tablets, there might be more for smartphones.
"Also, shipment of our low-end phones has maintained momentum. The output of one production line is about 4,500 to 5,000 units per day," Wu noted.
Focusing on targeted customers will become a smart choice for some small- and medium-sized manufacturers, Zhao Ziming, industry expert at Beijing-based market consultancy Analysys International, told the Global Times on Wednesday. "There are ups and downs in the OEM sector, coming up with more detailed marketing plans would be helpful," he said.
