China moves from manufacturer to full supplier

CES 2017 wrapped up last week in Las Vegas. The show had over 175,000 attendees and over 3,800 exhibiting companies, according to the organizer, the Consumer Technology Association (CTA). The U.S. had the most companies exhibiting at CES with 1,755. China was close behind at 1,575 companies according to Benjamin Joffe’s article in Forbes: “The 4 Kinds Of Chinese Tech Firms That Dominated CES 2017”. Joffe believes many Chinese companies have developed innovative technology which is competitive on a global level.

The CTA’s audited data for CES 2016 showed total attendance of 177,393. The largest international presence was China, with 4,867 attendees. China was ahead of traditional electronics leaders South Korea (4,567) and Japan (2,641). The China attendance was over three times its CES 2012 number of 1,568 while overall attendance was up 14% in 2016 versus 2012.

The strong China showing at CES is a reflection of the transition from Chinese companies from manufacturing electronics which were designed, marketed and sold by non-Chinese companies (i.e. U.S., Europe, Japan, South Korea and Taiwan) to integrated companies which design, manufacture, market and sell their own products. The dominance of China in electronics manufacturing is demonstrated by World Trade Organization (WTO) statistics on exports of office and telecom equipment (the combination of two trade categories which comprise most electronics) for 2015. China accounted for over a third of exports.

The shift of Chinese companies to integrated suppliers is evident from the market share rankings for major electronic devices as shown below. Chinese companies are highlighted in red. IDC’s preliminary 2016 PC market share numbers rank Chinese company Lenovo number one at 21.3%, edging out HP at 20.9%. Lenovo became a major player when it acquired IBM’s PC business in 2005. IDC’s 3[SUP]rd[/SUP] quarter 2016 data shows the tablet market is dominated by Apple and Samsung, but two Chinese companies, Lenovo and Huawei, are in the top five. Korean companies Samsung and LG are the major suppliers of LCD TVs with over a third of the market between them. WitsView, a division of TrendForce, estimated Chinese company LeEco moved into third place in 2016 with the acquisition of U.S. TV company Vizio in July. The fourth and fifth companies, Hisense and TCL, are also Chinese.

The emergence of Chinese suppliers is most apparent in the smartphone market. Third quarter 2016 market share numbers from Counterpoint Research show the continuing dominance of Samsung (20%) and Apple (12%). Seven of the next eight smartphone brands are Chinese companies (in red). If parent companies are considered, a different picture emerges. BKK Electronics of China is the parent company of number four Oppo and number five vivo. BKK also owns small but growing smartphone supplier OnePlus. The combined market shares of Oppo and Vivo is 12.6%, giving BKK the number two ranking ahead of Apple.

As with PCs and TVs, some of the growth in Chinese smartphone market share was driven by acquisitions. Lenovo acquired the Motorola smartphone business in 2014. However, Lenovo has not had as much success with the Motorola acquisition as it did with the IBM PC business acquisition, according to a recent Wall Street Journal article.

The advancement of Chinese electronics companies from mere manufacturers to integrated companies is a continuation of trends over the last 50 years. Japan, South Korea and Taiwan all moved from being primarily sources of low cost manufacturing to being major players in driving innovation in the electronics industry. As these three countries became more prosperous, wages increased and much of the manufacturing went to China. China, with over 1.3 billion people, has a large enough labor force to continue as a low cost manufacturing county while its electronics companies compete on a global level as full service suppliers.