China’s contract manufacturers are reaping a windfall as a slew of European companies look eastward. Some see the designed-in-Europe, made-in-China approach as a means of retaining design expertise locally; but others hint that might not be possible. Still, the Europeans are hoping to maintain control of design, at least for the next few years.
China is becoming a formidable economic presence. It contributed one-third of global economic growth in 2004 and its economy is expected to grow 9.4 percent in 2006 and 9.5 percent in 2007, according to the Organization for Economic Cooperation and Development.
The success of its OEMs and CEMs – contract electronics manufacturers – is confirmed by the Semiconductor Industry Association, the United States trade group, which says China is the world’s third-largest market for semiconductors, with annual sales of $19 billion. It is expected to move into second place by 2010, which would mean a 25 percent annual growth rate.
In a bid to quadruple its outsourcing exports by 2010 by capturing a greater share of the technology work that Western multinationals are farming out to other low-cost destinations the Chinese government has earmarked 10 cities for development as major centers, according to Xinhua, the official Chinese news agency.
China’s revenue from such sales stands at about $900 million. But not satisfied with that, it wants to convince 100100 multinationals to outsource to the country while encouraging the development of 1,000 large and midsize indigenous outsourcers.
While China might proactively target the multinationals, how do smaller European-based design operations make the move to manufacturing in China a success?
Connector manufacturer Bel Fuse recently revealed its approach (Make ‘em laugh, and other rules for China foray http://www.eetimes.eu/195600042) that included providing room, board and movies to following the local rules on wages and the length of the workweek.
Going through the process
So how does a company transfer the manufacturing halfway around the world? One that is now going through the transition process is Liquavista (Eindhoven, the Netherlands). It was founded last year to develop products using a patented high-efficiency optical system display technology. Based on a decade of work done inside Philips Research Labs, the electrowetting effect that underpins such devices is a radical yet simple way of producing high-value liquid crystal displays (LCDs). The team in Eindhoven has expanded from 7 to 30 people since the spinout.
Last November the company said it was investing €2 million (about $2.5 million) in a process development line (http://www.eetimes.eu/192700863). Liquavista is planning to sell modules, which is where the Chinese connection comes in.
“We are in the process of working with a Chinese manufacturer to prove our process in their production facility. It is an established display manufacturer but who are working in the low end of LCDs because you don’t need sophisticated processes,” said Mark Gostick, CEO of Liquavista. “It has been going on for a few months but we have not yet qualified it or signed it off; it is an ongoing process.”
Gostick said, “We actively went out and looked for people that have good experience. Because of Philips’ retraction from the displays business, in Eindhoven there are a lot of good people with experience not only in cell and module design but also in process development. We have been able to cherry pick some extremely good people who have great networks in to the Far East manufacturing base. We have been able to leverage this to get contact with the manufacturers very quickly.”
Liquavista has set up an office in Hong Kong and Gostick says that in the long term he sees it as an Asian company. “You can develop concepts and process in Europe and have business development sales and marketing in Europe and the United States but product development and manufacturing will be in the Far East.”
“It not just down to infrastructure but partly comes down to access to the right level of engineering. We are setting up the process development line in Eindhoven to save time but Europe is almost getting to the point the manufacturers of the equipment won’t supply it here any more. There is little demand and they don’t have the support infrastructure. We are almost at a tipping point where you won’t be able to do it anymore.”
Gostick believes if you want engineers who know about active matrix, drivers, interconnects – all the pragmatic requirements for a product – then you have to go to the Far East. “Our process development will remain here for some time and this allows us to do our intellectual property development here and protect [it], then ship it out to the Far East.”