We have to purchase from reputable re-sellers to decrease the chance of getting bad parts from China. That way, if they don't work as advertised then there is some sane way to get the money back.
The majority of Chinese manufacturers aren't trying to purposefully screw the consumer*. They just want to cut costs and if they have to do less tooling then that is more money saved. The problem with their cost cutting measures is that they don't necessarily know the consequences and thus things they do - which may seem innocuous to them - result in poor function/dangerous consequences of the product they are manufacturing. It is the overall mantra to cut costs because everyone wants to make a buck and then some. The manufacturers that try to be more prudent about the decisions they make suffer as they have limited ways to cut costs in comparison to others and thus are priced out of the market. Consumers, in the end, look at the price tag of two competing products and if they seem similar on the surface then they go with the cheaper one. It isn't until they get bitten in the ass is when they start thinking and even then only a small portion do down the line.
Which brings a good pearl of wisdom when having your product manufactured in China: One should always make frequent visits to ensure that the components/steps required to purpose a product to your design specifications is being met. The majority of manufacturers will try to make changes to save more money for themselves without telling you, and if you don't notice the changes then no one is the wiser. You have to keep them in line.
* Some changes are just downright stupid and a malicious intent may be the most likely cause such as that melamine incident in baby formula to increase apparent protein content during tests.
I get dizzy when I think about the changes that took place in the connector industry in the last decade or so. New technologies, industries, processes, markets, products, and systems, from AI, to EV, to 5G, to robotics, to the cloud, to globalization, to exploding data rates, and to infinity and beyond.
Two major changes in the world of connectors were the explosion of manufacturing in China, and more recently, COVID-19&#;s impact on the industry.
Who better than our friend Ron Bishop, of Bishop and Associates, to give us some perspective on these two issues? If you&#;re not familiar with Bishop and Associates, they are a connector industry market research leader, and publisher of The Bishop Report, a monthly newsletter.
Here are Ron&#;s, and Bishop and Associates&#; thoughts on these two topics:
DANNY: What impact did the migration of manufacturing to China have on the connector industry?
RON BISHOP: We (Bishop and Associates) didn&#;t start tracking China as a separate region until . Prior to that, we included China with the other Asia Pacific countries. However, once China opened its country to investments from the West, connector growth was significant.
For example, China accounted for only 0.2% of the global connector market in . By , China connector sales were $2.0 billion, or 5.7% of the total connector market. By , China&#;s connector sales are anticipated to be $25.8 billion or 30.9% of the global connector market.
There were two primary reasons to move manufacturing from West to East.
Some impacts on the West included:
Some impacts on the East included:
Analysis of connector sales by region over various timelines results in several conclusions:
Further evidence that China&#;s largest growth years are behind them is shown in the analysis below. During the last five-year period (-F), China and even the Asia Pacific area have performed below North America, Europe, and the ROW region. When you include Japan, the West significantly outperformed the East!
DANNY: What impact did the migration of manufacturing to China have on connector industry profitability?
RON BISHOP: Industry profitability suffered during the transition of manufacturing from West to East. This was primarily the faction of serious price erosion pushed on manufacturing by OEMs and contract manufacturers.
Three things happened. First, connector users demanded price reductions based on the lower costs achieved by manufacturing in China. Second, the larger connector users implemented vendor reduction programs which enabled them to have more leverage over prices. Third, the dot com bubble exploded in and which greatly reduced connector demand and put more downward pressure on prices.
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The China build-up really started in the last five years of the 20th century ( &#; ). From the year , the industry suffered through 10 consecutive years of price erosion. There were multiple years of -7% and -6% price reductions.
However, in the year , price erosion stopped as connector demand improved. Industry prices remained stable or increased slightly from to . In , , and connector prices increased by 2%, 7%, and 8% respectively. These price increases were a function of strong connector demand and rising material costs which were passed along to connector users.
The following shows the impact of pricing on industry profits.
The migration for manufacturing initially had a negative impact on profitability because the benefits of lower-cost manufacturing were offset by greater price erosion.
DANNY: COVID-19 had a major impact on the industry. What were some of the more significant issues?
RON BISHOP: The pandemic caused major negatives for the world economy and the connector industry.
Cost: Everything became more expensive. Raw materials used in connectors increased by an average of 24%. Labor and transportation costs increased significantly, partially spurred by a decrease in the number of available workers and heavily dependent on the increase in fuel prices.
Inflation: The U.S. inflation rate reached a 40-year high. Inflation was also severe in Europe and Asia. Connector prices increased significantly as did many other electronic products.
Supply Chain: Except those deemed essential, &#;shelter in place&#; orders resulted in the shutdown of many industries, causing significant disruptions in the supply chain. The resulting supply and demand issues further fueled inflation.
Decline in Global Connector Sales: The pandemic caused global connector sales to decline -3.8% in and -2.2% in . Note, we initially believed the declines would be significantly greater, somewhere in the realm of -30 to -40%, but the market was more resilient than most anticipated and quick to refocus manufacturing.
Change in Market Focus: COVID also caused a significant shift in connector usage by end-use market sector. Homes turned into offices, prompting an increase in computers and home office equipment like printers and routers. Unable to travel, consumers spent more on home gyms, lawn and garden equipment, and big-ticket items like RVs and personal watercraft. In fact, &#;social distancing&#; allowed RV sales to break records in all regions in and . &#;Social distancing&#; also caused a major decline in air and rail transportation (which are key users of connectors); these declines are still affecting those markets.
The pandemic caused the medical market to see an immediate decline in equipment used in elective and dental procedures, and an immediate increase in therapeutic equipment such as ventilators, as well as diagnostic and imaging equipment used to detect disease. The pandemic also showed that with the correct direction, manufacturing could be re-directed based on immediate needs, as we saw automakers involved in the manufacturing of ventilators!
Pent-up-Demand: Once shelter-in-place orders were lifted, consumers were ready to start spending. In the U.S., fueled with government stimulus payments, consumers grappled for items such as new vehicles, delayed by the semiconductor chip shortage. This in turn caused used cars and trucks to experience an increase in price of over 25%. The expansion of home offices prompted many to increase their living space, creating greater demand for consumer appliances and building supplies, already being affected by supply chain issues. The need to be connected anytime, anywhere contributed to the push for rapid deployment of 5G, a very large consumer of connectors. All of these created an environment where connector sales grew a whopping +24.3% in and +7.8% in . Growth rates not seen since !
DANNY: Good stuff! I hope you enjoy these periodic updates from Ron and the folks at Bishop and Associates.
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