Some large manufacturers in China are moving to bring production processes in-house to have better command over costs, delivery and supply. Benefits for buyers could include lower export prices.
High component costs, coupled with labor challenges and other factors that contribute to pricing pressures, are leading many China companies to incorporate upstream and downstream processes in their production. While carried out mainly by large enterprises, vertical integration is helping stabilize component costs and supply, speed up delivery and turnaround, and, more importantly, keep a lid on export prices.
Quotes for LCD TVs, for instance, are projected to fall in coming years because more companies are investing in facilities for producing high-generation display panels in China. At present, the component is sourced largely from Taiwan, South Korea and Japan, and accounts for roughly 80 percent of total product cost. When display panel suppliers raise quotes, China's TV makers have no choice but to pay up.
Government subsidies and rebates, however, are encouraging domestic TV manufacturers such as TCL Corp. to branch out into LCD panel production. Together with Shenzhen Century Science & Technology Investment Corp., TCL established joint-venture company Shenzhen Huaxing Photoelectric Technology Co. Ltd solely to make display panels. For constructing an 8.5G LCD panel facility in Guangdong, Shenzhen Huaxing received a 500 million yuan ($76 million) subsidy from the city government.
There are now seven 6 to 8.5G lines in China, of which five are locally owned or invested, and three more are pending approval. The country could possibly have 10 high-generation LCD panel facilities by 2012. When these are all operational, supply is likely to outpace demand, which could then pull down panel costs and, consequently, reduce LCD TV export prices.
Assimilating downstream processes can result in lower prices as well. Dongguan Sopoer Electronics Technology Co. Ltd used to concentrate on electronic components for telecom products. The company branched into manufacturing finished items last year, including diplexers, power dividers, directional couplers, low-noise and power amplifiers, and standing wave ratio alarms. Its clients have been able to save time and money as they no longer have to procure from different sources.
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