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The Top 10 Industry Trends
For the next 10 months, the second issue
of ConnectorSupplier.com will feature a different industry trend
that we feel is affecting us all. The electronics industry is a fast
moving and rapidly changing environment. Selecting only 10 trends was a
challenge, but here is our top 10 list, not necessarily in order of
importance.
 1.
Globalization: The Emergence of China
The search for low labor costs
was the first, and primary, driving force behind the exodus of
manufacturing from the West to the Asia Pacific region. As OEMs moved
manufacturing, the component manufacturers followed in support of their
global customers. The manufacturing transfer has been occurring since
the 1980s, occurring at a steady and predictable pace until year 2000.
The electronics industry recession that began in late 2000, and
continued through 2002, quickened the pace. Connector sales declined
19.1 percent in 2001, and 9.6 percent in 2002. These were the worst
back-to-back years in industry history, making the need for cost
reduction a matter of survival, rather than just an issue of profit
improvement.
Announcements of plant closings in the U.S. and Europe were frequent
occurrences. The move to China became a stampede. For example, in 2001,
China was a $1.8 billion connector market. In 2006, China had become a
$6 billion market, achieving a 27.2 percent compound annual growth rate.
This compares to a one percent compound annual growth rate for the North
American connector market, from 2001 to 2006.
The transfer of manufacturing to China continues, but the pace has
slowed and seems to be a function more of building capacity to support
the growing consumer demand in China for electronic products. Today,
approximately 50 percent of what is manufactured in China, stays in
China. That percentage is going up quickly as the population evolves to
include more affluent consumers.
In our estimate, 75 percent of the China “build-up” is complete. By
2010, it will be 85 percent, and by 2015 it will be over.
India, Eastern Europe, and Latin America will experience economic
expansion in the near future. However, it is difficult to imagine these
regions having the same impact on western manufacturing that China has
had.
The China Growth
Engine for Electronics
China will soon surpass
Germany as the world’s third largest economy. Estimates place China’s
GDP at $2.8 trillion, narrowly smaller than Germany’s GDP of $2.9
trillion. Only Japan and the U.S. have larger economies.
China Will Soon Be Bigger
Than Germany
Sources: Chinese Government, International
Monetary Fund, Wall Street Journal
China’s GDP is growing in the 10 to 11
percent range, while German GDP growth is 2.5 to 3 percent. It is clear
that China will surpass Germany in 2007.
China will surpass Japan by 2013 and become the world’s second largest
economy, assuming Japan expands at 2.5 percent per year versus 10
percent annual expansion for China.
This should not be surprising. China has a 1.3 billion population versus
82 million people in Germany. China should certainly be able to produce
more than Germany. However, what is surprising is the speed, and short
expanse of time, in which this has occurred. The world has dramatically
changed—in just a little more than a decade.
Even more startling is the rapid expansion of China’s electronic
manufacturing capability. The growth in China electronics manufacturing
was four times larger than their GDP growth
The market share dynamics of the connector industry provide a perfect
example of how fast China became a major manufacturer of the world’s
economic products.
10-Year Connector Growth by
Geographic Region
In one decade, China grew from 0.7
percent of world connector demand to 15 percent. China’s 10-year annual
growth rate in connectors was 42.7 percent, versus an annual growth of a
mere 1.2 percent in the U.S. China’s economy grew approximately 10
percent per year during the past 10 years, but it’s electronics
manufacturing infrastructure grew at four times that rate.
Our five-year outlook projects the connector market in China growing 18
percent per year, versus an industry growth of 8.1 percent.
Five-Year Connector Forecast
by Region
Regional Percents
By 2011, China will be the largest
connector market in the world, with $13.7 billion, versus the U.S.
market of $12.9 billion. China will account for 23.2 percent of the
world connector market.
The International Monetary Fund (IMF) estimates that China will account
for more than one-quarter of the world’s growth during 2006 and 2007. We
project China will account for 40 percent of world growth in connectors
between 2006 and 2011.
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