Electronic component distributors operating in China are constantly seeking new ways of improving their customer relationship models to give themselves an edge over their competitors. At the same time, they are forever honing their logistics and delivery mechanisms to meet the unique requirements of manufacturers in China. The opening of China's economy, with its accession to the World Trade Organization (WTO), has served to galvanize the spectrum of distributors -- from local traders to multinational companies -- into action.

Distributors, are adding value in an increasing variety of ways, depending on the customer. Such value additions range from helping customers understand sophisticated new technology and helping them with design-in solutions, to bringing independent design houses into the picture to create product implementation schemes matching new market trends.

Technical Support Crucial

A critical factor for success -- perhaps more so in China than anywhere else -- is technical support. The high level of expertise in telecommunications not withstanding, distributors see the need in China for a suite of services that help customers understand newly emerging components, find the right reference design, and create the proper interfaces to customize products for the market. Since this involves detailed knowledge of the technology and development processes, the distributor must be seen to assume a more active role in these areas.

China's market is shifting from one of low-cost, high-volume products, to one of high value-added low-volume products. These more advanced technologies demand the right kind of support (tools and training) before a new player can enter the market.

Until the 90s, the distribution of electronic components in China was mainly handled by traders. The 90s saw the arrival of a few international companies, either through acquisitions or through establishing a direct presence, followed by project transfers from Taiwan and the US. Today there is a large international presence in China.

Generalists vs Specialists

The distributors can be divided into two main categories -- generalists, who carry commodity (off-the-shelf) components, and specialists, who carry proprietary product lines. Among the major players, Arrow and Avnet carry100-120 lines of general components, while Memec and Cytech Technology specialize in proprietary product lines.

The nature of technical support is dictated by the nature of the product line. As a general rule, commodity product lines are targeted at the consumer market, while the proprietary lines are aimed at the telecom market. There is also a new independent design house (IDH) model for creating designs for the consumer market. The logistics support needed by project transfer activity -- from Taiwan and the US -- reflects a slightly different customer relationship management model.

Arrow

Arrow Asia Pac Ltd. is among the largest distributors in Asia, with revenue of over US$300 million from China in 2001. The company offers its services mainly to multinational companies such as Ericsson, Motorola, Nokia, and Lucent, as well as local OEM companies. Customer service includes design-in supported by field application engineers (FAE), and commodity-type design created in collaboration with an IDH.

Designs developed with an IDH are selected on the strength of potential target products, according to Edmund Chu, managing director of Arrow's sales department for Hong Kong and South China. The target products are, in turn, chosen on the basis of market information, trends, and feedback from company sales offices in the country.

Chu said the IDHs would help local companies to create new product solutions quickly or to upgrade existing lines. Arrow worked with an IDH last year to develop LCD monitor solutions for China; a digital stills camera will hit the market some time this year.

For developing customer specified products, Arrow cooperates with suppliers, and the product could be a telecom switch or a basestation. Arrow has a dedicated team to address the needs of Taiwanese customers that are PC-focused and look for motherboards, monitors, and modems.

Chu said the company supports more than 20 consumer products, including digital stills cameras, power meters and DVDs. Most products relate to MCU, DSP, chipset and special connectors, and advanced passive products.

Avnet

Avnet Asia Pte Ltd is part of Phoenix-based Avnet Inc, a distributor with annual sales exceeding US$6.4 billion in 2000. In China, Avnet employs small design centers in Shenzhen and Shanghai to create reference designs for applications based on a key core technology by the supplier. Among these applications are a turnkey DVD solution based on a National Semiconductor chipset, an electronic power meter using Analog Devices technology, and a PDA solution based on Epson's core IP.

According to Raymond Tsang, vice president and regional director for Hong Kong and China of Avnet Asia, some suppliers already provide reference designs, power designs and PCB layouts. "All that the customer needs to do is modify the interface according to the product they will make. But not all suppliers can do this, and those that can do not cover all applications," he said. "This is where we step in. We locate product and market opportunities, we help fine tune applications, and we help test-match components to achieve a compatible fit. This saves time for the customer and quickens customization."

Memec

Specialist components distributor Memec Asia-Pacific Ltd, a subsidiary of UK-based Memec Group, generated sales revenue of US$200 million in China with 15-20 product lines. Yang-Chiah Yee, managing director of Insight, a Memec division, stresses the technology focus of Memec's business.

Memec's investments in China have grown since the mid-90s. It now has offices in Beijing, Chengdu, Xiamen and Wuhan. Among the customers are Hua Wei, OCI, Datang, Fiber Home, Malata, Konka and some local OEM companies.

Yee said it was a challenge to get Chinese customers to understand an advanced technology, like FPGA. Traditionally, FPGAs are used in infrastructure products like switches, SDH, DWDM, and GSM/CDMA basestation applications, but they are increasingly being used in consumer products such as HDTV (high definition TV), for which standards have not been agreed. He believes applications in information devices such as smart phones could use small CPLDs.

Memec offers help to smaller customers that cannot afford the use of expensive development tools such as evaluation boards. Its design services unit offers reference designs for a complete product or module that a customer could customize in their products. Memec has offered reference designs for a DVB set-top box, a VCD player for the Indian market, an MP3 player, and an Internet set-top box.

Yee sees consumer electronics as an emerging area in China. "Chinese engineers are very competent in technologies such as W-CDMA, cdma2000, TD-SCDMA, SONET/SDH, OC-192, etc. But in the areas of consumer electronics and white goods the competence has yet to be gained."

Cytech

Hong Kong-based Cytech Technology Ltd is smaller than Memec, with US$70 million in sales to China (including Hong Kong), but it competes with Memec in its components portfolio and the reach of its design-in efforts. In addition to Hua Wei and ZTE, Cytech counts many OEMs and CEMs in China as its customers. Cytech combines its own resources with those of universities through collaboration. The company offers in-house training for Hua Wei and ZTE engineers in collaboration with experts in Tsinghua, Beijing, and Shanghai universities. It also has an R&D center in Shanghai.

Cytech has 10 product lines including offerings from Altera, IDT, Micron, and Linear Technology. The company hopes to boost revenues in 2003 to US$100 million.

Challenges Ahead

In China, the role of distributors now involves far more than merely providing physical logistics. There are several challenges. Product lifecycles are becoming shorter -- six months to one year, typically -- and neither customer nor supplier can come up with the resources necessary to keep pace with the changing technology and shrinking product lifecycles. Some players have been able to operate because of the high taxation and the VAT charges applicable to foreign distributors. But with WTO entry, all that has changed, and international distributors are applying very different practices which simultaneously bridge the customer's technology gap and help bring products to market.

Other challenges include the management of inventories for 6-8 months -- without allowing them to pile up. Combined, all of these challenges have caused greater bonding between distributors and suppliers.

by M K Shankar, Hong Kong

Websites:
Arrow: http://www.arrow.com
Avnet: http://www.avnet.com
Cytech: http://www.cytecht.com
Memec: http://www.memec.com

(April 2002 Issue, Nikkei Electronics Asia)

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