China as Hegemon of the Global Electronics Industry: How It Got That Way and Why It Won't Change

Abstract

By the end of 2008, companies based on the business model of offshore production were observed to be rethinking their business models, tending to consider the repatriation of production bases in order to lower costs and shorten delivery times. In this article, the authors of China's Electronics Industry (2009 Edition), M. Pecht and L. Zuga, (City University of Hong Kong Press, Hong Kong, China, 2009) argue that repatriation is not likely to occur in the electronics industry, where expensive and complex production facilities have been moved offshore over a period of several decades. In particular, China has taken advantage of the West's offshore production model and its associated technology transfer to develop a manufacturing capability that has resulted in the ldquoChina Pricerdquo in electronics. As a result, China now has the infrastructure and electronics supply chain necessary to produce a wide range of products, from simple components to embedded systems and systems integration. This gives China the capability to produce complex electronics applications domestically, including computers, automotive controls, medical instrumentation, avionics, and even sophisticated military command and control systems. The resultant gain in Chinese capabilities, commensurate with the loss in Western capabilities through use of the offshore production model, makes the repatriation of the electronics industry to its former bastions in the United States and Western Europe doubtful. This will have a strong impact on resource allocation, research planning, and innovation. The authors present their argument through a series of brief case studies.