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Industrial Shifts: Emerging supply chains in the emerging markets


Prospects for 2015 are promising. We expect regional growth opportunities, especially in China, India, and their neighbors, plus market expansion opportunities through new devices, connectivity, and deeper semiconductor penetration into a number of industries. That's all great news, but what does that mean for the semiconductor supply chain?

Regional shifts alter supply chain balance of power

Emerging economies have generally lost a good deal of luster over the past few years. But by looking more closely into efforts in China and India by government, private sector, infrastructure development and foreign manufacturing recruitment, it quickly becomes apparent that the current supply networks are not likely to stay the same for long.

China has serious plans for and is on track to significantly increase their IC manufacturing capability, as recently recapped by SEMI. Yet, while supporting the growth of national high tech companies and manufacturers, China is grappling policies and regulations that support protectionism. One such example is the ongoing patent and monopoly investigation of Qualcomm in China. This long and messy legal battlehighlights the tension between fostering local growth and becoming a true global market competitor. As the smart device market competition continues to expand in the emerging markets, such as China, it is heating up with new competitors and increasing price pressures. In the case of Qualcomm and China, the rise in local smartphone OEMs in China cannot be discounted – there are many levels to the competitive tension, but one important point is that as existing supply chains shift, that shift causes tensions and the competition for components, best pricing, and related negotiation points that call into question existing market leaders control over the supply chain and control over pricing.

How does this legal battle and contract/pricing negotiation play into the component outlook for 2015+? Quite simply, events such as the antitrust case pursued by the Chinese government is one indicator of the depth of the tension and change that is happening. It is a precursor to a significant shift that is expected to come about over the next few years – the rise of a new IC manufacturing center in key emerging nations along with a shift in the global semiconductor supply chain that opens the door (and likely holds preferences for) local or regional companies over existing global leaders and their supply chain power. A new ecosystem that introduces competition in major, emerging markets will not only open the doors to new supply chains but also new companies and new local consumer and enterprise markets seeking devices that fit local needs and pricing structures.

Industrial growth and emerging nations

Industrial growth and expansion in China and India, to continue with the example of these emerging market leaders, is a certain path. It is also an opportunity for improved infrastructure projects that will include growth for those companies in the semiconductor and electronics industry poised to support municipal and larger industrial projects. SmartCity projects implementing demand management, smart metering, hybrid electric power, LED street lighting and related new technologies will likely be showcased in these new infrastructure projects. Leapfrogging technologies is a common pattern in the emerging markets, and the municipal level is no different.

Implementing new SmartCity technologies will provide significant opportunities for a wide variety of companies along the semiconductor supply chain, as SEMI notes. While these opportunities bring important promise, they also bring real challenges to those who do not have long-standing regional networks, local knowledge, and local supply chain connections to ensure the smooth execution of projects and market ventures. It becomes all the more critical, therefore, to look to those companies who have built their global reputations around providing local, best-in-class services while attending to the strict quality control and customized solution planning that support agility and early-mover advantages. Supply chain agility rooted in local expertise coupled with inventory management and quality component sourcing is at the heart of Smith's Global Services programs. As we continue to grow and expand, we do so based on our core of long-standing, localized networks in the world's emerging market leaders. The best market strategy for being part of the rising emerging market tide, is to ensure your supply chain partners have the capability to help you in successfully and securely navigating the myriad of new channels that are opening now.

Lisa Ann Cairns, Ph.D.
Written on Tuesday, 27 January 2015 14:23 by Lisa Ann Cairns, Ph.D.

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