Local distributors preserve heat and live through the winter

----Local distributors gain new insights through reviewing old material to preserve heat and live through the winter

We should talk about market again at such dark and windy night and at the moment when financial crisis spreads over the world and economic depression causes a temporary clamour.

Recently, I watched "direct stroke on Wall Street's storm" on CCTV-2 every night, and followed up newly revised business column in Google news, even Tianya that I used to distain to case a look at. In the tidal wave of globalization, the world is flat. When a butterfly swings its wings remotely, ripples surge around you, much more a financial crisis. You have to think of it. When interviewed by Emily, editor of ESM-China the day before yesterday, I talked about Chitron's business mode as an agent. Here are my conclusions based on some reviews of Chinese component distribution market and considering current economic situation. Any comments will be highly appreciated, which might be temporary measures against the freezing winter. Is it possible to find out some morning twilight for the future? We have possibilities.

Chinese IT industry was started from reform and opening to the outside world. Mr. Deng pointed out "computer education should be emphasized on children firstly" at the beginning of 80's. The middle school where I taught then was provided with an Apple computer, but nobody knew how to operate it. Finally, the headmaster assigned me (I taught math and was in charge of a class then) to take responsibility for the computer. However, the computer was configured with a tape recorder, which was installed in the headmaster's office. I felt so perky for such mission. Occasionally, I took the recorder home at my convenience to listen to Li Jun Deng's songs, glories too. Because top government paid attention to computer technology in China, moreover Electronic Industry Ministry was established, which was included in IT Industry Ministry till 1997 to form electronics and information integration.

Domestic component distribution market was originated from the later phase of 80's when foreign/ joint-venture manufacturers entered into China. Import /export was controlled strictly then. To my knowledge, from the end of 80's to the beginning of 90's, biggest domestic distributors were China National Electronics Import/Export Co. (CEIEC founded in 1980and China National Electronic Apparatus Co. (CEAC founded in 1989). Both state-owned companies had subsidiaries throughout the country and Hong Kong. They had highest import/export right (foreign exchange index) and served domestically-funded enterprises mainly. They were derived from planned economy. After Mr. Deng made an inspection tour in South China in 1992, reform and opening to the outside world were deepened further. Foreign-funded enterprises mostly consisting of HK-funded enterprises were stationed in Pearl River Delta and other domestic regions, which made products with materials supplied by clients. These enterprises introduced their distribution resources into China gradually to form Chinese component distributor pioneers, including those from Hong Kong, Taiwan and Singapore and international distributors such as ArrowAvnetFuture; Furthermore the latter have increased their investments in China gradually. During medium and later phases of 90's, tripartite confrontation of component distribution appeared among state-owned, foreign-owned and privately owned enterprises which aimed at domestically-funded state-owned enterprises, foreign-funded manufacturers and township enterprises respectively. Local distributor family was like a salmagundi sourcing from persons (product managers?) who quitted their positions in overseas distributors to run their own businesses, R&D professional who went into business sea to run their own business, foreign trade representatives in state-owned enterprises, shipping agents (in Chao Shan/ Zhejiang/ Fujian?) and some person like me. However, the former consisted of agents mostly and the latter of traders mostly.

Component distribution market has made great strides since China joined WTO on Dec. 11th, 2002. From then on, everybody could do component business, ha ha. Thereupon, there were Segem in South China and Zhong Guan Chun in North China meanwhile counter mode spread throughout the country. Except for some industries (for example textile industry) having monopolistic advantages in quota, state-owned enterprises basically exited from those industries dominated by privately owned enterprises. China has become a big manufacturing country supported by electronics industry as an important backbone. Up to recent years, Chinese component distributors have been polarized as local and overseas distributors, at one end of which a fewer large-scale authorized distributors consisting of overseas distributors primarily and local distributors secondarily dwelled to have yearly sales amounting RMB 1.0 billion, and at other end numerous small distributors consisting of almost independent local distributors dwelled to have yearly sales between RMB one million and RMB several ten millions. Among them, a few large-sized overseas and local distributors could realize yearly sales amounting more than RMB 0.1 billion.

In general adoption of the market principle aiming at component distribution in China, Lenovo's "trading, industry and technology" development mode influenced many founders in the 90's. By means of this mode, a founder completed original capital accumulation through trading, then entered into industrial manufacturing industry, then upgraded technologies and R&Ds to realize own intellectual property rights. For the reason, many excellent talents established their own entities after having succeeded in distribution business, and then divorced from distribution field gradually. In old opinion, many persons looked down on distribution business because it wasn't an entity (of course, it is difficult for distributors to loan now). Nowadays, it looks as if distribution, a key point in circulating field, is the foundation of supply chain or any industrial value chain, to which more and more attention has been paid. Maybe, someone who quitted feels regret, ha ha. To my knowledge, for this distribution business, newcomers are more than quitters basically. This indicates that this business is so flourishing.

Until now, component distribution business has developed into market-orientated business in China. On the one hand, overseas and local distributors advance side by side. It is more difficult for clients to distinguish them. Distributor selection depends on product quality and price as well as service level. On the other hand, component distribution market has changed deeply and longitudinally. Firstly, component industry has extensively developed from computer and communication sectors to medicine, automobile, instrument, household electric appliance, digital product sectors and so on; secondarily, the market is subdivided by region, sector, application type and social relations; finally, the attribute of such distributors change from single product business to triaxial development based on product, technology and service.

Recently, many persons felt panic because of economic crisis. However, 4 key words may be used to explain current economic situation:

1. The world is flat: we have to confront such fact presently and in the future that a butterfly swinging its wings on the side of the earth may raise ripples around you. Scientific and technological innovations based on Internet and large-scale productions arising from industrial revolution will sweep across the global. Nobody may avoid globalization wave. Any product you consume reflects technological accumulation and shows domestic and overseas labor fruits.

2. Surplus productive forces: human is so smart that they can do everything, including counterfeit, as long as you need. Pouring milk predicted by Marx has occurred in China; maybe someday Americans will burn out their houses due to being so many to surplus. Prior to globalization, surplus productive forces occurred locally. Therefore, first and secondary industries were too flourishing to decline in USA and Europe. This doesn't occur in China now, but Chinese have to confront such situation in the future.

3. Overflowing fluidity: essentially, circulating funds were concentrated locally to lead to flourishing third industries in USA and Europe. Nowadays, the world is flat; as a result, funds follow up economic vane to flow towards everywhere interests exist (low-lying lands /new markets) to become capital grasshoppers! Capital bubbles occur everywhere these capital grasshoppers concentrate and disasters take place everywhere they leave.

4. Deficit spending: credit system invented by Americans was extremely exhausted. However, financial derivant is deficit spending substantially, in turn, human greed. Democracy, freedom and equality are nobby dresses covering human greed.

Let's look at overseas distributors' situations, we will know how this financial crisis damaged them. According to up-to-date data sourcing from stock markets, Avnet/Arrow dropped respectively by 4.99/5.65 times in market profit rate (to such extent, as predicted, VC might bankrupt, ha ha); Jaco and Bell Micro dropped from 2.30 to 0.89 and from 6.60 to 0.67 to degenerate into rubbish stocks; Nu Horizons dropped to 2.01 same as that in 1992; Richardson dropped to 3.59 which was lowest since 1990visit http://finance.google.com/finance?q=Avnet

Economic fundamentality problem cannot be solved economically, and must be settled integrally with ideology and political pattern change. This is a long and tough road. In financial crisis environment, cold wind has swept over "winter". "too bad to worsen", "wolves come". It is real this time!

Where will local distributors go? I don't know because we no longer confront the change of one or more industries, but abrupt change of global economic ecological environment. As to Chinese component distribution market, I put forward a few conclusions in brief to offer a few commonplace remarks by way of introduction so that others may come up with valuable opinions:

1. Component distribution may be described as hair, IT industry as skin, and entitative economy demand as lining. Distributors will know economic climate change and be impacted foremost

2. So-called China's world factory is "global factory agent" actually. Substantially, IT industry is similar to toy/shoes industry because key technologies in value chain and key points in supply chain are under control of advanced markets; thus we make money merely from surplus value on cheap labor power. Particularly for component distributors, in fact, they are money-making tools of OEMs in USA, Europe and Japan.

3. Component distribution industry has experienced change from monopolization to triaxial development and poles apart to form overseas and local forces. At present, Chinese component distribution industry generally adopts market principle. When directly impacted by economic crisis, distributors can meet an emergency flexibly most. Of course, after impacted, there are survivals, illuminatis, and laggers, but never cash breakers.

4. Not different with all other industries, component distribution industry is polarized and integrated under market challenge to be developed professionally and finely more. While globalization and Internet technology supplement each other, business mode is definitely a key regeneration point after the economic crisis.

Market should be your servant, not your master. There are opportunities to make money every day. This depends on your efforts. God bless us




Posted 2009-6-9 13:14 by Lilian
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