Gaming China – Building Electronics the China Way

Having lived & worked in China, building electronics for the better part of 3 years, it’s clear today – as so many who’ve made the journey have discovered – that before going, I knew little-to-nothing about manufacturing and the supply chain that exists only a half-day away.  What’s more, I realize now only having lived it – and really embraced it – that China is available, is knowable, & has an enormous amount to teach the budding and seasoned system developer alike, if you’re willing to play the China game on China’s terms.

And though countless blogs, articles, stories, etc have been written describing the famed Shenzhen or Shanghai or Beijing electronics markets and lauding the miles of street level shops boasting all manner of raw materials and services awaiting the eager entrepreneur; little’s been written describing the connective tissue that ties the supplychain together from bricks and mortar to domestic ecommerce, to the global markets.  And it’s with this in mind that I’d hoped to share some insights not often gathered from only a few days on the ground in the busying world of old Canton.

Firstly, to level set:  China doesn’t care if you’re building 100, 500 or 5 million.  They have distributors to accommodate any and all willing comers.  And candidly, most products do not ship millions of pieces.  Save for the likes of Xiaomi, Huawei, Apple, Samsung, etc…most products just aren’t for the mass market and those that are, aren’t for everyone.

That out of the way, China has a well ordered, well defined system for moving product.  Starting with the markets, it’s important to understand that there exists hundreds or even thousands of independent retailers, some brandishing a single table or display case, others with 4 walls and a door…others even larger, but each kitted out with at least one person working the “counter” while also boxing things up and shipping them around the city, country, even the globe.  And it was this that was my first lesson in the extent of China’s ecommerce empire.

These days, each stall or shop includes a PC and internet connectivity…And what I regarded as “someone chatting up their friends on messenger” instead turned out to be a distributor talking to their customers through a complex network of chat client and online marketplace…QQ and Taobao respectively.

Simply put, if you want it in China, you probably buy it on Taobao.  And if you want to talk to someone on Taobao, you start with QQ (Tmall and other sites exist – for sure – but bare in mind we’re talking electronic components and for these, Taobao rules the roost).   When asking engineers or colleagues “hey can you find a…blah blah blah” they invariably started on Taobao.

Being a marketplace, Taobao provides pricing from multiple vendors, and beyond the obvious competition that this creates, it comes with a level of clarity as the outliers immediately show their cracks.  What’s not as commonly known is that the folks working the market will indeed ship things abroad, though the payment method may be different (Paypal versus the China-preferred Alipay) and the cost to ship will no doubt come into the equation.

Something often overlooked is that even the manufacturer’s own, preferred Chinese partners / distributors will appear on Taobao.  To verify they are who they say they are, you can easily check the business name against the list of licensed reps inside of China.  But candidly, this isn’t the real gold.  Put differently:  manufacturer’s parts cost roughly the same when sourced legitimately, anywhere in the world.  If the price looks wrong or smells wrong, it probably is  wrong, and a pro knows to avoid things that don’t add up.

The real beauty of Taobao instead is your ability to access components generally only available in China.  Case in point, I had a project building IoT hardware built on 2G/3G and the lowest cost western manufacturers I could find for “a few hundred pieces” were all hovering in the $50+ range for only the baseband chip.  China on the other hand can manufacture a $50 smart phone?  The whole phone?!  Retail?!  ‘So what’s the deal?’  Something didn’t add up.  This was the next major lesson in China and the Chinese approach…A certain elegant simplicity:  if you want to know how it’s done, simply buy it and take it apart.

Taobao is a marketplace with deals on all sorts of items that are often priced in the too good to be true range..but this is by western standards.  A quick look for the $50 mobile phone yielded a stack of results and a few clicks later, I had ordered 5 or 6 phones to try and put a picture together of just how this was possible.  Opening them, it was clear…At the heart of them all was again, elegant simplicity…In this case, from Shenzhen manufacturer Spreadtrum.

Now at the risk of scurrying off on a tangent, Spreadtrum is a Chinese baseband manufacturer and ranks among the top 5 companies making transceivers for mobile phones.  Their devices – or better “device” (yes, one chip) – consolidates all of the major mobile phone elements (GSM, GPRS, BT, Wifi, CPU, PMU, etc) into a single component.  The additional parts left to add are where the variation in phones tends to occur…things like NAND Flash, the screen, battery, connectors and such.

I’m sorry, how much?

The lesson in this comes home when you realize that on Taobao, in quantity of 1, these Spreadtrum devices run between $5 & $10.  Modules are also available, as are the SDKs, examples, schematics, etc.  (Pro-tip:  the rule is 1:1 RMB to dollar…if you’re paying more than that for a Chinese-sourced item, you’re probably paying too much)

Another major opportunity is when searching at the category level – for near-commodity items like LDOs or Switching Regulators.  The cost, price-performance, etc. cannot be touched.  Anywhere.  And candidly, most large consumer device manufacturers pay for the “replace my parts with your low-cost alternatives” as a service (or rather, have a team in place that does this all day, every day).

What about getting things from Taobao outside of china?

Here’s the deal: China Post is getting a stack of boxes from these distributors anyway…so whether someone posts something to you in the UK or mails it to the US or Canada or Mexico; it doesn’t much matter to the guy filling out the label on the box.  What I did encounter instead was more a fear that if customs held a package, that I might then turn around and blame the shipper and it might mar their reputation.  Overcoming this was easy but it does take a bit of patience, some decent mandarin (if you need to use Google translate, go for it…QQ has built-in translation and it works in a pinch), and a willingness to trust someone you’ve never met in a place you might never have been.  That said, I can say that though predatory practices exist, they are the exception & not the rule and no worse than say, ebay as an example.

Nailing pricing may be a bit sticky but let me suggest that old exam strategy – if you don’t know the answer, pick C.  Just aim for the middle.  The outliers are outliers for a reason.  You will also find reputation scores useful and using Google Translate, you’ll be able to make sense of the reviews from other buyers.  All of this is as important to those distributors as it is you, if they plan to be in business for any length of time.

In my next piece, I’ll talk about using Taobao and others for manufacturing and hooking into the PCB fabrication and assembly shops.  We’ll also look at Alibaba and Alipay and round out our view of electronics commerce in China.  Expect again to pay 1:1 dollar to RMB.  So if you’re paying $5000 USD for a PCB + Assembly; you’ll come to expect more like 5000RMB ($900) when all is said and done!  A lesson worth learning for sure!


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