The world is made up of industrial and business consumers, and the industrial market exists to provide the products they will consume. This market starts with the basic needs of food, clothing, and shelter. Much automated equipment is required to satisfy these needs, and there are a multitude of companies around the world that build equipment for these industries. Once needs are met, consumers turn to wants. Be it automobiles or a cup of coffee, there are industries to supply the equipment to produce the desired product. Companies build equipment for other companies, which build products that other companies use, in turn, to produce what is ultimately consumed. Accomplishing this chain requires a diverse set of components from which all of the equipment is built.

Indigenous Base

Every country has an industrial base for many of its own products. At one time the thrust was for domestic production to be distributed across all areas of technology and products. Most industrialized nations were able to produce at least a portion of almost everything they consumed, and that was considered a good thing.

Today, domestic production is often concentrated in fewer products and technologies, with reliance on imports for the remainder. During the years when Ronald Reagan was president, the United States expanded the idea of ensuring supply by being a good trading partner. The lessening of domestic production of some products and services has made countries more reliant on the international marketplace in order for their economies to fully function. Many believe this interdependence brings stability to the world. With all countries interdependent, there is less likelihood of conflict.

Specialized Producers

Different regions of the world have specialized in a specific technology or product group. This concentration has resulted in the ability to capitalize on the benefits of large scale production. These benefits include cost and efficiency in both design and manufacturing. It is a well-known fact that the production of computers and consumer electronics is now converging into China. After making the rounds of the Asian countries of Japan, Taiwan, Korea, and Malaysia, the Chinese have emerged as the ultimate manufacturing venue for these products.

There is a danger, however, in this concentrated approach. Barry C Lynn, a senior fellow writing for the Financial Times points out in the Feb.14, 2006 issue, “In the event of war on the Korean peninsula, or an uprising in south India, or an avian flu pandemic in industrial Asia…we would immediately lose half the global production of D-ram chips, 65 percent of NAND flash chips, and much more. At a minimum, the result would be massive disruptions in the electronics industry and in all industries that depend on electronics components. In the second case, numerous global companies, including banks, would lose their ability to process information because they have relocated key back-office operations to that region. The third case, meanwhile, presents chilling proof that the production system has evolved in directions no one expected. As a recent article in Foreign Affairs noted, one cross-border system that would collapse in the event of an (Asian bird flu) pandemic is the one the United States relies on for medical respiratory masks.

China Emerges

But this has not stopped the world from adopting this approach to manufacturing. As most know, one of the main beneficiaries of this philosophy is China. An article in the July 18, 2006 The People’s Daily Online shows that:

China's economy surged a year-on-year 10.9 percent in the first half of 2006, the National Bureau of Statistics (NBS) revealed Tuesday, roaring ahead despite a slew of measures imposed by the government to ease the blistering growth of investment.

“Total gross domestic product between January and June reached 9.14 trillion Yuan (1.14 trillion U.S dollars),” NBS spokesman Zheng Jingping told a press conference in Tuesday morning.

Industry Week reports that “China's trade surplus hit a monthly record of $18.8 billion in August, state media said September 11. In the first eight months of the year, the accumulated surplus hit $95.7 billion.” The article goes on to say, “The gains continue to build on the momentum of the fast growing economy and after China's trade surplus increased more than three-fold to $101.9 billion in 2005.”

Presently, the United States is the world’s number one exporter of manufactured goods. In the May 1, 2006 issue of Industry Week, John S. McClenahen penned, “China Poised to Pass U.S. in Manufactured Goods Exports.” In the article, he quoted Ernest H. Preeg, the senior fellow in trade and productivity at the Manufacturers Alliance, an Arlington, Va.-based public policy research group, who said:

“After pulling even with the United States last year in manufactured exports, China, whose symbol is the red dragon, this year ‘will almost certainly’ surpass the United States to become the world's number one exporter of manufactured goods. According to Preeg's calculations, China exported $713 billion worth of manufactured goods in 2005, a catalog that predictably included such low-tech products as footwear and textiles and apparel, but more importantly also featured higher-tech goods such as office equipment and telecommunications equipment. Indeed, among China's six largest manufacturing export sectors in 2005, export growth among higher-tech goods—which included electrical machinery, non-electronics machinery and chemicals, in addition to office and telecommunications equipment—was greater in percentage terms than for textiles and apparel. Exports of textiles and apparel grew 21% to $115.3 billion, while export growth ranged from 26% to 29% among higher-tech goods; exports of higher-tech goods totaled $360 billion.”

It is not surprising that manufacturing is beating a path to China. In many respects, the history of manufacturing within North America followed a similar path of sequential relocation to the next low-cost region. Manufacturing began in the Northeast, moved to the South and Midwest, continued to move to the Southwest and finally to Mexico. China is simply the next step.

Each time a product moves to a lower-cost manufacturing area there is the opportunity for cost reduction, and the potential for a price reduction to the customer. Often the company that moves production first is able to gain market share or an increased margin that reflects the lower cost. However, there is usually a learning curve that must be overcome first. Before the move, an assessment of the potential labor force is needed to determine their ability to perform the required tasks. After a time, the workforce gains the necessary skills to be proficient. For this reason, lower-technology products have been the prime candidates for relocation to new areas.

The movement to China has been especially attractive to manufacturing activities that require large amounts of “hand labor,” since labor costs are very low there. Recently, however, even sophisticated, highly automated production has found its way to China. The emergence of a strong engineering and skilled workforce makes this possible. Western technology leaders, such as Bill Gates of Microsoft and Craig Barrett of Intel, have lamented the lack of sufficient engineering students in North America. Both companies rely on India, China, and other Asian countries for engineering talent to supplement domestic engineers. Recently, Intel and Microsoft have announced multi-billion-dollar design center projects in Asia to take advantage of these resources at local costing rates, which are a fraction of those paid in the United States, Europe, and Japan. A $101.9 billion ($US) trade surplus by China in 2005 translates into more than simple, hand assembly of low-cost items. The Chinese rise to prominence in sophisticated manufacturing is unprecedented. In the past, it was the aging lower technology products that went to the third world for production, while the latest technology replaced this void in the advanced industrialized nations; but that is obviously changing.

After World War II, the Japanese began what was a slow march toward becoming a world player in the design and manufacture of electronic equipment. The journey began with low-tech offerings such as the transistor radio. Over time, basic consumer products gave way to state-of-the-art consumer goods such as television and other audio/video products. The quality of the products became comparable to those from developed countries like the United States. With the lower cost of labor and the accompanying lower prices of the products, the United States and other developed countries began to lose market share. This resulted in U.S. firms outsourcing production to Asia while maintaining design responsibility.

Design Follows Production

Soon, the design followed the manufacturing, as the interrelationship made collocation important. Today, there is no production quantity television designed or manufactured in the United States. Originally, it was believed that design would remain in the United States, while only the manufacturing shifted to low-cost areas, but this proved not to be true. Likewise, the design of computer and consumer goods is beginning to migrate to the Far East in support of the manufacturing efforts there. While much of the design of the actual computer processors remains in the United States, the design centers that Intel and others are beginning to open in Asia could shift the primary design responsibility for computer innovation within the next decade.

The rise of China as a provider of state-of-the-art electronic system manufacture has been significantly faster than that of Japan and other Asian countries. Where Japan had to acquire the capability and technology to be a competitor, China has been given that technology. OEMs are quick to move the latest technology to China, and contract manufacturers have located there as well. That is why China has impacted the industrialized countries in such an immediate way.

With the manufacturing of cell phones and other consumer products following computers to the Far East, how long will it be until other technologies follow a similar path? How can a complete exodus of manufacturing (followed by design) from developed nations be avoided? The first thing is to recognize that high-quantity, low-cost items will almost always be moved to low cost areas. This was true for low technology products in the past, but with a growing force of skilled workers and an expanding engineering force, this will take place with greater frequency for even sophisticated products if large quantities are involved.

China Not Alone in Growth

While it is true that China is continuing to grow at double-digit rates, it has not stopped growth in other areas. In most areas of the world, including the U.S., industrial production is up, though nowhere near China’s rate of increase. The Sept. 11, 2006 issue of IndustyWeek reports that “the EIU expects U.S. economic growth to slow sharply to 2.2% in 2007, from 3.3% in 2006. The U.S. economy should rebound and expand 2.9% in 2008, with 3% in both 2009 and 2010. In China, where the government is trying to manage the pace of expansion, the economy is forecast to slow from an estimated 10.7% this year to 9.8% in 2007 and 9.3% in 2008, the EIU said. Japan's economy is forecast to expand 2.8% this year, 2.1% in 2007, and 1.5% in 2008-2010. Hong Kong's growth should fall from 5.9% this year to 4.5% by 2010, while economic expansion in Singapore is predicted to fall from 7.3% this year to 4.7% in 2010.” 

Market for Equipment and Networks

In industrialized nations, the ability to compete often means more automation. Factory automation investment not only means more production equipment but also more networking. According to the German Electrical and Electronic Manufacturers Association (ZVEI), the estimated value of the global market for electrical automation technology is 200 billion euros (in excess of 250 billion USD).

All industrial buses, including AS-i, DeviceNet, Foundation Fieldbus, and Industrial Ethernet, continue to find expanding factory roles creating a continuing market for compliant interconnecting cables.

Connectors for Industrial Use

The market for connectors used in industrial equipment is very diverse. Unlike the computer or consumer market, where standardization is important and the competitors are limited, the industrial market primarily consists of thousands of small and mid-size manufacturers. Few standards exist for the industry, so each supplier is free to choose whatever meets the need. Because of the industrial environment, many of the connectors are robust. Examples include the use of stainless steel connectors in equipment that processes caustic chemicals. Stainless steel also finds applications in the manufacture of sanitary food processing equipment. Other industries will choose materials that match their environment. Often, the connectors used in the industrial environment were originally designed for another purpose. In some instances the industry uses military-style connectors or connectors developed for the medical industry. Without identified standards, the selection is totally arbitrary.

When all of the connectors used in the market are tallied, the connector market for industrial equipment is $4.5 billion. That in itself is a substantial market. There are a few manufacturers, such as Woodhead (recently acquired by Molex) and Binder, that have been dedicated to the marketplace. Leading connector companies, such as Tyco, Molex and FCI, all have products used in the marketplace, but have tended to focus on high-quantity standard connectors. In their search for new markets with higher margins, many of the traditional connector companies will be developing products and seeking to establish relationships with the industrial market.