With a Senate vote expected next week on creating permanent normal trade relations with China, the U.S. electronics industry may be one step closer to gaining better access to the world's largest emerging market.
This opportunity is not lost on the two top electronics distributors, Arrow Electronics Inc. Melville, N.Y., and Avnet Electronics Marketing Inc., Phoenix, which are making significant investments to boost their presence in China.
"China is our No. 1 priority," said Brian Hilton, co-president at Avnet, "the No. 1 strategic focus from a corporate standpoint. We've made enormous progress over the last couple of years."
Earlier this year, Avnet partnered with the Chinese government's Ministry of Information and Industries and Global Techmart Inc., a Chinese information and business development company, to launch an electronics-component information Web site, www.ChinaECnet.com.
It has also established an operation within the Shanghai Waigaoqiao Bonded Free Trade Zone, which among other things allows the company to conduct business directly with domestic Chinese companies. And with an acquisition soon to be announced, Avnet is planning to expand its physical presence in the country from four to 21 offices.
Arrow has had a presence in China for 10 years and has 11 sales offices there. Arrow serves its Asia-Pacific customers from a warehouse in Hong Kong and expects to complete its Shanghai warehouse by the end of this year.
"It's challenging to do business in China," said Stephen Kaufman, chairman and chief executive of Arrow Electronics. "But if you have a long-term view and the infrastructure, China has attractive long-term growth opportunities. We've been very profitable in China, and expect sales to exceed $250 million."
Arrow conducts business as a Chinese-based company, but has chosen not to link with a government agency at this time, according to Steven Menefee, president of Arrow Electronics Asia.
The Senate vote on granting permanent normal trade relations (PNTR) to China is being closely watched by industry trade organizations and companies alike. Passage of the bill will mean the U.S. government will no longer have to vote annually to grant China most favored nation status. It will allow U.S. companies to reap numerous trade benefits, including lower duties on a host of technology goods and more favorable trading and distribution rights.These benefits are part of China's terms of accession into the World Trade Organization that it agreed to last November.
"Arrow supports the addition of China to the World Trade Organization, and I'm hopeful the Senate will ratify the necessary legislation," Arrow's Kaufman said.
The Electronics Industries Alliance (EIA), for one, is pushing to remove all non-germane amendments from the bill to ensure that, upon passage, it would go directly to President Clinton to be signed into law. If the amendments are not removed, the bill would have to be reconciled with the PNTR bill passed by the House in May. This extra step may delay the process, according to Rob Nichols, an EIA spokesman.
However, one China watcher, Francis Bassolino, senior manager at Chinese Business Services at Deloitte and Touche LLP, New York, expects that even with amendments attached, Clinton will sign the bill into law before leaving office.
Freer access to the Chinese market will provide significant opportunities to U.S. technology companies, distributors included. According to the Semiconductor Industry Association (SIA), China's chip market stands at about $8 billion and is growing rapidly.
Avnet's venture in Asia is a work in progress, according to chairman and chief executive Roy Vallee. The distributor has had a foot in China even before its recent involvement in Waigaoqiao and ChinaECnet. The journey began several years ago in Hong Kong. From there, the company expanded into Shenzhen, Shanghai, and Beijing. Avnet began opening offices and operating under the rep model, which meant it could have representatives call on customers, but the trade was executed through Hong Kong and typically conducted in Hong Kong or U.S. currency.
"We're still open to many possibilities on how ChinaECnet could weave into Avnet's core strategy," Vallee said. "We intend to develop a relationship directly with indigenous customers in China through an Avnet sales force, independent of the role ChinaECnet plays in terms of fulfillment and communication."
One ChinaECnet benefit is that the site can book an order from a Chinese company in Chinese currency. ChinaECnet acts as a mediator to help fill orders for the Chinese customer.
Avnet Electronics Marketing's revenue in Asia reached $147 million three years ago and doubled in 1999, according to the company. Avnet is poised to do about $1 billion in Asia in the next fiscal year, with China representing between $200 million and $250 million.
Additional reporting by Bruce Rayner