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Jabil confident of growth in China’s auto electronics market

At a press conference organized by Jabil Automotive Group (Jabil) in the Shanghai International Convention Center in mid-May, Brian D. Althaver, vice president of Jabil, told CBU/CAR that the fantastic growth in China’s automotive industry has presented a huge market for auto electronic products in the near future.

“I first came to China in 1985, when cars were hardly seen in Beijing,” he talked about his personal experience in China enthusiastically. “I remember the taxi I took from the airport was the only car I could see on the road to my hotel. But now, all the roads in Beijing are jam-packed with cars. It’s amazing to think that over three million cars are running daily in the capital of China.”

Brian Althaver is a senior executive with 25 years of experience in automotive electronics manufacturing. He began his Jabil career 12 years ago as a customer-dedicated business unit manager, and was appointed vice president of the automotive group in November 2000.

Jabil entered the emerging Chinese market as early as 1999 and has operations in many places including Beijing, Guangzhou, Nanjing, Shanghai, Shenzhen, Suzhou, Tianjin, and Wuxi. Among the four major electronics bases in China, the production base for automotive electronic products is located in Huangpu, Guangzhou, in south China.

According to Althaver, the automotive business revenue accounts for merely four to five percent of Jabil’s global revenues. The automotive business has seen a dip in growth in North America but across the Pacific, the auto electronics business has boomed in China.

Contributions from Jabil’s operations in China accounted for around 18 percent of Jabil’s total revenue in 2007. As one of the three largest automotive electronics companies in the world, Jabil Automotive Group outsources a lot of its business in China and provides its customers auto electronic solutions in five categories:

(1) The navigation system refers to electronic instruments providing necessary information for easy driving;

(2) The car audio facilities are electronic products for entertainment and communications, especially those Bluetooth hand-free telephone systems and aftermarket services;

(3) The devices for comfort and security indicate the electronic modules to control doors or air-conditioning;

(4) The lighting system means various kinds of controls for lighting facilities;

(5) The engine, chassis and safety equipment consists of parking assistance, sensors, circuit board, etc.

Automotive electronic products promise a vast market in China, for each car contains electronic devices worth $2,000 with central controls as the core technology. It is estimated that the global market for central auto controls will run up to $130 billion, while the market for electronic modules will reach $60 billion, about $900 for each car on an average. Generally speaking, the outsourcing market for electronic modules comes to around $3.6 billion.

Basically OEMs like to outsource all products to contractors like Jabil. In this way, they reduce the manufacturing cost. And then OEMs can spend more time making further investments on core research and development projects to expand their business. Additionally, Jabil always invests in advance technology. Jabil is also able to easily source products faster from over 55 facilities in 20 countries.

The trend to outsource auto electronic products is spreading far and wide, which may also include design services, manufacturing as well as logistics supply to end users. Jabil with its global footprint effectively meets its clients’ requirement to receive electronic products quickly.

The EMS model means that Jabil does not produce its own brands. The Tier 1 parts suppliers are their potential clients. So practically there is no conflict of interests between Jabil and its clients including OEMs, Tier 1 suppliers and electronics designers. An optimal engineering process with the best supply chain is achieved when each part plays its role well.

“We are creating possible values for end-users while they share their professional experience with us,” Althaver said. “We have been cooperating so well that we have no intention to compete with our clients.”

When asked about the local orders from Chinese auto manufacturers or suppliers, Althaver told the media that they have so far received practically nothing from local Chinese clients. He believes that the Chinese auto market is very fragmented, with so many tiny local automakers scattered in different parts of the country that their demand for electronic products is quite small. That’s why Jabil has focused its mass production to cater to the needs of multinationals, either OEMs or Tier 1 suppliers, in China.

In addition, Jabil Automotive Group aims to provide higher level services to meet specific demands of international clients. The price might be too high for local Chinese customers, whose demand is relatively low. However, the situation is rapidly changing in China. Jabil expects a big jump in the share of automotive sales generated in the China market over the next few years, as the Chinese demand for auto electronic products grows everyday.

“Today about 70 percent of Jabil’s auto electronic products made in China are being exported overseas,” said Althaver. “The figure will be cut to 50 percent next year and probably to 30 percent the following year. However, it’s hard to come to definite figures in this respect, because we are not so sure where Jabil’s electronics products will finally go as a matter of fact.”

According to Althaver, if orders come from the U.S. requiring car audio equipment circuits, Jabil is likely to send its products from Mexico instead of China to reduce the transportation cost. Similarly, most of the electronic products Jabil produces in China are mostly used in automobiles made in China. As the domestic demand grows at a rapid clip, Jabil’s output has dramatically increased in past years and will be doubled next year. The more Jabil’s products are consumed in the China market; less will be the proportion of products going out of China.

In view of the expanding market in China, Jabil is planning to further its investments in the emerging market. But Althaver declined to provide details. As we know, Jabil completed its expansion in Huangpu to increase its production capacity in China just a few months earlier.

“The appreciation of the Chinese currency, rising labor costs and soaring fuel prices on the international market are three factors that would affect Jabil’s global strategy to some extent,” concluded Althaver. “But we are confident that China is a giant market with growing domestic demand for auto electronic products, which will finally off-set the negative effects in the future.”

Founded in 1966 in the U.S., Jabil is a global leader of electronics solutions, providing comprehensive electronics design, manufacturing and product management services to leading electronics and technology companies in a wide range of industries, including automotive, computing, consumer, instrumentation, medical, storage and telecommunications.

With a workforce of more than 75,000 employees worldwide, Jabil operates more than 55 facilities in 20 countries in the Americas, Europe and Asia. The company ranks in the Fortune 500 grouping and amassed revenue of $12.3 billion in the fiscal year 2007. It has over 40 years of experience in applied automotive electronics manufacturing in five centers of automotive excellence in the United States, Mexico, France, Hungary and China.

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