Front End I Electronic Components Supply Network And so into 2020… Adam Fletcher T


he International Monetary Fund has predicted that Global GDP will grow by a mere 3.4 per cent in 2020, while the collective opinion of members of the Electronic Components Supple Network (ecsn) garnered in the last few months of 2019 was that the greatest threats to economic growth in 2020 and beyond are likely to be geopolitical in nature. What is certain is that we’re going to have to contend with a number of fairly major political upheavals with the ability to destabilise the global economy and probably keep consolidated growth for the UK electronic components markets in low single figures. In this article, ecsn chairman Adam Fletcher summarises his members’ predictions for the UK and Ireland electronic components markets in 2020 and provides an update on the Intellectual Property aspects of the US China Initial Trade Pact.


In December last year ecsn members


forecast that the UK & Ireland electronic components market will grow in the range (3 per cent) to 2 per cent in the first six months of 2020, with a mid-point expected to be a (1 per cent) decline on the same period last year. The association’s provisional guidance for the second half of the year suggests that the market will grow in the range 2 to 7 per cent in 2H ‘20, with a mid-point of 5 per cent. If achieved manufacturer authorised distributors will close 2020 showing sales revenue-growth in the range 0 to 4.5 per cent, with a mid-point of 2 per cent when compared to 2019. The table “DTAM By Quarter for 2014 – 2020” summarises this information. The blue bars show actual results achieved while the bars shaded orange indicate the association’s forecast for 2020 and the brown portion highlights the range.


US/China initial trade pact Global stock markets surged on the news that the US and China had reached an


10 February 2020


initial trade pact. Much of the media coverage is centred on the relief the agreements gives to the US agricultural sector, which is currently in crisis but the Phase 1 deal also halved the tariff rate to 7.5 per cent on about $120 billion worth of other Chinese goods, including flat- panel televisions, Bluetooth headphones and footwear. Probably more important to technology markets the agreement also cancelled planned US import tariffs on Chinese-made mobile phones, toys and laptop computers but left in place 25 per cent tariffs on a $250-billion array of Chinese industrial goods and components used by US manufacturers. China’s retaliatory tariffs remain in force on over $100 billion in US goods.


IP theft, Trade Secrets and Confidential Business Information Following a brief review of the initial economic and trade agreement between the US and China, I can see that it will force some very interesting changes to how the Chinese legal system responds to issues surrounding international standards on Intellectual Property (IP) theft, Trade Secrets (TS) and Confidential Business Information (CBI). One of the most useful changes is that Chinese businesses and Chinese Government organisations and agencies will now be required to acknowledge the IP ownership, TS and CBI issues that already exist and also uprates current breaches from an “Administrative” to a “Criminal” enforcement issue and mandates that appropriate tariffs (fines, penalties, jail terms) are put in place. In the short- and medium-term this is a big win for US-based (and by default, other Western nations’) organisations who will be able to licence their technology and operate in a more certain legal environment. Once strong legal protections are in place and more sophisticated financial markets are established Western based organisations will feel comfortable


Components in Electronics


making direct investment in China. In the medium- to longer-term it also provides greater protection for Chinese IP, TS and CBI both within China and internationally as innovative ideas are generated. It will be interesting to see how quickly these Chinese legal systems are established and how effective they are. In the meantime the US government is retaining some of the current US import tariffs and will probably do so until strong evidence of compliance is detected.


US/China trade war rumbles on Despite the initial trade pact the US Commerce Department is currently considering modifying its Foreign Direct Product de-minimus rules to enable it to block the sale of products by manufacturers in third party countries by reducing the threshold of US hardware or software content from 25 per cent to 10 per cent of the sales value of the item. This is well illustrated in the US Commerce Department’s recent application of pressure on the Dutch government to embargo the sale of very advanced semiconductor manufacturing equipment made by ASML to a Chinese organisation and the pressure it continues to apply on the UK government (and other nations) to dissuade it not to purchase 5G telecom equipment from Huawei under the threat of reduced security cooperation. Huawei remain on the US ‘table of denials’ for both the purchase of US technology products for use in their equipment and banned the sale of any Huawei telecoms equipment to US entities.


Final thoughts


2020 is going to be another interesting year in the global economy but hopefully we will see modest growth in UK and Ireland electronic components markets. Any progress will however be linked to what happens in global electronic components markets where it is widely


www.cieonline.co.uk


believed, stronger growth is set to return into the second half of the year. Sadly, we’ll probably also see the return of extended lead-times across many components as a result of persistent underinvestment in manufacturing capacity. These swings are not in the interests of any party in the electronic components supply network and I remain confident that they can best be mitigated in the coming year by sharing business intelligence effectively up and down the supply network and an accurate and effective forecasting process. Adam Fletcher is Chairman of the


Electronic Components Supply Network (ecsn), a business association established in 1970 that today offers support to all organisations with an interest in electronic components throughout their entire lifecycle. He is also Chairman of the International Distribution of Electronics Association (IDEA), an association of individual country electronic components associations whose objective is to share best industry practice.


Further information about The Electronic Components Supply Network and afdec may be found at the following website: www.ecsn-uk.org with regular industry updates available to all on the Breaking News pages.


ecsn-uk.org


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