China--a land of opportunity

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With its billion-plus population and rapid development, China is becoming both a major customer and supplier of photonics components, as Warren Clark discovers

In the past few years, China has been making its presence felt in just about every field from sport to politics. Now, industry is preparing itself for the great China surge, and photonics will be one of the areas at the heart of that surge.

In recent months, we have seen plenty of evidence that the photonics industry as a whole recognises the importance of China. Bookham was one of the first companies to mark out its territory over there, opening a massive new assembly facility in Shenzen. It has already proved to be a good move, since the company has just received an Excellent Supplier award from Huawei, China’s largest telecoms equipment vendor and third-largest telecom optical networking equipment manufacturer worldwide.

Bookham supplies a wide range of its high end optical components and modules to Huawei from its Shenzen facility, including 10Gb/s co-packaged laser-modulators, receivers, directly modulated lasers and optical pumps. Over the past three years Huawei has ranked among Bookham’s top three customers in most quarters and this is the second time Bookham has been honoured with an award from Huawei. In 2004, Bookham received the Gold Supplier of the Year Award, the first time an optical components company was awarded this prize.

Bookham opened an advanced manufacturing facility in Shenzhen, in the same area as Huawei, in March 2004. Since then, transmit-and-receive optical assemblies, erbium-doped fiber amplifiers (EDFAs), mini gain block and metro amplifiers, and fibre and connector sub assemblies have been transferred and received customer approval. Production lines for receivers, pumps, direct modulated lasers and InP Mach-Zehnder (MZ) lasers have been fully qualified and customer volume shipment started. Key quality systems and processes have also been established in Shenzhen in line with the company’s best practices and global TL9000 and ISO9000:2000 registration.

Adrian Meldrum, vice president of sales and marketing at Bookham, says: ‘China is a very important market for Bookham, and is crucial to the business’s ongoing strategy.’

Another company to have set up a Chinese operation is Avantes. Henry Zhang heads the office there.

‘The Chinese optoelectronics market is an attractive market with a great deal of potential for all Western companies,’ says Zhang. ‘Almost half of the world’s top 500 companies have set up an office or a joint venture here. Many optoelectronics companies have followed suit and have snatched a large chunk of profit as a result.

‘Some of the reasons why photonics companies come here include the low cost of manpower, as well as the availability and low cost of optics components from local suppliers. Together, these factors can decrease the entire cost of their products.

‘Since we sold our first spectrometer to China in June 2004, business has boomed in China as far as Avantes is concerned, which is why we have now set up Avantes China.’

Zhang believes that Chinese purchasers welcome the influx of Western companies. ‘For high-end customers with large budgets, the first choice will often be a Western supplier, largely because some Chinese suppliers’ products do not have the required quality. As the local supply market becomes more competitive, I expect the quality of local products to rise.’

In terms of exporting from China, Zhang sees some success among those supplying products such as optics, crystals and low-power DPSS lasers. ‘These are the strongest areas for Chinese manufacturers, but the high-end market still belongs to Western companies.’

Andor Technology has also set up an Asia-Pacific operation. Phil Moore is Andor’s Asia-Pacific distribution manager: ‘We have seen great growth in the high-end photonics market in China, especially in the past five years, and this is growth which shows every sign of continuing.

‘There is significant funding coming from government research plans, especially with regards to returning researchers from overseas. These researchers are replicating the laboratory set-ups used in other institutes and, as such, there are significant opportunities for photonics manufacturers. In particular, life science and bio imaging have seen significant growth, while x-ray and time-resolved requirements are also increasing. Combined with this, there is also significant funding for domestic researchers, while high-end systems are still primarily provided by Western manufacturers.’

Moore agrees with Zhang about low-end optics dominating the domestic supply market in China. ‘Quality of these components has improved greatly,’ he says. ‘More and more of these components are now being exported. A walk around one of the major trade shows, such as ILOPE, provides the best example of how the industry has grown in recent years, with a significant increase in both local and overseas suppliers represented.’

In terms of major advantages, Moore says that while low-cost production is obviously a significant factor for Chinese manufacturers, the standard of finished product is now ‘coming to the standards of more expensive alternative solutions from overseas’.

Moore is under no illusions about how difficult it is to break into the Chinese market. ‘Aside from bridging the language barrier, the most important aspect of penetrating the market is ensuring that the right partners are in place,’ he says. ‘Without local language support, either through a trusted distributor, reseller or direct staff, it is very difficult for a Western supplier to enter the market. Having people who know the language and the market cannot be underestimated.

‘Of course – as with any market – due diligence should be carried out on all potential partners, as no company wants to be in the position that it has supplied products to customers that cannot be fully supported. Having the correct infrastructure in place will ensure that you can safely navigate the vagaries of the import process, as well as ensuring that the customers are satisfied after receiving the goods.’

He also sees some sign of Chinese suppliers making in-roads into the Western market. ‘There is undoubtedly an increase in the number of companies exporting to Western customers,’ he says. ‘At Andor we do find ourselves sourcing more and more products in China. This is likely to continue, and as quality control and other manufacturing processes improve, the global market share held by Chinese companies is only going to increase.’

So, while it is certainly a time to recognise the growing presence of China as a major player in the photonics market, there are still plenty of differences.

‘New technology developments are being driven by the US and European companies, which is represented in the flow of imports to the sector,’ concludes Moore. ‘As the Chinese photonics industry matures and develops, it is only a matter of time before a similar level of innovation and development becomes natural within the industry. Already, the design capabilities of many Chinese companies are excellent, and as the industry continues to grow there will be more partnership agreements, technology cross-licensing agreements and R&D collaboration programs between Chinese and Western companies.’