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The increasing labor cost and the more furious homogeneous competition are torturing the tablet manufacturers in Shenzhen. It is notable that they mainly produce tablets looking like iPad and other well-branded products. Now， when Lenovo， Hewlett& Packard and other wellknown enterprises began to produce their own tablets， the imitation tablet manufacturing are having a harsher time.
“Now a tablet could earn the profits of dozens of yuan，” said Lian Jian， CEO of DPT Group， a touch screen manufacturer in Shenzhen.
The cruel market lies in front of tablet manufacturersin Shenzhen. According to IDC， the increase in the tablet shipment in the world is expected to drop from 51.5% in 2013 to 19.4% in 2014. The sales of tablets dropped 18.3% in 2012 and went down 14.6% in 2013.
A boss of a non-branded tablet manufacturing company in Shenzhen said that 60 of his friends that previously made tablets not left this field.
The increasing cost
“The increasing homogenization has forced many tablet manufacturers out of the market，”said Lian Jian. The orders for his DPT Group’s products are more often given by companies with a certain size instead of the small ones.
DPT Group is re- ported to be able to produce 20 million touch screens every year. Many tablet manufacturers used to be its clients. Lian Jian founded DPT Group in 2003. At first it dealt with the components for DVD. Then Lian Jian moved to the imitation smartphone before turning to the touch screen business. Its fate could epitomize the development process of Shenzhen’s electronic industry.
“I have seen the age of huge profits for tablets. However， as of 2010， the tablets’ price dropped to hundreds of yuan and then to dozens of yuan， discouraging enough for men to leave that industry，” said Lian Jian. “The more complete the industrial chain is， the smaller the space is left for further innovation. Nearly all tablet manufacturers are making the same thing， causing the serious homogenous competition.
“The profits are getting smaller and smaller and the manufacturing of tablets need a lot of investment from the beginning. We cannot afford it anymore， so we moved to the production of portable chargers at the beginning of this year，”said the aforementioned non-branded tablet manufacturer.
The dilution of the profits is not only the result of the homogeneous competition， but also the increasing cost of components in Shenzhen. “The cost in various fields is increasing very fast in Shenzhen. The property rent is among them too. But none of them can compare with the influence from the increasing labor cost，” said Wang Yongzhi， general manager of Shenzhen-based ODM Wisky Technology. In these years， the base salary of ordinary workers in Shenzhen increased from 1，300 yuan to 1，800 yuan per month. Apart from the base salary， the overtime bonus also increased to 12 yuan per hour as well. If workers have to work at weekends， they are going to be paid twice as much as they receive on weekdays.
According to Wang Yongzhi， the increasing labor cost not only applies direct influence over the tablet manufacturers’cost， but also increases the cost of various components. Even the ideas get more expensive now. “The labor cost of development companies is increasing faster than the one of factories，” Wang Yongzhi said. “Three years ago， a rookie engineer was paid 5，000 yuan per month. Now， we cannot recruit an engineer without the starting salary of 7，000-8，000 yuan.”
This touches the categories of tablet manufacturers in Shenzhen. According to Wang Yongzhi， there are three kinds of tablet manufacturers in Shenzhen. The first kind of companies produce a lot of low-end products with low prices. As a result， they cannot have a high profit margin.
The second kind consists of the manufacturers that have their own branded tablets sold in domestic and even foreign markets. “Some of them did very well and they are still profitable at present，” Wang said.
The last group of companies have their own products and produce bare-branded tablets. They mainly sell their products to those companies with tablet brands but having no production lines. Some of them – only a few of them – have grown to a certain size in both the number of products and distribution channels. Their monthly shipment could reach 100 thousand to 300 thousand units and they usually have foreign regional brands as partners， including some second- or third-class tablet brands in the world.
“Those with the shipment of lower than 100 thousand units are now struggling on the edge of death，” sad Wang Yongzhi. The cost in Shenzhen is increasing too fast， lowering the gross margin for enterprises with only manufacturing skills to below 5%. If the shipment is low， they cannot earn enough money to sustain their survival.”
Lian Jian also said that the increasing labor cost has forced DPT Group to move some of its production lines to inland area away from Guangdong.
Wan Qiuyang， CEO of Shenzhen-based tablet manufacturer Ramos Digital， thought it necessary to endure the increasing the labor cost. “To produce MP3 and MP4 as we previously did is a piece of cake. When we turned to the tablets， we still used our original workforce with the skills of manufacturing MP3 and MP4. if we just wanted to make imitation products， there would be no problems as long as we can get solutions from others. But we now want spontaneous development， which is hard to be realized with our original workforce.” To produce tablets， as Wan Qiuyang found， is totally different from producing MP3 and MP4. “We spent 2-3 years changing and adapting ourselves to the new products， during which we replaced our R&D team several times and began to change the talent structure. We are now focusing on the graduates from core universities of China to replace the original workers with the academic degrees of senior high school or technical schools，”he said.
Reflections of tablet manufacturers
Though the tablet industry looks quite like the imitation smartphones a few years ago， most of the surviving tablet manufacturers still believe that there were opportunities in this market. All they need to do is improve the product quality and increase their value-added.
“Making the imitation smartphones needs simple processing. But a lot of enterprises began to touch something innovative when it comes to the tablet，” said Lian Jian.
“The competition among tablet manufacturers in Shenzhen gives priority to the price and chips. The strategies are quite simple and quite a few of us have paid enough attention to the brand. Therefore， we see the opportunity of establishing the brand，” Wan Qiuyang said. Now Ramos has not abandoned the price war and is rewarded with a better profitability. They are trying the product planning， in which they fix the price of the products and foresee the sales amount to have the production and sale match each other.
Previously， Ramos chose to cut the profits of its mediators to sell its products to consumers with lower prices， but this undoubtedly rendered the distributors less willing to promote Ramos’s tablets， further reducing its sales volume.
According to Wan Qiuyang， the current tablet industrial chain is in the shape of a“dumbbell”. iPad， Samsung， Kindle Fire and other well-established brands form the top class； the middle class –the thinner part of the“dumbbell” – is formed by Lenovo， HP and other companies that are newcomers in the tablet industry in spite of their names. The lower class is constituted by Ramos and other tablet manufacturers， most of which are in Shenzhen. Lian Jian said that the top class could taken a half of the entire market while the rest half should be shared by other big companies and manufacturers in Shenzhen. For Wan Qiuyang， the market beyond the control of Apple and Samsung is full of opportunities.
However， things are not that optimistic. According to Lian Jian， Lenovo and HP began to lower the price of their tablets in 2014 as they did in the smartphone industry in the past. Now HP has become an important client of his DPT Group. In his opinion， the thinner part of the “dumbbell”might get thinner or even disappear in the future， leaving the market with only high-end and low-end products. So， it is now a crucible time for the tablet manufacturers in Shenzhen to grab this opportunity – or deal with the challenges – to avoid the same fate of the imitation smartphone makers in Shenzhen. Lian Jian also said that the tablets for commercial use are actually a very big market. In today’s medicine， education and aviation industries， tablets could find their own places. “Even Apple and Samsung might ignore some places， which might be the opportunities for tablet manufacturers in Shenzhen.”
Wang Chijiang， CEO of smart device solutions supplier Hampoo， said that the demand for commercial tablet reaches 70-80 million units per year. The average price is above 2，000 yuan per unit. The total market value is likely to reach 160 billion yuan.
Actually， the wide utility of commercial tablets is a result of its bigger screens and more functions than smartphones. In Wang Chijiang’s opinion， the key to win the commercial market is more than the technologies and quality of the device. The software development is also very important. “The commercial tablets are the combination of hardware and software.” He said.
The importance of software
As Wang Chijiang， simply focusing on the tablet is a painstaking job. Those Shenzhen-based tablet manufacturers with foresight are now considering turning to software to increase the value-added of their products.
Actually， the tablet industry is at a very important time at this moment. On one hand， many small smartphone makers have collapsed. On the other hand， the wearable technologies are rising. The competition in the smart device market has been heated up， further highlighting the importance of the software.
The rise of devices adds new features to Shenzhen. New devices， namely the wearable smart devices， found their places in this city. Nowadays， smart watch Pebble， somatosensory controller LeapMotion and robotic ball toy Sphero are all produced in Shenzhen.
Capcare is an emerging company that focuses on the positioning technology. Its founder Zhang Ming established its team in Shenzhen because the upstream and downstream partners， the talents of supply chains and the solutions to combining the software with hardware can be found anywhere in Shenzhen. Hundreds of the teams like Capcare are attracted by these factors as well.
In spite of this， Shenzhen left quite a few marks in these products. And the Chinese domestic wearable technologies are nothing compared with the foreign products.
According to Zhang Ming， most of the wearable device manufacturers produce their things with the focus on the hardware， such as to realize some certain functions. Their foreign counterparts， however， produce the wearable devices to address some problems despite the simple design. “They think in different ways. That’s why domestic wearable devices might not be needed by the consumers，” Zhang Ming said. Apart from the Apps， the device makers lack the proper algorithms. In face of the same chip， foreign companies usually have good algorithms to lower the power consumption， but the Chinese companies are bad at this， so they can provide proper and feasible solutions to consumers. This problem is found in the smartphone， tablet and wearable device manufacturers in Shenzhen.
We know that Shenzhen is famous for its hardware， but when it comes to the software， Shenzhen has no big names apart from Tecent.
“The innovations in technologies， appearance and business patterns are very rare in Shenzhen，” Wang Chijiang said. Without innovations， the device makers have to rely on the sales volume. They could produce nothing wonderful in their original engagement in MP3， smartphone and now tablets and wearable devices.”
“We are always watching the combination of hardware and software and trying to change the business pattern in the manner of Internet thinking. We want to sell the tablets to consumers with zero profits and earn the money through contents， but now we are still far from that stage，” Wang Chijiang said. He needed some partners， who are not available at this moment.
He cited Nest Lab， an emerging Silicon Valley company acquired by Google. Its product Nest temperature controller is not based on its own hardware； instead， it is a result of systematic modifications to the base of other chips. But the modifications have added great value to this product.
“Why is there no Nest in Shenzhen？ We rely on the hardware too much and this situation has been here so long that it undermines our software foundations，” Wang said.
“Now a tablet could earn the profits of dozens of yuan，” said Lian Jian， CEO of DPT Group， a touch screen manufacturer in Shenzhen.
The cruel market lies in front of tablet manufacturersin Shenzhen. According to IDC， the increase in the tablet shipment in the world is expected to drop from 51.5% in 2013 to 19.4% in 2014. The sales of tablets dropped 18.3% in 2012 and went down 14.6% in 2013.
A boss of a non-branded tablet manufacturing company in Shenzhen said that 60 of his friends that previously made tablets not left this field.
The increasing cost
“The increasing homogenization has forced many tablet manufacturers out of the market，”said Lian Jian. The orders for his DPT Group’s products are more often given by companies with a certain size instead of the small ones.
DPT Group is re- ported to be able to produce 20 million touch screens every year. Many tablet manufacturers used to be its clients. Lian Jian founded DPT Group in 2003. At first it dealt with the components for DVD. Then Lian Jian moved to the imitation smartphone before turning to the touch screen business. Its fate could epitomize the development process of Shenzhen’s electronic industry.
“I have seen the age of huge profits for tablets. However， as of 2010， the tablets’ price dropped to hundreds of yuan and then to dozens of yuan， discouraging enough for men to leave that industry，” said Lian Jian. “The more complete the industrial chain is， the smaller the space is left for further innovation. Nearly all tablet manufacturers are making the same thing， causing the serious homogenous competition.
“The profits are getting smaller and smaller and the manufacturing of tablets need a lot of investment from the beginning. We cannot afford it anymore， so we moved to the production of portable chargers at the beginning of this year，”said the aforementioned non-branded tablet manufacturer.
The dilution of the profits is not only the result of the homogeneous competition， but also the increasing cost of components in Shenzhen. “The cost in various fields is increasing very fast in Shenzhen. The property rent is among them too. But none of them can compare with the influence from the increasing labor cost，” said Wang Yongzhi， general manager of Shenzhen-based ODM Wisky Technology. In these years， the base salary of ordinary workers in Shenzhen increased from 1，300 yuan to 1，800 yuan per month. Apart from the base salary， the overtime bonus also increased to 12 yuan per hour as well. If workers have to work at weekends， they are going to be paid twice as much as they receive on weekdays.
According to Wang Yongzhi， the increasing labor cost not only applies direct influence over the tablet manufacturers’cost， but also increases the cost of various components. Even the ideas get more expensive now. “The labor cost of development companies is increasing faster than the one of factories，” Wang Yongzhi said. “Three years ago， a rookie engineer was paid 5，000 yuan per month. Now， we cannot recruit an engineer without the starting salary of 7，000-8，000 yuan.”
This touches the categories of tablet manufacturers in Shenzhen. According to Wang Yongzhi， there are three kinds of tablet manufacturers in Shenzhen. The first kind of companies produce a lot of low-end products with low prices. As a result， they cannot have a high profit margin.
The second kind consists of the manufacturers that have their own branded tablets sold in domestic and even foreign markets. “Some of them did very well and they are still profitable at present，” Wang said.
The last group of companies have their own products and produce bare-branded tablets. They mainly sell their products to those companies with tablet brands but having no production lines. Some of them – only a few of them – have grown to a certain size in both the number of products and distribution channels. Their monthly shipment could reach 100 thousand to 300 thousand units and they usually have foreign regional brands as partners， including some second- or third-class tablet brands in the world.
“Those with the shipment of lower than 100 thousand units are now struggling on the edge of death，” sad Wang Yongzhi. The cost in Shenzhen is increasing too fast， lowering the gross margin for enterprises with only manufacturing skills to below 5%. If the shipment is low， they cannot earn enough money to sustain their survival.”
Lian Jian also said that the increasing labor cost has forced DPT Group to move some of its production lines to inland area away from Guangdong.
Wan Qiuyang， CEO of Shenzhen-based tablet manufacturer Ramos Digital， thought it necessary to endure the increasing the labor cost. “To produce MP3 and MP4 as we previously did is a piece of cake. When we turned to the tablets， we still used our original workforce with the skills of manufacturing MP3 and MP4. if we just wanted to make imitation products， there would be no problems as long as we can get solutions from others. But we now want spontaneous development， which is hard to be realized with our original workforce.” To produce tablets， as Wan Qiuyang found， is totally different from producing MP3 and MP4. “We spent 2-3 years changing and adapting ourselves to the new products， during which we replaced our R&D team several times and began to change the talent structure. We are now focusing on the graduates from core universities of China to replace the original workers with the academic degrees of senior high school or technical schools，”he said.
Reflections of tablet manufacturers
Though the tablet industry looks quite like the imitation smartphones a few years ago， most of the surviving tablet manufacturers still believe that there were opportunities in this market. All they need to do is improve the product quality and increase their value-added.
“Making the imitation smartphones needs simple processing. But a lot of enterprises began to touch something innovative when it comes to the tablet，” said Lian Jian.
“The competition among tablet manufacturers in Shenzhen gives priority to the price and chips. The strategies are quite simple and quite a few of us have paid enough attention to the brand. Therefore， we see the opportunity of establishing the brand，” Wan Qiuyang said. Now Ramos has not abandoned the price war and is rewarded with a better profitability. They are trying the product planning， in which they fix the price of the products and foresee the sales amount to have the production and sale match each other.
Previously， Ramos chose to cut the profits of its mediators to sell its products to consumers with lower prices， but this undoubtedly rendered the distributors less willing to promote Ramos’s tablets， further reducing its sales volume.
According to Wan Qiuyang， the current tablet industrial chain is in the shape of a“dumbbell”. iPad， Samsung， Kindle Fire and other well-established brands form the top class； the middle class –the thinner part of the“dumbbell” – is formed by Lenovo， HP and other companies that are newcomers in the tablet industry in spite of their names. The lower class is constituted by Ramos and other tablet manufacturers， most of which are in Shenzhen. Lian Jian said that the top class could taken a half of the entire market while the rest half should be shared by other big companies and manufacturers in Shenzhen. For Wan Qiuyang， the market beyond the control of Apple and Samsung is full of opportunities.
However， things are not that optimistic. According to Lian Jian， Lenovo and HP began to lower the price of their tablets in 2014 as they did in the smartphone industry in the past. Now HP has become an important client of his DPT Group. In his opinion， the thinner part of the “dumbbell”might get thinner or even disappear in the future， leaving the market with only high-end and low-end products. So， it is now a crucible time for the tablet manufacturers in Shenzhen to grab this opportunity – or deal with the challenges – to avoid the same fate of the imitation smartphone makers in Shenzhen. Lian Jian also said that the tablets for commercial use are actually a very big market. In today’s medicine， education and aviation industries， tablets could find their own places. “Even Apple and Samsung might ignore some places， which might be the opportunities for tablet manufacturers in Shenzhen.”
Wang Chijiang， CEO of smart device solutions supplier Hampoo， said that the demand for commercial tablet reaches 70-80 million units per year. The average price is above 2，000 yuan per unit. The total market value is likely to reach 160 billion yuan.
Actually， the wide utility of commercial tablets is a result of its bigger screens and more functions than smartphones. In Wang Chijiang’s opinion， the key to win the commercial market is more than the technologies and quality of the device. The software development is also very important. “The commercial tablets are the combination of hardware and software.” He said.
The importance of software
As Wang Chijiang， simply focusing on the tablet is a painstaking job. Those Shenzhen-based tablet manufacturers with foresight are now considering turning to software to increase the value-added of their products.
Actually， the tablet industry is at a very important time at this moment. On one hand， many small smartphone makers have collapsed. On the other hand， the wearable technologies are rising. The competition in the smart device market has been heated up， further highlighting the importance of the software.
The rise of devices adds new features to Shenzhen. New devices， namely the wearable smart devices， found their places in this city. Nowadays， smart watch Pebble， somatosensory controller LeapMotion and robotic ball toy Sphero are all produced in Shenzhen.
Capcare is an emerging company that focuses on the positioning technology. Its founder Zhang Ming established its team in Shenzhen because the upstream and downstream partners， the talents of supply chains and the solutions to combining the software with hardware can be found anywhere in Shenzhen. Hundreds of the teams like Capcare are attracted by these factors as well.
In spite of this， Shenzhen left quite a few marks in these products. And the Chinese domestic wearable technologies are nothing compared with the foreign products.
According to Zhang Ming， most of the wearable device manufacturers produce their things with the focus on the hardware， such as to realize some certain functions. Their foreign counterparts， however， produce the wearable devices to address some problems despite the simple design. “They think in different ways. That’s why domestic wearable devices might not be needed by the consumers，” Zhang Ming said. Apart from the Apps， the device makers lack the proper algorithms. In face of the same chip， foreign companies usually have good algorithms to lower the power consumption， but the Chinese companies are bad at this， so they can provide proper and feasible solutions to consumers. This problem is found in the smartphone， tablet and wearable device manufacturers in Shenzhen.
We know that Shenzhen is famous for its hardware， but when it comes to the software， Shenzhen has no big names apart from Tecent.
“The innovations in technologies， appearance and business patterns are very rare in Shenzhen，” Wang Chijiang said. Without innovations， the device makers have to rely on the sales volume. They could produce nothing wonderful in their original engagement in MP3， smartphone and now tablets and wearable devices.”
“We are always watching the combination of hardware and software and trying to change the business pattern in the manner of Internet thinking. We want to sell the tablets to consumers with zero profits and earn the money through contents， but now we are still far from that stage，” Wang Chijiang said. He needed some partners， who are not available at this moment.
He cited Nest Lab， an emerging Silicon Valley company acquired by Google. Its product Nest temperature controller is not based on its own hardware； instead， it is a result of systematic modifications to the base of other chips. But the modifications have added great value to this product.
“Why is there no Nest in Shenzhen？ We rely on the hardware too much and this situation has been here so long that it undermines our software foundations，” Wang said.