ERAI special report: Chinese electronic component open market

The ERAI has released a special report regarding the Chinese Open Market for electronic components. Here are some snippets of the article:

"We know a large percantage of the parts coming from the open market in China are substandard or counterfeit, but we also know that because manufacturing continues to move in China, so will the excess inventory".

"We feel we have no choice but to sort through the substandard and counterfeit parts to find the good ones".
This is a popular response given by distributors willing to go through this process to locate a legitimate OEM source of supply.

"Dismantling and processing e-wastes (electronic component recycling) is easy money.....That is why the majority of people are invloved in this business in some way. Most of the activity in Guiyu invloves physical dismantling by hammer, chisel, screw driver and bare hand. The most high-tech piece of dismatling equipment witnessed was an electric drill. The immediate objective of most operations involve dismantling - the rapid seperation of primary materials.....such as circuit boards and electronic components".

Many components salvaged from pcb assemblies are reworked and/or remarked to custom requirements. Request for parts advertised on the net are often fulfilled from this market in this manner. The result is not surprising. The supplier sells an unknown origin or quality of a part to his customer only to find it unserviceable thus loosing his customers' faith and more often than not, his investment, as he most likely will not be able to return the goods for refund. The Chinese open market has developped a sophisticated network of sellers who can supply you what you are looking for one day and dissapear then next (of course only having received payment for the bad parts).

As an electronic component buyer you should be aware of this issue to better understand that although it is not the distributor who is originally at fault, they are just as guilty in dealing with this open market!

After having read the full ERAI article, I replied the following:

I feel that it is well known as to where some parts are 'really' coming from and it is generally known. However, it is the greed and determination of some sellers to supply parts to their customers at almost 'any cost' which is the real source of the problem. Many sellers are willing to take the risk of supplying unknown quality of parts in the hope that 'it flies by' and if it does, then they acquire a new customer in their database to further solicit and to whom they will likely be able to later provide more 'legit' parts not to mention, make money in the process. In a way, they support or even helped 'create' the need for second market / substandard parts. As you mentioned, the Chinese will make 'what you need' and they have really mastered the 'we can supply' side of business. Too many sellers are too eager to supply parts to gain a new customer (and for financial gain), that they will take the risk (once or twice) to do so. They should learn that if it doesn't fly then you lose the potential of gaining that customer for ever. We should not accept parts from unknown sources, especially sources who can supply us our own phone number!

For example, Canics only purchases from reputable and proven sources from Asia. In establishing the legitimacy of these sources, we have been supplied pictures of parts (magnification) and request an identifier such as business card or the like in the pic to make sure the pic is not picked out of a central database somewhere (which I am surprised they don't seem to have, yet!). We proceed via escrow with an inspection period long enough for our end user to test and accept the parts prior to releasing payment to the vendor. We always validate the following: How long has the members been in business, member since, comments made about them, check if any of their credentials have been reported in ERAI. We continue to do so until the vendor becomes a Canics 'proven source of supply'. If not, then we do NOT buy from them period, no matter how attractive the financial gain is.

I can't think of anything else I don't like in my daily activities in this business other than having to provide RMAs to our customers! Thankfully in the case of Canics, there are few to mention. We support a wide range of high-tech companies worldwide and have an excellent reputation and only have positive comments everywhere. Our customers may not like the fact that we can't supply a part, but better appreciate the fact that we do not try to sell them anything at any cost.

In conclusion, many sellers have to learn to not support this secondary market and one way to accomplish this is to better educate and make all brokers aware of the impacts of their bad decisions.

I hope this Blog has been of interest to our readers. I will continue to provide insight to the electronic component broker industry in our blogs and also demonstate how Canics has addressed the open market situation by implementing all preventative measures available today.

Steve Herscheid.
PDG, Canics, Inc.