Feast and Famine: RFID in China

Posted by on Jul 15, 2015 5:55:00 PM

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China already has 85% of the world's RFID manufacturing capacity, being a major exporter of tags. In addition, the second-generation National Identification Card project in China is the largest RFID order by value and China is delivering it by using Chinese-only resources almost exclusively.

Strong Government Support Drives Adoption

Thanks to strong support by the government, China has used RFID widely on applications ranging from library assets to train tickets, and as China becomes a leader in manufacturing in most segments - from cars to planes - it will fuel increasing demand for RFID in manufacturing and many other industries. As RFID is increasingly being deployed around the world (IDTechEx expect that over 8.5 billion tags will be sold globally in 2015 versus 7 billion in 2014), suppliers are in the process of shaving off fractions of a cent from each inlay, particularly for passive UHF. That means picking up and moving manufacturing bases to China in some cases.

There have also been other, relatively new entrants that by strong investment (including acquisition) have gained a relatively high market share from nothing in a few years, examples being Arizon RFID and Shangyang, to name a few. Without a doubt, there is rapid progress with RFID in China and this report uniquely provides quantitative data and analysis of RFID technology, market and players in the country.

"Previously, most RFID companies partnered with system-integration companies. RFID companies provided hardware such as readers, antennas and/or tags/cards, while the system-integration companies submitted tenders. They shared the profit margins together. However, the continuously declining prices lead to tiny or even zero profit here too. To make profit, system-integration companies reduce the cost of manufacture of RFID components themselves". - Dr. Xiaoxi He

Without Government Support Adoption Falters

Chinese companies indicated that they have not found a good reason to invest in the technology. That's because unlike in America, where RFID tagging has helped in reducing labor costs by automating the process of tracking goods, labor in China is cheap and widespread; so they don't need labor-saving devices.

Wal-Mart may be trying hard to convince its leading suppliers to use RFID tagging on shipments, but pushing this technology's introduction to the Chinese manufacturers that ship between 50 percent and 70 percent of non-food products to this largest U.S. retailer may prove to be tough.

Even as RFID technology has had a huge impact on manufacturing, distribution and retail globally, lack of information and the fact that companies in South China "don't understand and are not familiar" with the technology is posing a "key barrier" to adoption of RFID in the Pearl River delta region.

A survey of 136 international and local manufacturers, buying offices and logistics service providers located in Guangdong and Hong Kong report that ninety-four percent indicated that they are currently not interested in adopting RFID technology for tracking their merchandise.

Lack of Knowledge at the Root of Adoption Issue

Of the ninety-three companies that had clear reasons for not adopting RFID, the main problem was ignorance: forty-four percent said that they either did not "understand and/or were not familiar" with RFID.

It seems that the Chinese government has realized that logistics modernization is a key driver in improving China's supply chains, which are inefficient. The Chinese government is closely watching the adoption of RFID by overseas companies, both to understand potential customer requirements and to learn what the best practices are.

The Chinese government is acutely aware that Wal-Mart, with its RFID mandate, imports an estimated $12 billion to $20 billion (roughly 10 percent to 15 percent of overall U.S. imports from China) per year directly from China, which is more than China's total exports to Russia or the United Kingdom.

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