Take two UK-listed electronics companies whose fortunes are
increasingly tied to China. One, TT Electronics, says its operation in
China “continues to fulfil expectations” and is growing rapidly. The
other, Xaar, last week warned that growth in China had been slower than planned.

homepage_logo.gifYet
on the face of it, Xaar, which makes industrial inkjet printheads,
should have had the easier ride. Its patented technology is much in
demand in China — it even has a website
in Mandarin. That is because one of its key applications is printing
posters and signs, and any visitor to China's big cities cannot fail to
note the proliferation of western-style advertising.

So what went wrong at Xaar? According to Citywire, Xaar has been hard hit by de-stocking
as the Chinese equipment manufacturers who buy its printheads had
delayed placing new orders. The reason? Xaar's new tough line on
extending credit which has obliged it to demand payment up front from
some particularly slow payers in China.

“There is no fundamental problem,” Xaar's FD tells Citywire and he insists the issue is temporary.

TT-electronics-plc_logo.jpgIn
stark contrast, TT Electronics' risky push into the cut-throat world of
China's electronic manufacturing services (EMS) seems to have paid off
— and in spades.

In early 2005, TT Electronics, which
specialises in automotive electronics, acquired a Suzhou-based company,
Dage Ltd, to enable it to manufacture and source low-cost components in
China — previously it used Chinese sub-contractors.

Dage was
acquired debt-free for £8m and from the start it has performed ahead of
expectations. TT Electronics has already expanded Dage's manufacturing
capacity and now has four factories with a total floor area of 150,000
sq ft.

The company, in a trading update
issued today, says it plans to increase production at these new
factories to meet the growing demand from China and other markets.

According
to TT Electronics, manufacturing in the automotive sector is inexorably
moving from west to east, and so it has to do the same.

What
lessons can be learnt? In the case of Xaar, don't let the attractions
of China as a market distract from business basics like credit terms.
In the case of TT Electronics, buying a Chinese company is not as
fraught with problems as is often made out. It can, indeed, be earnings
enhancing from day one.

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