A One-Two Punch of Manmade and Biological Circumstances Creates a Precarious Moment for Pro Audio
Your tour may not have stopped in China, but chances are very good that some of your gear did. In fact, many if not most pro audio products source at least some components from the People’s Republic, and a high percentage of them also use Chinese manufacturing resources, much of it centered in Shenzhen and Guangzhou, where some major pro audio brands have established their own factories. For instance, Harman Professional operates four R&D centers in Shanghai, Shenzhen, Chengdu, and Suzhou and two manufacturing plants in Suzhou and Dandong. They’re far from alone — for the past almost 40 years, since Japan moved from a manufacturing to a technology-design center in the 1960s and the People’s Republic opened itself to western trade in the 1970s (those two events are connected but not a conspiracy), China’s combination of cheap labor and government-subsidized infrastructure made it the go-to powerhouse for low-cost manufacturing of all sorts of goods, including electronics like pro audio equipment.
One-Two Punch
That status was under stress in the last decade or so due to the rise of similar resources in other countries, but nothing has impacted it like the one-two punch that began last September with the imposition of trade tariffs by the Trump administration, which increased the prices of key products and processes, followed by the arrival early this year of the COVID-19 virus, which has rocked China’s vaunted manufacturing core. Entire cities and populations have been forced to stay home and away from work. The former killed an estimated $78 billion in annualized trade between the U.S. and China, while the latter has killed many thousands, mostly in China in the early days of the pandemic but now, increasingly, from Europe, the Middle East and the U.S. Both calamities have seen some amelioration: a tentative trade agreement between the U.S. and China has seen some tariffs eased, and China has begun letting global medical researchers in to help contain the virus. But in the meantime, these circumstances have put a significant strain on the economics of pro audio.
“The trade disputes caused us to raise the prices on certain products, as an increase in cost of 15 to 35 percent cannot be absorbed internally for any manufacturer,” comments Jack Kelly, president and founder of Group One, which distributes live-sound brands including DiGiCo and Klang in the U.S. “We’ve limited those increases to far below that percentage by working closely with our suppliers to mitigate the impact on U.S. customers. Now the coronavirus is beginning to impact finished goods and sub-suppliers to a number of brands.”
Kelly added that accelerated use of “buffer stocks” — components and other material already within the supply chain — is helping contain costs and price increases for now. However, he added, that inventory will eventually will dry up, leading to shortages of finished goods. Then there is the virtual shutdown of manufacturing. “Currently some factories are beginning to get their workforce back, while others are in areas that are more strictly controlled by regulations regarding movement of people and so are not yet back to work,” Kelly explains. “The next [few weeks] should give us more clarity as to how the virus is progressing and give us an indication of how many weeks of production China is likely to lose. Clearly, not good news for anyone.”
Kelly’s experience is being felt by pro audio companies globally. As with the consumer electronics industry, the shift to digital decades ago has made price a leading deciding factor in choices for pro audio hardware, and manufacturers everywhere in that time looked to China to keep costs down. Other places on the globe have been vying to get some of that work for themselves. Vietnam, for instance, has picked up some of China’s action in recent years in some industries such as textiles, but it doesn’t have nearly the installed base of expertise that China has in electronics. Other companies have already developed some alternatives, such as Harman Pro’s massive plant near Budapest, Hungary, which manufacturers Martin lighting and does some work for Studer and Soundcraft. But for the most part, pro audio companies we spoke with expect to have to ride out the political and biological problems of the moment instead of making what would be even more expensive investments developing new manufacturing and components sources elsewhere.
China has become critical to pro audio manufacturing, but it’s not without certain drawbacks. One major sore spot, and a large reason that the U.S. imposed tariffs in the first place, is China’s persistent proclivity for IP theft and piracy. In an especially egregious example, a police raid last year in Guangdong seized hundreds of counterfeit audio products bearing brand names for Shure, Sennheiser, Yamaha and Harman, including fake wireless microphones, receivers, consoles, amplifiers and processors. This raid took place a year after police raided the same factory for manufacturing counterfeit Shure microphones. For years, leading pro audio brands have had to closely monitor their contractors and other factories in China to stem losses from these fake products, with many building it into their financials as a cost of doing business there.
What it Means
Regardless of where the fault lies for the origins of the coronavirus (and conspiracy theories abound), the combination of that and ongoing trade issues with China is going to significantly alter the landscape for the technology manufacturing that pro audio has come to rely on. Hardware and IC-heavy products in particular will begin to see pass-through price increases and some market delays. The good news, on the other hand, is that pro audio — including live sound — has continued to move deeper into a software domain, which is not dependent on traditional manufacturing bases and which helps keep costs and prices in check. And this impending pandemic experience will prompt many brands to look strategically at alternative sources for components and manufacturing. For instance, in France, home to brands such as L-Acoustics and Focal, the government has urged companies to review their “over-dependence” on China for raw materials and parts as the outbreak exposes weaknesses among French manufacturers that have outsourced their supply chains in Asia. (China is one of three main sources for beryllium, a key loudspeaker component.)
It’s not Outbreak, the movie, and it’s not the end of the world. But it may be the end of an era. By late February, Covid-19 had already impacting the touring sector, with more than 20,000 music events canceled or postponed in China and Hong Kong, at a cost Billboard estimated at $286 million, as well as several dozen events in the U.S. and Europe. “The Biz” will keep an eye on this in coming months.
