Agilent: Old Dog Learns New Tricks in Chengdu

Travelling the Silicon RoadCHENGDU, China – Being in the right place at the right time — a cliché, except perhaps in business, where timing and geography can often mean the difference between success and failure.

Especially for a U.S. technology company looking to take advantage of the booming market here.

So when Palo Alto, Calif.-based Agilent Technologies Inc. announced a joint venture (JV) 10 months ago with a fellow test and measurement instrument maker based here, Chengdu Qianfeng Electronics Ltd. Corp., it raised a few eyebrows in the West. Why form this JV now? After all, Agilent, and before that its progenitor company Hewlett-Packard Co., have a long history in China.

HP was one of the first U.S. tech companies courted by China; in 1977 Dave Packard was one of a select group of non-governmental Americans invited to visit China. He returned in 1979 when joint venture talks began. The Hewlett-Packard Representative Office in China began selling HP products in the country in 1981; then China Hewlett-Packard came along in 1985, becoming the first Sino/U.S. high tech JV.

And why choose land-locked Chengdu, in the Sichuan province of central China? Why not a more obvious place, say Shanghai or Beijing?

The decision to form a JV with an indigenous test and measurement company all came down to speed and access to the local Chinese market, according to Agilent and HP veteran Max Yang. Yang is VP and GM of the JV, dubbed, Agilent-Qianfeng Electronic Technologies (Chengdu) Co.; he’s been with Agilent/HP since 1981. Born in mainland China and raised in Taiwan, he lived and worked in the United States for more than 20 years before returning to Asia to work for China Hewlett-Packard.

While the nearly $2.5 billion Chinese electronics industry and consequently the whole supply chain is booming, the primary value that China brings to the global industry is low cost manufacturing. Thus one of the principal demands of the Chinese electronics manufacturer – as well as those in other parts of Asia – and consequently one of the principal drivers of the test and measurement market here, has been cost effectiveness.

“Low-cost solutions are critical to the Chinese market; that is what they [are] needed locally,” Yang observed. “The areas we’re focused on here are things like inspection and maintenance, education and bench repair.” But Agilent historically has concentrated more on lucrative high-end markets in test and measurement, such as high-speed oscilloscopes.

Yang is quick to note that low cost doesn’t mean low quality, an issue that Agilent is obviously sensitive too, setting up manufacturing in China. “In my mind, the quality has to be of Agilent standard or even better,” he said. Low quality means a high failure rate, and that means rising manufacturing costs – “the customer has to see our Chinese product as good or better.”

So all these things indicate the necessity to establish a local Chinese production facility, one that could serve the needs of the local Chinese market, but other parts of Asia as well, such as South Korean and Taiwan.

But building from scratch would take two to three years, and Agilent, once it decided it needed local production capacity, wanted to act quickly. Indeed, in terms of the rapidly developing electronics market here – the forecast annual growth rate for China’s electronics industry is around 16 percent for the next three years — two or three years is an epochal period of time.

So going the JV route was an obvious choice. “The whole purpose was speed,” Yang said. As for its choice of partner and location, one of the principal drivers in the Chinese domestic electronics market is telecoms and RF applications, and that’s not likely to change soon. This is a country where half of the 1.3 billion population doesn’t have access to a phone, either land-line or mobile, and the central government plans to continue rapidly expanding the country’s communications infrastructure.

Qianfeng, a privately owned Chinese test and measurement company that has been around for nearly as long as Agilent/HP, happens to make communications test equipment. After researching the market players in China, there were two or three good candidates for a JV partner, but Qianfeng was an obvious choice, Yang said.

The fact that it is not a state-owned company was an important aspect. “Our experience is, it’s very hard to cooperate with state-owned companies,” he explained. There is a level of bureaucracy involved in state-owned corporations that one doesn’t find in privately owned companies, which can get things done more quickly and efficiently.

Chengdu: A Well-Kept High-Tech Secret

As for Chengdu, why put your electronics manufacturing business in a land-locked city in central China? This capital of Sichuan province is more likely to evoke thoughts of wonderfully spice cuisine in the Western visitor’s mind, rather than the high-tech lust inspired by the gleaming new towers of Shanghai, or the blossoming special economic zone of Shenzhen.

For one thing, it is one of many other growing technology/manufacturing centers outside of Shanghai, like Xiamen or Xi’an. Much like Portland, Ore., or Austin have become alternatives in the United States to Silicon Valley, places like Chengdu offer many of the benefits without some of the problems of Shanghai.

In the past the Chinese central government, with a nod to national defense, put key technology areas well inland, where they could not be easily attacked; Chengdu was home at one time to China’s national aerospace efforts; much of the electronics industry here today can be traced to those roots.

As for the Agilent JV, Qianfeng has substantial facilities in Chengdu, as well as a pretty good RF team, Yang explained.

“As a side benefit, it’s a very cost effective location,” Yang said, noting that housing costs are about 30 percent of what they are in Beijing and Shanghai. And because there are fewer large multinational firms here, it is easier to retain talent.

A lot of that talent comes out of the University of Electronic Science and Technology of China (UESTC), which traces its roots back to the creation of the Chengdu Institute of Radio Engineering in 1956, the first electrical engineering college in China. Today a multidisciplinary university and still one of the top electrical engineering schools in China, it graduates several thousand EE undergrads a year, a thousand or more graduate students, and a few hundred PhDs.

In the past, graduates of UESTC often had to go elsewhere in China to find jobs. “Our experience in the last few months has been that we’ve attracted a lot of good engineers, experienced engineers, because they want to come home,” Yang noted. “I don’t think we have a concern … about sourcing the talent locally.”

Employee retention isn’t a big issue either, as there aren’t many multinational companies competing for engineering talent here. As Agilent-Qianfeng closes in on its first year of operation it currently employs nearly 170 employees – some 60 dedicated to R&D – and the attrition rate has been near zero for the company, Yang said.

But there are other high-tech concerns to be found in Chengdu though; Qianfeng is hardly isolated. There is a lot of semiconductor packaging business in Chengdu. In fact Intel Corp. recently built a huge packaging factory here, and Chinese foundry Semiconductor Manufacturing International Co. plans to build a packaging foundry here, as well. Another U.S. tech company with an early presence in China, Motorola Inc., has facilities in the city.

There are drawbacks to being located in this inland city of some 4.1 million people. Far from a major port, the city does have a river running through it, but it doesn’t serve as an artery for shipping traffic.

For an electronics company that sells a lot of low-cost consumer electronics that depends on high-volume sales, the transportation infrastructure would be an issue, Yang conceded. But for an instrument maker like Agilent-Qianfeng, it’s not a significant issue. In fact, being a smaller, inland city, the English language skills of the workforce are not what one would find in Shanghai or Beijing, he noted, and being a multinational in China, having a multilingual workforce is essential.

Like many Chinese cities, the government here is working hard to court high-tech industry. Yang came back to Asia in 1985 to serve as HP’s controller and administration manager, responsible for the negotiation and formation of China Hewlett-Packard.

Electronic News Travels to China“The difference between now and then is unbelievable,” Yang said. “The difference in attitude is day and night.” Twenty years ago, getting a business license meant jumping through a series of bureaucratic government hoops, a process that took more than a year and half, he recalled. Agilent and Qianfeng inked their agreement in November of last year; they had their business license by the end of January, when they officially launched the joint venture.

By the time the company will be celebrating its year anniversary at the end of next January, it should be readying the launch of its first test and measurement instrument specifically geared for the Chinese market.

Editor’s Note: As explained at length elsewhere on this site, this is a news story written by me that originally appeared on the now-defunct Electronic News’ website, which is long gone. It’s former sister pub Electronic Design News (EDN) currently holds the copyright to all Electronic News copy (to the best of my knowledge). You can still see a copy of this story at EDN.

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