Same Idea, Just Opposite Ends of the Spectrum

Travelling the Silicon RoadSHANGHAI — Today was an interesting day; it offered two ends of the semiconductor industry spectrum in China. I visited with two companies, both of which in their own way representative of the industry here at the moment.

At one end of the spectrum is Apexone Microelectronics, a Chinese start-up based here in Shanghai, a fabless chipmaker specializing in high-end analog and mixed signal applications. They’ve got an impressive track record for a start-up that’s been around for less than three years, attracting VC funding from outside China, moving chips, and being named to Red Herring’s Top 100 Private Companies in Asia.

The company was founded by one James Gao, a Chinese engineer who studied in the United States and worked in the chip industry there for some 15 years, before returning to China to start Apexone. He is part of a growing number of Chinese EEs and others in other fields returning to China instead of remaining abroad, because of the opportunities here.

But true to his nationality, Gao comes across as a pragmatist; he didn’t give me any sort of “Yes, we Chinese are returning in droves because China is resurging from the ashes like a mythical phoenix!” or some such blather. Rather, he observed that he came back because he saw an opportunity; right now, the opportunities are here in China. In the future, eventually, those opportunities will be elsewhere — eventually back in the United States — and Chinese graduates educated there will remain there, following the opportunities.

Lesson reinforced: the Chinese are nothing, if not practical. Which is why, it occurs to me, that they have had such success over the years in manufacturing — manufacturing is nothing if not a practical exercise — but have struggled to turn R&D into commercial applications . Inventing a better widget is a little bit more of a nebulous enterprise than simply making 10 million existing widgets.

AMAT Does It One More Time

At the other end of the spectrum is good old Applied Materials Inc. Applied is also symbolic of what’s going on in China right now: a large foreign company — and investor — with operations on the ground and a vested interest in the growing Chinese market. Applied owes much of its current success to its legacy of performing well in foreign markets, gaining a foothold ahead of its competitors.

It did this in nearly textbook fashion in Japan, and appears to be doing it again in China.

In their own ways, both Apexone and Applied Materials both begin with the letter A. … Sorry, had too much wine with dinner tonight, I think. Anyway, both companies could be offered up as models for doing business in China.

For those domestic companies looking to get started, they might do well to emulate Apexone — go after high-end applications with technology that no one else has at the moment, investing heavily in creating your own intellectual property. Forget about low-end, low-margin, high-volume applications; that market is saturated and a startup is more than likely going to fail dismally against larger, established companies.

Formulate a unique business plan and get the VC capital. Of course ultimately the jury is still out on Apexone, but so far, as you’ll read here soon, they’re off to a pretty good start.

It’s All About the Guanxi

As for foreign companies looking to get involved in China, well the thing to emulate from Applied is also the one thing that Apexone and Applied have in common: good relationships. The reason Applied is so entrenched in China and has a considerable chunk of the process equipment market, is because they have been here so long — they were in China before it was cool — and established good relationships with both industry and government.

And business in China is much more than “you’ve got what I want, here’s a bunch of money, let’s sign on the dotted line, deliver the goods, everybody’s happy.” Long-term relationships are of paramount importance in business in China, more so than in the West, whether it’s dealing with local government or dealing with customers or suppliers, being plugged in is a necessity to be successful in the long run.

In Apexone, they are staying close to their customers, recognizing their unmet demands, says Gao. In Applied’s case, it stays close to the government as well as their customers (they have dedicated customer support staff for their biggest customer here, SMIC), and get closely involved in the community, investing in research programs and scholarships. Now you may be sitting in Silicon Valley thinking, “Well my company does the same thing here, so no problem.” But here, it’s about much more than the PR benefit.

Electronic News Travels to China
Here it really does mean something; relationships matter. I’m learning that as a journalist; here it’s not just a matter of calling up some PR or marketing type and saying “Hey, I’m Jeff Chappell, editor with E-News, blah blah blah, I need to talk to Joe Senior VP.” The Chinese want to know why I’m here, what my goals are for the trip, they want to see this Web address, etc., etc.

The business deal goes far beyond the dotted line on the purchase order, here. Foreign companies looking to do business in China would do well to remember that.

Editor’s Note: As explained at length elsewhere on this site, this is a blog entry of mine that originally appeared on the now-defunct Electronic News’ website, which is long gone. While its former sister pub Electronic Design News (EDN) currently holds the copyright to all Electronic News copy (to the best of my knowledge), as far as I know, this blog content isn’t hosted anywhere else on the Internet, hence my reproduction here.

Original Comments

at 10/19/2005 7:32:53 PM, Vern, Cincinnati, OH said:

The Economist reported earlier this month that China’s manufactured output is half of the U.S.’s in terms of value, despite there being six times the manufacturing workforce in China. If the domain was restricted to the chip industry, I wonder what results we would see. Because of how relatively nascent this industry is in both nations, might there be a more level playing field? If not, might there be some room for “low-end, low margin, high volume applications” done American-style? (Not trying to pontificate here or anything with that question…just throwing ideas around…)

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