Rural Violence: A Problematic Symptom of Change

Travelling the Silicon RoadBetween year-end deadlines and the MidWest and Appalachia getting hammered by an early Winter, I haven’t been posting here as much as I had planned, but that’s neither here nor there. In the course of conducting interviews for year-end stories that will be appearing on Electronic News over the course of the next few weeks, almost invariably people want to pick my brain about China, or just hear first hand about my trip.

That’s not really surprising, nor have peoples’ own various impressions of China at the moment, which have run the gamut. But recent civil unrest in a southeast China town, and the subsequent handling of it by the Chinese government, illustrates what I’ve been saying in this space and elsewhere: China has a lot of domestic issues to address on its way to becoming an economic and political superpower, many of them tied to its emerging middle class.

The story also brings to light a side of China that most Western business travelers, especially those that never make it beyond Shanghai, don’t see and perhaps don’t even realize exists. If one travels to Tiananmen Square in Beijing today, and sees the hordes of fashionably dressed Chinese tourists, the bloodshed of June 4th, 1989 seems far away, a seemingly long time ago.

But its memory bubbles just underneath the seemingly placid surface, I think. And while the student demonstrators in Beijing back then and the rural protesters of today have different motivations, the bigger issue is the same: dealing with the ever-quickening pace of social and economic change.

For those of you that haven’t been following the news, let me fill you in briefly. Last week residents of the village of Dongzhou in Guandong Province protested — or rioted, depending on which side of the fence one resides, I suppose — over land seizures. Specifically, Dongzhou residents were upset over compensation for land taken to house a coal-fired power plant. This is a growing problem in places outside of large urban areas as China’s staggering economic growth clashes with a still largely rural and agricultural countryside.

Official government reports say three villagers were killed when police opened fire during the clash; witnesses say as many as 20 people were killed. Nine were subsequently arrested for inciting rioting. But what is equally startling — in a good way, perhaps — is that the government on Sunday announced that the local police commander was in detention and that his “wrong actions” were to blame for the deaths.

Earlier the government had said that the deaths were justified, stating that the three people killed turned on police after attacking the coal plant armed with knives, spears and dynamite. The government also said it would address local land seizure grievances, and that it was sending in medical personnel to treat those wounded in the clash.

So where does the truth lie? Only the people actually there know for sure, but I suspect it lies somewhere in between “wrong actions” and justifiable killing. But the fact that the government feels the need to mollify the villagers perhaps illustrates just how problematic rural unrest has become. For all the many news reports of this phenomenon that have come out of China in recent years — a country where the media is still by and large state controlled — I wonder about how many of these protests and riots have taken place that we have not heard about.

But the larger issue here is the rapid pace of change in China. As it seeks to maintain its phenomenal growth, it has realized that it needs to improve the economic lot of its rural population; in fact it is depending on it. No less than Premier Wen Jiabao acknowledged in a recent speech that China must expand economic consumption on the part of its more than 800 million rural residents, because it is relying on that consumption to push economic growth.

In turn the government has relaxed requirements for citizens wanting to relocate to cities, in search of jobs. But this is naturally a two-edged sword, as China’s sprawling cities deal with the problems associated with exploding urbanization — and rural land is seized for development.

It’s a Tricky Thing, to Say the Least

And this is why I firmly believe that while China is destined to eventually become an economic powerhouse — many would argue it already is, and justifiably so — on par with the West, or its fellow Asian countries, such as Japan or South Korea, it is not destined to take over the world economically and reduce the rest of us to financial serfdom, as some pundits here fear.

As I’ve observed before, China doesn’t really seem interested in that, because it realizes that in the decades ahead, it has the difficult task of managing phenomenal growth coupled with the largest population on earth, a population in which many people live below the poverty line, by Western standards.

A population of 1.3 billion people, one in which half of them don’t have a cell phone or a land line, and yet the other half is depending on that first half to eventually buy a cell phone, in order to keep them employed and enjoying their disposal income. Granted, that’s a glib generalization, but one with a rather large grain of truth, as the premier’s statements attest.

Electronic News Travels to ChinaIt’s a tricky thing, indeed. But then, as I’ve also observed before, the Chinese can be a very pragmatic people, and their culture has lasted for thousands of years for a reason. I think they will be able to manage these changes.

But as Dongzhou illustrates, it will not be easy. And China’s political leaders may have to eventually accept some social changes along with economic ones.

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

Editor’s Note (slight return): D’oh! Once again, when I downloaded the Silicon Road microsite, Adobe Acrobat didn’t manage to grab the 13 comments that were attached to this blog entry – it grabbed more than a thousand other pages (most of them empty; I guess it’s an inexact science), but not that one. Damn.

Venture Capitalists Have Eyes on China

Travelling the Silicon RoadStartups all across China in the technology sector are looking for seed money and second-and third-round investments, and are courting foreign as well as local investors, particularly U.S.-based venture firms.

But are the American VCs interested? Do they share in the buzz, the excitement about China?

They most certainly do; the answer is definitely yes. But it’s a qualified yes. American VCs aren’t just handing out money at the drop of a Chinese hat. While there is perhaps a bit of a gold rush mentality in the semiconductor industry with regards to China, perhaps the VCs remember the aftermath of the last technology gold rush – the one that began with the letter “I” — and are treading a little more cautiously.

But that’s not to say that U.S.-based venture capitalists aren’t taking a long, hard look and China, because they are. And they are excited about what they see, and what the future holds.

Only a Matter of Time

Everybody is excited about China for one reason or another, and VCs are no different. While many, if not most VCs in the West are reluctant to invest directly in China-based startups, they often speak as if it’s only a matter of time. And it is a sure bet they are looking at their clients based outside of China and how they can help them do business in China. It is without doubt an important market.

They often cite the use of mobile technology in China, where a lack of a wired infrastructure coupled with an emerging middle class is opening opportunities that don’t exist in older and more developed Western markets, or have a much more limited demand here, such as Internet protocol television and bill paying by mobile phone.

“It’s obviously a great new customer area,” said Mark Gorenberg of Hummer Winblad. “We look at it today as much more potential for our customer base rather than investing for ourselves,” he said. “But we talk about it all the time.”

Dave Liddle, a general partner at U.S. Venture Partners, said his firm has been looking recently at several Chinese-based companies but so far hasn’t made that kind of direct investment. “But that’s just how it’s turned out,” he added.

What’s more common at this point for Western VC firms interested in China typically is to work with a Silicon Valley-based firm that actually has a few people on the ground in China, or has opened an office there, or they work with a U.S.-based company that has set up its manufacturing in China, Liddle said. In fact, China is a market that VCs are encouraging their startups to look at now, ahead of more traditional markets, like Europe, he suggested.

But that’s not to say that U.S. Venture Partners, Hummer-Winblad and others aren’t looking at investing directly in China.

But like any investment, the general rules apply: the market served has to be accessible, and it has to be a cost effective proposition, Liddle explained. “We track that a great deal,” he said of potential direct investments in China. The company maintains a lot of connections within in the U.S. entrepreneurial community that have ties to Taiwan or mainland China.

One firm that is investing directly in China right now — in what is perhaps an example of how the world of capital is changing, and not just with regard to China – is Big Blue, or rather its VC arm, IBM Venture Capital Group.

“The energy in China is just tremendous … all the legendary firms are very much focused on China right now,” said Claudia Fan Munce, a VP and the managing director of IBM’s VC Group. Incidentally, at the time she was interviewed for this article last month, Fan Munce had just returned from China where IBM had hosted a meeting of some 200 VC firms from around the globe.

Rather than make direct investments, IBM’s VC Group operates on what it calls a “give to get” strategy, focusing on relationships that will directly benefit IBM. But it works with other traditional VC firms that do make direct investments

Many foreign VCs are teaming up very quickly with local firms throughout the Asia/Pacific region, and many in China, Fan Munce observed. “Our drive is … what are the best companies and what are the best technology solutions? What kind of partner do we want to bring to market with us? How can our technology help them?”

Big Blue Puts the ‘e’ in YeePay

One of IBM VC Groups success stories in mainland China, and an example of the type of emerging market that exists in China thanks to a relative lack of existing infrastructure, is YeePay. Founded in 2003, YeePay (which translates into Mandarin as “easy pay,” according to the company) is an electronic payment service provider. It enables consumers and businesses to send and receive payments via the Internet, mobile and traditional wired telephones.

In November the two partners, IBM and YeePay, announced that in just five months after the partnership began, YeePay increased its financial transactions handling from just $120,000 per month to more than $1.2 million per month. A lot of that had to do with IBM’s association with the startup; IBM is a revered brand in China. In fact, IBM’s laptops are so venerated there that some Chinese consumers were not excited but worried when domestic PC maker Lenovo bought IBM’s PC unit, worried about the future quality and performance of the Thinkpad laptop.

But it wasn’t all just success by association, said Fan Munce. IBM provided servers and middleware to YeePay, helping them build an infrastructure based on open-standards hardware and software – not to mention access to a global infrastructure — and went with the company when it approached new customers. IBM isn’t a software applications provider; it doesn’t do industry-focused software, but needed a way to serve industry verticals, she explained. “Our mission has always been to identify a pipeline or partner,” Fan Munce said.

In a country that already has more mobile phone users than the entire population of the United States, and skyrocketing activation rates, YeePay was naturally attractive to Big Blue. There is a high risk, Fan Munce acknowledged, but huge potential for high returns. And that’s important for IBM, where more than half the company’s revenue is derived from services. And as Fan Munce observed, “We don’t really care who caries the brand.”

And there is a larger story beyond the IBM/YeePay, foreign-VC-success-in-mainland China story, and that story is the emergence of the corporate VC firm; IBM is far from the only big technology company to get involved in the venture capital game. Big Blue rival and fellow chipmaker Intel is a prime example; at the other end of the technology spectrum Cisco Systems is another.

The emergency of corporate venture capital as a means of growing a business and driving revenue is a definite trend that has emerged just within the ten years, Fan Munce agreed. And it has blossomed; just take IBM. When Fan Munce joined the IBM VC Group in 2000, it was involved with some 21 startups; as of last month, it was involved with 964 scattered around the globe.

Rules Still Apply for VCs with Regard to China

So what is the implication for China? In the future the technology industry is likely to see more partnerships a la IBM and YeePay, aside from interest on the part of more traditional VCs.

And as for VC firms looking to get involved in China, they face the same issues that anybody looking to do business in China faces, such as intellectual property protection, and establishing and maintaining the proper relationships needed to get things done. Both Liddle and Gorenberg acknowledged that while China’s government definitely seems to be stepping up its efforts on IP protection, it is still an issue to take into consideration.

“As a venture capitalist, I focus on companies where the IP has originated with the entrepreneur in China, or with these particular people,” Liddle said. “That’s different than taking IP originated in the U.S. and transferring it into China.”

IP protection is a problem that to some degree is culturally ingrained, Gorenberg observed, and that has to change. But he noted one recent example that it is indeed changing.

With the Olympics coming to Beijing in 2008, the central government has already gotten its marketing efforts well underway – and, in a somewhat ironic development, has had problems with local “entrepreneurs” selling knock-off souvenir paraphernalia, souvenirs that aren’t officially licensed, yet feature copyrighted logos and so forth. The government is already cracking down on this, and that’s a hopeful sign that it will become further involved in efforts to protect corporate IP, Gorenberg suggested.

Foreign VCs looking at China also face the age-old question they always do anywhere and anytime they become involved in a startup: how to pick a winner. This is compounded by the fact that many Chinese startups, not to mention established companies, are constantly turning to what’s hot and trendy at the moment. A year ago, for example, there were some 400 mp3 player manufacturers on the mainland.

“It is difficult,” Liddle acknowledged. Typically, VCs will categorize startups into “brave new world” companies, that have something new, or “faster, better, cheaper” companies, those that have a better product or better way of serving an existing market. In China, most of these fall into the latter category.

Because of that, it’s often not difficult to validate the market a startup wants to pursue; what is often difficult is determining the character of the team involved in a startup. In cases where an entrepreneur or executives in the fledgling company were educated or worked in the industry in the United States or Europe, evaluation is not so difficult. Where it becomes problematic is when the entrepreneurs have spent their entire career in China, Liddle observed.

“We don’t have the same type of references there,” he said. “The trickier thing is to evaluate the senior people in the firm then. That’s hard. It can be done, but it takes a lot of work and it takes a slow process”

Electronic News Travels to ChinaWhich is perhaps why so many VCs are either looking to take their fledgling companies from the U.S. and elsewhere into Asia/Pacific, and namely China, or looking to partner with people and companies already in China. Relationships are the critical element when it comes to doing business there.

“In China people believe — and it’s true by the way – you have to be tapped into the local ecosystem,” said IBM’s Fan Munce. “You have top know the right people.”

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.

Moving to China: Where Should You Set up Shop?

Travelling the Silicon RoadSo you’ve decided you need to have a presence on the ground in China. Or you’ve decided it’s time to move some manufacturing to China, or expand the sales offices you have there.

Then the question becomes where do you go in China to set up shop?

It’s a big question, and not one with the clear-cut answers it had just a few short years ago. At first glance, it might seem obvious: if you’re talking about electronics manufacturing, then Shenzhen, China’s richest city, is the place to go. If you’re talking about something farther up the food chain, say semiconductor manufacturing, then Shanghai is the place to be, right?

Well, if you’ve been following along as Electronic News has ventured down the Silicon Road this autumn, you know it is not quite that simple. There is some truth to those statements, to be sure. But the industry landscape in China – and foreign companies options – are considerably more complex, to be sure.

But lets look at that conventional wisdom first. Shanghai and Shenzhen are obvious places for a reason. Shanghai is a huge port city with plenty of natural resources, namely water, and an established infrastructure – this is why there are fabs here in the first place, including many that belong to the fourth largest chip foundry, Semiconductor Manufacturing International Corp. (SMIC). You’ll find the Chinese offices of many a U.S. and European chipmaker here in the gleaming new skyscrapers that dot the skyline.

Look at Applied Materials Inc., the world’s largest process tool vendor, and an old hand when it comes to operating in Asia – it’s literally around the corner from its biggest Chinese customer, SMIC, and its headquarters in Shanghai.

At the other end of the supply chain spectrum is Shenzhen, which has blossomed over the past two decades into China’s electronics manufacturing center. It was made a special economic zone for a number of reasons, but those reasons are similar to why Shanghai has exploded — and why Shenzhen is exploding.

For one thing, Shenzhen is a port city. Located in southern China on the eastern edge of the Pearl River delta, just across the border from Hong Kong, it is home to much, if not most, of China’s electronics manufacturing, and has the infrastructure to support that. In fact, it is probably the only place in the world to have a wholesale electronic components shopping mall located in an office tower downtown. That’s right, the SEC Electronics Marketplace: seven floors of components and finished electronic goods available wholesale.

Both cities have abundant human resources, not to mention prevalent universities, particularly Shanghai. In fact, Shanghai is so popular right now — particularly with Chinese engineer-entrepreneurs returning from abroad to take advantage of the advantageous business climate – that there are some 120 fabless companies in various stages of development in Shanghai, according to one chip startup I visited.

Plus, both cities have much to recommend them in the eyes of Western expats. Both cities are relatively clean and pollution free, and are very cosmopolitan; one could easily get by in Shanghai without having to learn Mandarin, or ever having to eat Chinese food, for that matter (why anyone would actually want to do that, however, I wouldn’t know – but I met Westerners in Shanghai who happily pointed this out).

Shenzhen, meanwhile, while much smaller and definitely more “Chinese” than Shanghai, is rapidly approaching that same level of international sophistication, and is so new and clean, it has been labeled China’s garden city. Indeed, the whole city seems at first glance to be sparkling and new, and compared to China’s older cities, green space is much more abundant.

But these very things that make Shenzhen and Shanghai such obvious choices may also serve to make them not-so-obvious choices. Shanghai, for example, is very expensive by Chinese standards – many people I spoke with, both Chinese engineers who had worked in Silicon Valley, as well as Western expats, pointed out that housing costs are approaching San Francisco/San Jose levels – and all of the attendant issues are starting to crop up in Shanghai, too.

“It’s not a problem for us yet,” said Kevin Sun, a marketing manager for Applied Materials China, referring to the high cost of living in Shanghai. “But of course they feel this pressure,” he said of Applied’s local Chinese employees.

It’s Not Just Location, Location, Location: Beijing vs. Shanghai

Another thing to bear in mind is that to do anything in China, you have to have established quan xi with the government – you have to establish and maintain the right relationships. For all of its cultural opening up, for all of its warm embrace of the free market, China is still a party where the Communist Party holds near absolute power.

And while Shanghai and Shenzhen may have a wealth of technological human resources, when it comes to finding brainpower in China, there is no better place than Beijing – which happens to be the seat of political power in China as well.

Now, for people not familiar with China – and perhaps more so for those who are only familiar with Shanghai – it’s important to understand that Beijing is the cultural heart of China, not just the political center. Geographically, Beijing never had much to recommend it, but in China’s distant past, as its dynastic rulers began to consolidate power across this vast country, Beijing became a strategic location, the crossroads of a growing realm. That is essentially why it became the seat of power for China’s emperors, which in turn attracted China’s intellectual and cultural elite, historically.

By and large, this is still the case today. Not only is it the seat of government, it is home to most of China’s premier universities – the Peking University, Tsinghua University, and the China Academy of Science, to name just a few — not to mention most of its millionaires, old and new, and its popular entertainment stars. It is also home to many of its brightest painters, musicians and writers.

And if there is a hot-button issue for the Chinese today – well, there are many, actually, but the rivalry between Beijing and Shanghai is one of them. Of course, the people that live in China’s other burgeoning high-tech cities have their own views on the matter, but most Chinese people in the tech industry in either Beijing or Shanghai, have a strong opinion with regard to the rivalry.

And the people that argue on behalf of Beijing make strong arguments. Beijing may not be a bustling port city, and may not have the infrastructure for manufacturing that Shanghai has, which the city’s proponents readily acknowledge.

If you’re just after cheap manufacturing, then by all means, go to Shanghai, says Liang Sheng, the section chief of the Department of Information Industry of the Beijing Municipal Government. “But if you want to expand your profits, you have to come to Beijing.”

And if you are looking to develop intellectual property (IP) tailored for the booming Chinese market, Beijing is the place to be. “Here we have our own IP,” he said, observing – as many Chinese officials did — that there was a reason SMIC built its first 300mm wafer fab in Beijing.

Liang likens Beijing to Silicon Valley; it is where a big chunk of China’s domestic chip IP is created. China’s only EDA company, CEC Huada, calls Beijing home, and of the 400 design houses in China, 85 are in Beijing. If that ratio isn’t good enough for you, consider this: out of the 16 design houses that achieve more than $100 million in annual revenue, more than half have their headquarters in Beijing.

Of course, there is no official distinction between Shanghai and Beijing when it comes Chinese efforts to lure the semiconductor industry there. Rather, it’s the result of a natural evolution: “it’s just what it is,” remarked Xu Xiao Tian, secretary general of the China Semiconductor Industry Association. “These two cities have their advantages and disadvantages.”

There’s More to China than Beijing and Shanghai

Some of those disadvantages in Beijing, aside from a comparable lack of natural resources, are considerable pollution and horrendous traffic. That is not to say that they aren’t problems in Shanghai, but in Beijing, they are particularly acute. While Beijing has a venerable, effective public transit system, there are still so many people in the city that its traffic jams rival the worst of those anywhere on the globe; it will be interesting to see how Beijing addresses this problem when it hosts the 2008 Olympics.

And it isn’t the only place to find superior human resources in China; consequently, nor is Shanghai the only place to find infrastructure and physical resources for manufacturing. As Xu observed, quite rightly, many companies both domestic and foreign, are looking at other cities around China – Chengdu, Xian, Shenyang, just to name a few. There are resources to be had elsewhere, often without the costs associated with Beijing or Shanghai.

One thing is common to virtually every significantly large municipality in China today: the local governments are playing to their strengths, and doing what they can to lure foreign investment. Wherever you go, whomever you talk to in local governments – as well as the local companies looking for foreign business partners – the phrase “win/win” comes up time and again; incentives are falling out of the metaphorical trees.

And each these other municipalities offers unique cultural environments as well, as followers of the Silicon Road blog know well, be it the food of Sichuan Province, or the warm subtropical climate of southeastern coastal China.

“I want all these cities to be successful with their semiconductor industries,” Xu remarked. “We’re paying attention to all of them.”

Electronic News Travels to ChinaIndeed, if one were involved in optoelectronics, Xiamen would deserve consideration. If software is your company’s forte, then Shenyang may be the place to set up Chinese headquarters. There are many places, places that we couldn’t squeeze into my Silicon Road itinerary, that are burgeoning high-tech and/or industrial centers in their own rights, or soon will be – Xian, Wuhan, Tianjin, Beihai and Guanzhou, just to name a few.

Wherever you decide to set up shop in China, I can say one thing is abundantly clear after spending a month investigating China’s tech industry: now is definitely the time to be there.

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.

Where in China, Indeed

Travelling the Silicon RoadWhere should you set up shop in China? What about where I would set up shop in China? Well, being a telecommuting journalist, I can, within reason, live wherever I want.

Theoretically, if I have high-speed Internet access and a phone, the world is my oyster, or some such metaphor.

Many of the friends I made while in China would often ask me where I would live if I moved to China, or, out of all the places I visited, which one I liked best. Well, realistically, to cover the semiconductor industry, I’d probably have to call Shanghai or Beijing home, or at least home base. But if I could live anywhere in China — as to my favorite place so far, that is difficult to say.

It’s like trying to decide my favorite place in the United States; I can’t narrow it down to just one.

I loved living in the Bay Area of Northern California, but I gave it up for the wilds of West Virginia, to be closer to family, and because I love West Virginia, too (hard for you Left Coasties to understand, I know, but it’s true). Portland, Ore., Austin, Texas and Santa Fe, NM, are on my short list of places I’d love to live in the United States, as is Athens, Ohio (went to college there).

Now that I think about it, you could tack on Flagstaff, Ariz. to that list as well (I actually did live a half-hour away from Flagstaff, once upon a time). I also loved the two years I spent living in Cleveland, believe it or not; it’s one of the best large American cities, in my humble opinion.

And anyplace near water automatically has something to recommend it, as far as I’m concerned.

As for China, it’s an equally difficult task to decide where I would live, if I were given carte blanche. If I could only take the culture of Beijing and the food of Chengdu — oh, the food of Chengdu — and put it in downtown Xiamen, without making it any bigger — that would be ideal. But I must admit, I enjoyed every place I visited in China, and could be happy in any of those places on the original Silicon Road itinerary.

Plus I’m sure there are many more places I will discover when I return.

Electronic News Travels to ChinaJust as I will discover similar places the next time I go to Europe, or visit the places I haven’t been to yet: the rest of Australasia, and the Middle East & or poking around my home continent, for that matter (New York city; Portland, Maine; Athens and Savannah, Ga. and Key West, Fla. all have yet to be explored by yours truly). Then there is South and Central America, and Africa — I’d love to visit it before more of its ecology is destroyed.

You know, having the travel bug is a mixed blessing. Part of the joy of traveling is returning home to the familiar: sleeping in the same bed every night, and seeing friends and family. Yet I haven’t been home two weeks, and already I’m somewhat restless, thinking about where to go next, memories of language barriers, intestinal distress, jet lag and pit toilets not withstanding.

Jeff

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 11/23/2005 12:47:40 PM, Scott O from Ohio said:

I have been following your stories for the past several weeks and think your writing is fantastic. I am a Manufacturing Engineer and I have traveled between Ohio and Shanghai several times this year. I am returning to Shanghai again for two weeks after Thanksgiving. I can really relate to your stories and your point of view… Keep up the good work! I am looking forward to your next article!

Editor’s Note (slight return): D’oh! Once again, when I downloaded the Silicon Road microsite, Adobe Acrobat managed to grab only one of 10 original comments that were attached to this blog entry – it grabbed more than a thousand other pages (most of them empty; I guess it’s an inexact science), but not that one. Damn.

ARMing China

Travelling the Silicon RoadSHENZHEN, China — Software is a hard sell in China — in a country that understands the physical aspects of manufacturing inside and out, the concepts surrounding software are perhaps somewhat esoteric.

Furthermore, while system integration is something the Chinese technology industry is adept at, design is still relatively weak by comparison. This may make China an unlikely place to launch an embedded software and hardware company centered on microcontroller development kits, but on the other hand, that would make you the only local game in town, and being local is often a key element to doing business in China.

This is exactly what one company, Shenzhen Embest Info & Tech Co. Ltd., has done.

Embest, a privately held company started up six years ago, is the first and probably still the only domestic company to offer commercially available development tools for ARM processors. ARM is a very popular technology, and the Embest founders were already familiar with it, having worked in the industry, so it was a natural fit.

The company is focused on enterprise customers, the R&D market and education — it sells kits specifically designed for universities and engineering education.

“Things are getting a little better,” said Zhang Guo Rui, international manager for Embest, referring to the Chinese market for its products. Once domestic companies understand the concept of embedded software and what can be done with it, it’s an easy sell, he added.

And with China recognizing the need to develop its own intellectual property in order to keep the revenue generated here inside the country, the domestic market is growing. While software design was often outsourced to India in the past, this is beginning to change as more domestic companies and international companies involved in the domestic market are focusing on their design efforts in China, Zhang said.

The company is located in Shenzhen, where much of the Chinese market for its embedded software and hardware developed is located, given the huge manufacturing base in electronics here.

Still, it’s not a huge market to begin with, and a nascent one in China, so Embest has directed the marketing for its patented technology on international markets. It began selling overseas in 2003; today it is doing business in several countries, including the United States, France, Germany and South Korea.

The company has already built a reputation as a third-party supplier of ARM development products; the industry’s penchant for outsourcing to China to lower costs coupled with Embest’s position in the local Chinese market and its capability to design finished products based on ARM processors, has all helped to boost the company’s market presence both domestically and abroad, said Zhang.

Electronic News Travels to China

Eventually the company would like to expand beyond ARM and produce development kits and product designs around other technologies, such as DSPs. It’s been talking to a Western DSP chipmaker about doing just that, although the talks are only in the initial stages. Like it does for ARM, it wants to introduce tools into the Chinese market to develop designs based around the DSP.

Of course, this could provide the Chinese proverbial win-win situation: It would boost the foreign company’s presence in China via a local supplier, and help spread Embest’s presence in the international 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.