Ties That Bind - Bay Area Council Economic Institute

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Ties That Bind
throughout China. APMG owns 10 joint ventures in Beijing, Shanghai, Shenyang, Harbin,
Chongqing and Dalian. Some are VIP inpatient units within existing hospitals, while others are
freestanding clinics. APMG’s primary specializations are neurosurgery and radiation oncology,
treating tumors and cancers with high-end “gamma knife” technologies, but an important component
of their facilities is also maintenance and management that meet Western standards.
Among APMG’s Chinese partners are Shanghai Medical University; Beijing Neurological Institute;
First Affiliated Hospital of Tsinghua University; Shanghai Huashan Hospital of Fudan University,
Chongwen District Public Health Bureau of Beijing, Chinese Medical University’s Second
Affiliated Hospital; and Harbin Medical University’s First Affiliated Hospital. Venture capital
firms ChinaVest and Ajia Partners of Hong Kong have provided financing for the enterprise.
China Grows Its Semiconductor Sector
An earlier section of this report described the flow of Taiwanese engineering and science students
to the U.S. during the 1970s, and the Taiwan government’s strategy to lure them back with
venture and startup funding. In the process, Taiwanese engineers in Silicon Valley helped pioneer
a new, more efficient and economic “fabless/foundry” business model for integrated circuit design
and development.
Chips have become ever smaller, faster, more complex, more specialized and more densely
packed together on larger, 300-millimeter wafers to perform specific tasks. As they have, the cost
of materials, fabrication and testing have all increased commensurately. An integrated device
manufacturer (IDM) like Intel, Advanced Micro Devices or Texas Instruments, that makes its
own chip designs may spend more than $3 billion to build a fabrication plant.
Over the long term a typical 10:1 revenue-cost ratio still makes the effort worthwhile in many
cases: A 0.25-micron chip design that costs $1 million to bring to market may earn $10 million,
for example, while a higher-end, 90-nanometer design that costs $25 million might earn back
$250 million. Customization has also opened new applications and markets for high-end designers,
as basic chips have become increasingly commoditized. In addition, demand for higher-end
chips has grown well beyond narrow specialty applications in a few technology-intensive industries
to high-volume, mass markets like automobiles, personal computing, mobile phones and
consumer electronics.
The Fabless Alternative
For startups and smaller boutique design firms as well as for larger, more vertically-integrated
producers, managing up front costs is critical in maintaining margins and competitive advantage.
As the Semiconductor Industry Association describes the current market:
“Fabless companies focus on designing and marketing competitive products, while
farming out wafer production to foundries. The foundries are able to invest the
billions of dollars necessary to upgrade and grow their capacity by spreading the