Ties That Bind - Bay Area Council Economic Institute

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126 Ties That Bind implemented, risk restricting the national technological level and preventing Chinese entrepreneurs from achieving success globally. � China’s current “chip craze” will eventually subside and the fragmented markets are expected to consolidate, leading to dominance by a few globally capable firms in each section of the semiconductor industry ecosystem. Minimum efficient scale may not be soon possible in some areas such as cutting edge CPUs and advanced fab equipment, leaving a choice between 1) using legacy technology, 2) sourcing from international markets, or 3) paying heavy and perpetual subsidies to obtain a security and prestige benefit. � The low cost (labor and construction) environment in China is almost certainly temporary. Investments made today that are duplications, contribute to over capacity, or are made in firms that are not truly globally capable have the very real potential of limiting China’s future prosperity and prestige. There is a “window of semiconductor industry development opportunity”, and very limited funds to invest. � China’s internal barriers to growth, especially the desire by local governments to create and protect small “prestige” SI clusters, have the potential to handicap Chinese entrepreneurs in achieving global success. The provincial and even municipal customs inspections, regulations, licenses, and product certifications designed to exclude both foreign and intra-Chinese imports may very well reduce China’s global competitiveness in many industries, not just semiconductors. For multinational companies (MNCs), China’s environment again offers opportunities and risks. The institutional support for IP protection is still weak, which limits MNCs’ desire and ability to invest substantial resources in China. A second limiting factor is that the domestic market’s needs are far from typical of the world market, not only in the costs and price points of products (as in consumer electronics, for example), but also in the formats and standards that the world market requires. MNCs to date have utilized their China operations to gain access to the China market, and to establish an export platform to the rest of the world. These twin activities have been quite
Investment: Building Global Businesses in a New China distinct to this point, owing to the market differences noted above. This reduces the synergies between the activities for the MNCs. MNCs have also been careful to partition their technology deployment within China, so that individual portions of a system are built in China, but the overall systems integration resides elsewhere, in a region with much stronger IP protection. This enables the MNCs to manage the risk of IP misappropriation, but deprives the Chinese industry of a vital source for developing more overall systems knowledge. Our overall conclusion is that China’s semiconductor industry is poised to be a significant contributor to the global industry over the next decade. But the industry faces tremendous adjustments that must be made to raise the talent, management, and technology to globally competitive levels. Given the pervasive ownership of so many companies by entities within the Chinese government, the role of the government will be critical to achieving this transition. The Chinese industry needs some globally leading systems firms (e.g., Huawei, Lenovo, Haier) in order to provide a systems-level understanding of future needs, and the resources to help enable a response to these needs. China also requires a strong research base in semiconductor technology, something that is sorely lacking to date. The existing research system appears to be balkanized, with too little advanced research, too much competition resulting in duplicative incremental work, and a second-rate university research capability. The Chinese government must of necessity be involved in these adjustments, if for no other reason than it is the largest shareholder of most of the Chinese semiconductor firms. And China’s domestic industry may become a significant driver of technological advance for the whole economy. Yet the Chinese government lacks a unified perspective towards the industry, and similarly lacks experience in managing such a transition in a market economy. The severe competition between governmental entities must somehow be ameliorated, or directed towards a shared common goal. MNCs also have a crucal role to play in the development of the Chinese industry, as creators of IP, know-how, and systems knowledge. Chinese government policy should aim for more neutrality in balancing the demands of domestic firms and MNCs. The rhetorical support already extant for stronger IP 127
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The Bay Area Economic Forum wishes
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Bay Area Economic Forum 201 Califor
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Table of Contents Introduction ....
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Introduction About This Report The
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Introduction dollar-denominated ass
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Introduction practices of their sup
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Executive Summary The San Francisco
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Executive Summary As Silicon Valley
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Executive Summary 8. Establish regi
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1 A Rich History of Work and Reward
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A Rich History of Work and Reward m
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A Rich History of Work and Reward t
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A Rich History of Work and Reward T
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2 New Networks Emerge The Bay Area
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New Networks Emerge With scholarshi
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New Networks Emerge nomic Law; the
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New Networks Emerge and academics f
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New Networks Emerge schools on the
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New Networks Emerge Hong Kong and T
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New Networks Emerge financing—ban
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New Networks Emerge Since the mid-1
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New Networks Emerge (R&D) innovatio
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Hong Kong Seeks Its Role New Networ
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New Networks Emerge In recent years
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New Networks Emerge savings rates a
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New Networks Emerge Two, featuring
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New Networks Emerge All of the abov
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3 Bay Area-China Trade: Behind the
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Bay Area-China Trade: Behind the Nu
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