Ties That Bind - Bay Area Council Economic Institute

Bay Area-China Trade: Behind the Numbers
� Potential for Chinese IT firms to achieve global scale through mergers and
acquisitions (M&A).
� A growing IT talent pool including 2 million software developers, 5.86 million
engineering graduates and returning U.S.-educated entrepreneurs.
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Hewlett-Packard’s (HP) history in China dates back to visits by company co-founder David
Packard in 1977 and 1979, the latter including an HP-sponsored engineering delegation and
technical seminar. Packard signed a 1980 memorandum of understanding with Office for State
Commission for National Defense industry vice director Zou Jiahua, and HP first opened a representative
office in November 1981. HP’s full board met in China in 1983 for the signing of a
memorandum of joint venture with then Shanghai Mayor Jiang Zemin, leading to the first Sino-
U.S. high-tech joint venture, China Hewlett-Packard Co., Ltd., in 1985.
Today HP has more than 5,000 employees in China, in PC, laptop, notebook and printer manufacturing;
equipment leasing, through a joint venture with Shanghai Alliance Investment, Ltd.;
and IT services through a network of 9 regional and 28 city offices, plus 27 service support and
200 “golden service” centers. HP also sponsors business, IT and software engineering schools in
Beijing, a Dalian Global Delivery Operations and Solutions Center, an investment arm, a global
software engineering center in Shanghai, and HP Labs, a Beijing R&D facility opened in
October 2005.
In 2004 HP and Intel opened a joint Industry Innovation Center in Shanghai to promote new
technologies developed for the finance, manufacturing, public sector and telecom industries.
HP’s scientific testing and measuring spinoff, Agilent Technologies, began operating independently
in China in 1999 and formed a telecom R&D operation in Beijing in 2003. China is
currently Agilent’s second largest market.
China-based tech consulting firm Analysys International places HP as the number two provider
of IT services in China with 8.4% of the market in 2005, behind only IBM with 9.3%. In 2001
HP bought a 7% stake in Aspire Holdings, a Hong Kong-based wireless data systems, service
and gateway integration company majority-owned by China Mobile. The relationship expanded
in 2005, when HP and billing software/services firm Amdocs developed billing software for another
China Mobile subsidiary, Beijing Mobile.
A strategic partnership with Chinese online gaming firm Shanda Interactive, announced in April
2006, will bundle Shanda’s EZ Pod—software and a remote control that upgrade a standard PC
into an online gaming and internet console—with HP’s home digital entertainment center infrastructure.
Finally, HP is increasingly mining its database of technology patents, with licensing
agreements making up a growing segment of total business.
In recent years the firm’s sourcing activities in Taiwan have evolved from contract manufacturing
to higher-value R&D and original design manufacturing, as well as some original equipment
manufacturing. This is primarily due to migration of the Taiwan suppliers’ basic assembly
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