Smith Market Blog

Go West! The strategic drift within and out of China resumes


It was October of 2005 that the investment of US$8 billion and construction start of the  Xiyong Microelectronics Industrial Park was announced (cf. here).  Perhaps a curious decision in the eyes of some, that project start five years ago is now seeing the boom that the supporters once envisioned – and the interest is now coming from the leading EMS and ODM companies in the world.

The Philippine based Integrated Micro-Electronics Inc., (IMI) was the first to move into the park, realizing early on the advantages of significantly lower costs, especially wages, as well as far more aggressive incentives than in the coastal areas.  More recent neighbors to IMI are Hon Hai, Quanta, Inventec and there is confirmation of Cisco having signed an agreement with the "Chongqing municipal government […] to cooperate in several areas including the development of a new telecom manufacturing base [there]," according to the latest Manufacturing Market Insider (MMI) edition (April 2010, Vol. 20:4, pp.1-2).

There are two telling aspects to this year's rapid influx of neighbors in this western province that alert us to movement in the semiconductor industry:

  1. The agglomeration of major EMSs and ODMs, particularly focused around notebooks, as pointed out by MMI, but also the inter-connections between those companies in the Park (i.e., their relationships to OEMs like HP; and the new opportunities with other major companies such as Cisco).
  2. The geographic movement west and south into and out of China in a continued search for lower wage and business costs, better access to labor (there are shortages in labor in the present semi manufacturing bases), more attractive incentives by these newer Parks for businesses (NB., there is not only migration within China but there is also the movement of companies like Hon Hai, Compal to Vietnam as reported here).

Taken together, the above two variables and the recent flurry of activity, supported by the re-introduction of healthier CAPEX spends means that we may be entering a period of significant relocation, particularly for notebook and telecom manufacturers.  After all, because of the withholding of equipment spends during the global recession, companies may now be considering moving and building new rather than simply replacing equipment and reinvesting in current locations.

New locations present an opportunity to strategically engage markets, both new and existing, and therewith improve on or create strategic market positions.  We're carefully watching the broader geo-economic region, agglomerative movement, and similar patterns.  We at MarketWatch  will continue to provide updates; additionally, this region and such developments are the foci of the next and in depth geo-economic analysis for the next MarketWatch Quarterly.  Remember to dive into our existing geo-economic pieces as their timeliness still hold.

Lisa Ann Cairns, Ph.D.
Written on Friday, 14 May 2010 06:50 by Lisa Ann Cairns, Ph.D.

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