China continues to expand its footprint in the global semiconductor marketplace
Throughout the last eight years of ups and downs in the semiconductor industry, the Chinese market has continued to outperform the rest of the world according to a new report from PwC, "China's impact on the semiconductor industry: 2010 update report".
Raman Chitkara, Global Technology Industry Leader, PwC said: "China continues to expand its footprint in the global semiconductor market place. China now accounts for 41% of global semiconductor consumption, over 50% of global semiconductor initial public offerings and employs 25% of the total global semiconductor workforce."
China continues to dominate electronic manufacturing with an increasing share of the global production of electronic devices. Led by this global domination in electronic manufacturing, and supplemented by increasing domestic consumption by a growing middle class, China continues to grow its share of global consumption of semiconductors.
Another shining star in China's semiconductor industry is its rapidly growing fabless sector which grew by 17% in 2009 to reach a record US$4 billion. While its share of the global semiconductor production is growing, China's production of semiconductors is not keeping pace with the growth in its consumption. This is resulting in an ever increasing gap that has reached US$67 billion.
The growth of semiconductor production in China has been led primarily by multinational integrated device manufacturers (IDMs) that account for four of the five largest semiconductor enterprises in China. Domestic Chinese semiconductor manufacturers are not growing at the accelerated pace that some had forecasted earlier in the decade
Managing the workforce
The Chinese workforce employed in the semiconductor industry has been growing at a rate of 10% per year for the past five years and now accounts for 25% of the global semiconductor workforce. However, the growth in the workforce has brought an increase in labour turnover for many companies, which has led to wage increases by several semiconductor companies to stabilise the work force. While China continues to offer some of the lowest labour costs in the world, these costs are expected to increase as the Chinese semiconductor workforce grows and matures. Therefore proactively managing the workforce is a challenge that is expected to be of greater management focus in the coming years.
The semiconductor industry has always been the leading sector on innovation within the technology industry. China is participating in this innovation and now accounts for 22% of the newly issued patents for the semiconductor industry, up from 13% in 2005. This trend is expected to continue with China's share of newly issued semiconductor patents passing the 30% mark by the end of 2010.
China has also emerged as the leading territory for initial public offerings of semiconductor companies. During the past four quarters, Chinese companies accounted for over 50% of worldwide semiconductor IPOs. "The Shenzhen Stock Exchange has completed more semiconductor initial public offerings than any other stock exchange in the world for four quarters in a row" said Chitkara.
"Our report shows that China is continuing to strengthen its foot print in the industry and offers strong opportunities for companies who want to enter the Chinese market or strengthen their existing operations there. If you want to be a dominant player within the semiconductor industry you need to have a significant presence in China", he added.
Things you should consider if looking at China:
* Team with Chinese government agencies to leverage China's 4 trillion RMB economic stimulus programmes which include initiatives in railroad and air transportation, telecom networks, rural improvements and healthcare reforms.
* Reassess your company presence: China's strength throughout this recession is at the expense of semiconductor consumption in other countries and this trend is likely to continue. Therefore if your presence is less than your peers, ramp up your business development efforts.
* Keep an eye on Greater China. Taiwan has loosened its restrictions on semiconductor investments in China and Chinese investments in Taiwan. Monitor these developments with an eye towards new market opportunities, and risks, in Greater China.
* Adapt to China's unique standards and design for the marketplace. China continues to propose alternative and unique standards which if successful, could provide more desirable and effective solutions for specific developing countries where there are large potential markets. So monitor these evolving standards and keep your eyes open for emerging opportunities.
* Use Chinese foundries to gain pricing leverage while assuring future capacity: There is likely to be a foundry capacity shortage as a result of the recent reductions in capital spending and an accelerating IDM shift to the fab-lite business model. Chinese foundries may provide an immediate lower cost alternative and assure a future supply source for some product categories.
* Invest in effective human relations. At the start of any project in China make sure you develop a human relations programme that is both effective and sensitive to local demographics and environment.