Providing outsourced assembly and test in China
02/01/2004
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The market drivers for assembly and test manufacturing in China start with the region's strong economic growth: the GDP expands about 8% per year. Already, multinational OEMs are seeking market share through localization, and mainland China manufacturers are competing with these OEMs.
The list of existing multinational corporations manufacturing products with microelectronic content in China is very impressive. For example, cell-phone manufacturer Nokia has seven factories there, including one of the world's largest cell-phone factories in Beijing. Electronics manufacturer Flextronics has three sites in China — Beijing, Xixiang, and Shanghai. GM and Ford are both building cars in China, and Philips Display Systems has manufacturing operations in Shanghai.
According to data from IC Insights, China's semiconductor market is currently growing in the range of 30% compound annual growth rate (CAGR); this pace is expected to continue for at least several years. The semiconductor market was $15 billion in 2002, the last year for which complete data is available. The country has the world's largest mobile-phone market, and it is growing at 26% CAGR. Taiwan's hardware producers are relocating manufacturing operations to China. The expected growth in PC manufacturing for domestic use and export is forecasted to hit 13 million units in 2003, up from 6 million in 2000.
Industrial pillar
China now regards semiconductor manufacturing as the enabling pillar industry to make it competitive in the global business world. It looks to the semiconductor industry to bring in valuable foreign investment and technology. In addition, China anticipates that benefits will include training of local employees and huge infrastructure projects. The government clearly sees a trend in the relocation of some of the semiconductor industry from Taiwan, Korea, and Japan.
To lure investment from foreign semiconductor investors, China has made the following concessions:
- fully opened the China domestic market, which is the largest potential, fastest-growing market in the world;
- freed all foreign-investment semiconductor companies from customs duty for capital goods import;
- encouraged local foreign-invested semiconductor companies to sell to domestic markets through a 14% value-added tax refund, thus competing against foreign imports;
- subsidized land and public utilities fees so targeted companies may operate under a lower cost model;
- granted a five-year corporate tax holiday followed by another five years with a low tax rate of 7.5% (starting from the first profit-making year);
- subsidized local bank loans and local employee training costs.
The semiconductor industry has become the target of local government organizations and Amkor is actively participating in the growth of this industry. After a company team traveled there in 2000 to start the effort, Amkor put its first China facility (see Fig. 1) in the Waigaoqiao Free Trade Zone adjacent to the historic port city of Shanghai (Solid State Technology, Asia Pacific Supplement, pp. S25–S34, August 2001). A lease was signed on January 18, 2001; an application for a business license was completed; and the company became incorporated. During this process, we received outstanding support from the Xin Development Company and the local governments in Pudong and Shanghai.
 Figure 1. Amkor Technology's a) assembly and test factory in b) the Waigaoqiao Free Trade Zone, China. |
Waigaoqiao, the first and largest government-approved free trade zone, has turned out to be an ideal location. We opened our new 150,000-sq. ft facility on May 13, 2001, with a combined local and expatriate on-site staff of ~100. Production was quickly started, and by June the first ChipArray ball-grid array packages for cell phones were shipped.
Amkor's customer base is diverse, covering almost every major semiconductor manufacturer in the world. By providing assembly and test support for their products, we are prepared to bring many of these companies to China. For example, we have already brought several of the world's largest semiconductor manufacturing companies into the Waigaoqiao Free Trade Zone as internal customers. These customers are tapping directly into the China supply chain throughout the country, with Amkor-packaged products ending up in the hands of many local Chinese people for consumer applications such as cellular phones.
Continuing plans
 Figure 2. Inside Amkor Technology's China factory. |
To ensure a fast start-up, Amkor initiated its first factory in China on a small scale by leasing two buildings that total 150,000 sq. ft. In order to meet expected long-term demand in the region, we have reserved ~50 acres of land — if developed in the future, this site could support a factory of ~1 million sq. ft with more than 6000 local employees.
Amkor is bringing its latest packaging and test technology to China using up-to-date process technology, equipment, facilities, and internal infrastructure (see Fig. 2). We also intend to add an R&D facility along with a state-of-the-art design center to support customers' complex technology and designs worldwide.
Company plans also include close collaboration with local universities. Some of the well-trained and educated young engineers that graduate from these institutions are already being hired. In addition, we have developed programs in which engineers educated in China can train and work in Amkor locations outside of China. Staying in touch with China's human resources is crucial to successful operations in the country.
China's human resources
Despite the fact that China's universities grant a significant number of engineering degrees each year compared to other regions, there is a high demand for returning expatriates. In general, there is a lack of local experienced talent, particularly qualified senior management with comprehensive knowledge, lengthy experience with high-tech manufacturing, and senior finance and insurance experience. A current surge of companies that lack the necessary experience levels is resulting in increased requests for expatriate compensation data and work permits for foreigners in China.
Recently, China streamlined the various elements of its expatriate package, adjusting benefits (guaranteed bonuses, expatriate premiums, base pay scales, etc.) to reflect the regional landscape and a wider variety of experienced foreign talents, including China-hired expatriates and returnees. Employment packages for expatriates also typically include housing assistance and an allowance for automobiles.
 Figure 3. Salary increases in China by industry sectors: health care and consumer products, high technology, etc. (Courtesy: China State Council 2002 and Laura Lui, Amkor) |
Salary increases in China's high-tech market have been relatively steady with some variation from city to city (see Fig. 3). Recently, global economic uncertainty saw many companies freezing salary increases for expatriates or adjusting them slightly downward. While increases were not as robust in 2002, the trend is once again back to steady increases.
Specifically in Shanghai, our experience over the past three years is that salary increases could average ~10% during the current boom market, as skilled labor is in short supply.
Acknowledgment
ChipArray is a registered trademark of Amkor Technology Inc.
Jeff Dryjanski received his bachelors in electrical engineering from the U. of Illinois and masters in business administration from Loyola U., Chicago. He worked for Motorola for almost 32 years, including time in Asia, Singapore, and China. Dryjanski is president and country manager at Amkor Technology China, Waigaoqiao Free Trade Zone, Pudong, Shanghai; ph 86/21-5064-4590, e-mail [email protected].