Amkor's experiences with factory opportunities in China
08/01/2001
Gary Breton, Amkor Technology Inc., Chandler, Arizona
overview
Microelectronics manufacturer Amkor Technology has successfully developed business relations in China that quickly led to manufacturing facilities. With discussion beginning less than a year ago, Amkor is now operating its 150,000 square foot facility in the Waigaoqiao Free Trade Zone near Pu Dong.
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The Yangpu Bridge in Shanghai connects downtown to the Pu Dong high-tech area.
As a market for semiconductor products, China is attractive for a number of reasons. The obvious one is simply its size: 1.2 billion people and nearly 10 million square kilometers. That is roughly the landmass of Europe with half-again as many people. From an economic standpoint, China's current political culture is isolationist, which buffers it from economic swings that affect the more interdependent parts of the world economy. That isolationist world perspective delayed the adoption of technologies enjoyed in the West, driven by a more open economic position. As a consequence, semiconductor demand in China has been little affected by external events — neither the currency crisis that affected the rest of Asia in 1998 nor the recent bursting of the dot-com bubble. The drive to adopt new technologies within the Chinese market, coupled with Chinese government efforts over the last decade to open the country to foreign trade, will be of substantial benefit to Amkor Technology.
Support for a developing infrastructure
In its 10th five-year plan, China is focusing on developing its own infrastructure. Perhaps of most interest is the expressed need by the Chinese government to move its people from being needers, to becoming wanters. Understanding this point, manufacturing, assembly and test of telecommunications ICs present a key opportunity for foreign companies in China. According to the US State Department, China's Ministry of Information Industry (MII) plans to
- expand the nationwide broadband network using fiber optic cable, microwave, and satellite systems;
- build out a nationwide mobile network and explore new services such as mobile banking and Internet access based on the existing network;
- prepare for deployment of third generation technology of mobile communications;
- improve management and billing systems; and
- promote Internet usage, especially electronic commerce and electronic business.
China also plans to provide more bandwidth for its access network, both terrestrial and satellite, because of its growing market demand for information services. China is aggressively laying fiber optic cables throughout the country and is updating its backbone transmission network with the latest technologies, including ATM, SDH, and DWDM.
Also from the US State Department, significantly, beginning in early 1999, MII required the issuance of a license for all telecommunications equipment to be marketed in China. MII encourages operators to purchase domestically manufactured products to support national telecommunications manufacturers. In addition, MII monitors the operations of all Chinese-foreign joint ventures to ensure that their performance abides by their contractual obligations.
Rapid entry
Amkor's involvement in China began in November 2000, when we entered into discussions with a customer who required assembly and test support in the country. Amkor Technology made a trip to Shanghai to look at the three trade zones in Shanghai and some locations outside Shanghai. We collected data regarding ease of doing business in each location, infrastructure, customs clearance time, and government support. We then returned to the United States to review this information. We narrowed our selection down to one location: the Waigaoqiao Free Trade Zone. Then, wanting to get started quickly, we returned to Shanghai in mid-December for further discussion regarding a leased building.
The attraction of Shanghai
In selecting a site, Amkor settled on the new trade zone being developed adjacent to the historic port city of Shanghai. After China's port cities were opened for trade with the outside world in 1842, Shanghai quickly rose to prominence. By 1861, it was handling 50% of China's foreign trade. Shanghai was the seventh largest city in the world and the financial and commercial center of all of Asia. Its days of glory ended the day after Pearl Harbor; after World War II, it languished for three decades.
Since the late 1980s, Chinese leaders have taken steps to restore Shanghai's former status as the financial and commercial center of Asia. One has been the development of Pu Dong, an area east of the Huang Pu River and east of the old city center, Puxi. Plans included the world's longest extension bridge, Asia's biggest airport, and its largest trading floor.
On April 30, 1990, then Premier Li Peng named Pu Dong a special development area with preferential investment and tax policies. These, together with the building of a new infrastructure, were aimed at attracting direct foreign investment. The new infrastructure includes Pu Dong international airport, the Nanbu and Yangpu bridges over the Huang Pu River (see photo on page S25), new roads and subways, and the Waigaoqiao harbor and power plant.
Shanghai occupies a key position at the head of the Yangtze River. Chinese leaders hoped that new technology and management skills would spread up the Yangtze River through a new modern infrastructure system while the Shanghai financial markets would provide the capital. The Three Gorges Dam will allow sea-going ships to travel from Shanghai, past 70 major cities, to Chongqing City, the largest city in China, with an estimated population of 16 million people, 1000 miles inland. Shanghai would act as a trading center for the Yangtze valley, with its population of 200 million, in much the same way that Hong Kong and Singapore do for the rest of Asia.
Waigaoqiao was ideal for Amkor's plans. In 1991, the Waigaoqiao free trade zone had become the first and largest government-approved free trade zone. By 1998, Waigaoqiao ranked second in China in terms of imports and exports passing through its bonded zone.
Among other things, "free trade" means that no duties or import-export licenses are required. The Waigaoqiao Free Trade Zone occupies 10 square kilometers in the northeast corner of Pu Dong, next to the Yangtze. Waigaoqiao contains a bonded warehouse area, an administration zone and export-processing sub-zone along with a residential area. It is now home to more than 3000 companies, which have brought in a large overseas investment.
Waigaoqiao, where Amkor's 150,000 square-foot facility is located, specializes in technology-intensive products and has attracted many highly talented engineers and technical people from Shanghai's prestigious engineering universities. (Shanghai has more than 40 institutes of higher learning, the highest concentration nationwide.)
First steps
After Amkor Technology approved the site recommendations, we returned to Shanghai in mid-January. On January 18, 2001, a lease was signed with The Waigaoqiao Free Trade Zone Xin Development Company. Amkor immediately began application for a business license and the incorporation of a company. Due to outstanding support from the Xin Development Company, and the local government in Pu Dong and Shanghai, in just over 30 days the company received the business license to operate.
Amkor then began preparations for cleanroom construction and started the work on April 1, 2001. We prepared to move in high-technology semiconductor equipment on May 13, 2001, going from a warehouse to a cleanroom in just over five weeks. This was a remarkable accomplishment, attributable to Amkor's worldwide resource capability, and the superb support of the local government.
From the US, Amkor mobilized resources for construction, for process technology from Korea, and from the Philippines for test technology and administrative support. Amkor's new plant in Shanghai opened its doors on May 13 with a combined local and expatriate on-site staff of approximately 100. In only 14 more days, we were scheduled to ship qualification lots to our first customer. High-technology ChipArray ball grid array (CABGA) products for cell phones were shipped in June, followed by a serious production ramp for assembly and RF test. In addition to that initial customer, Amkor's inquiry list grew to more than 28 potential customers.
Construction
To ensure a fast start-up, Amkor initiated this operation on a small scale by leasing two buildings that total 150,000 square feet, but we have reserved approximately 50 acres of land for future development, with plans for the site to be formalized by the end of this year. With this additional land, Amkor can accommodate up to two million square feet of buildings on the site to meet additional customer demand.
We found excellent utilities supporting the industrial park in Waigaoqiao. This includes steam, in addition to the water, electricity and natural gas that we expected. The steam is generated factory site. The electrical supply is reliable, eliminating the need for uninterruptable power systems.
The demand for the facility in China came at a time when worldwide demand for semiconductors was in decline. Amkor took advantage of this situation by moving equipment from our factories in Korea and the Philippines into the China facility, thus eliminating any equipment lead times. A great deal of the equipment is new, as it had just been delivered and had not been placed into production, or was on order with equipment suppliers and was simply diverted for delivery into Shanghai.
Obtaining a business license is an involved process, which is why it is essential to have a good relationship with local people. One must prepare an environmental impact statement and provide a business plan to the government so that they can perform a feasibility study. They are particularly interested in how serious you are about making an investment in China. In Amkor's experience, the local government was highly supportive. The Chinese view Amkor as an American company that is a world leader in packaging and test services.
Amkor's business license is very flexible and allows support for the local market as well as the international market. This allows Amkor to act as a local trading company. Plans are already in place to begin design and R&D activities at Waigaoqiao. We believe Waigaoqiao will become a key contributor to Amkor's worldwide operations in the future and we are fully committed to growth at this location.
Mixing cultures
Cultural issues are minor compared to the situation in many other countries. There are no issues with job-specific gender. Shanghai is a very progressive city and the Pu Dong area is an entire city that is less than 10 years old. The Grand Hyatt Hotel is in the third tallest building in the world, reaching 88 floors, truly a five-star hotel. In fact, this hotel is a tribute to the people of Shanghai and Pudong, and evidence as to what can be accomplished. At the plant, the work force is experienced and very well educated, with an ample supply of engineers. Most Chinese employees are hard-working, dedicated, well educated, and quick to learn their duties.
Work days are standard, with office workers generally working eight hours a day from 8:00 or 8:30am to 5:00 or 5:30pm, and production workers working one of three eight-hour shifts daily for five days a week. Some of the more advanced semiconductor factories work two twelve-hour shifts per day, rotating work days so the workers average a 40-hour workweek.
One cannot be anything but amazed and awestruck when arriving at the new Pu Dong airport — only a year old — then traveling to the center of Pu Dong. One is left with a strong impression, wondering how this area could ever have been perceived to be behind the rest of the world. In many ways, it seems more advanced.
Acknowledgments
ChipArray is a registered trademark of Amkor Technology Inc.
Gary Breton received his BS in management from La Salle University in Louisiana and is completing his MBA there. He is senior VP for North Asia Operations at Amkor Technology, 1900 S. Price Rd., Chandler, AZ 85248; ph 480/821-5000, fax 480/821-8276.