The Emergence of Specialized capital equipment distributors in Asia
11/01/1996
The emergence of specialized capital equipment distributors in Asia
Robert A. Sanford, Innovative Concepts Co., Marblehead, Massachusetts
The Asia/Pacific markets for semiconductor capital equipment outside Japan, Korea, and Taiwan are undergoing a rapid expansion fueled by global demand for product and by manufacturing economics. As the cost of new fabs increases with increased wafer size and ever smaller design rules, both equipment and device manufacturers face the challenge of choosing the best strategy for equipment support. The problem is compounded by language and cultural differences, trade practices that differ from market to market, and logistical support requirements.
In the Philippines, Singapore, China, Malaysia, Thailand, and India, device manufacturers from the USA, Japan, Europe, and more recently Korea and Taiwan are undertaking new manufacturing and assembly projects that require specialized full support. Traditionally, the "General Line" or "Combination House," trader-type distributors have been effective in the role of "middle men." They are no longer effective in fulfilling the complex and demanding needs of the suppliers and users of modern capital equipment. Meanwhile, the market forces and industry trends in the Asia/Pacific region have motivated experienced professional engineers in the local industry to establish a small number of specialized distributors who can offer full support to both manufacturers and users of capital equipment and materials.
Expanding manufacturing in the region
Major expansion in the Asia/Pacific markets (Fig. 1) is occurring outside Japan, Korea, and Taiwan; in Singapore, where new fabs are under construction or being planned, and in Malaysia`s new Kulim Industrial Park located about 20 miles from the Bayan Lepas industrial area in Penang (where the Penang Airport and many semiconductor assembly, test, and packaging facilities are located). Concurrently, the Malaysian Institute of Microelectronics Systems (MIMOS) plans to build its own 1-?m CMOS production line for 150-mm wafers at Malaysia`s Technology Park at Bukit Jalil. MIMOS expects to do design prototyping and serve as a foundry for the manufacturers in the region.
In the Philippines, NEC of Japan established NEC Components Philippines in the Calamba Light Industry and Science Park II in Laguna to manufacture multilayer, high-density printed wiring boards. South Korea`s Anam Inc., a major semiconductor packaging company, announced plans to invest $300 million in an expansion of its Philippine subsidiary.
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Figure 1. Information technology market development in Asia. Growth rate for 1994-96: China, 21%; Austrialia, 12%; Korea, 13%; Hong Kong, 7%; Taiwan, 6%; and others, 10%.
In China, planned expansion of semiconductor manufacturing by joint ventures and domestic producers continues at seven locations. In India and Thailand, the emerging computer industries, investment in telecommunications, upgrading the Indian telephone networks, and the prospect of participation in the global information superhighway create demand for devices and opportunities for entrepreneurial manufacturers. In the overall Asia/Pacific market, economic considerations and the availability of plentiful inexpensive labor drive semiconductor manufacturing expansion.
The emergence of specialist distributors
When entering remote markets, capital equipment manufacturers have to choose between a direct presence and a local agent. A direct presence can be very effective, but the costs, in particular the posting of qualified expatriate staff, can be much higher than the initial return for some period of time. Many opt for a more cautious indirect marketing strategy that requires assurance of adequate support for complex equipment both for the manufacturer and the equipment user. A developing market with a limited industry base generally offers commissioned agents who are unable to provide adequate support and these must hire and train personnel to meet the need (Fig. 2). On top of this, there are the traditional complications of doing business in a foreign land, ranging from language and cultural differences to different trade practices and logistical support. Multiplication of the problems by the number of developing regions prevents many manufacturers from considering a presence in these markets.
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Figure 2. Evolution of capital equipment distribution as a function of market development.
A growing result of standardization in the specifications and operation of complex capital equipment is increased competition, making the customer`s choice of brand largely a matter of the excellence of reputation and support. Further, the increased sophistication of equipment users introduces demands for special services, and the increased complexity of the products requires a high degree of technical expertise and continuous updates to support protocol.
The workable solution is the selection of a well-established Specialist Distributor, who must meet the following requirements:
an excellent reputation and a record of satisfied customers in all the markets it serves,
a well-established network of regional branches and offices throughout the market areas,
a strong management team, strong technical expertise, accomplished sales and marketing capabilities, and a solid record of accomplishment in customer support,
the financial capacity to invest in the region`s business growth with the capability to manage and indigenize their sales and service infrastructure, and
the ability to communicate and manage effectively across a wide region with diverse language, culture, and trade practices.
The "Four Dragons" of Asia - Singapore, Korea, Taiwan and Hong Kong - have surged ahead of the rest of Asia/Pacific (excluding Japan) in economic and industrial development. Among the many benefits they have derived from heavy investment in high technology manufacturing in their countries is the growing base of young professionals who have gained technical expertise as well as business management experience. This pool of trained professionals is constantly in demand because of growing investments in the respective countries.
Through the years of industrial development, talented professionals in responsible industry positions left employment to become entrepreneurs and have founded companies engaged in diverse activities: trading, commission agents, distribution, supporting industry, subcontract manufacturing, and full manufacturing. The more successful ones eventually acquired full distributorship capability and branched out of their home territory into newly developing markets. Geopolitical, language, and cultural barriers played a role, however, in these developments.
Korean and Taiwanese distributors are very effective in their home markets but are reluctant to venture beyond, with just a very few Taiwanese known to have ventured into Hong Kong, Singapore, and beyond. Singapore and Hong Kong, by virtue of their market openness, geography, economic and multicultural ties, and traditional free-port status, have bred a number of specialist distributors who entered markets from China to the Philippines and eastward to India and beyond.
With the return of Hong Kong to China, Singapore is positioning itself as the most attractive place for investment with its political stability, excellent communication, transportation and financial infrastructure, manpower pool, and managerial talent. All of Singapore`s business and technical managers and engineers are bilingual, with English as the main medium of instruction, and Chinese, Tamil, or Malay taught as a mother tongue second language subject. Therefore, a typical Singapore engineer or manager has no problem communicating in China, India, or almost any other growing South Asian market. Because of the multiracial make-up of Singapore`s population and close traditional ties with neighboring nations, Singaporeans have a relatively easy time adapting and relating to different languages, food, culture, and trade practices in the Asian region.
Conclusion
At this stage of development of the Asia/Pacific markets, a specialist regional distributor appears to be the preferred choice for high technology equipment and materials manufacturers in the South Asia markets. To be effective, the specialist distributor must have a well established network of regional branches in the emerging markets, strong management and technical teams with a solid record of effective customer support, the financial capacity to grow with the evolving markets and invest in the growth, and the ability to communicate and manage in an effective way across a wide region with diverse language, culture, and trade practices.n
Acknowledgment
I wish to acknowledge with thanks the contributions made by T.S. Low, managing director, and the management of DVS Technology(S) Pte Ltd of Singapore with suggestions, pertinent material, and their extensive experience in the Asia/Pacific region regarding this topic.
ROBERT A. SANFORD is the principal of Innovative Concepts, an international trade consulting firm. He held international management positions in the semiconductor capital equipment business for many years before starting his own company. Sanford specializes in Pacific Rim business development with emphasis on the emerging markets of South Asia. Innovative Concepts Co., 17 Preston Beach Rd., Marblehead, MA 01945; ph 617/631-0729, fax 617/631-5924, e-mail [email protected].