Sonali Dalal

Professor Thomas H. Lentz

OL421 – Strategic Management

January 29, 2011

Mid Term Assignment

Outsourcing Semiconductor Technology: China

Mission and vision statement

Solar energy will be the next energy ‘wave’ of the future. Our company’s mission

is to create solar panels using semiconductor technology. This will illuminate the way to

a cleaner, greener future. Our mission is to make using solar energy a realistic and

feasible source of energy and replace carbon-based, non-renewable sources of fuel.

We will create a better planet—and a better world.

Country of choice: China

There are deep resources of knowledge and expertise in China regarding the use

of solar semiconductor technology. “Chinese solar panel manufacturers accounted for

slightly over half the world’s production last year. Their share of the American market

has grown nearly six fold in the last two years, to 23 percent in 2010 and is still rising

fast” (Bradsher 2011:1). The Chinese government has financially supported the growth

of the semiconductor industry and manufacturing costs are low in China. Taking

advantage of lower-cost sources of labor that are familiar with the nature of solar

semiconductor technology would make China an ideal area in which to relocate our

operations and expand our manufacturing base. In contrast, regarding US support for

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the semiconductor industry, one insider stated: “the [United States] federal government

has brought a knife to a gun fight…Its support is completely out of proportion to the

support displayed by China — and even to that in Europe” (Bradsher 2011:1).

Developing solar semiconductors in China would allow our company to take

advantage of the current knowledge resources of that nation and merge them with our

current base of knowledge. It would allow us to manufacture our product in a more

affordable fashion, given the lower input costs of labor and other materials in China.

Many Chinese engineers would leap to work for a US-based technology firm, to gain

understanding of how this technology is being used and explored in other nations. Local

Chinese equipment suppliers in China have been working “closely with foreign

equipment suppliers to develop the domestic market [in semiconductor sales]. Local

equipment suppliers “provide immediate access to the China market and are open to

collaborate with foreign equipment suppliers to develop technology and worldwide

sales” (Feng 2009). “In addition to the polysilicon investments, aggressive expansion by

solar cell manufacturers in China has occurred over the past several years. Leading cell

manufacturers, who represent about 65 to 70 percent of the China cell market, doubled

their capacity in 2008, and have plans to increase capacity another 75 percent in 2009”

(Feng 2009).

The physical conditions of China are well-suited to solar cell manufacturing, and

there is a strong economic infrastructure within the nation supporting the technology, as

well as a willingness to collaborate with foreign entities such as ours. In 2010, a New

Jersey-based firm, NatCore “recently discovered a way to make solar panels much

thinner, reducing the energy and toxic materials required to manufacture them.

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American companies did not even come look at the technology, so NatCore reached a

deal with a consortium of Chinese companies to finish developing its invention and

mass-produce it in Changsha, China” (Bradsher 2010:1).

Factors to consider in planning and implementation

As well as more general issues regarding fairness in trade, the US government

has expressed its displeasure regarding China’s policy of subsidizing the solar

semiconductor industry: “The Obama administration has been investigating whether

China has violated the free trade rules of the World Trade Organization with its

extensive subsidies to the manufacturers of solar panels and other clean energy

products. While a few types of government subsidies are permitted under international

trade agreements, they are not supposed to give special advantages to exports —

something that China’s critics accuse it of doing. The Chinese government has strongly

denied that any of its clean energy policies have violated WTO rules” (Bradsher 2011:

But even if Chinese subsidies decreased from their current levels, manufacturing in

China would still allow a foreign company to take advantage of the infrastructure and

knowledge supporting solar technology with lower input costs.

It is important to be a ‘first mover’ into China at this crucial juncture: “Companies

— and their engineers — are being drawn here more and more as China develops a

high-tech economy that increasingly competes directly with the United States. A few

American companies are even making deals with Chinese companies to license

Chinese technology.” (Bradsher 2010:1). Relocating to China would put a solar

semiconductor company in the heart of where innovation and development is occurring

in the field. Despite the favoring of Chinese enterprises, the Chinese government has

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been willing to extend support to foreign companies, if it serves the Chinese economic

self-interest: “The Xi’an city government sold a 75-year land lease to [American] Applied

Materials at a deep discount and is reimbursing the company for roughly a quarter of

the lab complex’s operating costs for five years” (Bradsher 2010:1).

Cultural considerations

Finding the right contacts with strong English and Chinese-speaking skills is

essential when doing business in China. “Chinese law does not allow such [foreign

liaison] offices to sign sales contracts or bill customers directly. As a result, local agents

and representatives are crucial” in doing business (Gallant 2010). It should also be

noted that “Chinese competitors, particularly those from the state-owned sector, often

enjoy very low costs of capital. Thus, they can enter markets quickly, and they can

expect to receive strong encouragement from the government for their efforts. The

Chinese government makes no secret of its support for state-owned enterprises.

Foreign companies should not expect a level playing field” on a bureaucratic level

(Gallant 2010). However, this venture would involve collaboration with Chinese entities,

which would facilitate the ‘cutting’ of the red tape that so often hampers foreigners in

China.

Conclusion

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 Frustrations and obstacles are possible, and likely, in doing business with China.

Determining creditworthiness and ensuring payment can be difficult. “To minimize risk,

companies just entering the [Chinese] market can protect themselves by not selling on

credit. Exporters frequently require full payment in advance from their distributors or

customers” (Gallant 2010). Getting justice, legally, can be a challenge after an

agreement has been reneged upon. Taking steps to protect intellectual property and to

keep trade secrets close amongst trusted company ‘insiders’ is also highly advised.

However, despite the considerable difficulties, given the opportunities the Chinese

market provides in this particular industry, the robust growth of the solar semiconductor

industry in China cannot be ignored when contemplating international relocation.

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 References

1. Bradsher, Keith. (2011, January 14). Solar panel maker moves work to China. The
New York Times. Retrieved January 16, 2011 at
http://www.nytimes.com/2011/01/15/business/energy-environment/15solar.html?
src=me&ref=general
2. Bradsher, Keith. (2010, March 18). China drawing high-tech research from U.S. The
New York Times. Retrieved January 16, 2011 at
http://www.nytimes.com/2010/03/18/business/global/18research.html
3. Gallant, Rosemary. (2010). Essential advice for doing business in China. (2011). US
Department of Commerce. Retrieved January 16, 2011 at
http://www.buyusa.gov/pittsburgh/adviceforchina.html
4. Feng, Lily. (2009, February 11) Opportunities abound in China’s semiconductor and solar
industries. SEMI Industry Research & Statistics. Retrieved January 16, 2011 at
http://www.semi.org/en/MarketInfo/ctr_028015?id=sgu20