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Asia's next tier eyes global role

Posted: 17 Jul 2006 ?? ?Print Version ?Bookmark and Share

Keywords:Mike Clendenin? Yoshiko Hara? K.C. Krishnadas? Beijing Huaqi Information Digital Technology Co.? Sony?

By global standards, the only thing truly big about Beijing Huaqi Information Digital Technology Co. is its name. Nevertheless, it has big plans. Like dozens of companies across Asia, Huaqi aspires to follow in the footsteps of regional giants like Sony and Samsung to be a household name with cutting-edge technology.

That's the dream. The reality: Huaqi is a PC peripherals and consumer electronics company that does a little more than $300 million a year in revenue. Outside of China, it is unknown. Its most popular product lines are low-margin MP3 players and USB flash drives. It faces tough competition at home and a steep learning curve abroad.

But Huaqi, like other wannabe giants in Asia, has some of the ingredients to make a run: a low-cost manufacturing base, a growing emphasis on R&D and a newfound respect for building a worldwide brand. The combo attracted WI Harper Group chairman Peter Liu, a well-known venture capitalist who has joined Huaqi's board to help guide it into the global marketplace.

"It is the future for Chinese companies to go all over the world," said Huaqi CEO Feng Jun. "We have the ability and chance to be No.1 in other countries. But it will take a lot of effort, and it will be a long road."

Larger concerns' successes may provide a blueprint for getting it done. In China, Feng's touchstone might be Lenovo, whose bid to go global through the acquisition of IBM's PC division is paying off. He might also look to telecom gear maker Huawei Technologies Co., which has tripled its revenue in the past three years to nearly $9 billion, about half of which comes from overseas sales.

"We will see some new companies that surprise us," said Scott Kennedy, an assistant professor at Indiana University who specializes in China's technology policies. "Ten years ago, nobody probably saw Huawei coming in telecom, and now they have become very successful by making good products and focusing on the developing world."

The companies rising the fastest are the ones splashing out R&D. Huawei spent 10 percent, or about $480 million, of its 2004 revenue on R&D. Beijing chip designer Vimicro International Corp. is using some of the proceeds from its Nasdaq listing to hire hundreds of engineers and plot out acquisitions. It hopes to move from its core business in PC camera image processors to a stronger role in multimedia processors for cellphones and, down the road, DTV market presence.

There are some sinkholes in Asia's fertile ground. Chinese CE vendor TCL Corp. is an also-ran in the handset business and has struggled to make its TV partnership with Thomson work. Singapore's Creative Technology, once a high flier in MP3, has been pummeled by lower-cost providers and has failed to ignite interest in its hard-drive- and Flash-based players.

Still, dozens of IC and system houses in China, India, South Korea and Taiwan are fine-tuning their global game plans in bids to tread in the footprints of the first Asian giants!most of them Japanese!that blazed a trail to the West.

Don't expect any overnight sensations, particularly from China. At this stage in the country's development, the focus is on cultivating a wider base of talent so that it can move beyond simple, low-margin manufacturing. "China needs human capital. It doesn't have that!it has human resources," said Howard Wu, president of China's largest handset design house, CEC Wireless.

The venture capital community is aware of that disparity as it scours China's landscape for the leaders of tomorrow's giants. "We need to see more experienced financial people who understand both U.S. and China GAAP (generally accepted accounting principles), as well as experienced engineers. This is the major bottleneck to growth," said Lisa Lo, Beijing-based managing director of CID Venture Management and Consulting.

Slumbering titans
There are parallels between Asia's largest market, China, and its slumbering giant, India. For years, the buzz on India's software industry has drowned out the country's efforts to lure more of its engineers into the IC business.

India today is home to about 125 system and IC design and development firms, but the biggest ones only do outsourced design. The smaller ones lack the funds to develop competitive products.

Still, there are signs of progress. Some senior engineers with project management experience at global tech firms are striking out on their own, laying the foundation for an entrepreneurial IC design industry that will both compete and cooperate with international players.

A case study is DSP intellectual property specialist Ittiam Systems Ltd, whose chairman and CEO, Srini Rajam, was previously Texas Instruments Inc.'s top executive in India. In 2000, Rajam persuaded a handful of TI colleagues to jump ship and form the venture, which focuses on consumer multimedia and broadband applications.

"We estimate the market opportunity for design IP in this space to be of the order of $1 billion to $2 billion," Rajam said. And he is determined to snatch a healthy portion of that business, saying the only thing that could stop Ittiam would be another global tech meltdown like the one five years ago. As a measure of Rajam's confidence, Ittiam is pondering what would have seemed impossible for an Indian IP provider a few years ago!an IPO.

Ittiam has been voted the most preferred DSP IP provider two years in a row in a global survey by Forward Concepts. Another firm, Tejas Networks India Ltd, was mentioned in the Top 100 Red Herring private companies in Asia that will drive the tech industry's future. There is abundant confidence in the potential of the semiconductor sector in India, said Shantanu Bhagwat, a VC at Amadeus Capital. But the budding industry has been hampered by a dearth of government policy support.

China, by contrast, has encouraged chip-industry investment with such incentives as free land, interest-free loans, and short- and long-term tax breaks. The difference shows in the numbers. The Indian Semiconductor Association estimates that the domestic chip market totaled $1.2 billion in 2005. China's market has already topped $45 billion.

Tiny behemoth
The challenges are different in Taiwan. The country is home to hundreds of fabless companies and system houses, a handful of IDMs, dozens of fabs, and packaging and test houses!a huge chunk of the global electronics supply chain, packed onto an island less than half the size of Maine. But as the world increasingly looks to mainland China's engineering talent, manufacturing prowess and 200 million- to 300 million-strong middle class, Taiwan stands in a lengthening shadow.

To maintain its influence, Taiwan has carved out a leadership position in mainland China's tech-manufacturing industry. Taiwan's ODMs are kicking into overdrive, knowing that high volumes are the only way to survive. And a few of its former ODMs are working to build global brands.

More than half of China's tech exports are linked in some way to Taiwan-owned or -managed companies. Taiwan's ODMs are spending hundreds of millions to build R&D centers; Quanta Computer, for one, has done so to maintain its leadership position in notebook PC design. And EMS giant Hon Hai Precision Industry Co. is snatching up companies to bolster its expertise in PCs and build know-how in CE and communications.

But branding remains a challenge. Acer Inc., a longtime champion of branding, has raced to the top spot in Europe for notebook PCs, but has struggled in America. BenQ Corp. tried leveraging its PC peripherals line into a global brand, with muted success. Now it is betting on the acquisition of Siemens' handset business to give it global exposure.

Stan Shih, founder of both Acer and BenQ, believes branding is the best path for those companies. But like Feng of China's Huaqi, Shih understands that transforming small Asian companies into global giants will be arduous and that failure may be the prelude to success. Indeed, Acer failed in America in the 1990s and went through a handful of reorganizations before it emerged as a contender in Europe.

Japan's next generation
Few know more about putting innovation at the heart of everything they do than the Japanese. Beyond the Sonys and Toshibas, there are many small and largely unheard-of tech firms in Japan that hope to achieve leadership status in what some are calling the Asian Century.

Consider Access Co. Ltd, a longtime supplier of embedded browsers for handsets. In July 2005, Access boosted its global profile by acquiring Palm Source Inc. After merging the Linux-based Palm OS with its own browser technology, Access released the Access Linux Platform (ALP) for cellphones. With ALP, the company hopes to win a 30 percent stake in the world handset OS market and, in the process, drive revenue six times higher, to roughly $1 billion, in four years.

Then there's IPFlex Inc., a six-year-old developer of reconfigurable processors that can adapt every clock cycle to changing system and application conditions. Fujitsu Ltd eyed the technology and invested in the company in 2002. Since then, Fujitsu has been the top shareholder and is acting as a foundry for IPFlex, which serves applications as diverse as imaging, digital consumer, wireless communications and supercomputing.

It's the kind of innovation China yearns for. "We don't need more cost-down, me-too companies here," said Tom Zhang, VP of Vimicro. "We need innovative solutions to enable the new markets."

- Mike Clendenin
EE Times

Yoshiko Hara and K.C. Krishnadas contributed to this article




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