Competing for scarce IT Skills U.S. and China

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Competing for scarce IT Skills - U.S. and China
by Dieter Ernst Senior Fellow, East-West
Center Honolulu, Hawaii, USA
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Can China Meet the Demand for IT Skills?

• 1. How effective are Chinas policies to develop
  innovative capabilities, skills support
  institutions?
• 2. Can China provide lower-cost experienced IT
  workers to U.S. firms?
• 3. Perception focus on1 (interventionism) may
  constrain 2

• Really?

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Undergraduate Degrees in Engineering,2002

• China 460K
• India 292K
• Japan 103K
• Russia 82K
• US 73K (40K foreign nationals, India China)
• Korea 45K

Sources U.S. Census Bureau National Center for
Educational Statistics Morgan Stanley
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Which IT Skills are Most in Demand?
Source U.S. Department of Commerce, 2003.
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SWOT Analysis of Chinas IT Skill Development
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Chinas Chip Design Design Industry-Drivers (1)

• 1. Huge market for import substitution (3 of
  chips are locally designed) test-bed launch
  markets (CE, wireless)
• 2. Government policies IPR protection
  programs (Golden Card, HDTV, SoC, MPW, embedded
  processors, DSPs, optical) Incentives (tax
  rebates stock options) standards

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Chinas Chip Design Industry-Drivers (2)

• Chinese system companies (Founder, Legend, TCL,
  Haier, Huawei, ZTE, Datang)
• Institutes universities
• Reverse brain drain Silicon Valley
• Transnational knowledge communities
• Foundries providers of tools design services
• Global design networks (system companies, IDMs,
  EMS)
• Fabless chipless

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Chinas Chip Design Industry Strengths
Weaknesses

• Strengths huge markets government support
  (diverse actors flexible dialogue) tax
  rebates incentives to attract top talent
  workforce (cheap motivated) engineering
  graduates overseas Chinese (technology, tacit
  knowledge, finance, orders) advanced foundries
  in Taiwan, Korea and China tool providers
  design support services global IDMs/system
  companies outsource design implementation
• Weaknesses product design/SW integration
  experienced designers/managers
  productivity/design cycle scale orders
  investments firm size weak IP protection
  little advanced home-made IPs reverse
  engineering copycat design design
  implementation will Chinese standards create
  viable markets?

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China Supply Demand of Chip Design Engineers
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In the pond of the global chip industry, the
Chinese mainland is still a small fish. Chinas
chip industry still has a long way to go before
it can become a global player Prof. Wang
Zhihua, vice-chairman, China Semiconductor
Association, 2004
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Low-cost fast-follower
The U.S. will have good designs, Taiwan will
have similar products, but for less, and China
will be even cheaper. But then the U.S. will
create new designs, so there isnt anything to
worry about. Zhao Weijian, President Beijing
Tsinghua Tongfang Microelectronics Company
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Multiple Carriers of Chinas Skill Development -
Chip Design

• Government (central regional local)
• Universities institutes (beyond top-tier)
• IC design centers (Shanghai, Beijing, Shenzhen,
  Hangzhou, Suzhou, Xian, WuXi, Chengdu)
• Chinese flagship companies (Founder, Legend,
  Haier, TCL, ZTE, Huawei, Datang,)
• Global design networks (flagships suppliers)
• Transnational knowledge communities (peer group
  dispora IT mercenaries moonlighters)

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ICT-enhanced Information Mgmt
- production SCM - CRM - KIBS -
EMS/turnkey - ODM suppliers

• communication
• remote control
• audio-visual
• knowledge

codifiedgt tacit
production
Vertical Specialization
Knowledge Diffusion
Global Flagship Networks

• disintegration
• dispersion
• modular
• re-use re-
• combination

tacitgt codified

• re-integration
• concentrated dispersion
• diverse asymmetric
• governance

Innovation
Transnational Knowledge Communities
- design - licensing (IP trade) - standard
consortia - RD collaboration - SI complex
systems

• professional peer group networks
• diaspora of skilled migrants
• reverse brain drain
• IT mercenaries

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Chinas Late Innovation Strategies (1)

• learn from mistakes replicate important
  elements of the Japanese model
• BUT distinct new policy experiment-
  decentralized policy implementation
  (flexibility, experimentation)- selective
  import substitution AND knowledge exchange
  with global network flagships- attacking from
  the sidelines no attempt to compete head-on
  with global market technology leaders-
  long-term move from production of products to
  the production of technologies standards

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Chinas Late Innovation Strategies (2)

• From joint ventures to foreign-owned subsidiaries
• Walking on two legs
• Tax rebates
• Policies to attract the best experienced
  engineers managers
• Alternative standards (TD-SCDMA EVD WAPI
  Linux etc.)
• IPR protection

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Chinas Late Innovation Strategies (3)

• Achievements engineering graduates
  technological innovative capabilities
  infrastructure test-bed launch markets
  strategic alliances with firms of diverse nations
• Questions opportunity cost of throwing that
  much resources at a handful of pillar
  industries? how long will benefits exceed the
  tremendous opportunity costs of such
  policies? how flexible are Chinese
  policy-makers to adjust when they reach
  critical inflexion points?

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Internationalization of Innovation U.S. and
China (short-term prospects)

• U.S. firms dominate patent citations, global
  standards brands
• Chinese firms pursue copy-cat fast-follower
  strategies routine (blue collar) design
  implementation
• U.S firms can attract top local talent
  Chinese engineers seek exposure to cutting-edge
  technology management
• Chinas growing market for U.S. technology
  design platforms software integration

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Internationalization of Innovation U.S. and
China (the longer term)

• Market Power size test-bed launch markets
  Chinese standards
• Capabilities SoC design speed scale process
  integrated solutions recruit experienced
  foreign engineering managers
• Strategy from fast follower to technology
  diversification technology leadership, based
  on China market
• Globalize develop global sales, production
  engineering networks
• Reform Capital Markets
• Correct Imbalances resources geographic income

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Discussion
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Competing for High-Tech Skills

• Constraints to conducting RDE in the U.S.
  Pressure to increase productivity speed Fewer
  U.S. engineering graduates U.S. faces
  increasing competition for knowledge workers
  Restrictions to immigration Truncated
  incentives (salaries stock options)
• Strategic Response Vertical specialization now
  covers RDE From onshoring (H1B) to offshoring
  (L1) Overseas RD center networks
  Cross-border university-industry linkages

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Chip Design

• Value creation gross margins gt 50
• Determines 80 of product cost
• Requires 70 of product development time
• Complexity (silicon system)

Radical changes in methodology (SoC SiP
structured ASICs)
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Widening Design Productivity Gap in Integrated
Circuits
1000000
100000
58 compounded annual growth
10000
Design Productivity Gap
1000
21 compounded annual growth
100
10
2002
1982
1986
1990
1994
1998
Moores Law (K Logic Transistors per Chip)
Design Productivity (x 10 Transistors per Staff
Month)
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Annual Cost of Employing a Chip Design Engineer
including salary, benefits, equipment, office
space and other infrastructure Sources
PMC-Sierra, Inc. Burnaby, Canada (for Silicon
Valley, Canada, Ireland, India) plus interviews
(Taiwan, South Korea, China)
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Taiwans Competitive Advantages in Circuit Design
Market Analysis Product Planning
Define Standards
(Upstream) Market Specification
System/Application Level Specification
Behavioral Level Design
?
RTL Level Design
Speed, Quality, Flexibility, Cost
?
IC Design Implementation Flow
EDA Software Support
Gate Level Design
?
Circuit Level Design
?
Physical Level Design
?
Post-Layout Verification
Taiwans Niche
Foundry Manufacturing, Packaging and Testing
(Downstream) Process Technology
Advantage of Advanced Countries
Semiconductor Material, Manufacturing Equipment