Industry unfazed by Hong Kong shift

Electronic News, June 30, 1997

This week, capitalist Hong Kong becomes part of the officially socialist People's Republic of China. Under the 1984 agreement reached by the British and Chinese governments, Hong Kong will be allowed to maintain its economic way of life for the next 50 years as a "special administrative region" of China.

The East may be red, and Mao Zedong is still in place in his Beijing mausoleum, but the unofficial policy of the People's Republic in recent years has been green--that is, encouraging its citizens to make money. So Hong Kong joins a country that is already following the late Deng Xiaoping's nostrum: "Getting rich is glorious."

The transition in sovereignty is expected to bring few substantial changes to the way the former British colony does business. In interviews with semiconductor industry executives, the theme is the same with nearly all: Business as usual.

Both Intel and Motorola have significant presences in the Asia Pacific area, with Motorola being a dominant supplier of both communications IC as well as cell phone and paging systems themselves, and Intel providing microprocessors for China's thriving PC industry.

Both companies have also had a significant presence in Hong Kong for some time, with Intel having established its Asia Pacific headquarters there in 1985, and Motorola--after 30 years of doing business there--having recently designated Hong Kong as the worldwide headquarters for one of four new business units--the Consumer Systems group, headed by Carlos Genardini, corporate VP and GM (EN, June 2).

In separate in-depth interviews, Mr. Genardini and Deborah Conrad, Intel's marketing director for the Asia Pacific region, expressed some common concerns regarding the reunification, as well as discussing what they see as tremendous opportunities that will be born out of it.

Ms. Conrad noted that China's PC market has grown at a rate of 50-60 percent annually for several years and, consequently, Intel's chip sales growth there have tracked that figure.

"In the last three or four years, as we have come closer to the handover, we have asked ourselves 'Do we stay here or not?' " she said, adding, "Everybody does that.

"If the political winds had shifted and a dark cloud had come across, we would have re-evaluated things. But instead the business community in Hong Kong has strengthened. A lot of companies have come together and reaffirmed what we intend to do. It's a business center in the way that New York or London is.

Convenience Unmatched

"At the same time that we were evaluating that kind of scenario, the China market has exploded. This is extremely positive for us. If there is not a serious benefit to the move, we're going to stay put in Hong Kong. Our biggest market in Asia is China. If nothing else, the convenience factor is unmatched anywhere else," Ms. Conrad said.

Motorola's Mr. Genardini said his company went through similar soul-searching before deciding to establish its Consumer Systems HQ in Hong Kong recently. Curiously, however, he said that the then-pending reunification was not considered to be the major factor in the decision.

"No, the decision of making the consumer headquarters in Hong Kong was purely based on the market and the question of how do we serve the customer better. A lot of consumer items are made in Asia; VCRs, camcorders and all that. To serve our customers we have made a decision to locate in Hong Kong. In addition to that, it is centrally located geographically.

"Motorola has been in Hong Kong for 30 years and we are very excited about this handover of Hong Kong to China. It carries some significance. The investment is correct and flourishing. The unification with China will further open the market to China and make it easier to access the market in China.

"With the reunification, there will be less regulations than before," Mr. Genardini asserted. In fact, he said, the expected new openness between Hong Kong and China is likely to create opportunities including alleviating Hong Kong's chronic personnel shortage by providing Hong Kong with access to highly educated engineers who would jump at the chance to earn significantly more than they could on the mainland. According to a Motorola spokeswoman, Hong Kong currently has an approximately minus 1.5 percent unemployment rate--in other words, full employment-plus.

"We expect that once reunification happens, there will be more exchange--that we could have more qualified engineers that we hire from China," Mr. Genardini said, adding, "And people from here will go to China in terms of technical exchange and human resources."

Mr. Genardini also revealed that Motorola is planning to build another manufacturing facility in mainland China--in addition to its four existing facilities there. "We are planning to build a wafer fab in China. We anticipate it will come on-line in the 1998-99 time-frame."

Similarly, Intel has plans to add to its manufacturing capacity in China, according to Ms. Conrad. "We are building a factory in Shanghai called A5T5 (the nomenclature designating the company's fifth assembly and test facility worldwide). We will have 900 people there, and that facility will be on-line by mid-next year."