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Reverse Outsourcing

Starting out in the microelectronics world is a risky adventure. The average cost of seeing a chip design into production is around ten million US dollars. Manufacturing has differentiated into traditional and emerging opportunities that have led to investments from local government and industry for research and development centres of excellence around the world. David Ridsdale went to Hong Kong to discover why the new Science & Technology Park is enabling companies an entry point where they may not have had one.

As the semiconductor industry moves along the path of a global industry and market, there has been much attention placed on the growth of the Asian economies, especially China, and the impact it will have on the rest of the industry. This focus does not always help many small and medium enterprise (SME) companies as the size and complexity of some foreign markets ensure caution. This allows the bigger players to use their clout to directly deal with governments of emerging countries and strongly position themselves to capture future growth. An SME has greater difficulty in gaining entry when the cost of building a metaphorical path into a region may be prohibitive to many companies.

This is not a new problem and different governments, academia and private interests around the world have set up consortiums, thinktanks, business assistance, funding bodies and the like to ensure future technology growth can develop in their own backyards. Every country would like a Microsoft or an Intel on their doorstep. The benefits are obvious for the future of a region. It comes as no surprise that the Hong Kong government have taken this opportunity very seriously, with the largest growing market on their doorstep.

Since 1997, after many years of British colonial rule, Hong Kong has been a self administered region (SAR) of China. At the time there were fears that one of the most liberally financial cities would move under control of the Chinese government. In contrast to mainland China's civil law system, Hong Kong continued to follow the common law tradition established by British colonial rule as set by the Chinese and British governments in the lead up to the historic handover. Despite the practice of socialism in mainland China, Hong Kong and Macau, which were formerly colonies of the United Kingdom and Portugal respectively, can continue to practice capitalism under a high degree of autonomy for fifty years after reunification. The unique history and geography of Hong Kong is one of the key factors for the government in attracting high tech manufacturing to the area.

Hong Kong spent many years investigating the creation of a "technology corridor" in the New Territories, a section of Hong Kong that is on the Chinese mainland. This was a time when key Hong Kong manufacturing industries, including textile and electronics, began moving factories north into the Chinese mainland. The government saw the success of science parks in Singapore and Taiwan and how those markets' successfully transformed their economies into hi-tech ones. At the time of initial discussions the Hong Kong government maintained a non-interventionist approach to the commercial sectors and there was no rush to draw up plans for a science park.


Several years of public and private sector consultations followed, interspersed with a number of government-funded studies. While Hong Kong continued to deliberate about a science park, governments such as those in Singapore, Taiwan, South Korea, Malaysia, the Philippines and local authorities on the Chinese mainland set up science parks and development zones with incentives to attract regional and multinational investors. The establishment of a Science Park in Hong Kong was outlined by then-governor Chris Patten in 1995 after years of proposals. The government decided to fund the first phase of the venture in 1997 and a planning committee was set up to examine the project in detail. The land was earmarked in 1998 but it was not until 2001 that the Hong Kong Science and Technology Parks Corporation (HKSTP) was inaugurated as a statutory body.

Hong Kong has one of the least restricted economies in the world and is basically duty-free. It is the world's tenth largest trading entity and 11th largest banking centre. Hong Kong has extensive trade and investment ties with the People's Republic of China which existed even before the handover on 1 July 1997. These ties and its autonomous status have enabled it to be the middleman between the Republic of China and Taiwan. Flights, investment, and trade from Taiwan go through Hong Kong to get to the mainland. This experience enables Hong Kong the unique position of being a gateway to China for other foreign entities and still provide protection based on British common law.

The Hong Kong Science and Technology Parks Corporation (HKSTP) is the government's leading tool in the transformation of Hong Kong into Asia's hub for technology innovation in focused clusters. Despite all the delays and political manoeuvring the building and vision that developed is one of the world's best. The state-of-the-art Hong Kong Science Park is built on 22 hectares of land reclaimed from the sea in Hong Kong's new territories. The $1.5 billion Science Park site in Tai Po, near the Chinese University of Hong Kong, was designed to emulate similar establishments in fostering strategic clusters of technology development relating to electronics, telecommunications, biotechnology and precision engineering.

The Science Park provides advanced facilities and support services available for high technology companies including an IC Design/ Development Support Centre and a Photonics Development Support Centre for its tenants and incubatees as well as access to some of the best scientific and business minds that Hong Kong, China and the world have to offer.

The beginning for the Science Park was nearly the end when the Hong Kong Government confused the science and technology communities by controversially deciding to develop the $0.5 billion Cyberport facility in Pokfulam. Much scepticism and confusion followed, leading critics to label the Science Park a "white elephant" that overlapped with the hi-tech development and property-oriented goals of Cyberport.

In the scramble for a similar range of IT tenants, marketing teams from Science Park and Cyberport went head-to-head to promote incentives such as limited rent-free periods to prospective tenants. However, under the watchful eye of Science and Technology Park chief Tam Chung-Ding the HKSTP not only competed against the Cyberport but consistently exceeded the occupancy rate. Tam, formerly a Motorola executive, retired in 2005 but not before taking the facility close to profitability and ensuring phase 1 had a 70% occupancy rate. Amongst Tam's successes were signing up new companies as well as the first multi-national company involvement with European company, Philips Electronics.

Philips launched a new six-storey building at the Hong Kong Science Park in Tai Po, becoming its first major multinational corporate tenant. The Dutch giant, which moved its Asia-Pacific headquarters from Singapore to Hong Kong, also inaugurated its new regional base at Three Pacific Place in Wan Chai. Philips has relocated the global headquarters for its consumer audio-visual electronics business, Philips Mobile Infotainment, and its small displays unit, Mobile Display Systems to a brand new building in the HKSTP.

The company also set up the Asia-Pacific office for Philips Design at the park, which now provides its largest design studios in the world with a floor area of 89,000 square feet. Philips has almost 3,000 staff in Hong Kong, with more than 450 in Wan Chai and about 400 at the Science Park. Other employees work at its factories in Kwai Chung. The company has been operating in Hong Kong since 1948 and its presence at the HKSTP was seen by many as a turning point for the facility and a grand legacy for Tam.

With Tam retiring the HKSTP was under pressure to find a successor but a three month global search found another ex-Motorola executive with plenty of Asian experience. Carlos Genardini took over the reins of the HKSTP in January of this year. Genardini was a long time Motorola employee and has followed Tam into high level positions before. After a four-year stint as vicepresident and manager of Motorola's Asia-Pacific group operations in Hong Kong, Mr Genardini was named general manager of the company's Asia-Pacific semiconductor business in 1996, succeeding Tam Chung-ding, who moved to Texas as general manager of Motorola's microcontroller technologies group.

In 1999, Mr Tam returned to Hong Kong as Motorola executive vice-president and its Asia- Pacific group president. While in Hong Kong, Mr Genardini also served on the engineering boards of Hong Kong University and City University of Hong Kong and on the boards of two Chinese joint ventures. He was also a member of the Hong Kong Science and Advisory Board and was a founding board member of Provisional Hong Kong Science Park.


Mr Genardini's last assignment at Motorola was as senior vice-president for Latin America and Caribbean region operations. Under his leadership, Motorola's business in that region experienced double-digit growth and achieved a peak of US$3.3 billion in sales in 2000. He also founded and ran Genardini & Associates, a strategic business consultancy that offered market research and support along with special development work for companies looking to do business in China.

The HKSTP will push for a more aggressive marketing strategy under Genardini to win new tenants, build future key industries and gain the public's confidence. The corporation also plans to foster more local hi-tech business development through a flexible and pragmatic use of government assets under its stewardship.

Utilising the economic leverage and size of the Pearl River Delta the HKSTP is attracting companies with the promise of a ‘plug and play' research and development centre on the doorstep of one of the world's great manufacturing centres. The Pearl River Delta development programme actively includes the Hong Kong and Macau SAR's emphasising the support the Chines government is giving Hong Kong programmes like the Science and Technology Park.

The HKSTP has fostered many renowned tenants and incubatees in the short period of operation. The Hong Kong region may have been late to the Asian technology development party but have already shown a number of successes. These successes are made possible by the high quality hard and soft infrastructures that have been established at the Hong Kong Science Park. Nowhere has HKSTP's support of tenants and incubatees been more significant than in the Integrated Circuit ( IC ) design cluster.

The IC Design/Development Support Centre at the Park provides intellectual property services, test development services and engineering run production for IC companies. Many start-ups and established companies, such as Andigilog, Appotech, APT, ASTRI, Dragonchip, ENW Electronics, Solomon Microtech, Solomon Systech, Think Technology and others have benefited from the Park's electronic design automation (EDA) tools. The EDA-on-demand programme is the first of its kind in Asia.

One tenant in particular, Solomon Systech, was the first Science Park tenant listed on the Main Board of The Stock Exchange of Hong Kong Limited in April 2004 and has now become the largest fabless IC company in China and Hong Kong in terms of revenue, which was HK$2.4 billion for the fiscal year of 2004. Presently, their market value was placed at ~HK$6.8 billion, which is higher than the capital spending of HK$4 Billion for Phase 1 of the Science Park. Their 2004 profit is at a remarkable 19% PAT. Their expertise is in design, development and sales of semiconductor IC products for flat panel displays.

But medium to large companies are not the only one who can receive support and assistance from HKSTP hard and soft infrastructure. HKSTP's Incu-Tech Programme has successfully incubated over 180 companies, helping participants achieve remarkable recognition and funding support.

One incubatee, Appotech, a fabless IC design house committed to the provision of high quality and cost-effective IC solutions, recently won second prize in the national "Incubating Innovative Products IC Design Competition" in China. Appotech's winning design is a RISC MCU which has gone into production and receiving good customer reception.

Phase I is now fully operational with three types of building for lease, namely Corporate, Campus and Core. Each type of building is designed to suit different space requirements and thus potential tenants of all sizes can be accommodated. Phase two has already begun building and the shape is already evident of the new buildings.

Occupying the central area, the 3 core buildings provide ideal locations for tenants requiring premises less than 20,000 sq. ft. The core building zone also forms the backbone of the Park which provides facilities such as business/conference centres, restaurants, gymnasium, servicedapartments and car-park.

The 4 corporate buildings aimed at larger users (over 50,000 sq. ft.) who want an individual image. They will have the opportunity to occupy high-quality, stand-alone, low-rise units with low site coverage in a landscaped environment facing the Tolo Harbour.

The 2 campus buildings are intended for medium-sized companies who require 20,000 - 50,000 4645 sq.ft. The units in this zone allow tenants with greater flexibility for growth and individual furnishing requirements. Each building has a public display in the foyer that encourages schools and the public to experience a hands-on educational account of what the building is used for and what is being developed.


These ingenious pods demonstrate the importance of the community to the HKSTP and the continuous involvement being fostered between academia, industry, government, education and the public. Those behind the HKSTP understand that the future of the Park depends as much on the public interest and fostering local engineers and designers for the future as it does on the external money being presently invested.

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