At the intersection of technology, finance and the Pacific Rim.

Monday, May 29, 2006

An interesting story on Intel in China--how they created the "human" infrastructure needed to staff and operate an assembly plant in Chengdu. Please note the accent on human resource development.

Intel Pushes Chip ProductionDeep Into China's Hinterlands
By EVAN RAMSTAD and QIN JUYINGMay 23, 2006; Page B1
CHENGDU, China -- When Intel Corp. began setting up shop on the outskirts of this sprawling city in China's mountainous outback three years ago, Chengdu had a panda sanctuary, some of China's spiciest food and a collection of aging heavy industry.
What it didn't have was a single high-tech factory. Now Intel's plant, which started up this past December, each month spits out hundreds of thousands of chip sets, used to support the microprocessors that are the brains of personal computers.
What Intel learns could help the world's biggest semiconductor company as it pushes its manufacturing further into virgin territory. No chip maker has been as aggressive at expanding overseas. Intel's far-flung network of factories -- in six U.S. states, Costa Rica, Ireland, Israel and three Asian countries -- is key to keeping profit margins high and costs low, which in turn helps lower the cost of PCs that use its chips.
Adapting to Intel's culture of "constructive confrontation," was hard for Star Qin, right, now a team leader in Chengdu.
Intel already operates three plants in the prosperous coastal metropolis of Shanghai. But they are a world away from Chengdu, a city of more than 10 million people in one of China's less developed provinces, Sichuan. Here in western China, factory labor costs average 30% less than in Shanghai, and cities in the region are willing to provide incentives, such as lower taxes, to attract business.
Intel considered several cities in the region, including Xi'an, a well-known tourist center with many more technical universities. When Intel representatives first visited Chengdu in 2001, the land where their plant is now was filled with small farms pocked by hand-dug wells.
But Chengdu left a strong impression on Intel. When the company sponsored a Chengdu computer fair and then-Chief Executive Craig Barrett showed up, 200,000 people mobbed him as if he were a rock star. "We were absolutely fascinated by the passion for technology in Chengdu," said Ian Yang, a marketer at the time who is now Intel's country manager for China.
However, the city's location posed problems. Intel executives worried that local manufacturers weren't the best training ground for its prospective work force. They feared that just-in-time manufacturing processes, which allow the company to turn around orders from customers like Dell Inc. and Hewlett-Packard Co. in hours, would be so new in Chengdu that veterans of other local companies would find it hard to cope.
Many foreign companies in China face a similar challenge, especially as they move farther from the developed coastal areas in search of lower costs and new talent. Some sponsor training programs in universities to help create a pipeline of future employees. Japan's largest advertising agency, Dentsu Inc., built a special vocational school to expose Chinese students to marketing tactics that aren't common in the country. The medical-products unit of Philips Electronics NV is helping to build a biomedical college in the northeastern city of Shenyang.
In Chengdu, Intel decided to train most of its workers from scratch, including hiring fresh college graduates for 70% of its nonhourly positions, compared with 30% in all its other locations. All workers would be sent to train in existing plants in Shanghai, Malaysia and the Philippines. But the training, Intel realized, would have to begin even before graduation.
Intel's corporate trainers visited universities and vocational schools in the region to assess professors and curriculums. To better prepare graduates for work at Intel, the company arranged to add courses on semiconductor physics and factory processes -- and bought the textbooks to teach them -- at two major local schools, Sichuan University and the University of Electronic Science and Technology of China.
"We try to create an ecosystem so we will have enough talent from the local universities," says Yan Chen, director of education outreach for Intel in China.
At UESTC, a former military college converted to private use in the 1980s, Li Bo built a small factory in a classroom, where students sit around a moving assembly line to fit pipes and other plumbing parts together. Cameras and computers record their actions, and the students then look for ways to improve the process.
Recently Prof. Li even began a six-month stint working nights at the Intel plant. "If I know the Intel factory better, I can teach the students better," he says.
The preponderance of under-25-year-olds gives the Intel factory a collegiate air, though Intel's culture of "constructive confrontation" imposes a quick maturity. Star Qin remembers breaking down in tears the first time her work was criticized during training in Shanghai. Her supervisor later told her the criticism wasn't personal. Now the leader of a team of machine operators in Chengdu, she teaches others the same lesson: "At Intel, we point to the problem, not to the person."
When the Chengdu plant has been open for a year, the company's Arizona-based site-selection department will review productivity, turnover, costs and other measurements to see if they meet expectations.
But executives say it ramped up at a faster rate than expected. Meanwhile, two other chip manufacturers, one from China and another from Malaysia, are building test and assembly factories next to Intel's.
Intel is now repeating its recruitment and training process as it finishes work on a second plant in Chengdu, where another 1,000 people will work. And the company has said it will build its next factory in yet another place where no other chip manufacturing exists: Vietnam.


Blogger Do Kim ngan said...

This is the video version of Steve Jobs speech at Stanford.

Enjoy :))

5:39 PM  
Blogger Do Kim ngan said...

This comment has been removed by a blog administrator.

5:44 PM  
Blogger Jinwoo IM said...

Thank you, Do Kim ngan. I'm working with my senior who had worked for around 5 years in Intel. When I first started working together, I was somewhat shocked because she used to talk directly without any other accessory comments. But, I got to know that the conversation way of Intel people after her explanation.

However, nowadays, I feel easy to talk with her because we can just focus on our work without considering other variables like seniority. But, she seems to be getting accustomed to the culture of Korea... ^^

11:21 PM  
Blogger bayu said...

Thank you so much, Mrs.Ngan for the URL. Tough, we all agree that was a very good speech by Steve Jobs right?

6:00 PM  
Blogger LeftBack said...

Craig Barrett selected Chengdu as its most recent plant after 200,000 people showed up for a computer job fair sponsored by the company. That’s the official story, anyway. My feeling is that Craig Barrett’s decision was much more strategic than he let on. After all, no matter where Intel decided to hold a job fair, eager Chinese techies would show up in numbers.

Intel’s factory in Chengdu represents more than another expansion into China’s interior. I suspect it is a sort of test bed for Intel’s overall strategy of moving into emerging markets – not just any emerging markets, but those areas where there is no existing infrastructure; for this is where Intel will achieve its future competitive advantages. As the article states: “factory labor costs [in Western China] average 30% less than in Shanghai, and cities in the region are willing to provide incentives, such as lower taxes, to attract business.”

If Intel’s aim in building a new factory in China’s interior was simply to widen its footprint in the country, it would have built in Xi’an, a more sophisticated inland city with many technical universities. Instead they selected Chengdu. It will be the first time Intel has build in completely virgin territory where there is no prior history of a high tech industry or even schools to support such an industry.

Intel is not only building a new factory, it is also creating the infrastructure required to support it. Few companies have the size, money and clout to pull this off. Fresh college graduates will fill 70% of the factory’s nonhourly positions, “compared with 30% in all its other locations.” In this sense, the Chengdu plant represents a harbinger of Intel’s global strategy of parachuting into areas with little infrastructure as opposed to the traditional expansion strategy of spreading gradually outward from a beachhead like Shanghai.

Apart from creating a “pipeline for future employees,” the managers of the Chengdu plant are faced with the challenge of adapting their employees to western business culture, especially Intel’s practice of “constructive confrontation,” whereby managers address problems in a direct manner relative to many Asian cultures where a premium is put on “joe hwa” (group harmony).

So far, Intel’s experiment seems to have been a success. Their Arizona-based site-selection department has yet to review the new plant’s productivity, turnover, and costs, yet initial indicators seem to indicate success, a fact that has not escaped the attention of other chip manufacturers. China and Malaysia-based test and assembly factories have already begun piggybacking on Intel by setting up camp next to the Chengdu factory. Intel itself is eager to replicate the success of its Chengdu plant, by building a new complex in Vietnam, a country with no prior experience in chimp manufacturing.

10:13 PM  
Blogger LeftBack said...

This comment has been removed by a blog administrator.

10:13 PM  
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7:45 PM  
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10:07 PM  
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7:00 PM  

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