There is an unwritten rule that multinationals must pay a hefty "cover charge" to do business in China. The latest example is Intel Corp., which last week confirmed it will build a $2.5 billion fab in China.
For years, there has been an unwritten rule that multinationals must pay a hefty "cover charge" when doing business in China. The Chinese government doesn't exactly twist one's arm, but the multinationals know how to play the game that gives them access to the world's largest consumer market.
These global players won't admit it, but the terms are "pay me now or pay me later." And over the years, companies including AMD, HP, IBM, Intel, Motorola, STMicroelectronics and many more have accepted them.
The latest example of the cover charge game is Intel Corp., which last week confirmed that it will build its first fab in China. The planned fab is a 300-mm, 90-nanometer plant, which will make chip sets in the 2010 time frame. The price tag: $2.5 billion.
Over the years, Intel has invested in low-tech assembly plants in China. But the fab announcement leaves one to wonder if the China government actually did twist Intel's arm for the latest project.
There's no doubt in my mind that China used strong-arm tactics with Intel and that the chip giant is kissing up to the government. On the other hand, Intel is also a shrewd operator. Like many global organizations, Intel could be positioning itself in the best possible light for the upcoming Olympic Games in Beijing in 2008.
Could there be other motives? Sure. I also think that Intel is looking to trump its archrival, Advanced Micro Devices. AMD has assembly sites and R&D centers in China, but has yet to announce a fab there.
Instead, AMD and a group of companies have announced plans to build a fab in India. But that project looks more like a paper tiger than a wafer-making machine. India's technical infrastructure simply isn't up to the task of supporting a semiconductor-manufacturing operation: Some believe that five years will go by before India builds its first large-scale fab.
So AMD, in my estimation, should scrap the India project and consider China. For better or worse, the 21st century is beginning to belong to China. The country has a middle class of 300 million people, about the size of the entire U.S. population. That's one big market.
In that case, one big question remains: What's the next cover charge in China? A bleeding-edge fab? Processor technology? Supercomputers?
I dread the thought, given that the world still turns a blind eye to China's weak protection of intellectual property and human rights.
And then there's that disturbing military buildup. But that's another story.