Ten years ago I was sat in the ballroom of a London hotel and heard Ulrich Schumacher, then CEO of Infineon, talk about the unthinkable.
I was sat alongside Brian Fuller, who was then EE Times editor-in-chief, in the ballroom of a London hotel as I heard Ulrich Schumacher, then CEO of Infineon Technologies AG, talk about the unthinkable.
It was December 2002 and I remember the frisson that went through me as I realized what Schumacher was saying. He was responding to a question that seemed to be either idiotic, alcoholic or planted. "Would Infineon move its headquarters from Munich?"
Schumacher started off slowly by talking about how much Infineon was already an international company with manufacturing at various locations around the world and teams of accountants in Portugal doing the bean counting. Then he warmed to his task. Schumacher said that the tax regime his company experienced was some 18 percent worse than that enjoyed by some competitors and that this difference was unacceptable. He added that by being based in Germany, Infineon was battling against an unacceptable tax burden and was prepared to do, "whatever is necessary" to alleviate the cost
Having floated this radical idea Schumacher then calmed things down by saying that such talk was premature. "Would we go somewhere else? It's not something we would do lightly," Schumacher concluded. In subsequent reporting Switzerland and Singapore emerged as leading candidates for a relocated Infineon.
I reckon the Infineon supervisory board didn't like that kind of talk and with hindsight it seems like it was the beginning of the end for Schumacher at Infineon. Although Infineon had been formed on April 1, 1999, and conducted an IPO in March 2000, that most German of companies Siemens was still a substantial shareholder and probably dominated the board.
Schumacher lasted another 15 months until March 2004 when he unexpectedly resigned amidst a disagreement over strategy. At the time the IG Metall union blamed the controversy on tough labor policies Schumacher was trying to bring in and "image-damaging discussion of the dislocation of the company's headquarters to Asia."
Well here we are 10 years later and now several companies are only too eager to say how they are basically far-eastern companies and well plugged into the greater China chip and equipment manufacturing nexus. They certainly don't expect to lose their jobs for such talk.
Rick Clemmer, CEO of NXP Semiconductors NV was recently happy to describe NXP as being practically a Chinese company. However, that did not mean Clemmer was proposing to move NXP's headquarters from Eindhoven, The Netherlands. Quite the contrary: "The only reason we are still a Dutch company is because we enjoy our tax breaks in the Netherlands," he said.
And ten years on talk about corporate tax rates is also back in vogue with the number of companies setting up shell companies to move revenue streams about seemingly on the increase. Apple is attracting a lot of anger for the way it has set itself to minimize its tax liabilities but it is certainly not the only company.
After leaving Infineon Schumacher took a position leading Chinese foundry Grace Semiconductor so at one level he practiced what he preached. Perhaps he was an executive ahead of his time?
With a headquarter moved to a low tax country Infineon would be already history. The multi millions of tax paid during the dot-com bubble helped via tax refunding to survive in the downturn afterwards. Without this refunding, that is with a headquarter in Switzerland or Singapore, an aquisition would have been on the agenda. And the possible outcome of such an aquisition, especially in those days, was at best highly uncertain. As an example a few years later a big aquisition planned by the then CEO was stopped by the supervisory board. Months later another company made the deal ... for half the price.
Corporate Headquarters is more semantics than reality.
As NXP shows, the real yardstick is where your sales are, as that will be where your smartest FAEs are posted.
'Corporate Headquarters' Bean-counters are cheap, and essentially inter-changeable.
Infineon will stay close to BMW, and other Euro car makers, as that is where their sales are.
I have seen a couple of Europe companies with headquarter in Asia. But smaller ones, not as big as Infineon. Other than expertise back in Europe most of other operations such as sales, development are in Asia.
(European) Semiconductor companies will, in the long-term, move to Asia. Or shrink to the right size to satisfy local customers only. Consider this latter possibility since some asian customers have already changed their suppliers to local one because of better and cheaper support, less time wasting with jet lag and culture misunderstanding. How many employees would STMicroelectronics have if they'd only serve european customers? How will european manufacturers address the chinese market when their local competitors reach the same products quality?
Less time wasted in supporting your customer with long emails, poor phone call quality, poor understanding of each other. Engineers believe in what they "see". When a customer says "I have that problem", the provider's team say "show me some logs, prints, blabla". And they will not start debugging this issue until someone, either the customer or the provider, move to the other place to effectively "show" what the problem's symptoms are. Without great and efficient support, ie without proximity with the customer, companies lose them in the short-term...
You should also include the part where the Munich Prosecutor's Office went after Schumacher on trumped up charges - later dismissed by the presiding judge who harshly reprimanded the prosecutor for the transgression.
Was this a setup from the bowels of the Pink Palace or retribution from the Unions [or both]?
Infineon is now an automotive parts supplier - the thought that they might relocate to Stuttgart comes to mind, though Stuttgart's order books in China seem to be having a problem right now. Best to stick in Munich for the time being...,
Yes, this story will be continued - however tortured that might be...,
The idea that intellectual property is the property of the country in which it was developed is intriguing.
It is true that the monopoly power to expoit IP in the form of a patent is conferred by the monopoly taken to itself by a country or a region (European patents and so on).
So the idea that patents might be voided if a company relocated (or didn't pay enough tax) is interesting. It is perhaps one of the few ways that "poor" countries might be able to assert power against "rich" companies.
To be continued.....
January 2016 Cartoon Caption ContestBob's punishment for missing his deadline was to be tied to his chair tantalizingly close to a disconnected cable, with one hand superglued to his desk and another to his chin, while the pages from his wall calendar were slowly torn away.122 comments