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Tom Murphy
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Re: New Alliances
Tom Murphy   7/12/2013 8:24:47 PM
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I think the question is whether the alliances go astray of international regulations designed to present collusion. There have been some spectacular, multibillion-dollar judgement that went against companies that created illegal consortia.

DMcCunney
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Re: New Alliances
DMcCunney   7/12/2013 7:55:42 PM
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The problem with keeping an eye on vendors in a foriegn industry is that same as keeping an eye on them here.  It's just harder because they are foreign.  It can be hard enough to know who owns what part of whom in the US, where that's supposed to be a matter of public record.  It's harder in other places where it may not be.

The other issue is differences in underlying national culture.  I suspect you can find a number of things that are not well thought of or even outright illegal here, that are simply The Way Things Are Done in China (like whose palm to grease to get a needed approval.) A Chinese vendor might not even understand what you're upset about if you complain.

(An old friend was in international education, and said "Don't get me started on dealing with the Chinese."  You not only needed to know what palms had to be greased and how much grease was needed - you had to know the order in which they had to be greased, which required undersanding a status hierarchy that might be impenetrable to a Westerner,)

 

DMcCunney
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Re: New Alliances
DMcCunney   7/12/2013 7:42:45 PM
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I'm a railroad fan, and am old enough to remember when the Pennsylvania Railroad, the New York Central, and others were all going independent concerns.  I've been watching the steady consolidation in the industry and demise of one after another of the "Class 1" roads for decades.  The Penn Central case was characterized by incompetance, stupidity, and management who were increasingly financial guys manipulating numbers with little understanding of the underlying core business. From my point of view, the book was best described as grimly amusing.

As for connections between Keiretsu and Japan's chip industry, the distinction might be technical.  Japanese industry and government have always had close cooperation, and the top management of the various vendors are likely a fairly small club that all know each other.  I'd look at things like who graduated from what university, and who sits on what board.  You don't need an actual Keiretsu to have something that looks and acts a lot like one.

It's going to be a grey area in any case, as the nature of the industry is that there will be plenty of times and places where they will have to cooperate with each other, like in standards setting.

What you probably want is something like another story from the railroad industry.  Railroads connect with each other and interchange traffic.  Often roads have negotiated rights to run their trains over someone else's track.  The then new CEO of the Western Pacific met with his counterpart at the Santa Fe, and announced "I understand we have common interests, and I'll cooperate with you right down the line in every area except one: car loadings.  I want them all!" :)

 

junko.yoshida
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Re: New Alliances
junko.yoshida   7/12/2013 6:37:34 PM
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All good points, DMcCunney. I think I am going to look for the book you mentioned. Fascinating.

I knew that Hitachi example was a bad one. But simply, I couldn't come up with any exmaple on how Keiretsu might have had any hand in the buildout of Japan's chip industry. 

Aside from lots of "support" from the Japanese government, I can't really put my finger on that one. 

junko.yoshida
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Re: New Alliances
junko.yoshida   7/12/2013 6:09:23 PM
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No worries, Tom. It just "kiretsu" in Japanese means "rapture," which sounded really wrong to me...

 

Tom Murphy
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Re: New Alliances
Tom Murphy   7/12/2013 5:57:55 PM
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Thanks for pointing that out, Junko! I have corrected my original post to keiretsu!

As to the question of companies partnering up, there are strict international trade laws about this -- which unfortunately are often broken to the detriment of other players.  I think it's prudent to keep an eye on new relationships in the chip industry, although there is no clear evidence of anything wrong in this instance.  Still, as other writers have noted, there is some apprehension about the way China-based companies conduct business, often with support from the government. 

DMcCunney
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CEO
Re: New Alliances
DMcCunney   7/12/2013 5:41:36 PM
That the Zaibatsus should reappear is no real surprise.  The US equivalent was the cartel or the trust.  Both fell out of favor and were outlawed or forcibly broken up by government action.  But that just severed the official ties.  We still see things like that with actual ownership carefully disguised through proxies, holding companies and the like, so small groups can control large enterprises secretly.

 (The book "The Wreck of the Penn Central", about the demise of the railroad formed by the merger of the Pennsylvania and New york Central railroads, printed a diagram of the various companies that were part of the conglomerate and the relationships between them including ownership stakes.  It was complex enough that I suspect even top management no longer understood it, which was a factor in Penn Central's failure.)

More recently, in the US, we had the Justice Department consent decree that broke up the former regulated national telecommunications monopoly AT&T, and created the Baby Bells, but their number has declined through merger and acquisition.  We're not back to just one, but things have simplified a lot.

Things like Hitachi are simply vertical integration, where the coporation owns all of the parts that make up the business, instead of the business being composed of seperate companies with interlocking ownership.  That's gone out of fashion in the US too, but it's not actually illegal.

I suspect we may see vertical integration falling from favor in Japan, too, if there's evidence that the corporation will perform better overall if it doesn't try to own all of the parts and may be better advised to simply buy things it needs from other businesses that specialize in those things.

junko.yoshida
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Re: New Alliances
junko.yoshida   7/12/2013 5:04:42 PM
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I actually believe that we might be overthinking about this whole deal.

Look, SMIC, China's flagship foundry, makes a lot of money by making image sensors. There are no surprises that Dongbu wants that part of the business.

junko.yoshida
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Re: New Alliances
junko.yoshida   7/12/2013 5:02:18 PM
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Sorry, this is just a minor point, but I had to correct this...It is NOT "kiretsu," but it is "keiretsu." But DMcCunney got it right, in a sense that "Keiretsu" is a continuance of previous "Zaibatsu" -- such as Mitsui, Mitsubishi, etc. Those "Zaibatsu" were supposed to have been destroyed when Japan lost the war; but they all somehow sprung back in similar grouping...

For the record, Japanese chip companies never formed "keiretsu." Instead, a large company such as Hitachi, for example, had a number of related companies underneath, which might have chosen to work with a chip division of its parent company.

DMcCunney
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CEO
Re: New Alliances
DMcCunney   7/12/2013 4:18:44 PM
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With very good reason.

China has been attempting to bootstrap itself from a Third world agrarian economy to First world industrialized status.  They've been repeating what other nations in similar circumstances did - move the peasants off the farm and to the cities, where tney could become the basis of an industrial workforce.  And they've leveraged the fact to grow the economy through export.  Large amounts of manufacturing migrated to Chine because labor costs were far lower and things could be done so much cheaper that it made economic sense to do it in China and ship it elsewhere.  China fueled economic growth through export.

China is now in a critical period of transition.

That pool of cheap labor is drying up, and manufacturers are having to compete for workers, so labor costs are rising, and China is no longer the low cost producer.  Further economic growth won't come from exports - it will require growing and serving the local Chinese economy, and Chinese companies are shifting to do that.

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