This reminds me a bit of the early 80s when some Japanese chipmakers started forming keiretsu with other companies. Do you think we're heading in that direction with the Chinese? What would be the impact on the chip industry if that were so?
The Japanese kiretsu can be seen as outgrowths of the previous Zaibatsu groupings, and the Korean Chaebols are similar.
It's not clear from the EETimes piece that what is happening is interlocking ownership. This is simply a Chinese manufacturer attempting to serve the growing Chinese internal market, and seeking ways to get closer to it's customers.
Heading in that direction with the Chinese would not surprise me. The question is whether we would even notice. For all we know, it already exists. One of the issues with doing business in China is transparency, and ownership is one of those things that can be hard to pin down.
Yeah, I wouldn't put this in the category of interlocking ownership. This seems like a straight foundry deal -- Dongbu is going to build more image sensors for BYD on a foundry basis. But note that Dongbu is very eager to do business with more Chinese companies. And with 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.
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.
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.
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.
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