Entwicklung, EU-Staaten, Economic development, EU countries

Wolfgang Ziebart

English

Research Papers in Economics

DR.W OLFGANG ZIEBART
President and Chief Executive Officer,
Infineon Technologies AG, Munich
Good morning Ladies and Gentlemen,
When we talk about national champions in Europe,
I am reminded of Airbus Industries, competing so
successfully with Boeing.A question that then comes
to mind is whether the case of Airbus could be a
precedent for other capital-intensive industries such
as semiconductors, for example. We have already
seen a major merger in Europe with one Italian and
one French semiconductor company merging into
STMicroelectronics, which is now the fifth- or sixth-
largest semiconductor manufacturer in the world.So
the question is whether a merger on an even greater
scale is desirable, or necessary. Do we need a
European champion in the semiconductor industry?
Two Main Issues
I have two main views on the question of European
or national champions. In my opinion, we do not
need national or European champions in the semi-
conductor industry. What we need is a world cham-
pion here in Europe. By that, I mean a semiconduc-
tor enterprise that is based in Europe and able to
compete internationally on worldwide markets.
To achieve that goal--the second issue I would like to
address--we need important lead markets here in
Europe. Furthermore, we need a favourable envi-
ronment for the semiconductor industry in Europe,
including innovative high-tech clusters, infrastruc-
ture, and a competitive tax system.
To give you the full picture, let me first talk about
the characteristics of the semiconductor industry.
Then I would like to give you some background on
our decision-making processes regarding future
investments.Finally,I would share some recommen-
dations with you on what can be done for a lasting
and successful development of the European semi-
conductor industry.
Characteristics of the semiconductor industry
First of all, I think that the semiconductor industry
is by far the most globalised industry. Here’s a
good example: A wafer weights 100g and costs
about $1,000. If you ship this product around the
world ten times, that would only add 1 percent to
its costs. In addition, there are no duties on semi-
conductors, since all members of the WTO have
agreed on avoiding duties and tariffs on these
products. This means that basically all production
sites in the world compete with each other. We
have world-wide competition and everybody is
competing with each other,but without having any
particular advantage. This is in contrast to heavy-
goods producers, which might have a local advan-
tage if they were close to their main markets, and
so on. In our case, we do not have those kinds of
advantages. In my industry, we sometimes even
have some of the production steps done on one
continent, while other processes such as back-end
operations including testing and packaging, are
done somewhere else. During a manufacturing
process consisting of 400 steps, our products are
shipped around the world.
In Europe, the semiconductor industry is the manu-
facturing branch that requires the most research and
development, with more than 15 percent of sales
spent on R&D. The semiconductor industry is an
enabling industry of strategic importance for
Europe. Semiconductors provide the foundation for
many other industries in Europe;they are the driving
forces for technical progress, for example in the car
industry and in industrial electronics.Semiconductor
progress is a prerequisite for progress in many other
industries, as semiconductors are tied to specific
applications. When you think about electronics,
which certainly have made a lot of progress, you
have to dig a little bit deeper to see that it is not the
electronics that made the progress.Rather,it was the
semiconductors with new designs, greater capacities,
and new efficiencies that made progress, facilitating
the introduction of totally different and new devices.
Both the semiconductor industry and the application
industry are closely linked.
CESifo Forum 2/2005 56
Panel 2CESifo Forum 2/2005 57
This linkage has two implications. First, many indus-
try branches need a strong semiconductor industry.
Every industry that depends on semiconductors
needs to have direct access to the semiconductor
industry.
Second, the semiconductor industry only thrives if it
has close links to applications. I think it is almost
impossible to succeed in a business activity if your
lead market is somewhere else, for example in Asia,
if you are trying to run your business from Europe.
To sum up the characteristics of the semiconductor
industry, it is on the one hand very internationalized
and globalised,but on the other hand strongly linked
to the main drivers and the lead markets for certain
applications.
Aspects of future decision making
Now,what determines the decision by a semiconduc-
tor manufacturer as to where to invest in the future,
be it in terms of products and in terms of production
sites? These questions relate to production and to
research and development as well, for central
research and for design or engineering centers.
Recently we have been blamed for moving produc-
tion facilities to Asia, and we have even been insult-
ed for not being loyal to our home location.But that
is beside the point.
Our decision is mainly driven by three factors.
Probably the most important one is the location of the
lead markets.This is essential for us when it comes to
deciding where to build our application engineering
or the center of a certain activity. For instance, when
you realize that mobile phone production is moving
to Asia, then either you also move the center of your
mobile phone activity to Asia, or sooner or later you
will be driven out of this market.For instance,it is also
impossible to get a foothold in consumer electronics
without being in Japan. Japan is the lead market. So
either you have the center of your activity in Japan,or
it is very unlikely that you will be successful in the
market for consumer electronics.
The second most important factor is infrastructure.
Where are the best people, the universities, the sup-
pliers and so on? I am convinced that the EU still has
a very favourable environment, but other countries
and regions are rapidly catching up, especially with
regard to education. For instance, we have quite
close ties to one of the four universities in Xian,
Western China. This university pours out as many
electronic engineers as Germany as a whole.So here,
I think, even if the current situation in China might
still be inferior, China is catching up very fast.
The third factor is costs. We often hear that due to
the huge investment to be made in semiconductor
production with depreciation of about 50 percent,
labour costs do not play an important role in deci-
sion making. This is not correct. In Europe, labour
costs in the semiconductor industry are roughly
between 15 and 30 percent of the total price of prod-
ucts. But if you go to Asia, labour costs amount to
something like 5 percent. This gives you a consider-
able difference in margin. Since we are fighting for
1 to 2 percent in return on sales,having an advantage
of 10 or 20 percentage points in labour costs cannot
be overlooked by any means. Interestingly, we have
a severe problem of labour costs even in this high-
tech area, where everybody would think investment
and automation dominate the game.
Recommendations for the future of the European
semiconductor industry
What should and could be done for a lasting and suc-
cessful development of the European semiconductor
industry? Here are two major recommendations that
I think we should put on the agenda.
First, let us create lead markets. For example, we
have done very well in GSM,i.e.mobile communica-
tion here in Europe. Europe was the first mass mar-
ket for mobile communication,and actually took the
lead in mobile phones, GSM and digital mobile
phones. This lead then created a lot of follow-up
industries such as mobile hand sets and wireless
infrastructure, with some services and service
providers expanding later in other areas of the
world.For some years,this was a promising develop-
ment. Unfortunately, we lost ground here. There is
currently a tendency for this market to move to Asia,
along with the upcoming applications industry.When
Europeans go to Korea, for instance, and see what
the Koreans can use their mobile phones for,
Europeans are often amazed. People in Korea are
paying for subway tickets with mobile phones, or
reading bar codes with the cameras in their phones.
A lot of applications that are totally new for us are
already quite common in Korea.
Panel 2As a semiconductor manufacturer, we have no
choice. Either we are where these applications come
up first, or we have no chance of staying in this par-
ticular market in the future.
So we must create lead markets. By this I mean that
we need to be open to new technologies, new appli-
cations, and new business models. We need to seize
the opportunities when they come up.
I would just like to mention some of these opportu-
nities such as Radio Frequency IDentification
(RFID).This will be a very big market in the future,
and instead of discussing possible hazards and prob-
lems, we should move forward and make it possible
for Europe to take over the lead in this technology.
Another opportunity is health cards,which are being
introduced in India. Unless we move quickly, we will
again miss this opportunity. It is very important for
us to consider technological progress as a chance for
success, not as a threat. If customers here are not
prepared to adapt to innovations fast enough, if we
are conservative and hesitant, then we will not have
any lead markets in Europe.
Second, we need high-tech clusters, with a combina-
tion of companies, universities, and related business-
es that complement each other to form an area of
competence.We have Silicon Valley in the U.S. as an
example,but we had to learn that this is very hard to
copy.Even the U.S.has not been able to copy Silicon
Valley to another location within the United States.
I think we have done very well in forming a semi-
conductor cluster in Dresden/Germany, with the
strong support of the government, local authorities,
and especially the local politicians.Today, we have a
major semiconductor industry in Dresden, where
supporting industry suppliers and universities and so
on are available. This is a very good example – but
we need many, many more of them.
Conclusion
To sum up, the past has shown that Europe has a
proven track record of bringing forward a number of
world-class companies in different industries, in dif-
ferent markets, and of different sizes. When we talk
about champions,we shouldn’t just focus on Europe,
or a single nation, we should focus on the entire
world, and on being the home for a world champion
in semiconductors. A world champion here in
Europe would be a viable, innovative, and competi-
tive semiconductor enterprise with entry to, and
large market shares in the most important lead mar-
kets in the world.A world champion would combine
the competitive and comparative advantages of dif-
ferent sites all over the world.
Such a world champion in Europe needs an encour-
aging and stimulating framework for doing high-tech
business here. We must provide a favourable envi-
ronment in Europe to create European-based world
champions.
Thank you.
CESifo Forum 2/2005 58
Panel 2

National and European Champions - Burden or Blessing?

http://www.cesifo-group.de/portal/page/portal/DocBase_Content/ZS/ZS-CESifo_Forum/zs-for-2005/zs-for-2005-2/forum2-05-panel2-2.pdf

National and European Champions - Burden or Blessing?

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics