NXP needs to be "more Chinese," says exec
China holds a tremendously promising market that global companies are making great efforts to capture. One in particular is a few steps ahead in the game by setting up a joint venture with the country in the entity of Datang NXP Semiconductors Co. Ltd.
Before going into the methods employed by NXP in tapping the huge market that is China, let us first take a deeper look at the country. Sentiments toward China tend to swing to either extreme so easily because of economic, social or political upheavals. This volatility makes doing business in China a lot tougher than anyone cares to admit. In China, Western companies need to learn to manage their own expectations and stay prepared for the unexpected. They must be willing to hold the long view and develop a strategy for the long haul.
In my recent conversation with Drue Freeman, SVP of NXP Semiconductors, I was struck by the Dutch company's diligent and almost methodical approach to China.
It was almost two years ago when I first heard NXP CEO Rick Clemmer tell me in an interview: "NXP today is practically a Chinese company."
Noticing that I almost fell off my chair, Clemmer went on to explain that NXP makes more money in China than in any other single country. By 2012, NXP's shipment-based revenue in Greater China was already twice as big as its European revenue, and one in every three employees at NXP was located in China. The Dutch company employs 8,000 people there.
Now, fast forward two years later.
When Freeman, responsible for NXP's global automotive sales and marketing, was asked what drove NXP to form a fabless automotive chip joint venture in China with China's state-owned Datang Telecom Technology Co., he simply said: "We've kept thinking that we need to be more Chinese than we already are."
What? Needing to be more Chinese?
It's important to note that NXP has already become the biggest chip supplier in China's automotive market, with 10.5 percent market share in 2012, according to statistics compiled by Strategy Analytics. The Dutch company's automotive business is holding its own in China.
Unlike system companies, like car OEMs from abroad doing business in China, chip vendors are not required to form JVs in China, according to Freeman. So why bother to found Datang NXP Semiconductors Co. Ltd, especially when NXP had to swallow its pride and accept a minority stake (49 percent)?
Freeman, who moved his office to China in April 2011 and lived there until late last year, takes a practical view.
Noting that NXP's automotive chip business is mostly centered on connected cars and keyless entry, Freeman told me, "The reality in China is that the [automotive chip] market will evolve over time." He foresees a shift whereby the Chinese government, while remaining within legal boundaries, would give preferential treatment to China's domestic players.
As IHS Technology's recent research report noted, China's automotive semiconductor market is set for 11 percent growth in revenue this year, largely driven by an increasing desire among car buyers for added vehicle safety features and infotainment applications such as car navigation.
Given how quickly China's fabless chip companies have risen to dominate smartphone and tablet SoC markets, it's not unreasonable to picture the rise of Chinese chip companies in the automotive sector.
It's one thing to go after the Chinese market, mesmerized by its size, in a very opportunistic way. "You could make a lot of money in a very brief period. But that can backfire easily," said Freeman.
Western companies need to go into the Chinese market mindful of the "soft" trade barriers that often arise. To maintain a leadership role in the Chinese automotive chip market, NXP maintains Freeman's mantra: You need to be more Chinese.
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