Quick Quiz: Name six IC packaging centers in Asia. The answers would likely include China, Korea, Malaysia, the Philippines, Singapore and Taiwan. Hong Kong (officially part of China, but run autonomously as a Special Administrative Region, or SAR) probably wouldn't make the list. While the former British colony has a long history in the IC packaging business, what little back-end activity that remains will probably disappear within a few years. The Decline A number of factors have contributed to the decline of IC packaging in Hong Kong during the past decade. The most obvious is the proximity of low-cost labor across the border in mainland China, propelling most electronics manufacturing operations to move over years ago. One other key factor is the lack of wafer fabrication in Hong Kong. The strict hands-off attitude of the SAR government, which wasn't willing to offer incentives for front-end investments, scotched Hong Kong's chances of attracting an advanced wafer fab. For years, Motorola placed Hong Kong on the short list for a new Asian 8-inch fab. That investment eventually landed in Tianjin, China. The final straw for Hong Kong-based IC assembly occurred this year with two separate announcements. First, Motorola said it would shift its Hong Kong backend operations to China and Malaysia. Then QPL International, owners of ASAT Inc., followed suit with a plan to transfer most manufacturing to a new facility in Dongguan in southern China.
A look behind the headlines, however, shows that these moves were necessary and may be best for Hong Kong over the long run. Since its handover to China in 1997, and now that the mainland has joined the World Trade Organization, the SAR has been searching for a role other than as a gateway to China. Labor-intensive manufacturing has long been uncompetitive. The obvious conclusion that government bureaucrats reached is that Hong Kong needs to develop into a knowledge-based economy. Its traditional strengths-a solid financial center and strong rule of law-are still evident, especially compared to China. Higher education is a less talked about competitive advantage, with five universities that include engineering departments. Ironically, most of Hong Kong's engineers end up working in finance. Motorola is phasing out IC assembly and replacing it with value-added activities that fit the government's dream of a knowledge-driven economy. "Motorola Semiconductors Hong Kong is transferring from a manufacturing-based model to a high-value, knowledge-based model," says company spokesperson Dawn Lam. The company, says Motorola, will continue to offer a host of high-value manufacturing processes at its Silicon Harbor facility in Hong Kong. Squandered Opportunity By failing to attract wafer-fab investments, thus weakening the local assembly and test industry, Hong Kong has squandered an opportunity to develop more knowledge-based jobs. Once the existing IC assemblers move out, the only significant packaging technology base in the SAR will be assembly-equipment maker ASM Pacific Technology Ltd. Singapore, where land and labor costs are similarly high, has made the transition from assembly to R&D and IC packaging development. Indeed, ASM Pacific already does a lot of its R&D and development work in Singapore. Unfortunately for Hong Kong, the window of opportunity to upgrade its backend industry into a knowledge driven business has closed, probably for good.
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