The recent comments from Shi Lei, the chairman and president of Tongfu Microelectronics, highlight a pivotal trend in China's semiconductor industry: the surge of companies expanding their operations into Southeast Asia, particularly Singapore and MalaysiaThis movement is not just a vague notion; it reflects a strategic pivot towards greater international presence in response to shifting market dynamics.

Supporting this narrative, statistics from the General Administration of Customs reveal that China's total export value reached an impressive 23.04 trillion yuan in the first eleven months of this year, an increase of 6.7% year-on-yearWithin this, the export value of integrated circuits soared past 1.03 trillion yuan, marking an astonishing growth of 20.3%. These figures have served to rejuvenate the spirits of industry players and stakeholders across the semiconductor landscape.

After a year-long hiatus, the integrated circuit sector in China has once again surpassed the one trillion yuan export threshold, signaling clear signs of revitalization

The industry has not only turned a corner but has also collectively ushered in significant advancements in domestic semiconductor equipment, materials, and other related sectorsThis robust rebound suggests that the country's stride towards becoming a global semiconductor powerhouse may well be on the right track.

The positive export data underlines a crucial trend: the rising tendency of Chinese semiconductor firms to establish footholds overseasThe market dictates that companies must adapt and navigate new territorial watersA driving force behind this trend is the "China + 1" strategyThis approach advocates that global procurement entities, while relying on China's manufacturing capabilities, concurrently seek alternative supply sources to ensure the stability of their supply chainsThis paradigm shift compels manufacturers to decentralize their production across various locations and seek out additional clientele as domestic markets reach saturation point.

Tracing back to 2018, the overseas expansion of Chinese manufacturing firms has unfolded through four pivotal phases: exploration of new models, initial shaping of strategies, gradual refinement of approaches, and eventual thriving development

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Companies are now leaning toward emerging economies such as India, Thailand, Vietnam, the Philippines, Malaysia, Brazil, Indonesia, Turkey, and Mexico as potential destinations for their investments.

Examining the Brazilian landscape, the semiconductor industry has flourished with total revenues surpassing 1.3 billion USD, predominantly specializing in memory components that seamlessly integrate with top-tier international IC and telco equipment manufacturersDevices ranging from tablets and desktops to laptops and servers showcase the contributions of Brazilian-made semiconductors, with firms like Jiangbo Long already beginning to tap into this burgeoning market.

As Latin America’s largest economy, Brazil boasts the 8th largest IT market globallyThe Brazilian government has rolled out a comprehensive suite of public policies aimed at incentivizing R&D, domestic production, and exports

Notably, during IC China 2024, the Chinese Semiconductor Industry Association and its Brazilian counterpart inked a memorandum of understanding to foster collaboration.

Meanwhile, Malaysia has become an epicenter for semiconductor advancements with the unveiling of the National Semiconductor Strategy (NSS) on May 28, 2024. This strategy seeks to propel the nation's semiconductor sector by attracting high-value investments and enhancing collaborations with ASEAN nations, Asian entities, and global companiesThe conducive international cooperation environment coupled with attractive policies positioned Malaysia as an ideal site for Chinese semiconductor firms looking to establish manufacturing bases.

Penang stands out as a critical zone within Malaysia’s semiconductor industryThe region has developed a robust semiconductor ecosystem, hosting over 350 multinational corporations alongside 4,000 supportive SMEs, thus significantly contributing to Malaysia's transition towards a technology-driven economy.

On a cultural and collaborative front, Chinese firms have an inherent advantage in connecting with Malaysia

Given that China and Malaysia have maintained diplomatic relations for over fifty years, the two nations have engaged in profound cooperation across numerous sectorsAdditionally, the substantial presence of ethnic Chinese in Malaysia facilitates easier talent management and cultural assimilation for firms expanding overseas.

The UAE also represents a significant opportunity, being one of the Middle Eastern nations with the deepest collaboration with China across various sectorsAs the year 2024 marks the 40th anniversary of diplomatic relations between the two countries, enhanced practical cooperation in trade, investment, energy, healthcare, and education is on the horizon, which collectively fosters a conducive atmosphere for Chinese chip manufacturers seeking to venture into international markets.

Indeed, not only Chinese firms are eyeing investments in the UAE, as major global semiconductor giants are equally intrigued

Reports suggest that Samsung and TSMC are contemplating the establishment of a massive joint manufacturing complex in the UAE, with projected investments exceeding 100 billion USDThis enticing investment environment presents Chinese enterprises with robust opportunities to engage closely with leading semiconductor companies.

With these insights, one questions if venturing abroad could alleviate the cutthroat competition often referred to as the "involution" phenomenon prevalent within the domestic landscapeThe foray of Chinese semiconductor companies into international markets stems from multiple convergent factorsExternal elements such as frequent trade frictions and sanctions have prompted a structural reorganization of the global semiconductor supply chain, which significantly impacts China’s international outreach endeavors.

Domestically, as the sector experiences rapid growth, competition intensifies correspondingly

Consequently, international expansion emerges as a vital strategic pathway for firms seeking technological innovation and optimizing their industrial structureNotably, the Chinese government has adopted a proactive approach, encouraging enterprises to embrace the "go global" mantra, showcasing their capabilities on a broader stage and engaging in global resource allocation and marketplace rivalry, ultimately steering the entire Chinese semiconductor industry towards a highly competitive trajectory.

A striking example is seen in the performance of Zhaoyi Innovation, generating total revenue of 5.76 billion yuan in 2023, with overseas earnings reaching 4.58 billion yuan, accounting for an impressive 79.53% of total revenueSimilarly, Aojie Technology recorded 2.6 billion yuan in revenue in 2023, with overseas income constituting over 81%, fueled by a blend of distribution and direct sales strategies aimed at penetrating international markets beyond China.

Furthermore, companies such as Xidim Micro in 2023 reported overseas revenue of 320 million yuan, contributing 82% to its total revenue for that year, echoing a consistent trend where international revenue exceeds 80% over the past three years

Additionally, semiconductor assembly and testing company Changdian Technology recorded total revenues of 29.55 billion yuan in 2023, with an overseas revenue share of 78.64%, showcasing an international income stream accounting for nearly 80% of their total earnings.

Exploring strategic pathways for international expansion, companies quickly recognize varied avenues: engaging in international exhibitions, pursuing acquisitions or equity stakes in overseas firms, collaborating with international distributors, or establishing foreign representative officesObserving firms with substantial overseas revenue reveals that many employ these strategies effectively.

For instance, Zhaoyi Innovation invests in building a robust presence through international exhibitions and setting up overseas R&D and sales centers to widen its market reachAojie Technology has also established operational entities in Hong Kong, the United States, and Italy, enhancing its brand visibility through external events and technical exchanges

Participation in events like Trustech 2024 in France and Electronica 2024 showcases the commitment of domestic firms to establish themselves on the global stage.

Acquisition of overseas companies also signifies a rapid avenue for penetrating international marketsChangdian Technology marked its strategic acquisition of STATS ChipPAC Ltd, the fourth-largest packaging corporation worldwide in 2015, facilitating an upgrade in its industrial structure and forging ties with eminent players in the semiconductor spaceIn 2024, the company took its strategy further by acquiring an 80% stake in Shengdie Semiconductor, broadening its foothold in storage packaging.

Moreover, Jiangbo Long's acquisition of Zilia in Brazil in 2023 serves as another exampleThe Brazilian unit commenced packaging production lines for Jiangbo Long products by mid-2024, announcing profitability for the first half of the year while continuing to expand its customer base and projecting promising profit margins.

Establishing research and sales centers abroad represents the pinnacle of international expansion endeavors

Leading chip firms must possess exceptional operational capabilities to navigate the global market successfullyThis notion holds true not just for Chinese semiconductor firms but across the entire industry; any semiconductor company aspiring for globalization must merge local market strategies with their intrinsic product strengthsNankong Microelectronics, for instance, has founded subsidiaries in Germany, Japan, South Korea, and the United States, assembling sales and technical support teams locally.

Choosing which approach to utilize for international entry isn't a binary choiceA successful product that encapsulates broad global appeal often benefits from engaging overseas distributors or participating in global trade fairs to garner international clientele cost-effectivelyConversely, organizations with established operations in international markets should tailor their product offerings based on local conditions.

To maintain enduring success in the global arena, Chinese semiconductor firms must also recognize the importance of culturally aligning their strategies

Price competition while initially attractive, is ultimately unsustainable; it may breed resentment against Chinese enterprises in other nationsLocal governmental policies can pose risks to these firms operating abroad, further complicated by the challenge of nationalistic tendencies in various marketsSimultaneously, there has been an uptick in reports showcasing challenges faced by Chinese tech firms abroad, often related to atypical scrutiny from foreign governments.

Promoting a model of mutual benefit remains paramount on the international stageA recent survey by the Securities Times identified that the primary hurdles faced by Chinese firms in foreign operations entailed local policy risks (70.39%), local market risks (54.51%), and legal compliance risks (47.64%). Therefore, embedding Chinese firms into foreign industrial ecosystems by respecting local regulations becomes essential

This involves engaging and adhering to local labor laws, avoiding generic transplantation of domestic operational practices, and striving for genuine integration and collaborative development within foreign industrial frameworks.

To mitigate potential negative impacts stemming from complex international dynamics, semiconductor firms could adopt several proactive strategies: enhancing cost-efficiency, retaining price competitiveness, accelerating international establishment of production centers to sidestep tariff challenges, exploring cross-border acquisitions, and recalibrating export destinations.

Planning a foreign market entry approach necessitates a thorough understanding of potential markets and framing strategies based on localized insights into needs and challengesConcurrently, firms must harmonize their product characteristics and engage in savvy marketing leveraging international events to convey brand identity effectively.

Practicing long-term strategies means assessing current decisions from a future-oriented perspective