̽��ֱ�� of Cambridge - Peter Williamson

Opinion: As ARM enjoys a Japanese embrace, the lessons it can teach UK tech firms

Anonymous — Tue, 19 Jul 2016 15:24:16 +0000

When the 12 founding engineers of chip designer ARM Holdings met in a 14th century barn near Cambridge in 1991 to welcome their new CEO, (now Sir) Robin Saxby, he asked them a brutal question: “Should we strike out for something, or just be in the hand-to-mouth chip design consulting business?”

With Saxby’s enthusiasm and the founding engineers’ belief in their technology, the team decided they would aim to become a global standard. They set a target to embed ARM designs into 100m chips by the year 2000. It was an ambitious goal for a tiny company with only £1.32m of investment from its then-struggling backers Acorn, Apple, and VSLI. At the time, many said it was no more than a pipe dream.

But this week, ARM agreed a US$32 billion sale to Japan’s Softbank. ARM’s chip designs are embedded in more than 95% of the world’s mobile phones, as well as tablets, servers, and many other types of smart devices. Last year, ARM’s designs went into some 15 billion semi-conductor chips. An incredible feat from an inauspicious start. So what lessons does ARM’s success have for other budding British technology companies?

̽��ֱ��first is: don’t try to do everything yourself. Instead, specialise in the activities where you have a distinctive advantage. In ARM’s case, that was designing capable, reliable chips that used little power and could be manufactured efficiently in volume at low cost.

Workhorses

Then, catalyse the development of a network of partners around you who will fill in the gaps and make you successful as they strive to grow their own businesses. ARM broke the mould at the time, abandoning the conventional wisdom that to succeed in semiconductors you had to be a vertically integrated company which made huge investments in wafer fabrication such as Intel, or remain as a small band of design consultants.

Instead, it decided to become a “chip-less, fab-less chip company”. It would specialise in designs for Reduced Instruction Set Computing (RISC) chips – the workhorses that control all the background activities users aren’t even aware of. But instead of being a small, specialist provider of designs for RISC processors, ARM was able to turn itself into the pivot of a huge ecosystem, becoming the “glue” that bound a network of hundreds of partners together as well as a magnet for knowledge fragmented between different players.

These include phone and tablet makers, chip fabricators, tool developers, software providers, and makers of complementary chips. Lesson one, therefore, is focus on your core and harness the power of ecosystem partners to do the rest.

Focus. niXerKG/Flickr, CC BY-NC

Growing the market

That leads on to the second lesson: concentrate what you can do to make the overall ecosystem “pie” bigger, rather than worrying about maximising your share of that pie. Given the difficulties of scaling up a technology company from a UK base, ARM shows the benefits of letting your ecosystem partners drive global scale for you, propelling your product into billions of devices and accumulating a small royalty from each to create a massive flow of cash.

̽��ֱ��third lesson is to think global from day one. ARM grew with hardly a single customer in the UK. It realised that the volume, and the lead customers driving the direction of its industry, were scattered around the world. So, from the outset, it’s early customers and partners were in the US, Japan and Korea including Texas Instruments, Sony and Samsung. Later, a few were added in Europe, such as ST Microelectronics and Nokia. ARM had to be global almost from birth. Now clients include leading Chinese players such as Huawei and ZTE.

̽��ֱ��SoftBank takeover is certainly not evidence that life will be rosy if and when the UK leaves the European Union. In fact, the deal probably has more to do with the decline in sterling relative to the yen and the dollar, which has made ARM shares cheaper for foreign buyers. Add the fact that ARM has hardly any customers in the UK and few in Europe; most of its sales are in Asia and the US. As a result, it’s pretty well insulated from a downturn in the UK economy.

̽��ֱ��genuine threat from Brexit would come from any future restrictions on migration; ARM has a very multi-national army of engineers and faces an extreme shortage of suitably trained developers in Britain. Any problems here, and SoftBank’s soothing words about maintaining and growing ARM’s presence in the UK might fade into history.

But ARM is also attractive to the Japanese firm because it has the potential to become a major player in the “Internet of Things” – the emerging world where smart machines, sensors, and devices talk to each other. It is another lesson for UK tech firms to keep moving into new spaces.

ARM is particularly well placed to benefit from this emerging network, not only because of the strength of its technology and development capacity, but also because its ecosystem approach is a perfect fit for a market that requires a multitude of specialist companies, institutions and governments to work together. Even at a 40% premium over ARM’s share price before the deal was announced, Softbank’s acquisition looks like a smart move.

Peter Williamson, Honorary Professor of International Management at Cambridge Judge Business School, ̽��ֱ�� of Cambridge

This article was originally published on ̽��ֱ��Conversation. Read the original article.

̽��ֱ��opinions expressed in this article are those of the individual author(s) and do not represent the views of the ̽��ֱ�� of Cambridge.

Peter Williamson (Cambridge Judge Business School) discusses the sale of Cambridge-based technology firm ARM Holdings to Japan's Softbank for £24 billion.

Shinichiro Hamazaki

Sumo Wrestlers Wrestling on the Ring 1

̽��ֱ��text in this work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License. Images, including our videos, are Copyright © ̽��ֱ�� of Cambridge and licensors/contributors as identified. All rights reserved. We make our image and video content available in a number of ways – as here, on our main website under its Terms and conditions, and on a range of channels including social media that permit your use and sharing of our content under their respective Terms.

For image use please see separate credits above.

Yes

Licence type:

Attribution-Noncommercial-ShareAlike

Opinion: G20 finance chiefs meet as China seeks to make a show of its presidency

Anonymous — Mon, 29 Feb 2016 16:16:14 +0000

̽��ֱ��last time G20 finance ministers met in China back in 2005, the country was the world’s fifth-largest economy. As the next two-day meeting begins, with China as president, it lies in second spot, having overtaken several other G20 members: first the UK, then Germany, and most recently Japan. With US economic momentum uncertain and concerns that the Federal Reserve’s recent interest rate rise might have been premature, many will be looking to growth in China to keep the global economy moving forward.

Recent statements from the Chinese government have been reassuring. On February 26, the head of the central bank signalled there were tools available to stimulate the economy, and at a meeting of the Central Committee of the Party on February 22, China’s top leadership pledged that it would stabilise and improve macroeconomic policies to create an amicable environment for economic growth and ongoing structural reforms.

Domestic consumption in China continues to grow at double-digit rates and accounted for almost two thirds of total growth in GDP in 2015. ̽��ֱ��total value of goods bought on e-commence giant Alibaba’s platforms rose 23% last year and shows no sign of slowing down. On Tuesday the Minister of Commerce, Gao Hucheng, told investors that China’s consumption: “will grow at a quick pace in 2016.” But to expect the Chinese economy to act as the single engine of world growth, while other G20 economies stagnate, is simply asking too much.

Shanghai’s skyline. jacky ding, CC BY-NC-ND

Balancing act

̽��ֱ��trouble is that China’s rebalancing towards consumption spending and away from growth in infrastructure spending, property development, and heavy industry will provide little comfort to G20 countries. Many rely on exporting machinery or commodities such as iron ore, coal, or other minerals, and energy to China. Agriculture is the exception, where the shift to higher protein diets in China will provide growth opportunities.

China also has other priorities that will influence the way it shapes the G20 agenda while it holds the Presidency. China has identified four key priorities for the 2016 summit of G20 leaders to be held in Hangzhou in September.

Breaking a new path for growth
More effective and efficient global economic and financial governance
Robust international trade and investment
Inclusive and interconnected development

Pare away the summit doublespeak and what does that agenda tell us about the focus and possible outcomes?

Ageing gracefully

Well, breaking a new path for growth focuses on the need to find a way out of the problems associated with rapidly ageing societies. ̽��ֱ��implications have already hit Japan and Russia, are beginning to show in Europe, led by Germany, and will soon become a problem in China. ̽��ֱ��challenge is to generate new sources of growth that do not depend on a growing population.

Keeping the economy in shape under pressure from demographics. Asian Development Bank, CC BY-NC-ND

̽��ֱ��Chinese focus is on advancing reform and innovation, and creating and seizing new opportunities, especially by removing barriers to the rapid rollout of new technologies.

Under the banner of improving global economic and financial governance, the concern is to take actions that make the global system more resilient to shocks, avoiding another 2008-style financial crisis. Viewed though Chinese eyes, that means increasing the representation and voice of emerging markets and developing countries to deal with the pressures they face. It especially relates to flows of so-called “hot money” and making the world economy more risk-resilient.

̽��ֱ��probable corollary is less reliance on the US dollar, the place where the sub-prime meltdown that set off the crisis began. China has set up a working group led by South Korea and France (the US was notable by its absence) to develop proposals that will be discussed by the G20 finance ministers. They include ways to strengthen the role of the International Monetary Fund’s reserve-currency unit – Special Drawing Rights or SDRs – which incorporated China’s Yuan last year, as well as a move to price more commodities in SDRs. ̽��ֱ��coordination of macroeconomic policy and financial regulation cooperation are also important elements.

Spadework

̽��ֱ��international trade and investment priority is aimed at fostering an open world economy to reinvigorate global growth. China wants to ensure that the rise of nationalistic and protectionist sentiment across many countries in the G20 doesn’t undermine global trade, the growth of which has been slowing, or threaten its own exports and rapidly growing overseas investment, including the acquisition of foreign companies.

̽��ֱ��drive for inclusive and interconnected growth aligns with the 2030 Agenda for Sustainable Development adopted by the United Nations in September 2015 that aims to wipe out poverty, fight inequality and tackle climate change over the next 15 years. ̽��ֱ��Chinese emphasis will be on agreeing G20 initiatives that can encourage more infrastructure investment from multilateral development banks, supporting industrialisation in Africa and less developed countries, encouraging youth entrepreneurship, improving energy accessibility and efficiency, increasing the use of clean and renewable energy, and agricultural technology and innovation.

Most of these topics will strike a responsive chord across the G20 countries, but they definitely have a Chinese flavour as China seeks to build a global influence commensurate with its status as home to one in five of the world’s people and a growing economic power. Implementation of the G20’s past ambitious goals may have been patchy, but China is certainly putting in the spadework to position the 2016 summit to deliver. She is hosting meetings of “sherpas” in Guangzhou, Xiamen, Hangzhou and Wuhan, of finance ministers and central bank governors in Shanghai and Chengdu, and meetings of ministers covering trade, employment, energy and agriculture in Shanghai, Beijing and Xi'an, all before the headline summit gets underway.

Peter Williamson, Honorary Professor of International Management at Cambridge Judge Business School, ̽��ֱ�� of Cambridge

This article was originally published on ̽��ֱ��Conversation. Read the original article.

̽��ֱ��opinions expressed in this article are those of the individual author(s) and do not represent the views of the ̽��ֱ�� of Cambridge.

Peter Wiliamson (Cambridge Judge Business School) discusses the meeting of G20 finance chiefs and the Chinese economy.

Jannes Glas

Shanghai by Night

For image use please see separate credits above.

Yes

Licence type:

Attribution-Noncommerical