Why Many New Factories Start up Off-Shore

Appears in Print As: Why Many New Factories Start up Off-Shore

March 2, 2011

Dado Banatao was hopping mad when I spoke with him. The 37-year veteran of the semiconductor industry and former head of engineering at National Semiconductor Corp. had just gotten some bad news about a start-up firm in solar power he had helped fund. “Our government is just incredible,” he fumed. “It has a program for investing in companies having energy-related technology that looks promising. It has taken the bureaucrats two years to make a decision about whether to extend part of that money to our solar company. I have sent letters of recommendation about this to the same people several times because apparently they lost the paperwork.”

The slow progress of the grant application was only part of what was bugging him. The other part: “If we were talking about a program like this in China, the Chinese would have moved on it in a couple of months,” he says.

Such are the frustrations of someone bent on investing in start-up companies that manufacture things in the U. S. Banatao’s experience also helps explain why more and more new manufacturing ideas get executed in Asia rather than in the U. S.

At Tallwood Venture Capital, Banatao has a ring-side seat on the woes of U. S. manufacturing. He figures he is one of the few venture capitalists still interested in funding semiconductor factories on U. S. soil. “A lot of venture-capital money has left semiconductors,” he says. “Many VCs went into Internet stuff like software and social networking. It is a lot easier to make money in those areas and they are less capital intensive.”

But Banatao sees the perils of letting semiconductor manufacturing leave U. S. shores. “If all we fund is social networking, Asia will end up owning all our devices,” he says. “Look at mobile platforms from iPads to smart phones. It takes good semiconductors to power them and hundreds of millions of dollars in R&D to make it happen.”

Unfortunately, he doesn’t see any signs that this investment environment will change any time soon despite noises coming out of Washington to the contrary. Talk from bureaucrats about innovation and competitiveness, “is just BS,” he says. “There is no willpower to compete anymore and no follow-through from Washington,” he insists. “We need to regenerate our will to be competitive in this country. People talk about having a strategy for growth. That strategy has to be in technology.”

Statistics bear out the impression that U. S. manufacturing lacks vitality. The accounting firm PricewaterhouseCoopers says, beginning in 2009, more semiconductor companies have gone public in China than in the U. S. And the National Venture Capital Assn. says venture funding for semiconductors hit an 11-year low in 2009.

That’s not due to a lack of ideas, says Banatao. “We are still strong in innovation in the U. S. In fact, I think we are still better than anyone else at it. But because of what other governments are doing and what our government is not doing, more companies are going to Asia. As more and more companies see the rationale for going there, it accelerates the process.”

But he says he is not giving up on the U. S., though the process of building a manufacturing company increasingly looks like a thankless job. “ I know how to build semiconductor companies and make money,” he says. “Unfortunately, no one seems to appreciate that ability anymore.”

— Leland Teschler, Editor

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Comments

Congratulations!!!

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quit your whining

On March 9th, 2011 Joe Bonasses (not verified) says:

A venture capitalist complaining about delays in receiving government grants? Am I reading this correctly? Instead of spending individual tax payer money on corporate welfare programs like this, the entire tax structure should be changed. American companies that manufacture overseas should not be tax exempt, until this changes the bleeding will never stop, the only exception being if the Fed continues to trash the American dollar (which I wholeheatedly support). Domestic manufacturing is the only true source of wealth generation, everything else is a shell game.

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Put your money where your mouth is please

On March 6th, 2011 A. Patriot (not verified) says:

Banatao talks the talk, and I agree with his points, but I think he needs to open the kimono on his own company's investment portfolio instead of hypocritically expressing concerns about the snail like pace US tax dollars are spent on his solar company. Banatao's portfolio and their locations are typical of VC's today. VC's. Tallwood included, appear to take US pension funds and US institutional money, and channel all, or most of it, into India and China. The US is handing VCs a Chinese/Indian gun to put to US-society's economic heads. SVTC, if that's the UNIDENTIFIED (after all, we really don't want anyone knowing how SVTC actually works) Tallwood portfolio solar company Banatao is talking about, is an R&D fab ONLY. No manufacturing will ever come of it in the US and SVTC are quite blatant in pointing out on their website that manufacturing will be at TSMC and that they have manufacturing "partnerships" with Canada and Germany. In fact, had MD done a little bit of due diligence and channel checking, instead of giving Banatao a trusted soapbox to try to get a freebie handout check from the US government by sleight of hand, you'd find Tallwood setting up what appear to be shell companies in the US, while those startups have substantial "offices" (design centers and manufacturing) in Shanghai, New Delhi, Channai, Tel Aviv, even Australia. Banatao may be waving a US flag, and hitting all of our patriotic buttons correctly, but like all VC's today he's a fan of exploiting US stupidity, getting US money handouts, and exporting US innovation and money, not creating US manufacturing or US design jobs to bolster the US economy. Yes Dado, you go right ahead and get your fast-track money from the Indian and Chinese governments, or even the Philipines where you come from - I really think in good conscience (a thing few VCs have is any conscience or US patriotism at all, especially when they are Indian and Israeli, perhaps Philipine, citizens) you should refuse US money. I hope Banatao never gets that grant check from DOE, for all it appears to do is fund R&D for Taiwan and Germany and imbalance our currency even further; the money's better spent on US design jobs, innovation, and manufacturing by the US government. Printing stimulus money is OK as long as that money stays INSIDE the country, disastrous if that money goes outside. Yes, VCs are now the Walmart of the finance world - if you do not give it to them cheap enough, if they cannot make more profit than you do, if they cannot exploit you while they learn from you with no intent to do business, and if it's not done in China or India, they will bleed you up front for what you have and know and not do business from you after all the grovelling is done. Those US entities funding VCs need to take a second look at where the money is being spent geographically, and pull the money out of VC hands if it threatens the wellbeing of the Us economy or enables another country to gain innovation and economic prowess. Time to put the money where Banatao says it should go, instead of where he appears to be sending and spending it.