Kulicke and Soffa Industries, Inc., in China: Transferring Knowledge (a)

Abstract

While much of the work on outsourcing to China focuses on the low cost and its tradeoffs, this case examines in depth the interaction between human capital and a firm's cost and capabilities. Suitable for the MBA, EMBA, GEMBA, and executive education programs, the case presents a manufacturer of semiconductor assembly equipment looking to achieve growth in its wire bonding tools segment—in particular, capillaries and dicing saw blades—through geographic expansion. At the time, it manufactured capillaries in Yokneam, Israel, and blades in Santa Clara, California. In the A case the team is charged with designing and opening a new facility in Suzhou, China. Expanding operations to China meant cost savings, and it was where K&S's market had expanded. But it wasn't clear whether it made sense to move the capillary process, the dicing blade manufacturing, or both. And if K&S did move to China, should it keep the Israeli- and American-based factories open as well? And once those decisions were made, what exactly would the knowledge transfer look like? Excerpt UVA-OM-1410 Rev. Mar. 28, 2013 KULICKE AND SOFFA INDUSTRIES, INC., IN CHINA: TRANSFERRING KNOWLEDGE (A) Shay Torton, a general manager for Kulicke and Soffa Industries, Inc. (K&S), and Ilan Gilboa and Shlomit Drori, from K&S Israel, were members of a committee put together in early 2002 to manage the firm's expansion processes. K&S, a manufacturer of semiconductor assembly equipment, was looking to achieve growth in its wire bonding tools segment—in particular, capillaries and dicing saw blades—through geographic expansion and entry into new markets. At the time, it manufactured capillaries in Yokneam, Israel and blades in Santa Clara, California. The team, mindful of the substantial expense involved, had been charged with designing and opening a new facility in Suzhou, China. The strategic shifting of manufacturing to more cost-effective areas had been well researched (see Exhibit 1 for an economic comparison of different regions). The city of Suzhou was chosen for several reasons: its proximity to several K&S customers and to Shanghai, relative low cost of living, ability to manufacture six days a week, abundant worker supply, and low labor costs. An 80 square-kilometer industrial park offered a reliable infrastructure, plentiful public transportation, and an easy one-stop government approval service. Much conversation at the senior executive-level was about the possibility of transferring both capillary and dicing blade production to Suzhou. . . .