Machine Design

Why Many New Factories Start up Off-Shore

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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© 2011 Penton Media, Inc.

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