Not content with dominating electronics manufacturing, China is poised to become a design leader, as well. It will leapfrog Germany and South Korea to claim fourth place among nations where electronic design activities are influencing worldwide semiconductor spending in 2006, according to market research firm iSuppli. (iSuppli uses data gathered from 172 OEMs, representing 75 percent of the global chip market, to determine where the design of electronic devices, including chip selection, is happening.) "In terms of absolute dollars, China's design-driven semiconductor spending increase will actually be the third-largest of 2006," says iSuppli analyst Min-Sun Moon.

Although some of China's success can be attributed to a concurrent drop-off in competing nations, China's rise is largely due to an increasing emphasis on the importance of design. It is to be expected that this fresh focus would manifest itself in China's institutions of higher learning. BusinessWeek recently reported that the more than 400 design programs in China are graduating an estimated total of 10,000 designers, up from just 1,500 a handful of years ago. Although not all of those graduates are destined to design electronic equipment, China's EDA market is enjoying impressive growth, says Gartner analyst Laurie Balch. "The revenue growth picture is much better for China than it is for the industry worldwide," she says.

Whereas the global growth rate stagnated in 2005, China saw an increase of 18.7 percent in EDA revenue for the same period. Gartner forecasts through 2010 predict more of the same.

But China still has a long way to go in its transition from "Made in China" to "Designed in China," says David Williams, managing partner of Shanghai-based Asentio Design. "If China is to compete, it has to go beyond low pricing. Design is the way to differentiate, but for this, China needs to develop talent, training, receptive management structures and receptive work processes." Some of that design talent will come from China's own programs, but a greater impact, at least in the short term, is likely to be from Western-educated and Western-employed engineers returning home (see "First Class to China," September 2006, page 40). Williams asserts that Chinese companies need to collaborate with international partners—for now.

The Middle Kingdom also can expect some healthy competition a little closer to home. Although it hasn't yet cracked iSuppli's Top Six, India is expected to have the largest 2006 increase in design-driven semiconductor spending influence—76 percent, according to Moon—reflecting that nation's commitment to design.

Analysts agree that Chinese design dominance won't happen overnight. Of the $4 billion global EDA market in 2005, China accounted for only $101 million. Likewise, China's design activities will influence only 6.5 percent of global semiconductor spending in 2006, as opposed to 34.9 percent driven by the United States, says Moon. "I don't think China is going to catch the U.S. in the next 10 or even 20 years," Moon says.