With over 300 companies, Taichung County in central Taiwan is the largest cluster of machine tool companies on the island. It is also the center of the components supply chain shared by Taiwan’s three major industrial alliances of bicycles, sports equipment and machine tools. Without this clustering of firms, it would be impossible for these important industries to experience their recent stellar growth.
Despite the global financial tsunami (2009-2012), Taiwan saw several of its products maintain export growth of 100 percent. They included special glass, digital cameras, mechanical arms for the machine tool industry, and components for processing machines. Other areas also grew over 50 percent in value, such as garments, knitting and the steel screw industries. According to Taiwan’s Business Weekly, the manufacture of sports equipment, auto parts, hand tool machines and plastic products also experienced over 20 percent growth.
Clustering speeds up development and delivery
The top three global socket set handle brands from Germany, Italy and Japan, use Re-Dai Precision Tools Co. in Taichung as an OEM. These socket handles are essential for repairing and maintaining BMWs, Mercedes-Benz and F1 racing cars.
Business Weekly reported that in Taiping, Taichung, there is a street lined with all the makers of computer numeric control (CNC) machine tools, and another street where all the electroplating companies operate. These clusters of 30 to 50 small businesses are capable of producing any part for bikes, machine tools or treadmills.
Habor Precise Industries Company, in Dali, Taichung, is the largest manufacturer of high-end temperature control equipment in the world. Seven of the top ten machine tool manufacturers in Japan are customers of Habor. Even the top products of the advanced PCB drilling and routing machine maker Posalux of Switzerland, the leading wafer foundry producer, Taiwan Semiconductor Manufacturing Company, and special makers in the supply chain of Apple’s products, are all made by Habor.
Orange Electronic Co. in the countryside of Tanzih, Taichung, is the only maker of wireless tire pressure monitoring systems to successfully enter the American automobile service market. Orange has beaten large competitors such as Lite-On Technology, Delta Electronics, and Mobiletron Electronics to win over Standard Motor Products (SMP) Inc, a leading distributor and maker of replacement parts for motor vehicles in the US. As a publicly traded company, Standard is so confident with Orange’s potential success they have decided to invest 25 percent in the Taiwanese company, according to Business Weekly.
To Silicon Valley, Taiwan still matters
On April 4, Facebook entered the smartphone market in a joint venture with Taiwan’s HTC to develop software for Facebook Home. In the future, the home page of their smartphones will display active news from FB, in direct competition with the core business of Google, while Google also works with Hon Hai/Foxconn to manufacture the Google glass, a wearable computer with head mounted display.
Taiwan has been a valuable partner for the US high-tech industry. Even though Apple, Google, Facebook and Amazon are squaring off with each other, they all benefit from the contributions of Taiwanese high-tech companies, Commonwealth monthly said in its cover story entitled “Taiwan still matters”. A report on the future of the technology industry in Asia, compiled by the Samsung Economic Research Institute, termed the US-Taiwan partnership as “Taiwan is a king maker for US IT companies.”
Every day there are 480 million visits to Facebook, which takes tens of thousands of servers to support. All these servers are made by Quanta Computer in Taiwan. In 2012, the global server market grew about one percent, but Quanta registered 19 percent growth due to the substantial growth of Facebook and Rackspace, a cloud and management service hosting company based in Texas. One of every seven servers in the world is made and sold by Quanta. It is estimated that sales of servers made by Quanta will overtake those sold by IBM in 2013, Commonwealth reported.
Other Taiwanese companies are also closely tied to top IT companies in the US. Hewlett-Packard is the largest foreign buyer in Taiwan, with a purchase of NT$750 billion (US$25 billion) in 2012. With the supply chain of Taiwanese companies, HP is capable of shipping two computers and two printers every second, the monthly noted.
In June 2012, Google introduced a tablet Nexus 7 in a joint branding exercise with ASUS. Sales soared immediately after launch, even surpassing iPad sales in Japan. And according to Commonwealth, Apple could not expand its empire without the Hon Hai/Foxconn Technology Group. In 2006, when Apple introduced the iPod, Hon Hai’s revenues exceeded over NT$1 trillion (US$33.33 billion) for the first time. With the subsequent introduction of the iPad and iPhone, Hon Hai’s revenues reached NT$3.5 trillion (US$117 billion) in five years, equivalent to the total revenue of the top ten manufacturers in Taiwan.
Recently, Foxconn decided to reduce its reliance on Apple by not focusing on only being solely an outside contractors, but towards developing their own products, with an especially hard push toward designing and producing large, flat screen televisions.
At a time of speeding growth of mobile telecommunications, the original design manufacturer (ODM) which Taiwan was proud of is no longer valuable. ODM is disappearing fast.
Lee Kun-yao, BenQ chairman, understands clearly that Google has done almost everything from the top to the bottom including hardware design, interface between users and smartphones, ergonomic engineering of the products, and even the business model after manufacturing in house. Google’s model leaves little room for Taiwan’s ODM.
In the 2013 Global Competitiveness Report (GCR) published by the World Economic Forum, Taiwan was ranked first in terms of competiveness of industrial clustering development among 144 worldwide economies. Yet despite the clustering resources, Taiwan still lags behind Germany and Japan. Business Weekly attributes the cause to a lack of innovation, as the reason Taiwan came in at 14th place in the GCR.
In the GCR’s overall rankings, Taiwan is placed No. 13, a little higher than South Korea, but far behind Switzerland, Singapore, Finland, Sweden, the Netherlands, Germany and Japan. This means merely clustering development is not sufficient. Taiwan must continue innovating to remain competitive.
At the end of 2012, Dr. Victor Tsan at the Institute for Information Industry in Taipei, warned the Economics Ministry that, if Taiwan’s ODM and OEM industries do not transform or upgrade, they will be left with the manufacturing service only, lower added value and lower unit price. This is what Dr. Tsan is worried by when contemplating the electronics and technology industries of Taiwan, according to Commonwealth.
However, Dr. Wang Ting-an, director of the Science Division of the Taipei Economic and Cultural Office in San Francisco, is confident and optimistic. He told Taiwan Insights, if Silicon Valley is the new rocket of global technology innovation, Taiwan will be working as the rocket propellant. For Apple, Google, Facebook and Amazon, Taiwanese companies have always been a necessary partner in realizing technology innovation.
Dr. Wang believes, in the face of Silicon Valley’s technology innovation, Taiwanese industry must get rid of the mentality of making only marginal profit and start industrial transformation, so as to create added value, for buyers, for consumers, and even to contribute to environmental protection. Only when the performance of Taiwan’s products and services exceeds the expectation of its customers can Taiwanese companies enjoy the benefits of high gross profits and brand recognition. “This is the only way to survive for Taiwanese industries,” stressed Wang.