Tag Archives: Hon hai

From Taichung to Silicon Valley, Taiwan keeps pace with global markets

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.

What’s next?

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.

Taiwan’s major IT companies face uphill struggle

As a result of reduced shipments of the iPhone 5, Hon Hai Precision Industry Co. (trading as Foxconn), suffered an 8.19 percent drop in its combined annual revenues in 2012. The company is the world’s largest electronics contract manufacturer, when measured in terms of revenue. HTC is another leading manufacturer in Taiwan, but in the last few years it has focused on branding its own line of products. Despite their successes, both companies are facing difficult times ahead.

In 2012, South Korea’s Samsung accounted for over 30 percent of the global smartphone market, well ahead of Apple’s 18.4 percent and HTC’s 4.8 percent. Samsung’s net profits also surpassed those of HTC for the first time (by 1.6 times). As two of Taiwan’s most successful hi-tech companies, Hon Hai and HTC’s success or failure will have a profound impact on the future of high-tech industries in Taiwan.

HTC seeks to upgrade

For Peter Chou, HTC’s CEO and president, 2013 will be a pivotal year, since it will determine whether the company can emerge from the depths of an extremely difficult 2012. Last year, total revenue fell an estimated 37 percent and its global market share fell from 10.7 percent to 4.8 percent. The company’s share price plummeted to a 7.5-year low, and its earnings per share of NT$20.14 (US$0.68) were barely a quarter of the NT$73 (US$2.47) in EPS posted by HTC in 2011, Commonwealth reported.

HTC has refused to succumb to the gloom, instead launching a series of new phones. The company’s “Butterfly” model represents the first weapon in the company’s arsenal to reverse its fortunes. HTC J smart phones, jointly introduced by HTC and KDDI, one of Japan’s largest telecom operators, have sold briskly in Japan. The two firms partnered again to introduce the five-inch screen HTC J Butterfly, which is also doing well in the market. According to KDDI’s hot sales list, the Butterfly even beat Apple’s iPhone 5 in Japan. The Butterfly J has enabled HTC to emerge from a dark valley and into the sunlight again. Additionally, HTC is reviewing its product and marketing strategies in order to remain competitive.

Fighting a David and Goliath battle

Although successful in Japan, another problem facing HTC is that its success in Japan cannot be easily replicated elsewhere. “Japan is an extremely closed market controlled by the major telecom vendors. Even Nokia and the iPhone have been unable to break into Japan,” said Lee Ji-ren, who lectures on business strategy and management at National Taiwan University (NTU). He explained that Japanese-brand smart phones hold a 70-percent share of the market, meaning HTC does not have to directly butt heads with Apple and Samsung, reported Commonwealth.

“Actually, HTC is still a profitable company. It’s just that it has run into the world’s two strongest adversaries,” said Victor Tsan, the vice president and general director of the Market Intelligence & Consulting Institute (MIC).

According to Commonwealth, these two adversaries are the largest competitors for HTC in the global smart phone market. Samsung’s revenue is nine times that of HTC. It has a market value 28 times that of HTC, and R&D spending 15 times that of HTC. Apple’s revenue is seven times greater than that of HTC, with a market value measuring 60 times that of HTC, and it spends four times as much on R&D.

How can HTC compete given such overwhelming odds? In facing Samsung which has 31 percent of the global market share, and Apple, which takes 60 percent of all profits in the smart phone business, HTC clearly understands that it has to fight to protect the company’s turf. HTC realizes it has to be financially fit to take on this monumental challenge. The company will have to find its own niche in defeating the Goliaths of the industry and overcome its inherent limitations.

Taking advantage of markets ignored by Apple  

There are still opportunities and one of them is to cater to China’s middle- and lower-end smart phone market, which has long been ignored by Apple and under-served by Samsung, said Commonwealth. In the third quarter of 2012, HTC sold 2.8 million smart phones in China, giving them a 5.8 percent market share and surpassing Apple’s tally.

“The iPhone’s average selling price is US$600, and that won’t come down. HTC already has strong product development and time-to-market capabilities. It now has to learn how to segment the market at price points below US$600 and take advantage of a market Apple ignores,” Lee suggested. And only time will tell if this market strategy will pay off for HTC.

HTC is determined to continue its focus on R&D and innovation to stay strong in Taiwan. “At least one company is still willing to keep its production line in Taiwan and to make the best products. I am proud to say that I stay in HTC to fight,” a senior HTC R&D official told Commonwealth.

Hon Hai is too big to fall

On January 10, Hon Hai Precision Industry Co. announced its 2012 non-combined revenues had reached NT3.2 trillion (US$107 billion). This broke its own record in monthly, quarterly and annual reports, an unprecedented high among all the private manufacturing businesses among the Chinese communities, Business Weekly reported. A month before this announcement, 62-year-old Terry Gou, chairman and president of Hon Hai, was included – for the first time – in Forbes’ World Most Powerful People list. Hon Hai was also listed as the tenth largest employer in the world by the UK’s BBC with 1.2 million employees in March, 2012. Nine months later, Hon Hai has almost 1.5 million employees.

At present, Hon Hai is a conglomerate “too big to fall,” said Business Weekly. Why? Because Hon Hai controls the supply of over half of the world’s desktop computers, as well as Apple’s iPhones, iPads, Sony’s liquid crystal display television sets, the PlayStation 3, and Nintendo’s Wii gaming machines. The company supports the livelihood of over 10,000 related companies. Not so long ago, Hon Hai contributed 20 percent of total revenues to the integrated industrial cluster of precision machine manufacturing in central Taiwan.

According to a study by the Topology Research Institute, without Hon Hai, the popularity of Apple’s iPhone, iPod, and iPad would have been delayed by two to three years, and the price of entry level desktop computers would be double, reported Business Weekly.

What does Apple’s decline mean for Hon Hai

After Hon Hai’s announcement of record high revenues came a string of bad news from Apple. News quickly spread that Apple intended to introduce a low cost iPhone to grab a share of emerging markets and break its own one-phone-per-year rule. This caused a sharp drop in iPhone 5 sales, the fastest depreciation and with the shortest life span in the history of the iPhone. Then Apple announced its intention to half its order of the iPhone 5. All these measures seriously hurt the company’s stock price. This means that Apple’s supremacy in commanding the highest market value in the world now faces a new challenge. It also casts a shadow over Hon Hai’s future.

Due to declining demand for the iPhone 5, Macquarie Securities believes iPhone 5 shipments will drop 32 percent from 44 million sets in the previous quarter down to below 30 million in the first quarter of 2013. Before the introduction of the iPhone 5 S in June, there will be two quarters of non-active operation, which will definitely affect Hon Hai’s revenue in the first half of 2013.

Gou has betted heavily on Apple in terms of capital and human resources. Almost 40 percent of Hon Hai’s 1.5 million-strong work force in China is reserved for making Apple products. Now the only breakthrough the world is expecting from Apple is iTV.

In 2012, Gou became a shareholder of Sharp’s Sakai Plant, a subsidiary of Sharp, and is planning to join Sharp too. Beside taking over the rights of management of Innolux Corp. (formerly Chimei Innolux Corp.), he has even used a large amount of his Hon Hai stock to borrow NT$20 billion (US$677 million) to bet on the success of Apple’s iTV.

Business Weekly noted that if Apple is not red hot any longer, Hon Hai, a conglomerate with revenues of almost NT$4 trillion (US$135.6 billion), is also bound to lose its luster.

Size a blessing and a curse

The flexible, innovative and fast developing IT industry has helped Taiwan earn the title of “Silicon Island,” playing an important role in the global supply chain over the last two decades. But after a paradigm shift bolstered by Apple and Samsung in recent years, Taiwan’s IT industry (OEM, ODM or key brands), is facing a crucial challenge and transformation.

HTC and Hon Hai definitely face significant challenges ahead. HTC is the world’s third-largest mobile phone brand, after Apple and Samsung, but in a much smaller company. The key for HTC’s survival will depend on its market development and marketing strategy.

Currently Hon Hai is expanding in central and western China by building a factory in Zhengzhou, Henan Province, and enlarging its facilities in Chengdu, Sichuan Province. However, Business Weekly reported, Hon Hai’s huge size is an advantage, but also a burden. Without transforming to increase its added value, will Hon Hai lose its advantage when China ceases to be a source of cheap labor?

And, because of its size, Hon Hai also has huge advantages, with its revenue accounting for 28 percent of Taiwan’s nominal GDP in 2012. The challenges faced by operating such a large operation can be illustrated by considering the company’s ability to feed its workforce at its sprawling factory in Shenzhen, Guangdong Province. On a daily basis the plant’s central kitchen faces the challenge of feeding up to 60,000 people per meal. Similarly, to sustain the firm into the future, Business Weekly asked, “Without Apple’s immense global brand value, who can satisfy Hon Hai’s appetite?”

Hon Hai’s chairman vows to overtake Samsung within 3-5 years

On June 18, Terry Gou, chairman of Taiwan’s Hon Hai, said his company will be partnering with Sharp (Japan) to develop large-size LCD televisions. With Hon Hai’s marketing and manufacturing strengths and Sharp’s key technologies, the two are looking forward to defeating their arch-rival Samsung (South Korea), Gou said.

The Economic Daily News reported that Gou talked openly about the company’s cooperative plans for the first time at the regular meeting with Hon Hai shareholders. He said Sharp is expected to join forces with Chi Mei Optoelectronics and Chi Mei Materials Technology Corp., both subsidiaries of the Hon Hai Group, to create a model of manufacturing LCD televisions with a brand name and allowing them to integrate vertically in order to achieve cost advantages.

According to Gou, Sharp has a reputation for being strong on front-end technology of flat panel displays, while Hon Hai is better at the back-end section, such as backlight panels, molds, and assembly. The combination of these strengths is likely to put the two firms on a par with Samsung.

He stressed that the joint project between Hon Hai and Sharp is a very important leading industrial indicator, because more than 10 Japanese companies have expressed a willingness to join their effort. If successful, this type of cooperation will be repeated in the future so as to form a larger Taiwanese-Japanese alliance.

The Taipei-based China Times reported Gou as saying, “I guarantee with my life” this cooperation project with Sharp will succeed. He said, Sharp is good at technology but not at sales, while Hon Hai has a lot of production capacity and is good at quickly reducing costs. Both sides face a common enemy: Samsung. Gou stressed his current most important task is to make sure Taiwan and Japan join forces to beat Samsung “within 3-5 years.”

According to the Central News Agency, Hon Hai announced in late March its acquisition of roughly a 10 percent stake in Sharp for US$800 million, which made it the company’s largest shareholder. Hon Hai will begin operating Sharp’s plant in Sakai, Japan on July 1. Gou said he plans to list the factory on the Taiwan stock exchange within three years.

Under the deal, Gou agreed to acquire a 46.5 percent stake under his own name in Sharp’s Sakai-based 10th-generation LCD panel plant, for an additional US$800 million. The plant is the only facility in the world capable of mass producing 60-inch to 80-inch panels.

Part of the plant’s assembly line will be moved to Hon Hai’s headquarters in Tucheng City, Taipei, to create jobs in the area, the Central News Agency reported.

Hon Hai remains unstoppable, despite problems

Few Taiwanese conglomerates can match the growth of the Hon Hai Precision Industry Company, whose annual revenue reached NT$3 trillion (US$100 billion) in 2010. The company’s total revenue is equivalent to about one fourth of Taiwan’s annual GDP, or the total annual GDP of Hungary, a country of 10 million people. With over one million employees, Hon Hai ranks as the second largest employer in the world (only after Walmart, the largest private corporation in the US), reported Global Views monthly.

Global recession shadows even Hon Hai

Founded in Taiwan by its current CEO Terry Gou in 1974, Hon Hai is more commonly known by its trade name, Foxconn. It is the world’s largest contract original electronics manufacturer (OEM), making computers, consumer electronics, communication equipment, and other electronics products. Its customers include all the well-known high-tech companies like Apple, Cisco, Dell, Nokia, and Sony.

However, the company has not been without its fair share of problems in recent years. In 2010, more than a dozen young employees committed suicide at two of the company’s subsidiary Foxconn factories in China, in part due to the pressure imposed on employees.

In 2011, a new global recession hit Taiwan’s technology industries, and not even Hon Hai was exempt from the downturn affecting brand names and OEMs. The company was no longer able to maintain the 30 percent annual growth that it had boasted in the past. Hon Hai’s annual revenue growth dropped to 15 percent in 2008, and to zero in 2009, the worst in its history. In 2011, Gou said in an interview with the American magazine Business Week that the company’s annual growth target would be set at 15 percent from 2011 onward, half that of the glory days.

Tough times ahead

Global Views reported that Hon Hai’s debt to assets ratio dropped from 47 percent in 2008 to a whopping 59 percent in 2009. According to financial analysis, a debt ratio of 50 percent is considered high for any steadily growing company.

Half of Hon Hai’s revenue came from the manufacture of personal computers, which only registered single digit growth, while the other half came from consumer electronics and cell phones (especially smart phones), which registered about 30 percent of the total. The average of these two sectors although only accounting for 15 percent of the company’s growth, translates into revenue total of NT$450 billion (US$15 billion) – equivalent to the total annual revenue of the Taiwan Semiconductor Manufacturing Company (TSMC).

In a cover story, Global Views reported not just the short term problem posed by the global economic recession, but also the tricky issues facing Hon Hai as it strives to manage structural changes within the organization.

These include, the major generator of income for Hon Hai, that is, from the “3C” products (computer, communication and consumer electronics). Such products are now showing limited growth and stronger competition, while selling prices have fallen along with profits.

Secondly, Hon Hai has encountered problems in expanding from its original business and culture into new areas. These changes naturally take some time to net results with little apparent contribution to the whole company’s revenue growth.

Thirdly, Hon Hai’s advantage has been as an OEM. Transitioning from operating as an OEM into new business areas involves the development of new capacity.

Size matters

Hon Hai has several advantages that its competitors do not have, such as Apple as a loyal customer. Apple looks set to remain a dominant player with its iPod, iPhone and iPad. With excellent manufacturing capability, quality control, and reliable customer service, Hon Hai is positioned to remain as a trusted partner in the manufacture of Apple products.

Another opportunity for Hon Hai is the capability to expand into the manufacture of medical equipment, which is currently under-represented in Taiwan. Hon Hai’s size means that it is well positioned to expand into this market.

Plus, Hon Hai is large enough to wield substantial financial resources. One suggestion of an avenue open to Hon Hai for expansion could be to use its huge cash reserves to build luxury five-star hotels and expand into the commercial real estate market as a developer, or in running brand name distribution channels.

In short, Global Views points out that the future growth of Hon Hai will be similar to the existing model. Yet, with further diversification Hon Hai will be able to create other key areas of business. Operating as an OEM of the original 3C products has been the foundation of Hon Hai’s success, but since the growth of these 3C products is now slowing down, Hon Hai must diversify to safeguard its leading position.

Personal desktop computers are being replaced by tablets and traditional cell phones have been eclipsed by smart phones, while an emerging trend called the internet of things (IOT) looks set to herald a new era in communications technology. The ability of Hon Hai to capitalize on such new fields is likely to determine its future growth prospects and performance.

Terry Gou is synonymous with Hon Hai

With Hon Hai remaining such a global force in the electronic sector, Global Views is reminded of a funny story circulating inside Hon Hai. It predicts that in a few decades, there will be only two companies in the world: one will be Hon Hai, the manufacturer of all our daily necessities, and the other will be Walmart, the seller of all of Hon Hai’s products.

For a conglomerate with annual revenue in excess of US$100 billion, and with 541 subsidiaries, branches and reinvested companies globally, Hon Hai is known to some only by the name of its CEO. Terry Gou, is synonymous with Hon Hai, just as Steve Jobs was with Apple.

Gou once talked about his challenge of managing such an enormous company. “I cannot find a book anywhere in the world to teach me how to manage a business with one million employees,” he said. There has been no apparent change in Gou’s unwavering management ability and perseverance. And his ambition with regard to the businesses he wants to manage shows little sign of slowing down. This is exactly why some people are concerned about the future of Hon Hai.

Perhaps the biggest issue for Hon Hai in the future will be who will succeed Gou. At present it seems hard to know who will step into his shoes, according to Global Views.

The magazine stressed that part of the future roadmap for Hon Hai, as set out by Gou, must include a succession plan. Just as the US 7th Fleet could not replace all its smaller ships with a single aircraft carrier, so Hon Hai must be managed and operate as smaller leaner units to allow for future challenges and retain the capacity for flexible strategic maneuvering.

Reaching out to quake-hit Japan, Taiwan reevaluates nuclear safety

On March 11 and in the days that followed, people around the world were horrified by the images of Japan’s devasting 9.0 earthquake and tsunami that washed entire villages from the map. With so many commonalities between Taiwan and Japan, the people of Taiwan were deeply moved to help their friend and neighbor.

Taiwan is also highly prone to earthquakes, with more than 1,000 felt every year. An especially powerful one hit the island on September 21, 1999, killing more than 2,000 people, so the people of Taiwan are especially sympathic to Japan’s plight.

Since the March 11 earthquake in Japan, Taiwan’s Foreign Ministry has sent 400 tons of disaster relief supplies (blankets, quilts and mineral water) and food donated by Taiwanese citizens to Japan. It is the largest donation received from a foreign country thus far, according to Taiwan’s Central News Agency. Quickly following the earthquake, Taiwan’s Foreign Ministry announced a donation of NT$100 million (US$3.3 million) in disaster relief to Japan. Taiwan’s entertainment circle also mobilized to hold a fundraising party on March 18 to raise NT$750 million (US$25 million). Japan’s Mainichi Daily News reported that donations from Taiwan have reached 6.4 billion Japanese Yen (US$8 million), by far the largest in Asia.

From Japanmania to empathy

In many regards, Taiwanese teens today are enamored by Japanese popular culture (including TV, movie stars, songs, costumes and comics). It is a phenomenon commonly known as “Japanmania” (harih). Journalist Chao Hsin-ping wrote in her blog, “Taiwanese and Japanese people share many customs and some Chinese characters in common. I think that is why we feel particularly close…I have been to over thirty countries, visiting more magnificent natural beauty, more ancient sites and historical monuments, and more precious cultural arts in Europe and America, but in recent years, I have felt closer to Japan.”

Also, in contrast to Taiwan’s sensationalization of news, the Japanese people and press have earned a wealth of respect for their calm and self-restraint in the face of disaster wrote an editor for the United Daily News. The Taiwan-based China Times commented, “The Japanese people have developed the notion that they are not the only victims, facing the disaster with a peaceful mind. Everyone thinks this, so and the social order can be maintained. Everyone exercises self restraint so disaster relief can proceed step by step.”

In reading the newspapers in Taiwan, you can get a sense of the deep admiration Taiwanese people have for the Japanese. “Japan suffers a heavy loss from the earthquake, but the Japanese people accept the orderly arrangement by the government. Japanese media broadcast the correct messages in a calm way, without exaggeration of the tragedy, or irrational criticism. This is no doubt a good lesson for Taiwan to learn,” expressed another Taiwanese commentator to the Central News Agency.

Taiwan and Japan are important trading partners. In 2010, total bilateral trade between the two reached a record high of US$69.9 billion. Taiwan imports its greatest volume of products from Japan, and Japan is also the largest source of Taiwan’s trade deficit. Taiwanese people are fond of Japanese products not only because of Taiwan’s colonial past under Japanese rule (1895-1945), but also because they share a similar geography and industrial structure. The Taiwanese are great admirers of Japan’s modernization and the maturity of its civil society.

Industrial chain effects

The United Daily News said that Taiwan’s semiconductor and flat panel display industries have close cooperative relations with Japanese companies like Elpida and Toshiba, so part of their orders will be transferred to Taiwan. Due to the earthquake, there has been a 20 percent price increase in flash memory and a 7 percent rise in DRAM spot prices, according to Taiwan-based Business Week. This will help Taiwan’s DRAM manufacturers rebound from the doldrums.

Before the quake, 70 to 80 percent of Apple’s flexible printed circuit boards (soft board) came from Japan, with only 20 percent from Taiwan. Post-quake, Apple is expected to accelerate the transfer of orders to Taiwan. And, if all the orders placed in Japan have to find other manufacturers, Taiwan’s FPC industry will benefit.

Japan’s decreased power capacity from the loss of its nuclear power plants will certainly hamper the country in getting back to business as usual. Also, much of Japan’s future energy needs might be concentrated on reconstruction. Taiwan is also in a position to benefit as Japan seeks to import large quantities of steel to shore up its buildings, pushing the price of steel higher and benefiting the Taiwan-based China Steel Corporation. However, the Business Week emphasized that if the industry recovery period in Japan’s disaster areas exceeds a month, global industrial supply chains will be in chaos, and nobody will benefit.

A tricky gamble

The Wealth Invest Weekly reported that so far it is still not very clear what the supply situation is for several key industrial materials after the quake, including bismaleimide-triazine (BT-Epoxy) resin, silicon wafer, ceramic powder, liquid crystal materials, photoresists, cutting fluid, and so forth. Even though Taiwanese companies currently maintain sufficient inventory and Japanese suppliers have said supply would return to normal very soon, it is well-known that there are dependent linkages in electronic components supply, each one closely interlocked with others. Once a link is broken, there is a risk of a “broken chain.” “Can you imagine if we overstocked components and parts, and pushed for over production now, but once the supply chain worry was found to be a false alarm, current rash orders would suddenly have turned into mass cancellations? How could you deal with a bunch of workers, the production capacity, and the big problem of excess inventory?” a concerned manufacturer told the Weekly.

The magazine used Hon Hai, the world’s largest contract manufacturer and parent company of Foxconn, as an example. Hon Hai has garnered the largest emergency order from Apple, which is a great vote of confidence from Apple. The number of Hon Ha workers has increased from over half a milliion to more than one million,with the number  estimated to go as high as 1.2 million. Personnel management poses an extremely tough challenge for Hon Hai in the immediate future.

The Economic Daily News reported that Taiwan and Japan have established a vertical cooperation relationship in the industrial supply chain, especially in the areas of automobiles, machinery, electronics, and data communications. With a firm control on all the key industrial technologies, Japanese companies cooperate with their Taiwanese partners more in the form of technology transfer, technology licensing and as original equipment manufacturers (OEM). The earthquake revealed the risk of this current cooperative model. On the one hand, Taiwan should consider diversifying its source of technology and components, while on the other hand, it should speed up the pace of technological upgrades so it can improve its technical autonomy, thereby reducing its dependence on Japan.

Mixed support for nuclear power

As the weeks have passed with continuing dire news from the crippled Fukashima Daiichi nuclear complex, many Taiwanese politicians and TV pundits have asked difficult questions about their government’s preparedness to handle a nuclear meltdown in the face of Japan’s floundering efforts.

The Liberty Times reported that Taiwanese shipping magnate Chang Yung-fa, chairman of the Evergreen Group, donated 1 billion Japanese Yen (US$12.5 million) on March 23 to help Japan’s disaster relief, and also shared his anti-nuclear stance. He stressed that Taiwan is located in a seismic zone and should not have nuclear power plants. The best way to minimize the risk is to abolish all active plants, and to look for alternative energy sources, such as wind or hydro power.

Democratic Progressive Party (DPP) Chairwoman Tsai Ing-wen voiced her support for increasing the proportion of renewable energy, upping thermal electricity generation and prioritizing the construction of new natural gas powered plants. She believes in decommissioning nuclear power plants Nos. 1, 2, and 3 as scheduled and in not commercializing plant No. 4. Instead, she would like to see Taiwan be a nuclear-free zone after plant No. 3 is decommissioned in 2025. According to Taipower’s data from last year, Tsai said, the ratio of Taiwan’s dependence on nuclear power is only 12 percent. This means that in the absence of nuclear power, Taiwan may still be able to sustain its electricity demand.

In defending nuclear energy, Taipower Chairman Edward K. M. Chen estimates that Taiwan would not generate enough electricity by 2013 if nuclear energy is discarded, reported the China Times. To build plant No. 4 without commercial operations, as suggested by Tsai, would be a waste of US$20 billion over 25 years. It would exceed US$33.35 billion based on a 40–year calculation. Taipower’s Deputy General Manager Huang Hsien-chang said it is “unrealistic” to replace all nuclear power with renewable energy by 2025. Taiwan relies completely on imported natural gas, and the international gas deals have long been signed with long-term contracts. Huang said, “You won’t be able to buy it just because you have money on hand.” Currently 99 percent of Taiwan’s domestic energy depends on imports, while nuclear power accounts for 20 percent of Taiwan’s electricity.

If nuclear power were to be replaced with renewable energy sources, such as wind power for example, then Taiwan would have to build an estimated 12,000 wind turbines to be able to replace all the nuclear power plants. So far, Taipower has only built 162 wind turbines on the west coast of Taiwan, and “the sites fit to build wind turbines have already been covered,” said Huang.

Nuclear power in Taiwan

In order to ensure a stable supply of energy and greater electricity capacity to keep up with development, Taiwan’s government started to build it first nuclear power plant in 1970. Nuclear power plant No. 1 became operational in 1979. Currently there are four nuclear power plants in Taiwan. Three of them (Nos. 1 and 2 and the newly completed No. 4) are located on coastal areas 22 to 28 kilometers north of Taipei, while No. 3 is near the Kenting National Park in southern Taiwan.

In Taiwan, the anti-nuclear movement is more than 20 years old. The DPP, which has advocated a “nuclear-free homeland”, won political power for the first time in May 2000. Immediately after his inauguration, President Chen Shui-bian instructed the Executive Yuan to announce the termination of construction of nuclear power plant No. 4. But in January 2001, the Legislature Yuan, dominated by the Kuomintang (KMT), passed a resolution to request the Executive Yuan to immediately resume construction at plant No. 4. The dispute led to a constitutional interpretation by the Grand Justices, which declared the unilateral suspension of nuclear plant No. 4 “unconstitutional” and work resumed until money ran out.

This February, the Executive Yuan announced the resumption of construction on No. 4 after new funding was approved. The new plant is almost complete and estimated to be operational soon. According to the China Times, the government will underake a full physical examination on the construction of the new plant, pledging to  safeguard the security of the plant and delay commercial operations if necessary.

In the face of the DPP’s concerns over nuclear safety, Premier Wu Den-yih said that the past suspension of construction on the plant has hurt Taiwan economically, resulting in international contractual disputes and lawsuits. The resumption of work has resulted in accumulated construction costs of US$6.7 billion, according to the United Evening News. This year another US$333.4 million was added to strengthen the plant’s safety. To halt, resume and maybe abolish nuclear power entirely has not only created huge economic  losses, but has also been “a shock to the hard-earned social consensus on nuclear energy in recent years,” the premier said.