Analysis Taiwan Hi Tech Firms Relocating to Mainland China
Friday, March 23 10:30 AM SGT
Analysis Taiwan Hi Tech Firms Relocating to Mainland China
TAIPEI, March 23 Asia Pulse - Amid the expectation that both Taiwan and mainland China will enter the World Trade Organization [WTO] in the near future, a new wave of relocation to mainland China has simmered among Taiwan-based hi-tech firms since the end of last year.
However, this fresh fever of landing on the mainland has been conducted according to a new model under which Taiwan businesses move their entire supply chain to the other side of the Taiwan Strait, fueling the establishment of special zones there, sources say.
A recent survey carried out by the Taipei Computer Association of 411 local firms show that 30 percent of the firms questioned said that they had ventured into mainland China, with a vast majority of the remaining 70 percent admitting that they are planning to do so within one year.
The survey results indicate that most of the hi-tech firms based in Taiwan are considering "going west," with their capital flight and relocation pace and scale accelerating each time, sources note, pointing to the notebook computer industry as a major index of Taiwan's mainland investment fever.
Taiwan remained the world's largest notebook producer in 2000, putting out 127 million units worth a total of US$13.58 billion. As the Taiwan government still bans local makers from putting out the hi-tech product in mainland China, 96 percent of the local brands were manufactured in Taiwan, accounting for 59 percent of the country's entire hardware production value.
However, affected by a global slowdown in demand for personal computers last year, net profits for Taiwan-based notebook companies have fallen below 10 percent, pushing local manufacturers to find other means to reduce operation costs in a struggle for survival.
As has happened to other Taiwan industries, mainland China, which shares the same cultural heritage as Taiwan, has absorbed almost all local notebook makers, making the local industry the driving force behind the current investment rush. These companies can manufacture the parts and components in the mainland, but they must be shipped back to Taiwan for finishing and distribution.
Quanta Computer -- Taiwan's leading notebook firm and the last one to join its local counterparts' move to relocate to mainland China -- decided late last year to branch off to the mainland by leasing plants in the Sungjiang Export Processing Zone [EPZ] near Shanghai with an initial investment of US$26 million, out of fear that it was losing its competitive edge over its rivals.
Quanta has recently begun mass production of SMT (surface-mounted technology) operations in its leased plants, while waiting for Taiwan's policy change to allow local companies to produce notebooks in the mainland. Meanwhile, Quanta has also started building its own production plants in the Sungjiang EPZ, which is scheduled to begin mass production in the third quarter of this year.
Despite its relocation efforts, Quanta has made it clear that it will retain its research and development center in Taiwan.
Quanta's choice of the Sungjiang EPZ as the base for its production strongholds, making it the first notebook manufacturer from Taiwan to move into the special industry zone, has helped Sungjiang become a popular investment destination among Taiwan-based information industry-related businesses and has also produced a side effect in its parts and components suppliers at home.
Quanta offered no denial of this phenomenon and voiced its hope that all its suppliers headquartered in Taiwan will also relocate to the Sungjiang EPZ. This means that Quanta's entire supply chain would likely be cloned in mainland China so as to provide it with faster services.
Quanta is by no means the sole case of a company hoping its suppliers will move to the mainland, industry sources say, pointing out that this new relocation pattern has actually been a common practice for many Taiwan-based electronics companies, which have also been a part of this recent wave of relocation.
For instance, Compal Electronic's supply chain in Taiwan has also relocated to the mainland, the sources say, adding that Compal's creation of plants in Kunshan has prompted its connector supplier to also set up a factory there.
For many local parts and components suppliers, moving to mainland China is a natural step, as many of their clients have already done so, while there is the added attraction of the vast mainland Chinese market, the sources say.
Enlight Corporation, which has already started production of computer cases in mainland China, has also adjusted its operation approach there by forging a business alliance with First International Computer -- one of its clients -- rather than manufacturing on its own, according to the sources.
Enlight has determined to set up new plants within the complex of First International's production center in Guangzhou in order to directly supply First International with components in barebone systems.
Such a "cloning" pattern has created a much better-integrated service line for First International in the mainland, while Enlight is planning to promote a similar model in Shanghai in cooperation with other clients there.
Sources note that this is an ideal way pursued by the many local businesses that have relocated to the mainland recently.
For many Taiwan-based parts and components suppliers, their relocation to the mainland is based upon the needs of customers, analysts observe, adding that, pushed by important customers and their large orders, suppliers have gradually clustered in different types of special zones in the mainland amid this recent relocation fever.
Taiwan-headquartered notebook companies, including Compal, First International, Twinhead International and Mitac Technology Corp. have all chosen to set up their strongholds in the Kunshan EPZ, which industry sources say will immediately become the first-ever "notebook special zone" in the mainland as soon as Taiwan lifts its ban.
Generally speaking, most notebook makers from Taiwan have gathered in so-called Greater Shanghai -- within a one- or two-hour drive from the city, the sources note, forecasting that the density of notebook producers in Shanghai will soon surpass that in Taiwan in the near future.
However, they point out that the major reason behind these electronics businesses' relocation to Shanghai today is totally different from the reason that took local companies to Dongwan in Guangdong Province a decade ago.
According to the sources, Dongwan was chosen at that time simply because of its proximity to Hong Kong and Macau and because of its cheap labor force. Now, however, Taiwan businesses are attracted to EPZs in Shanghai by their comprehensive facilities, handsome incentives and highly service-oriented local government officials, they note.
In addition, newly established EPZs in the mainland strive to adopt their own distinct images in order to lure different "star industries" to settle in their complexes, the sources say, pointing to the example of Kunshan as a "notebook special zone."
Taiwan firms which have joined in the recent exodus have noticeably relocated more northward and have acted collectively, rather than fighting alone as in the past, industry observers say, warning that the amount of capital channeled into the mainland amid this relocation wave will be much higher than before.
(CNA)
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