Sur vey r esults and analysis

This section discusses the respondents’ survey results concerning supply chain adjustments in order to investigate the above propositions. In addition, it tries to identify the model of supply chain adjustment.

Pr oposition 1: Globalization of industr y and changing inter national division of labor will induce Taiwanese fir ms’ manufactur ing activities to shift to over seas countr ies.

In order to examine the offshore relocation of supply chain activities, the respondents were asked to specify the location of their manufacturing factories. In this survey, the number of respondents and the related number of manufacturing locations were as follows: 9, 11, 11, 8, 6 respondents established their manufacturing factories at single, two, three, four, five and more different locations, respectively. The respondent’s factories within Taiwan were considered as at a single location. The above offshore factory relocation illustrates Taiwanese IT firms’ international division of labor. About 80 percent (36/45) of the responding companies have already relocated part of their manufacturing activities to overseas countries.

The results indicate that the supply chains of respondents have already been adjusted in

‘space’ diversification. In the survey, 92 offshore manufacturing factories had been established by 36 of the respondents. The distribution of those offshore factories is shown in Figure 3. There are 44 offshore factories in China, 13 in the US, 6 in Malaysia, 6 in Singapore, 5 in Thailand, 4 in the United Kingdom, 3 in Japan, 3 in the Philippines, 3 in Mexico, 1 in Hong Kong and 4 in other countries. Figure 4 illustrates the trend of foreign investment among respondents in recent years, it is a continuously trend. In the IT products’

manufacturing processes, most of the semi-products (parts) can be independently manufactured, therefore, the supply chain adjustments are relatively flexible and the activities of the supply chain can be relocated with few restrictions. Taiwanese IT firms have been establishing their offshore factories to manufacture parts or products utilizing the international division of labor. The results of the survey support Proposition 1.

[Insert Figure 3 about here.]

[Insert Figure 4 about here.]

In addition, Table 4 highlights the reasons for the respondents’ choice to relocate their factories offshore. Respectively, about 44.57 percent and 16.30 percent of the respondents agreed that lower labor and land costs were major incentives for relocation providing long-term cost advantages. Moreover, about 3.26 percent of the respondents indicated that, lower tax and tariffs were the main reasons to relocate. Thus, in total about 64 percent of respondents indicated that labor and land costs as well as tax/tariffs savings were major cost considerations for the internationalization of the division of labor. Obviously, most firms desire cheaper production input factors, however some respondents indicated that other reasons instigated their location selection. The reasons included ‘proximity to customer markets (23.91%),’ ‘easier to access new technologies (6.52%),’ ‘skilled labor availability (3.26%),’ and ‘others (2.17%).’

[Insert Table 4 about here.]

This research also tries to find the relationships between the reasons and the locations of firms’ foreign investment. As shown in Table 5, in general, the reasons given by the respondents for establishing their factories in China and Southeast Asia were ‘cheaper labor costs,’ and ‘lower tax/tariffs’. On the other hand, the reasons respondents established their factories in the UK, Japan, Singapore, and the US were ‘proximity to customer markets,’

‘easier to access new technologies,’ and ‘skilled labor availability’. In the former, most of the products of offshore factories were in the ‘maturity’ or ‘decline’ stage of their life cycle, and in the later, the products were in the ‘introduction’ or ‘growth’ stage.

[Insert Table 5 about here.]

In conclusion, a majority of Taiwanese IT manufacturers relocated their factories to China and Southeast Asian countries for cheaper and cost comparative advantages in production input factors, while manufacturers who established their factories in the UK, Japan, Singapore and the US cited the ability to interact quickly with customers and advanced technology as the motivating factors. Although they are both foreign investments, the purposes and the products’ characteristics are different. Different types of geographical relocation are relevant to different stages of the product life cycle.

Pr oposition 2A: The stage of pr oduct life cycle will indeed affect the fir m’s supply chain adjustment str ategy in ‘Space’.

In order to investigate Proposition 2, this research tries to identify the interrelationship between the manufacturing products’ characteristics and the firms’ supply chain adjustment strategies. There were 65 major products carried by the surveyed forty-five respondents. In the survey, the definitions of the four stages of product life cycle, as shown in Figure 2, were introduced to the firms, and then the firms categorized their own product development. As confirmed by the respondents, out of the 65 products, there were 2 in the introduction stage,

19 in the growth stage, 35 in the maturity stage and 9 in the decline stage.

Examining manufacturing locations, it was discovered that the 1 products in the introduction stage were made within Taiwan (50.0%). Out of the 19 products in the growth stage, 15 products were made fully in Taiwan (78.9%) and 4 products were partially or not at all made in Taiwan (21.1%). Out of the 35 products in the maturity stage, 9 products were made fully in Taiwan (25.7%) and 26 products were partially or not at all made in Taiwan (74.3%). At last, out of the 9 products in the decline stage, 2 products were made fully in Taiwan (22.2%) and 7 products were partially or not at all made in Taiwan (77.8%), see Table 6. According to the survey results, as the life cycle proceeds, manufacturing activities shift from Taiwan to offshore factories. More generally, along with the product life stage, firms adjust their supply chain in ‘space’, that is, diversify to different locations instead of centralizing in Taiwan. The results of the survey support Proposition 2A.

[Insert Table 6 about here.]

Pr oposition 2B: The stage of pr oduct life cycle will indeed affect the fir m’s supply chain adjustment str ategy in ‘Time’.

In addition, this research also investigated whether firms adopted a ‘speculation’ or

‘postponement’strategy in ‘time’ in manufacturing and logistic operations.

When analyzing the data the stage of the product life cycle was important in determining manufacturing and logistics strategies; the results took the following pattern:

1) For the speculation strategy in manufacturing, there was 2 product in the introduction stage, 12 in the growth stage, 25 in the maturity stage, and 2 in the decline stage.

2) For the postponement strategy in manufacturing, there was 0 product in the introduction stage, 1 in the growth stage, 2 in the maturity stage, and 6 in the decline stage.

3) For the speculation strategy in logistics, there was 2 product in the introduction stage, 7 in the growth stage, 4 in the maturity stage, and 0 in the decline stage.

4) For the postponement strategy in logistics, there was 0 product in the introduction stage, 3 in the growth stage, 26 in the maturity stage, and 7 in the decline stage. See Table 7.

[Insert Table 7 about here.]

Following the survey results, four types of ‘time’ adjustments are seen applied by Taiwanese IT firms. (1) The characteristics of products in the introduction stage are less significant due to a lack of samples. ‘Speculation’ strategy or no action is taken in manufacturing and logistics. (2) ‘Speculation’ strategy or no action is mostly applied on products in the growth stage for manufacturing and logistics. (3) For products in the maturity stage, most of the firms apply the ‘speculation’ strategy in manufacturing, while some take no action. In logistics, they tend to use the ‘postponement’ strategy. (4) For the products in the decline stage, the ‘speculation’ strategy is taken in both manufacturing and logistics.

Due to the limited number of surveyed respondents, the statistical significance test is not applied on the questionnaire results. In particular, there were too few samples of products in the ‘introduction’ and ‘decline’ stages. However, this survey offers considerable support that supply chain adjustments in ‘time’, are functions of the product life cycle. Proposition 2B is supported.

Pr oposition 3: The supply chain adjustments will affect the manufactur er s’ modal choice and change fr eight tr anspor tation or igin/destination.

In the manufacturing supply chain, freight transportation demand occurs when materials, works-in-process, and finished products are moving among nodes. It includes ‘inbound logistics,’ ‘manufacturing logistics,’ or ‘outbound logistics’ as mentioned in previous sections.

The supply chain adjustments of the firms in this survey may be divided into ‘space’ and

‘time’. The influences that the supply chain adjustments have on freight transportation will be

discussed for both approaches.

As to the ‘space’ adjustments, the respondents’ diversified their supply chain activities to different locations through the establishment of offshore factories. Due to the supply chain manufacturing activity dispersion and relocation, new freight transportation demand was generated. The origin/destination pairs of freight transportation varied as those supply chain activities shifted in ‘space.’ The products’ weight and value also changed within the supply chain activities’ movement.

As to the ‘time’ adjustments, manufacturers applied ‘speculation’ or ‘postponement’

strategies to manufacturing and logistic operations according to the stages of the product life cycle. If manufacturing activities were speculated, the stock and risks for firms increased but the impact on freight transportation demand decreased. If postponement was applied, firms choose faster transportation services to compensate for the loss in time caused by the postponement of operations in manufacturing. If speculation is applied to logistic operations, no significant impact on freight transportation demand and the speed of transportation services is observed. However, when logistic operations were postponed, manufacturers may have had to use faster transportation services to compress shipping time. In general, supply chain adjustments affected the shipping time and the modal choice. Manufacturers tend to select faster transportation services to compensate for the shortened response time. For such cases, transportation costs are usually not major considerations. On the other hand,

‘speculation’ strategy provides longer response time, firms may select less speedy and lower cost transportation services.

Table 8 shows date from respondents about the average lapse of time from receipt of a customer’s order through to delivery (i.e. response time), average transportation time, and modal choice. The results of the cross-analysis for average response time and products’ life stages, at ‘introduction,’ ‘growth,’ ‘maturity,’ and ‘decline’ was 8.2 to 8.5 days, 6.9 to 7.5 days, 4.9 to 5.1 days, and 5.3 to 5.4 days, respectively. The average transportation time was 7.2 to 7.5 days, 5.7 to 5.9 days, 3.5 to 3.6 days and 1.6 to 1.8 days, respectively. In modal choice, most of the respondents used airfreight transportation services; only a few products were transported by sea freight. For most of the products, the transportation cost accounts for a low portion of the sale price. Different manufacturing/logistic strategies were adopted in relation to the different stages of the product life cycle, and the status of products differed with the time that orders were received. The survey discovered that the products in the

‘introduction’, ‘growth’ and ‘maturity’ stages were completely finished when the orders were received, but the products in ‘decline’ stages were still works-in-progress.

[Insert Table 8 about here.]

From the results of the survey, the supply chain ‘space’ adjustment affected the freight transportation origin/destination. Newly induced transportation demand was generated by the fragmentation of the supply chain’s manufacturing activity. As to the ‘time’ adjustments in supply chains, if ‘speculation’ was adopted, there was no significant impact on the transportation demand. If ‘postponement’ was adopted in manufacturing or logistics, to compress the response time, firms chose a faster transportation mode. Under this changing trend, the faster transportation services increased and the slower transportation services decreased.

Pr oposition 4: The supply chain adjustments depend on the availability of tr anspor t ser vices.

As shown in the analysis, the respondents adjusted their supply chain in ‘space’ and/or

‘time’. This research also investigated the impact on supply chain adjustments with transportation services availability in the two approaches mentioned above.

In the survey, respondents were posed with the following question, ‘In selecting the region/country for offshore manufacturing factories, would you consider the availability of the local transportation services in that foreign country?’ None of the 36 respondents with overseas factories considered the availability of local transportation services as an important decision-making factor. However, as the questionnaire moved to the question, ‘In selecting the city for the establishment of a new factory, would you consider the availability of transportation services in that city?’ There were 32 respondents out the 36 that took this consideration seriously. Transportation service availability did not affect the decision making process for international division of labor but it was an important factor for selecting factory sites.

If firms adopted a ‘postponement’ strategy in ‘time’ adjustment, the average transportation time ranged from 1.8 to 3.5 days. See Table 8. Therefore, we may conclude that if no fast transportation service is available in a region, it would be impossible to ship products on time and the ‘postponement’strategy could not be applied to supply chain adjustments.

According to the above analysis, the availability of transportation services seemingly does not constitute a reason for firms to relocate their manufacturing factories to other countries.

But once the relocation decision is made, the availability of transportation services becomes an important decision-making factor in selecting the factory cities. In ‘time’ adjustments for the supply chain, availability of fast transport services is a necessary condition for firms to adopt the ‘postponement’ strategy.

Therefore, the information from this survey offers partial support for Proposition 4. The results for space adjustments do not support Proposition 4. However, when manufacturers had decided to relocate their factories overseas, the transportation services availability of each alternative site will be the criteria of evaluation. Furthermore, when the factory applies the

‘postponement’ strategy, the Proposition is supported.

Pr oposition 5: The tr anspor tation cost will affect the fir m’s supply chain adjustment.

From Table 8, we found that the respondents’ supply chain adjustments affected the shipping time and mode choice, but transportation cost was not a major consideration. Even the value of (transportation costs/product sales prices) in the ‘maturity’ and ‘decline’ stages were higher than the value in the ‘introduction’ and ‘growth’ stages, the respondents in the stages of ‘maturity’ and ‘decline’ chose the faster but more expensive airfreight transportation services. Therefore, this survey of information technology firms does not support Proposition 5.

In addition, it recognizes that the response time in the supply chain is inversely proportional to the level of customer services, as shown in the upper part of Figure 5. The lower part of the Figure presents the relationship of transportation speeds vs. response time with various distances (Dist1、Dist2、Dist3) between the manufacturing factories and customer markets.

[Insert Figure 5 about here.]

When a new product is first introduced to the market, the demand is low. Manufacturing and logistics operations stay on schedule. The response time to customers or retailers is not rushed. See Point A in Figure 5, the response time t₁ will map the customer service level LOS1. The transportation service provides speed v1 delivers the products from manufacturer to the customer/retailer (Dist1) during period (t1).

Moreover, as the product life cycle proceeds, firms adjust their supply chain in ‘time’, from

‘speculation’ strategies to ‘postponement’ strategy. In the meantime, the customer service requirements increased from Point A to C in the Figure. In this case, the response time is shortened from t₁ to t₂. If the distance Dist₁ remains unchanged, then a faster transportation

speed v₂ is needed.

No matter whether ‘centralization’ or ‘diversification’ is adopted in supply chain ‘space’

adjustments, the transportation service has to increase its speed to v3 due to the increased distance Dist₂ as long as the response time is unchanged. This is quite a common situation for firms seeking cost advantage input factors to relocate factories overseas. On the contrary, if the reason for factory relocation is to locate ‘close to the customer market’, then the distance between factory and customer/retailers is shorten from Dist₁ to Dist₃. For this case, to maintain the same response time t2, slower transportation speed v4 is satisfactory.

In general, the transportation demand will change both when the supply chain adjusted in

‘time’ and ‘space.’ Especially, to resolve the incurred pressure caused by the response time, faster transportation services are needed in order to deliver the products to the end customers and retailers on time.

The survey also finds that a lot of Taiwanese IT products are in the maturity stage of the life cycle. Many manufacturers conduct their business operations as ‘original equipment manufacturer (OEM)’. In Figure 5, Taiwanese manufacturers mostly pin at Point C. The firms always shorten the response time to enhance the level of customer services. In other words, faster transportation services are applied to reach the above goals. ‘Build to order (BTO)’ is another most conventional business model for supply chain adjustments taken by the manufacturers. Therefore, Taiwanese IT firms have to improve their manufacturing technology as well as come up with fast and highly efficient logistics operations in order to meet the requirements of the global customers. This explains the phenomena of why Taiwanese firms, one after another, build up global logistics management systems.