IN MAINLAND CHINA
7.1 The past, present and future of Taiwan IT manufacturers entering the west market
All the time the process of heading west (which here means the Mainland China market) for Taiwan
IT manufacturers is “Deeds speak louder than words”, in consideration of politics and the
intervention of policies. Taiwan’s information and electronic industries have been investing in
China since 1990; the range of investment began with early production activities, marketing
activities after 1995 and then the fields of R&D. However, at present Taiwan has already become
the largest source of trade deficitfor Mainland China: 79.5 per cent of the information hardware of
Taiwan IT manufacturers was made in China and it involves more than 80 per cent of the shipment
value of Mainland China’s information hardware.
This study, following a research paper of III (Kao 2006/3), will explore the background of the
industry, the modes of investment and the driving factors, and then analyse the current situation of
Taiwan IT manufacturers’ production, marketing and R&D arrangements in China, in this way
predicting some trends of future development.
1. Industrial background
1990-1995: In Taiwan’s electronic information industry, the manufacturers of desktop PCs
components (case, power, mouse, keyboard, etc.) with lower price and higher manpower
demand, aiming at lowering production costs, engage in the layout of the production base
in Mainland China in the early 1990s, being attracted by plentiful and cheap production
elements of Mainland China and relevant investment preferences.
1996-2000: As the low price tendency of PC becomes more obvious day by day, manufacturers
attempt to obtain economies of scale by large-scale factories in order to lower costs and
compete with those who entered the market of South China beforehand; in this way
making up for the inferiority of production costs as far as the latecomers are concerned.
Meanwhile, under the political opposition of Taiwan and China, the Taiwanese
government strongly recommends a “southwards policy”, encouraging Taiwan IT
manufacturers to invest in Southeast Asia
2001-2005: 1. The excessively optimistic sales forecast for the PC market in the first half of 2000
affects the large increase of stocks of mobile phone key components, the phenomenon of
the dot.com bubble and the global IT market transforming from a growth period to a
mature period. When facing the situation that the competition of prices of large
international IT plants becomes progressively keener, in order to maintain space for
profit-making, Taiwanese IT manufacturers who expanded production excessively in
China launching price negotiations use the scale of order as chips on the one hand and
on the other, retract the purchase right of components, discuss the scale and price of
orders with the manufacturers of relevant components directly and then reduce the
potential interests in ODM orders that Taiwan IT manufacturers accept, which greatly
shrink the profit-making of Taiwan IT manufacturers. 2. At the same time, because there
is not much space left for price competition, IT manufacturers give up the strategies of
contesting industrial ability and the competition via low prices, and then turn to focus on
the R&D and marketing activities of market segmentation. Some components
manufacturers strengthen progressively the recourse to inputs of their own brand in a
situation where the profit-making space of ODM is limited. 3. In addition, after many
international cases of merger and acquisition of local manufacturers in Mainland China,
Taiwan’s IT manufacturer BenQ merges with the department of mobile telephone of
Siemens in 2005; through this encouraging the global market share of Taiwan mobile
phone industry to rise over 30 per cent from 10 per cent, and then obtaining the relevant
intellectual property rights and international distribution. Therefore, BenQ begins to have
its own brand.
2. Investment patterns
1990-1995: In the early stage, because the scale of the market is not big in Mainland China and the
management environment is strange, Taiwanese manufacturers of electronic information
began production in ways like “the process of importing materials” according to the
strategy of reducing production cost.
1996-2000: Though there are many limitations on investment in Mainland China, when faced with
cheap elements of production, similar language and relatively complete system of
industry, etc. many Taiwanese IT manufacturers turned to investing in factories there in
the name of large shareholders through tax concessions. In addition, under the policy of
foreign exchange control in Mainland China, in order to prevent too many funds from
restrictive utilization, manufacturers engage in buying low and selling high for
components and end products through trading companies in Hong Kong mostly, keeping
a large number of profits to use overseas.
2001-2005: When facing the industrial policies in Mainland China (e.g. setting up factories in local
areas, limitations on domestic sales proportions, requirements for domestic purchase)
and the foreign exchange control, etc., in order to raise market share in the Chinese
market, large MNC plants strongly ask Taiwanese IT manufacturers to raise shipment
volumes from the Mainland, as the foundation of the internal marketing quota. On
account of “customer requests”, Taiwanese IT manufacturers increase the proportion of
production in Mainland China by a wide margin. The thinking behind entering
Mainland China for Taiwan’s IT manufacturers changes from “reducing production
cost” to “the requirements of customers” under the pressure of the market.