Barclay Capital managing director Kirk Yang’s hundred page report was released Thursday. The report issued a warning to Taiwan’s technology industry. Internal issues include government gridlock and student protests hampering the government’s ability to pass policies advantageous to the technology industry and external issues include the emergence of powerful Chinese competitors. Unless there is industry consolidation or government intervention, Taiwan’s OEM and ODM manufacturers will face a lose-lose situation.
Yang’s research report is entitled “Hello, China; Goodbye Taiwan?” and its content directly points out the “Achilles’ Heel” of the Taiwanese technology industry. Yang points out, Lenovo, Sunny Optical, and BYD will benefit from foreign institutional investors’ desire to embrace Chinese technology stocks. Overall, qualitative changes faced by the cross-strait technology industry include the following:
1. Transformation from “Made in China” to “Made by China:” For a long time, China has provided Taiwan’s downstream hardware manufacturers with a low-cost environment. However, with rising wages and an appreciating RMB, these advantages are gradually disappearing. In addition, local Chinese manufacturers have begun to seize market share from Taiwanese manufacturers. Some products have even obtained certification from major customers such as Apple.
2. The Chinese market has moved from “supply” to “demand:” In terms of PC and smartphone products, China has become the largest market and the greater part of market share belong to Chinese brands, not U.S. or Taiwanese manufacturers. In addition to local market advantages, government policies support Chinese brand manufactures who are adept at producing “high-end low-cost” products.
3. “Made for China” has become “Made for the World:” The next issue that must be considered is “when can Chinese brands expand their influence and market share to the rest of the world?” Actually, companies such as Lenovo, Huawei, ZTE, and Hisense have already achieved success overseas by relying on technology, products, patents, and low prices.
In contrast, the Taiwanese government can no longer pass policies benefiting technology industry development in the face of unresolved government gridlock and recent student protests. This includes free trade demonstrationFree Economic Pilot Zzones (FEPZs) and free trade agreements. Due to the lack of innovation policies such as those that established the Hsinchu Science Park in 1980 or any incentives for industry consolidation to reduce price wars and increase scale, Taiwanese OEM and ODM plants will face a lose-lose situation. Thus, it is very difficult to view this industry optimistically.