Tag Archives: Foxconn

Taiwanese farmers cope with bad weather with help of new technology

An agricultural shift is underway, led by Taiwan’s hi-tech manufacturing companies such as Delta Electronics, Foxconn and Kinpo Group, who are all entering into the agricultural industry. They are bringing their technological knowhow to improve light system and automated equipment used in factories. Though, it is not just the big firms that are incorporating new technology to improve traditional farming. Recently, the Industrial Technology Research Institute (ITRI) has promoted the use of technological methods to small farms with some success.

The 99feng Organic Farm is the only Taiwanese farm using LED lights to improve the quality and yield of its organic asparagus. Farm owner Chiu Sun-nan led Global Views reporters on a tour of the organic asparagus field in the countryside of Caotun Township, Nantou County (central Taiwan), where a variety of green asparagus, commonly found in spring and summer, and also purple asparagus, which is better in winter, were growing.

Chiu’s asparagus on average sells for US$10 per kilogram (2.2 pounds) and are sold to 5-star hotels which appreciate quality. Over the past decade, he has invested US$1.1 million, in addition to selling two townhouses (US$200,000) and taking out a US$333,000 loan. The biggest challenge for the farm is unpredictable weather. On cloudy and rainy days, production drops by half and the crop also becomes less tasty, so a steady profit margin is hard to maintain.

Chiu researched theses and agricultural documents to improve his odds and to increase his asparagus production, but to no avail. That was until three years ago, when Chiu met Hu Hong-lie. Hu, the deputy chief of Electronics and Optoelectronics Research Laboratories, ITRI, and Chiu began collaborating, reported Global Views.

In the beginning and given Hu’s engineering background, the project team did not understand the natural balance needed by asparagus in order to thrive. Since then, they have increased the farm’s production by 25 percent by taking advantage of LED lighting, experimenting to find which light sources would spur the best growth, and hopefully transfer this knowledge to the bio-medical industry as well.

Hu said the biggest difference between industrial experiments and agricultural experiments is that the experiment objects are alive in the latter. Plants keep on growing, whereas with industrial experiments – if today’s data is not right, you can redo it tomorrow. “But for agriculture, if your experiment is wrong this time, you have to wait another season or another year to redo it.”

Global Views reported that now Chiu’s asparagus farm is littered with tiny blue, red, purple and white sparkling lights, appearing more like a night club in the dark. Actually, the assorted colors are another experiment to find out which light source is best for asparagus growing, and which wave length can generate the nutrition for asparagus and reduce the purine elements of metabolic arthritis in asparagus.

Since the collaboration, Chiu has turned a small profit for the past three years. With supplementary LED lights, even on cloudy and rainy days, the farm can still produce 75 percent of its peak production. This makes Chiu very grateful to the industrial experts, since using LED lights has helped his crop become less vulnerable to bad weather.

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 seeks to keep edge in hi-tech production

Whereas in the past, Taiwanese firms played a significant role in the production of the iPhone, this was not the case with the iPhone 5 when it was released in September, according to a recent study by iSupply. Taiwanese companies made a contribution of just 10 percent to the whole supply chain of the iPhone 5, accounting for profits of less than one percent.

Despite this worrying situation for Taiwan’s original equipment manufacturers (OEMs), Taiwan’s Ministry of Economic Affairs announced that the share of Taiwan-made and OEM smartphones reached 37 percent worldwide, placing the island as the world’s leading manufacturer of smartphones. It is expected that Taiwan will continue to hold this top ranking into 2013, solidifying its position as the worldwide epicenter for makers of smartphones and other hand held devices. Taiwan’s domestic production is estimated to reach US$43 billion in 2015, bringing in new investment of US$678 million in 2015, and creating 150,000 job opportunities by 2020, reported the Commercial Times.

In the new age of tablet computing, Global Views monthly said, Taiwan is losing its edge in terms of component sourcing. This affects gross profit and reduces the influence of Taiwan’s electronics industry. Taiwan used to control this area, but now the ball is in Apple’s court.

In the past, Taiwan’s notebook ODMs like Quanta Computer, Compal Electronics Inc., and Wistron, enjoyed the ability to influence components ahead of global brand names such as HP and Dell. They could increase the importance of Taiwan’s component supply chain. But now Apple controls 70 percent of global tablet computing market, exerting more bargaining power and the ability to suggest components. Taiwanese companies are increasingly being relegated to mere assemblers of Apple products, rather than designers and innovators.

Of all the Taiwanese firms, only Foxconn maintained its previous share, accounting for 4.5 percent of the total component assembly for the iPhone 5, while other makers of touch screens and shells did not get any orders from Apple.

A senior product manager in Taiwan pointed out that Apple’s CEO Tim Cook, who took over the reins of the company following the death of Steve Jobs, is an expert on hardware specifications and a tough squeezer of supply chain production costs. As such, the iPhone 5 mainly focuses on upgrading and improving, the hardware, such as adopting the 4G LTE chip set module made by Qualcom and Retina screens made by Sharp. For those component providers, if they were lucky to get orders from Apple, it was at a reduced price, according to Global Views.

In fact, it is getting harder and harder to get orders from Apple. Starting from 2012, many Taiwanese electronics manufacturers, including some ODMs of Apple products, have turned to China for orders. According to Topology Research institute, the global total cell phone production volume, including traditional cell phones, is expected to grow 4.5 percent in 2013, in which the total volume for the Asia Pacific region including China is expected to grow up to 51 percent, far more than the 10 percent expected in North America.

Global Views reported that Foxconn, one of Apple’s main manufacturers, has long been taking orders from China’s brand name cell phones. For example, the company started assembling the “Happy phone” series of smartphones in 2011 for Lenovo, which started by making PCs and is now positioned to take some market share from HP. Foxconn also started this year to take orders of the popular MI-One, a smart mobile phone designed by Xiaomi Tech Company.

Besides Foxconn, TPK Holding (a manufacturer of touch panels) and Catcher Technology (a manufacturer of cell phone shells), and MediaTek Inc. (a fabless semiconductor design house) are all turning to China. These Taiwanese companies have formed new market links between Taiwan and China.

However, when Taiwanese companies apply their smart phone manufacturing technology to China’s brand name products, the advantage of Taiwan’s smart phone technology over China’s counterparts has also narrowed. The challenge now for Taiwanese companies is how to maintain the lead, Global Views stressed.

Now the only irreplaceable value of Taiwanese companies is the optical lens made by Largan Precision Co., in addition to the system assembly.

According to analysis by Business Weekly, the electronics industry was one of the key locomotive forces driving Taiwan’s economic growth, but now most of those related job opportunities have moved overseas leading Taiwan to shift its focus increasingly toward the service sector. More and more manufacturing resources are drawn to the service industry, namely, the so called high technization of services. Once the service industry is integrated with high technology, more innovation will develop.

At present, no one can predict exactly where the next big economic growth momentum will come from, but opportunities are certain to open up. One suggestion is for the government to continue to lift restrictions and let new businesses emerge. In either case, Taiwan still has the most treasured resource – manpower.

According to the global competitiveness report 2012-2013 released by the World Economic Forum in September, Taiwan remains in 13th position due to its sufficient manpower in R&D, its industrial clustering effects, and the low cost of its financial services. According to Business Weekly, Taiwan’s high quality manpower provides unlimited potential for the future.

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.

After Foxconn, Taiwan seeks to lure firms in China

In speaking to Taiwan’s industry leaders on June 9, President Ma Ying-jeou spoke of his plan to create a special trade and economic zone on the island to attract Taiwan businesses operating in China to relocate to Taiwan. As wages in China continue to rise and its environmental controls tighten further, more business leaders are considering relocating to Taiwan as an alternative. This trend began in 2006 and has continued as businesses see a decline in their profit margins. And, by lowering business taxes, Taiwan government hopes to lure more business back to Taiwan.

In 2006, the first batch of Taiwanese businesses returned due to newly adopted industrial policies and environmental standards in China, leading the government to crack down on high-pollution, low-technology industries. This prompted a number of Taiwanese businesses to close their small-scale plants and return to Taiwan.

In 2008, the Ma administration eased trade and investment restrictions with China and promoted the first and the second listing of Taiwanese Depository Receipts (TDR), which attracted more Taiwanese businesses to return home, and boosted the local stock market. In this wave of returning businesses, some overseas Taiwanese firms have made direct investments and have taken control of failing companies in Taiwan.

Coping with the end of China’s cheap-labor era

This year, businesses have returned to Taiwan due to changes in the labor market in China and further wage rises in the country. Initially, factories experienced a shortage of labor in the coastal provinces, then, this problem spread inland. Taiwanese firms could not find sufficient manpower despite offering higher wages. Then a spate of suicides at the Taiwanese-owned I-Phone manufacturer Foxconn led the company to announce a 122 percent wage increase last month. These wage increases have heavily impacted Taiwanese firms and the Chinese labor market as a whole.

According to the Taipei-based China Times, the Beijing government has decided that its export-oriented economy shall give way to one of increasing domestic consumption following the global financial tsunami. Beijing wants Chinese citizens to be wealthy enough to generate a vibrant domestic market. Thus “wage increases” have become a key policy goal of the Chinese government. Since the beginning of 2010, all provincial and municipal governments in China have announced plans to raise the minimum wage, with increases ranging from ten percent to over 40 percent. And, this wage adjustment will continue every year from now on. It is increasingly evident that the era of China as the “world’s workshop” with an abundant supply of cheap labor is coming to an end.

Idea of “special economic zones” considered

The China Times, in an editorial, pointed out, that due to rising labor costs and labor market change in China, coupled with relaxed cross-strait relations and the opening up of direct air links, more overseas Taiwanese businesses are returning home to invest. Taiwan’s government has also prepared a plan that it hopes will attract NT$40 billion (US$1.25 billion) of returning Taiwanese investment a year. This returning overseas Taiwanese investment will no doubt enhance the island’s economic structure and hopefully create a higher value-added economy that will also promote the general well-being of Taiwanese citizens. What the government wants to avoid, is Taiwan becoming a processing zone for large-scale high-pollution, low-value exports. The paper said the government should encourage the creation of pollution-free tourism, cultural and creative businesses, and financial services, as well as high value-added R&D and marketing centers, and the emerging green technology energy industry.

The United Daily News also commented in an editorial, that Taiwan has been the main supplier to the “world’s workshop,” yet the island have been buried in an economic slump in recent years. Only Taiwan’s export processing businesses in China have helped maintain Taiwan’s domestic economic growth. The industrial environment in China has changed, affecting not only overseas Taiwanese businesses, but also the fundamentals of the whole Taiwanese economy, to which the government should not turn a blind eye, cautioned the paper.

Taiwan’s cabinet-level Council for Economic Planning and Development is reported to be assessing the risks and feasibility of implementing “special economic operations zones” in Taiwan. The purpose of setting up special zones is to duplicate the successful cases of export processing zones and science parks in the past, starting a third wave of economic transformation. This new generation of “economic operations zones” is intended to attract investment from returning overseas Taiwanese businesses and multinational corporations, and to reduce the high unemployment rate in Taiwan.

Foxconn suicides reveal inconvenient truths

On June 1, Foxconn, the world’s largest contract electronics manufacturer and maker of the iPhone, iPod and iPad, announced a comprehensive 30 percent wage increase for all its production-line workers in China. This bold announcement was followed by another six days later, that the minimum wage at its factory in Longhua, Shenzhen, would more than double from RMB900 (US$132) to RMB2,000 (US$293) starting in October. The company’s actions have sent shockwaves through the foreign investor community in China, according to the Commercial Times. The company has been making news for another reason recently, the alarmingly high number of employee suicides at its Shenzhen campus.

Foxconn, which falls under the umbrella of the Hon Hai Precision Industry Group, is headquartered in Taipei, Taiwan. After the 11th employee suicide at its 300,000-worker Longhua site, Terry Gou, the chairman of Hon Hai, invited over two hundred local and foreign journalists to inspect the facility. This initiative proved effective as the journalists could find little to criticize at the plant. Yet, the very night that Gou returned to Taiwan, the 12th suicide took place prompting him to fly back to Shenzhen immediately.

Gou: “I carry 12 crosses on my back”

At the annual shareholders’ meeting on June 7, Gou said he has ceased the practice of paying the high death benefits, which might be considered by some as an inducement to commit suicide. Foxconn previously paid out almost ten times its employees’ annual wages in death benefits, reported the United Daily News. Gou also stressed, “I carry 12 crosses on my back” and said he takes full responsibility for any management flaws.

In reference to an investigative report by Taiwan’s Suicide Prevention Association, Gou said three of the 12 workers attempting suicide had previous mental disorders, and their actions were in no way related to the work environment or to work pressure. The Foxconn management has been shocked that half of the suicide attempts occurred in quick succession in May, a fact that may be attributed to the so-called “Werther Effect” of copy-cat suicides. After Gou flew to Shenzhen to take personal command of the factory, dozens of suicides were apparently prevented, according to the United Daily News.

Not a “sweatshop,” only a “pressure cooker”

The Taiwanese media has written widely about Foxconn’s management style and Gou’s personality in particular. Yang Ren-kai, a veteran journalist who used to work at Hon Hai said, if Foxconn is a “sweatshop,” Chinese journalists who have snuck into the factory by hiding their identity would have broken the story.

Yang wrote in the Journalist magazine that “Terry Gou is downright masochistic…Gou is the axis of Hon Hai, with all the people revolving around him… Gou is an absolute workaholic. He gets up usually around 7 a.m. and enters his office around 8 a.m., he is busy all day, until around 1 or 2 a.m. before returning home… Gou knows of course how to rally his subordinates; however, he has a superior sense of self-motivation. He started Hon Hai from scratch, and has long been fighting to keep his business afloat during hard times. This is all part of his survival instinct.”

Xin Huai-nan, a former senior executive at Hon Hai, said in an interview with the Hong Kong-based Sing Tao Daily that “Gou does not run a sweatshop, and Foxconn is not a “sweatshop,” but it might be a “pressure cooker.” “Hon Hai’s culture dictates that it must be superior to its competitors. There are three elements that are crucial – the company must produce better products, with shorter lead times and at a lower cost.” Gou asks his staff to achieve all three. That is why Foxconn is like a “pressure cooker.”

Originally established in Taipei in 1974, Foxconn has held the top spot for a Chinese exporting enterprise according to Fortune magazine’s Global 500 for the last seven years. It employs in excess of 800,000 people in China. The entire employee population at its Longhua complex, including 3,700 Taiwanese workers, is greater than the population of one medium-sized city in Taiwan.

Managing that many employees is not easy and requires strict control, according to David Sun, co-founder of the flash memory maker Kingston Technology, speaking in an interview with the United Daily News. “It is not easy to run a factory, let alone to manage hundreds of thousands of employees, he said. Ray Chen, general manager of Compal Electronics, stressed, “I hope Foxconn can properly deal with this crisis as soon as possible. Otherwise this could lead to a chain of events affecting other Taiwanese and foreign enterprises in China.” In their view, this is not just a Foxconn issue, but is symptomatic of the changing economic and social environment in China.

Is rigid management a necessary evil?

The United Daily News said, China has been playing the role of “manufacturing base” in the global supply chain for almost three decades now. Many Taiwanese people have moved to China to set up operations to create large contract manufacturing businesses. They impose strict discipline when managing tens of thousands of employees to achieve fast delivery and quality production for global brand leaders. As well as the in-demand iPhones, iPods, and ipads, the latest computer models for HP and Dell are also made at Longhua. Even Acer Computer depends on these manufacturers to make its notebook computers in a bid to increase their global market share.

How to manage such a huge group of low-paid workers and achieve maximum performance in a short space of time has proved problematic for foreign businesses in China, but it works to the advantage of the Taiwanese firms. However, the Foxconn suicides are showing that even Taiwan businesses are powerless. Gou lamented, “What can I do except to apologize? I have done my best to seek advice from psychologists, feng-shui masters, Buddhist monks and the media, even announcing a 30 percent pay rise.”

Gou is not without his supporters though. Reporter Wang Zhong-fang wrote in her blog, “The recent criticism by the local media of Foxconn’s management style seems correct on the surface but not altogether correct. Those who have not worked in China do not really understand the situation there. Implementing a strict system is a “necessary evil.” Without such a system or discipline, the management of tens of thousands of workers would descend into chaos, with no production at all…” Wang also compared Chinese workers to their Taiwanese counterparts working in clean rooms at science parks in Taiwan. Asking why don’t they commit suicide? In either case, if these employees dislike their jobs, they can always quit, she wrote.

Generation Y factor

The labor conditions at Foxconn, at least on a physical level, are far better than the requirements stipulated in China’s official regulations, and certainly do not qualify as being a sweatshop. However, other factors could contribute to the high suicide rate; chief among these is the low regard given to the formation of personal relationships, which is reflected in the institutionalized management style. Additionally, most of the workers are young and away from their families and hometowns for the first time, so they might be emotionally vulnerable as well.

Most of today’s Taiwanese business leaders, including Terry Gou, were born into the first wave of baby boomers in the post-war period and grew up in poverty. In order to improve their lives and those of their families, they worked extremely hard to succeed. China is entering a stage where the generations born in the 1980s and 1990s are starting to work, noted the Commercial Times. The thinking of this generation is very different from those of their parents. The tried and tested Taiwanese business management models do not necessarily apply to this generation.

In speaking to the Taipei-based China Times, a senior manager at Foxconn said that young employees come to work with unrealistically high expectations. Whether they are pampered children from a one-child household, or hard workers away from their hometown and family for the first time, they are frustrated when reality does not meet their expectations.

Alienation and a lack of social mobility

The United Daily News also pointed out that China has learned from Taiwan’s experience to become the world’s workshop with an export-oriented economy, but the economic take-off in Taiwan in the 1970s differs from the current one in China. In Taiwan initially there were gaps between the cities and the countryside, but it was not as extreme as in China. In the early 1970s, Taiwanese workers in export processing zones went home at night, so their work pressure had an outlet for release and this allowed for the continuation of a normal family life. The Chinese workers, however, migrate to the cities from all over the country. There is no easy outlet for them to let off steam and forget about the pressures of work and life.

Furthermore, Taiwanese workers enjoyed equal educational opportunities, and social mobility is a real possibility. As long as they work hard, they have the opportunity to start their own business or succeed doing other things. While in China, the migrant workers are unable to register their households in the cities that they move to. The younger generations are excluded from equal educational opportunities. They feel hopeless because it is difficult for them to rise out of poverty regardless of how hard they work.

Preparing for the manufacturing shift

The reality is that the issues raised by the Foxconn suicide incidents signal a fundamental structural problem in China’s economic development pattern.

According to the Taiwan Electrical and Electronic Manufacturers’ Association chairman Arthur Yu-cheng Chiao, speaking in an interview with the United Daily News, Foxconn’s wage rise will mean higher production costs in China over the next three to five years and Taiwanese electronics manufacturers will be forced to leave. When this happens, the association will help them move to India, Indonesia, Vietnam and other countries, he said. Taiwanese manufacturers must expand their industrial scope and invest in new industries. Those firms that stay in China will have to enhance production automation.

Taiwan’s Economic Minister is already preparing for this critical moment in China’s transformation. In an interview with the Central News Agency on June 8, Minister Shih Yen-hsiang said the government will encourage Taiwanese businessmen to return to Taiwan to invest, and to help Taiwanese entrepreneurs transfer their investments to South East Asia, especially Indonesia. The government is urging investors to make technology-intensive manufacturing process in automated factory in Taiwan and move labor-intensive industries in Southeast Asia. The tragic Foxconn deaths serve as a stark early warning to Taiwan’s government and businesses to be ready to face these inconvenient truths.