Friday, January 08, 2010

Taiwan - Quietly Brilliant

Two separate news-items - both about the dynamics of the mobilephone market - caught my attention today:

It's interesting that even though Nokia sells more earns less. While Apple simply designs ONE phone and has it built in Taiwan by Foxconn, Nokia designs and manufactures dozens of models and has factories in several countries even though the most expensive models are still made in Finland. (The Economist, 4 Jan 2010)
Google entered the smartphone market with NEXUS ONE, which runs on the web giant's Android operating system and is made by HTC of Taiwan. (Ditto)

In this battle of corporate goliaths one country is the clear winner - Taiwan - a country with a population of 23 million (~Delhi+Mumbai) and a land area of 35,980 (Kerala is 38,863

Taiwanese companies like HTC and Foxconn are not the exception - they are just two of the numerous, unglamorous companies that keep the global high-tech marketplace humming. Here are the prominent ones -

  • Quanta Computer - the No. 1 global maker of notebook PCs and a key supplier to Dell (DELL ) and Hewlett-Packard;
  • Taiwan Semiconductor Manufacturing Co. (TSM )- the biggest chip foundry on the planet, an essential partner to U.S. companies such as Qualcomm and Nvidia (NVDA );
  • AU Optronics (AUTO ), - big supplier of liquid-crystal display panels;
  • Hon Hai Precision Industry (aka Foxconn) - makes everything from PC components to Sony's (SNE ) PlayStation 2, and which is a fast-rising rival to Flextronics International (FLEX ), the world's biggest contract manufacturer;
  • HTC - a pioneer in mobile hardware with a catchline that could represent all Taiwanese Industries - `quietly brilliant`.

In 2005, revenues of Taiwan's 25 key tech companies was about $122 billion. To put this figure in perspective, the whole of Reliance Group had a combined revenue of $28 billion and Tata Motors, $16 billion.

How did Taiwan position its technology industry to play such a key role in the global economy?

By what master-stroke of pragmatism do Taiwanese companies manage to outsource most of their production to factories in mainland China - their biggest political foe?

History gives a part of the answer - Japanese rule prior to and during World War II brought forth changes in the public and private sectors of the economy, most notably in the area of public works, which enabled rapid communications and facilitated transport throughout much of the island. The Japanese also improved public education and made the system compulsory for all Taiwanese citizens during this time.

Also, when Chiang Kai-shek`s Koumintang (KMT) government fled to Taiwan in 1949, it brought the entire gold reserve and the foreign currency reserve of mainland China to the island which stabilized prices and reduced hyperinflation. More importantly, as part of its retreat to Taiwan, KMT brought with them the intellectual and business elites from mainland China. The KMT government instituted many laws and land reforms that it had never effectively enacted on mainland China.

A more relevant explanation was found in this old article in the Business Week:

The island combines an entrepreneurial culture with effective government involvement. The Hsinchu-based Industrial Technology Research Institute is a collection of labs that works closely with local companies. It has 4,300 engineers striving to match the best that the West, Japan, and Korea can offer in fields such as microelectronics and optoelectronics. The government-backed Institute has alliances with scientists from MIT, the University of California at Berkeley, and Carnegie Mellon University in the U.S. Companies such as TSMC and cross-town rival United Microelectronics Corp. (UMC ) have their origins in ITRI technology.

`Effective government involvement` that is a difficult dance!!


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