Taiwan Today

's automotive manufacturers compete on the world stage by offering manufacturing flexibility, advanced design capabilities and spot-on pricing.

When it comes to the global automobile industry, long dominated by Japanese, European and American brands, may not be the first country that comes to mind. But in today's cutthroat auto manufacturing environment--one in which pressure to control costs is all-pervasive, technical demands are sky-high and a company's ability to rapidly innovate is more often than not what snares fat contracts--Taiwan is seizing an ever-larger slice of the international pie.

Reflecting the country's growing role in the international auto industry, in 2007 the annual Taipei International Auto Parts and Accessories Show was held in conjunction with the second annual Taipei International Automobile Electronics Show at the . The two shows were joined to create a single large expo and highlight 's increasing strength in the global auto supply chain. More than 4,000 foreign buyers, mainly from and the , attended the show and placed big-ticket orders with domestic manufacturers.

has also become the world's No. 1 supplier of aftermarket auto parts and now accounts for 85 to 90 percent of the collision parts market, according to the Tong Yang Group, the world's largest manufacturer of aftermarket plastic body parts. The nation's share of the broader auto parts market is also growing, as figures compiled by the Taiwan Transportation Vehicle Manufacturers Association show the export value of all Taiwan-made parts rose from NT$68.5 billion (US$2.1 billion) in 1997 to NT$132.9 billion (US$4.1 billion) in 2006. Meanwhile, locally produced cars are winning the approval of Taiwanese consumers, consistently securing some 80 percent of the domestic market over the last 10 years.

"Taiwanese manufacturers excel at small-batch, large-variety production and they can rapidly launch new products with innovative designs," says Chang Hsu-tung, Tong Yang's administrative director. "Plus, they've cultivated solid technologies through decades of partnerships with Japanese, US and European counterparts."

Chang says that 's strength lies in its manufacturing flexibility. With their strong research and development (R&D) capability, domestic makers can meet varied customer demands in terms of specifications and lead times, regardless of order volumes. Many large international competitors lack such flexibility, particularly in manufacturing original equipment and aftermarket parts, providing a great opportunity for Taiwanese companies.

Tong Yang invests NT$650 million (US$21 million) in R&D work each year. So far, the company has developed more than 9,600 molds for aftermarket plastic parts and 1,300 for metal ones. It has conducted R&D for parts for 220 American cars, 214 European cars and 470 Japanese cars.

"A tier-one maker is involved in product design, mold development and original equipment manufacturing [OEM], a second-tier maker handles molding and OEM, and a third-tier maker does OEM business only," Chang says. "We've been striving to be a tier-one vendor by recruiting R&D talent and introducing advanced technology and equipment from abroad."

Established in 1976, Tong Yang was listed on the Taiwan Stock Exchange in 1994 and saw its overall sales grow from NT$10.9 billion (US$352 million) in 2000 to NT$26.6 billion (US$858 million) in 2007.

Tong Yang's biggest product lines include bumpers, instrument panels, sheet metal parts, hoods, fenders, radiators, cooling fans and mirrors. The parts are sold to more than 2,300 customers in 170 countries. The company's international clients include Ford, GM-Opel, Mazda, Mitsubishi, Honda, Nissan, and Volkswagen.

An important objective for Tong Yang is to offer one-stop shopping services to better serve customers, given that a typical automobile involves some 20,000 parts, Chang says. Hence, the group has moved to form strategic alliances with other Taiwanese suppliers to develop a comprehensive supply chain service, providing more than 10,000 products for all major car models worldwide.

Chang notes that the future development of 's auto industry hinges on supplying the international market in view of the relatively small domestic market. In fact, car sales in dropped from 514,627 units in 2005 to 326,777 units in 2007, although mostly because of the slowing economy.

Eye on Exports

Currently, 89 percent of locally made auto parts are shipped overseas, mainly to the , and . "The top five auto conglomerates--, General Motors, Ford, Volkswagen and Renault-Nissan--together occupy 93 percent of the global market. It's difficult to tap into their supply chains," Chang says. "However, due to the current market slowdown and intensified competition, many US and European automakers are starting to outsource production to manufacturers around the world. That brings more business opportunities for Taiwanese vendors that are able to provide good quality parts at competitive prices."

Though sales are slowing in more mature markets, rapidly developing countries like , , , and are witnessing a soaring demand for automobiles. These markets, Chang adds, are where Taiwanese manufacturers should look for growth opportunities.

In particular, car ownership in is expected to reach 70 million units by 2010, compared with 37 million units in 2006. In view of such great market potential, Tong Yang has teamed up with 15 Chinese automakers, including Chery Automobile and Harbin Hafer Automobile, via technical cooperation or joint ventures to establish production lines and after-sales centers.

Forging Ties

The group has also built factories in , the and in order to more quickly supply regional markets while reducing transportation costs.

"Given 's existing technologies, the local content rate of auto manufacturing could exceed 90 percent," says Chien Ching-wu, marketing manager at China Motor Corp. (CMC). "But the real issue is whether it would be cost effective for manufacturers to produce such a high percentage of parts here, as the home market's main weakness is its lack of economies of scale."

The R&D cost for a new vehicle, Chien notes, usually reaches at least NT$7 billion (US$217 million). It is unlikely that Taiwanese companies will make such a large investment for the domestic market, given its small size. Consequently, most domestic automakers choose to modify products designed by their foreign business partners.

For example, CMC, founded in 1969, has worked closely with Japan-based Mitsubishi Motors Corp. since 1970. Thanks to sharing technology, management, brand name marketing and supply chains, CMC has flourished, Chien says. The company was listed on the Taiwan Stock Exchange in 1991 and formed a joint venture with the Fujian Motor Industrial Group in 1996 to set up South East Motor (SEM) to tap the market. To further sharpen its competitiveness, CMC set up the China-Motor Asia Research & Technology Center (CARTEC) in 1999, with an investment of some NT$6 billion (US$194 million).

Since then, the Taiwanese automaker has manufactured a wide range of vehicles, including sedans, sports utility vehicles and commercial cars and trucks for the domestic and international markets. In 2005, CMC was authorized by Chrysler to produce sports utility vehicles.

"The operation of CARTEC enables us to improve vehicles' original exterior and interior designs, which often comes as a positive surprise for our business partners," Chien says. "For autos of a similar grade, the models modified and manufactured in usually look more luxurious and are better equipped than those made elsewhere."

CMC has developed multi-model production lines that can produce 13 different vehicles simultaneously in a limited factory space, Chien says. And the company has reached a 97 percent automation rate on its welding lines, offering greater flexibility and efficiency and enabling the company to respond quickly to customer demands.

With an annual capacity of 120,000 cars, CMC ranked as the No. 2 (behind ) automaker in annual sales in from 1997 to 2006. CMC also led in export sales from 2003 to 2007, selling vehicles in Southeast Asia, the Middle East, Africa and .

Last year, CMC and SEM entered into a US$203 million joint venture with Daimler AG of to set up a factory in 's province that will commence operations this year and produce Mercedes-Benz vans. In the beginning, the facility will have a production capacity of 40,000 units a year.

Another leading Taiwanese automaker, Yulon Motor Co., has adopted similar development and marketing strategies to maintain its growth momentum. Founded in 1953, Yulon signed a technological cooperation agreement with Japan-based Nissan Motors in 1957 and established the Yulon Asia Technical Center (YATC) in 1998.

Accelerating Cooperation

Furthermore, in 2000, Yulon entered into a joint venture with Dongfeng Motor Group of in a drive to make inroads into the market. Then, in 2003, Yulon and Nissan jointly established Yulon Nissan Motor Co. in , which focuses on R&D and seeks to expand sales through distribution of Nissan and Renault cars.

"Yulon chose to join forces with Nissan with the goal of integrating international resources and expanding Yulon's operational scope to the global market," says Tsay Wen-rong, senior vice president of Yulon Nissan Motor. "Our cooperation with Nissan marks a shift from technical support and investment to a new relationship of technical exchange and partnership, and we will gradually expand it from to and ."

Currently, Yulon Nissan Motor exports vehicles to the , , and through Nissan's extensive sales network. The company has obtained the approval of Nissan to ship the "Cabstar" line of locally made diesel-powered trucks to , with an annual shipment of 5,000 units. The line is likely to be sold in by 2010.

Because independent R&D is so important, Tsay says his company earmarks at least 5 percent of its annual sales income for that purpose. Meanwhile, the Yulon Nissan Design Center (YNDC) was set up last year with an investment of NT$340 million (US$11 million). The YNDC is Nissan's sixth such design facility, following those established in , the and the . "The establishment of this center demonstrates Nissan's recognition of our design capability," he says. "The YNDC has been assigned to help Nissan develop competitive models to appeal to not only the Chinese market, but also those around the world."

Tsay says is a highly competitive market, as its size is limited and local consumers are demanding in terms of product quality and pricing.

"Following 's entry into the World Trade Organization in 2001, many predicted that the market share of locally made vehicles would drop from 85-90 percent to 50-60 percent. But that hasn't happened," he says. "Locally made cars continue to dominate the home market because they offer a wide selection and more competitive pricing."

Amenities such as anti-lock brake systems and leather seats, which are considered optional extras in many US and European cars, are standard features in some cars made in because domestic automakers need to offer such perks to compete in the island's saturated market.

Drawing on their long production experience, broad product lines, strong R&D capabilities and excellent design skills, 's ambitious automakers are forging ahead by creating innovative, high value-added products.

"We've been fighting a tough battle for decades here in and become increasingly stronger as a result. We are now ready to reach out to the rest of the world to continue our growth," Tsay says.

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Smarter Devices, Better Drivers

In the ongoing quest to make cars that are safer and more convenient, auto electronics has become a field with huge business potential, attracting manufacturers around the world. As a result, high-tech gadgets once mostly known for their ability to draw crowds at auto shows are now becoming standard features in cars and trucks. 's electronics manufacturers have reacted quickly to the trend and are now well positioned to tap this growing market by drawing on their prowess in information technology products.

" has a good opportunity in the field of auto electronics, given the years of technical expertise its companies have accumulated in consumer electronics and information technology products," says Billy Ho, president of Mitac International Corp. "The country's competitive advantage lies in its efficient integration of different technologies as well as in its fast new product commercialization."

's manufacturers have reacted quickly to the growth of automotive electronics. According to a report released by the Council for Economic Planning and Development, the annual production value of the sector in Taiwan is likely to surge from NT$56 billion (US$1.8 billion) in 2006 to NT$90 billion (US$2.9 billion) by 2009.

And the quality of Taiwan's auto electronic products like backup warning systems, tire pressure monitoring systems, liquid crystal display (LCD) screens, light-emitting diode (LED) lamps and global positioning systems (GPS) has been repeatedly validated by purchases from industry heavyweights such as Ford, General Motors, Mercedes-Benz, BMW and Honda.

's GPS manufacturers, for example, have seized nearly 70 percent of the total world market. Of them, Mitac has grown to be the world's third largest GPS supplier after its acquisition of the Navman portable navigation devices business unit from US-based Brunswick Corp. last year. Mitac started out by manufacturing computer systems in 1985 and has since expanded into mobile communications.

Mitac's Ho says his company spearheaded the integration of personal digital assistants (PDAs) and GPS devices in late 2003, a move that combined information technology and navigation services in one device. Once introduced into automobiles, the "smart" GPS devices became known as portable navigation devices (PND), and they are finding their way into more and more vehicles.

Currently, Mitac's Mio brand of PNDs claims 10 percent of the global market. The company has also garnered a Gold National Award of Excellence from Taiwan's Ministry of Economic Affairs, a Best Choice award at Taipei's annual COMPUTEX computer show and an iF Product Design Award from International Forum Design in Germany.

Ho says based on the experience of manufacturing information technology products for some 20 years, his company is able to develop GPS devices that go beyond traditional point-to-point navigation.

Mio's latest PND innovations, Ho says, are voice call capabilities and the ability to connect to cellular networks for real-time traffic updates and Internet searches. The addition of these capabilities has enabled the simple GPS receivers of a few years ago to evolve into integrated systems that can provide information and interactive services. Mio has been assisted in its quest to integrate these services through launching a joint development effort with leading wireless communications system manufacturer Qualcomm Inc., he adds.

Thanks to their multiple functions, maturing technology and prices in the popular US$199-$299 range, Ho is upbeat about the market prospects of PNDs. "Navigational devices offer a lot of convenience to users," Ho says. "PNDs can substantially slash driving time and help people explore new places."

In order to meet growing demand, Mitac has set an ambitious goal of boosting shipments of Mio and Navman products from 4.3 million units in 2007 to 8 million units this year. "Now, with the availability of cellular connectivity, PNDs can also provide useful information services," Ho says. "All of these factors lead us to believe that the market demand is just going to take off."

Write to Kelly Her at kelly@mail.gio.gov.tw