Taiwan moved into the decade of the 1960s with an electronics industry that could make fans, fluorescent lamps, light bulbs, small motors and not much else. Six years later the island is threatening to replace Hongkong as the second largest electronic manufacturing center in the Far East, second only to Japan. At the end of 1966 there were 16 foreign-capitalized electronic plants plus a dozen Chinese manufacturers. The government is considering more than 40 applications to build additional plants. Electronic makers employ more than 4,000 persons and will be hiring another 6,000 within the next year or so.
Chinese-owned factories are making television sets, transistor radios, phonographs and most electrical appliances. Some parts and components are imported from Japan or the United States. The foreign-invested companies, with larger capitalization, are making electronic components and parts or sets exclusively for export. Overall capital investment in this industry has reached US$60 million. Before long the amount will top US$100 million.
The Chinese government has announced it will give first priority to development of electronic manufacturing as a means of providing Taiwan with both export earnings and employment opportunities. In screening future applications, the government will favor plants that provide the most employment, earn the most foreign exchange, and promote the development of other industries.
Electronic components and parts made in Taiwan may be grouped in four categories. They are (1) coils, resistors, capacitors, transformers, TV tuners, yokes, radio-phone pickups, and record changer heads; (2) semiconductors, magnetic cores, and matrix and integrated circuits; (3) components and parts for microwave communications, appliances, and industrial automation control equipment; (4) transistorized and tube radio receivers and TV sets.
The components and parts are mostly exported to the United States and Europe. Transistor radios are increasingly sold to Southeast Asia. Local industrialists say foreign investors are drawn to Taiwan by such attractions as low labor costs, cheap power, the reasonable cost of factory buildings, and tax exemptions.
Efficient Workers
The manager of a U.S. plant in Taiwan said the efficiency of Taiwan female workers is very high. On the average it takes Taiwan girls a third less time to learn an operation than their American counterparts and they do a better job. But their wage is only US$20 per month as against US$300 in the United States. The wage rate is a third that of Japan and half that of Hongkong. An American company can save US$2 million annually by shifting the work of 1,000 girls from the United States to Taiwan. Additionally, Taiwan has no labor-management conflict.
The first American electronic investment in Taiwan was the General Instrument Corporation of Newark, New Jersey, which opened the Taiwan Electronics Corporation in suburban Taipei in 1964. The company first was capitalized at US$1.4 million and had a labor force of 500. Today it has US$3 million in capital and gives employment to 2,500 persons. In January the U.S. Agency for International Development extended further investment guarantees to this company. Insurance is provided against loss from converting local currency, from expropriation, and from damage suffered in war, revolution or insurrection.
The company ships all its products to the parent company in the United States. This is also the practice of other American investors.
Largest of the American investments is that of the Philco Corporation of Philadelphia. Philco established its subsidiary, the Taiwan Philco Corporation, in June, 1966, with capitalization of US$24 million. Philco President Robert O. Fickes pointed out that most employees of the Taiwan plant are Chinese.
Favorable Climate
"Our management staff also is almost entirely Chinese," he said. "We have already seen their competency. We have seen the skill of Chinese workers. With the help of government, the cooperation of other segments of Taiwan's industry ... with competent management and good workers, we are certain to succeed."
Minister of Economic Affairs K. T. Li said the Philco investment is an example of how the favorable economic climate of Taiwan attracts large foreign enterprises. He said the Chinese government seeks investment that will foster industrial growth, advance technology, and increase employment.
The third large American investment in the Taiwan electronics industry is that of Thompson, Ramos & Woldridge Inc. (TRW Corp.) of Chicago, a manufacturer of 50 years' standing. TRW Corporation opened a US$2.4 million plant in Taiwan under the management of the TRW Electronic Components Company last August.
TRW previously bought about 50 per cent of its electronic components and parts in Japan. Because of low labor costs, it decided to build a plant on Taiwan. Like General Instrument and Philco Corporation, TRW Corporation will absorb all the products of its Taiwan subsidiary.
Half of Taiwan's 30 electronic plants were financed with foreign investment. (File photo)
Other foreign electronics investors include the N. V. Philips' Glooilampenfabrieken of Holland and such Japanese companies as Sunetics Ltd., Shirasuna Denki Manufacturing Company and Mitzumi Electric Company. Most have their plants at the Kaohsiung export processing zone, which was opened last December.
Japanese Assistance
A number of other Japanese manufacturers have entered into cooperation with Taiwan manufacturers for electronic production. They include Hitachi, Fuji, Matsushita and Sanyo. They supply components to Taiwan counterparts for assembly of television sets and transistor radios for both domestic sale and export.
The labor supply in Taiwan has five favorable aspects for electronics investors. First, the island has an abundant supply of manpower. The population density, at 340 persons per square kilometer, is the second highest in the world, just behind the Netherlands. Those aged 15 to 59 make up 50 per cent of the total and those below 15 account for 45 per cent.
The second point is that more than 97 per cent of the school-age population is receiving a minimum of six years of education. This assures a large reservoir of potential skilled workers.
Wages in Taiwan are low. According to a survey of the Industrial Development and Investment Center, the daily wage for a machinist averages NT$72, or US$1.80. Assembly line workers average NT$40, or US$1.
Labor disputes are rare and strikes unknown. Law provides that disputes between workers and employers be arbitrated by special committees. Suspension of businesses and closing of factories are never resorted to.
The fifth advantage of Taiwan is a plentiful supply of engineers and technicians. In addition to 46 universities and colleges, Taiwan has 114 vocational schools. Vocational graduates have generally made up the lower and middle echelon employees of industry. Higher echelon employees are mostly university and college graduates. A government report says Taiwan has a labor force of nearly eight million, accounting for about 62 per cent of the population.
Other Incentives
Investors are offered these other incentives:
—Tax exemptions. All enterprises are exempt from import duty on machinery and equipment if capitalization is larger than NT$90 million, or US$2.25 million. For plants established in export processing zones, import of raw materials is duty-free. Smaller enterprises and plants outside export processing zones also are eligible for tax rebates upon export of products. Approved investors need not pay corporate income tax for the first five years.
—Repatriation of profit and capital. Profit may be repatriated without limit. After the second year, capital may be repatriated at a rate of 15 per cent annually.
—Cheap power and water. Low tension industrial power costs from NT$0.29 to NT$0.37 per kwh and high tension from NT$0.23 to NT$0.34. Water is NT$0.725 per metric ton. The exchange rate for New Taiwan and US dollars is 40 to 1.
—Low-cost land and public utilities. Land may be leased for US$0.02835 per square foot per month. Roads, power, water, postal and telegraphic services, transportation, and warehousing are provided in all government-built parks and export processing zones.
Products are carefully tested before export. (File photo)
The government has assured applicants for investment in electronics of quick consideration and decision. Usually an application is approved or rejected within a month.
With nearly 30 electronic factories in operation, new investors may find it is easy to obtain components and parts they themselves do not intend to produce. Foreign sales of existing manufactures indicate the existence of sizable foreign markets.