Many believe that Taiwan's textile industry
is in decline, but the growing amount of
revenue it contributes to the economy
continues to defy this perception. How has
this fifty-year-old industry survived cutthroat
competition from countries with lower labor
costs? What are the challenges ahead?
"Traditional industries like textiles have survived because they've remained competitive," says Bai Chi-chung, vice president of the China Textile Institute (CTI). "These industries will continue to contribute to Taiwan's industrial and economic development as long as they can find an appropriate role to play."
It would appear that textile manufacturers have done just that. Over the past half century, the island has gone from a down stream garment and accessory manufacturer to a midstream yarn, fabric, and dyeing center, and has developed a strong foundation in the production of upstream manmade fibers. "The textile industry was fortunate in the 1980s to be able to team up with the petrochemical sector," Bai notes. "This cooperation gave manufacturers better access to raw materials, contributed to lower production costs, and raised product quality. More importantly, it helped the industry tap the potential of a new market segment--manmade fiber."
Taiwan is the world's third-largest producer of manmade fiber, next to mainland China and the United States. It produces more polyester processed silk than any other country, and is second in nylon and polyester fiber production. Internationally, the island ranks as the sixth-largest exporter of textile products. "I can't understand why this sector is widely considered a sunset industry," says Thomas Huang, chairman of the Taiwan Textile Federation (TTF). He emphasizes that on a net basis--the value of exports by the industry minus the amount of imports in that category--"the textile industry generated US$12.3 billion in 2000, making it the biggest contributor to our foreign exchange earnings." By comparison, the information technology and telecom industry, the biggest source of exports, accounted for net earnings of US$8.3 billion.
Both Bai and Huang point out that the general public sees textiles as a traditional industry that is no longer competitive and therefore unsuitable for continued development. This kind of perception has hit textile makers hard, impeding efforts to raise capital and recruit talent. "The image of the industry has been tarnished and its importance underestimated," Huang notes. "In reality, it's gone from a labor-intensive industry to one that is technology driven." A reason why public perception remains firmly rooted in the past is the belief that "textiles" refers only to the garment industry, which has suffered setbacks since a large number of factories began relocating overseas in the past decade.
The true picture, Huang explains, is that the textile industry has already reached the advanced phase of specializing in chemical fiber production, which remains competitive due to its economy of scale, solid technical foundation, integrated production system, and availability of cheap raw materials. "On average, one dollar's worth of chemical fiber material can create thirty-three times its value in the sale of the final product," he says. "Such economic efficiency has dramatically boosted the international competitiveness of Taiwan-made textiles."
The reason why the island's textile industry has continued to generate sizeable foreign exchange in recent years is that its outbound shipments of high value-added fabric products have replaced garments as the major source of export, Huang adds. Taiwan's textile industry has become a major provider of cloth for international brand-name apparel, and the island has become a major fabric manufacturing center in the Asia-Pacific region.
Taiwan has an estimated 7,500 textile mills that employ about 277,000 workers, comprising 11.3 percent of the total manufacturing workforce. According to the Ministry of Economic Affairs (MOEA), the island's textile makers churned out production worth NT$550 billion (US$15.9 billion) in 2000, with more than 85 percent of the total shipped overseas primarily to the United States, Hong Kong, and Southeast Asian nations. A majority of finished garments went to the United States while most fabrics and fibers headed for Hong Kong, an entrepot for mainland-bound shipments. Fabric products amounted to US$9.52 billion, or 62.6 percent of total textile exports, followed by apparel valued at US$2.2 billion, or 14.6 percent. Yarn, fiber, and accessories made up the rest.
Given the sizable figures, Huang believes the government is not doing enough to encourage the sector. "For years the waste-water disposal regulations for dyeing and finishing factories were too strict. The standards were even higher than those in the United States and Europe," he states. "The restrictions and penalties increased production costs and deterred many companies from remaining in Taiwan or even staying in business." It was not until the Economic Development Advisory Conference, held in August 2001, that the authorities agreed to change the laws.
In addition, a large portion of private and public investment into technology research has gone to other sectors such as electron ics, information technology, and semiconductors, depriving textile companies of financial resources to engage in proper research to further their industry. The CTI's Bai Chi-chung urges government officials to adopt a broader view. "While formulating policy, the government should consider how to develop high value-added products from various sectors to boost industrial development," he suggests. "It shouldn't simply focus on high-tech sectors and neglect traditional ones that still have potential."
Even without much government support or research funds, the sector has continued to progress. "Taiwan's textile industry has grown steadily in the face of wind and rain," says Hong Huei-song, textile division head of the MOEA's Industrial Development Bureau (IDB). "Before the mid-1980s, local manufacturers profited by selling medium- to low-priced garments. But afterward, due to changes in the production environment, they had to adjust their business focus or face elimination."
Domestic textile makers responded to several unfavorable factors, including soaring land and labor costs, shortage of workers, and increased foreign competition, by changing their product line and upgrading their technology. Many purchased automated machinery from abroad and shifted production from garments to high-value chemical fiber and processed silk.
During the 1990s, regional trade agreements such as the North American Free Trade Agreement and the Caribbean Basin Initiative limited international competition in the textile trade. Taiwan also faced dumping accusations in some markets. At the same time, mainland China took steps to gain self-sufficiency in textile production, limiting the export field even further. These issues forced industry players to review their business strategies, causing many of them to move production overseas, mostly to mainland China and Vietnam.
Hong remains optimistic in the face of this development. "It's only natural for businesses that are no longer competitive to move elsewhere to reduce costs," he says. "The space they've left behind will give us room to think up new and innovative ways of operating. It's beneficial to industrial development." Despite the loss of factories, Taiwan's textile exports--worth US$10.3 billion in 1990--have grown by about 50 percent in the last decade. This achievement demonstrates the strong competitive edge enjoyed by the leading companies, he adds.
Part of the advantage lies in the island's reputation for selling a good quality product with a short lead time, says Ho Yao-jen, head of the CTI's Department of Information Service. "Our selling point is our quick response," he says. "With the complete production structure and supply of abundant raw materials, we're able to make delivery two weeks after receiving an order."
Production scale, quality, and price continue to keep Taiwan-made textiles competitive, Ho notes, adding that the export of knitted fabrics increased by 15 percent between 1992 and 1999. But all is not good news. The industry has countered its labor shortage problem with foreign workers and technicians, but recent limitations imposed on the import of overseas laborers will likely mean a setback to production. "Work in the textile industry is generally seen as involving hard labor, night shifts, and a dirty work environment. Such a perception deters young people from pursuing an education or career in this field," notes Hsing Wen-hao, head of the Textile Engineering Department of the Chinese Culture University. "In addition, the government's emphasis on high-tech development has had a negative effect on the number of youths considering this traditional sector."
Eleven universities and colleges in Taiwan currently have textile-related departments, and each year only 1,200 graduates from the field enter the job market, two-thirds with fashion design or marketing training and the rest textile engineers. The problem is not that too few people enter the sector, Hsing contends, but rather the low quality of training they receive. Because of the labor shortage, textile companies often require employees with multiple skills and talents.
The question of how to improve the training of personnel remains. Textile educators should work with relevant government agencies and businesses to help determine the direction of the industry, Hsing says. He also advocates a more practical approach to the education process. For example, his students accept internships at factories during their summer break, after which they write a report on how their education was applied in their work.
On another front, many textile makers are involved in subcontracting for international companies in an arrangement known as original-equipment manufacturing (OEM). But Taiwan's manufacturers may be unable to compete with foreign rivals in mass production of low-priced products. "To get ahead, they need to adopt the strategy of 'small quantity, diversified styles' to raise the value of their products," Ho Yao-jen of the CTI notes. Businesses must progress from OEM to original-design manufacturing (ODM) by developing new fibers and multi-function fabrics to stay competitive, he adds. Thomas Huang of the TTF also stresses the importance of R&D. To remain in Taiwan, makers must commit to developing new products with high market value, he states.
The problem plaguing traditional industries now is how to advance their technological skills, given their small scale of operation. In this regard, the government and research institutes are helping textile makers improve technology, train personnel, obtain financing, and enhance product quality and design. "R&D is the most important factor for the transformation of the industrial structure," Hong of the IDB emphasizes. The government has injected more than NT$5 billion (US$145 million) over the past decade into the R&D of technology projects in the textile field. Accordingly, the IDB has formulated a series of plans on technological advancement, product differentiation, cultivation of design talent, automation, and technology-based management for the textile industry. Meanwhile, the island's leading research institutes have also made contributions. The China Textile Institute and the Taiwan Textile Federation are the two major agencies commissioned by the government to conduct relevant projects.
The CTI concentrates on key technology research, as well as the inspection and evaluation of textile products. CTI Vice President Bai Chi-chung says the institute's major objective is to detect future global trends and conduct research on a few products that are deemed commercially viable. The institute is currently working with over 200 textile makers on research, technology transfer, and consultancy projects.
As for the TTF, its tasks include export promotion, quota management and quota-restriction negotiations, fashion information service, cultivation of designers, market trend analysis, and advice to the industry on management techniques. Chairman Thomas Huang says the organization will also launch public-relations campaigns to boost the image of Taiwan's textile industry both at home and abroad.
Industry observers agree that textile makers must make significant changes in their product development to compete with countries with lower operating costs. "By shifting production from OEM to ODM, manufacturers will need to focus their efforts on developing functional and high-performance textiles," Hong says. "Furthermore, they should use the Internet to speed up their response time and devise a more efficient division of labor to cut costs."
An obstacle to a more profitable textile industry is the reliance on the garment industry. Though dependence on cheaply made garments is decreasing, at present 80 percent of Taiwan's textiles go toward the production of clothing, 10 percent to household use, and another 10 percent to industrial applications. Economically advanced countries adhere to a more even distribution. In the United States the production ratio is 52:20:28, Western Europe 46:34:20, and Japan 28:29:43. Developing a market for non-apparel products will be the government's primary task, Hong indicates. The goal is to reach a production ratio of 60:20:20 by 2010.
In response to the challenges of global trade liberalization and intensified competition, Taiwan's manufacturers are adapting by moving production of low-end textile products to countries with low labor costs, while keeping high value-added production lines, R&D centers, and operational centers on the island. Tex-Ray Industrial Co. is one such example. Founded in 1978 and publicly listed in 1988, the company has set up factories in mainland China, Swaziland, and Mexico for garments and sweaters, as well as marketing offices in New York, Los Angeles, and Dallas. "By utilizing a global production and marketing network, we're able to reduce costs, react quickly to market demand, and better serve our customers," explains Ray Lin, chairman of Tex-Ray. "This has allowed us to remain strongly competitive."
Moreover, with a NT$12 million (US$348,000) subsidy from the MOEA, Lin's company has been developing an enterprise resource planning system to integrate the functions of the company, its affiliates, and business partners in one computer system. "E-business will further boost our service quality and efficiency," he asserts. "That'll give us more confidence in competing in the global market."
Tex-Ray has also vertically integrated the manufacturing of a whole range of products from fancy yarns to knitted and woven fabrics as well as garments. Currently, the company is concentrating on the development of innovative products and production techniques, such as metal fiber, functional textiles, and an environmentally friendly CO2 dyeing process that eliminates the use of water. The latest invention, electromagnetic interference shielding textiles, recently won the company recognition from the MOEA for its innovative technology. Products being developed include fabrics that are anti-static, anti-bacterial, thermal resistant, abrasion resistant, quick dry, and high-temperature resistant. The list of the company's high-profile clients include brand names like Nike, Gap, DKNY, Old Navy, and Barbie.
Though the company is experiencing stable growth, Lin is concerned about the wane in Taiwan's competitiveness. "Mainland China and some Southeast Asian countries are catching up very quickly, producing not only downstream apparel but also midstream fabrics," he notes. "Taiwan may be able to maintain its advantage for the next five years. But what production will remain after that?"
Lin believes the government should offer incentives and encourage leading companies in the industry to merge and force less efficient companies out of business to improve the economies of scale. In addition, the authorities could establish finished product processing zones on the offshore islands and give those areas more liberal foreign-worker quotas and lower minimum-wage regulations. These measures could curb the exodus of Taiwan manufacturers, he contends. "Our efforts, along with the government's helping hand, will surely put the island high on the list of the industry's top international players," Lin states. "Without government support, we're likely to sink further."
Looking ahead, many other challenges are poised to emerge. One major concern is the impact of Taiwan's accession to the World Trade Organization (WTO). According to the trade organization's agreement, textile quotas worldwide are scheduled to end in 2004. But Thomas Huang of the Taiwan Textile Federation says that as one of the major textile-exporting nations, Taiwan will benefit more from increased exports to developed nations than it will suffer from having to open its domestic market to imports from mainland China and elsewhere. Besides cultivating foreign markets, WTO membership will provide local companies with a forum for resolving disputes over trade issues, Huang adds. In the past, the lack of diplomatic ties with many countries hampered such efforts.
"How many industries can exist for fifty years and still make a major contribution to the local economy?" Huang asks. "The textile industry has been able to do so, with its strong foundation, tenacity, and capability. It needs and deserves greater government concern and assistance to meet the coming challenges."