Asked to name an important contributor to Taiwan’s economic achievements, most people would probably say the information communications technology, with its panels, software engineering and notebook computers. Few are aware of the critical role played by machine tools, or machines that make manufactured parts.
According to the U.S.-based Society of Manufacturing Engineers, a machine tool is defined as “a power-driven piece of metalworking equipment for cutting or forming metals.” This traditional definition assumes metal working on metal, but as technology advances, newer types of machine tools are employing lasers, ultrasonic waves, water jets or plasma to work on metal as well as plastic, glass and diamond.
Typical examples of machine tools include lathes, planers, drill presses and gear shapers. “The products of machine tools are actually ubiquitous in daily life,” said Chen Liang-chih, assistant professor in the Graduate Institute of Building and Planning at National Taiwan University. “For example, hammers and hand drills are manufactured by machine tools,” Chen said.
They also turn out the machines used to drill the metal cases of cell phones and injection molding machinery to form the plastic shells for mobile devices. Machine tools make everything from baseball bats and wrenches to automotive parts and components for the aerospace industry, earning them the title of the mother of industry.
In 2010, Taiwan’s exports of machine tools reached US$3 billion, putting the country fourth in the world behind Japan, Germany and Italy. Its performance has attracted young talent and government promotion as the next segment of the economy to be valued over one trillion New Taiwan dollars.
“The way the sector is growing, Taiwan is expected to be the third largest machine tools exporter in 2011,” said Taichung City Mayor Jason Hu July 21 at an international news conference promoting the central Taiwan city’s competitiveness.
That Hu expects this industry to soar is not a surprise. According to the Ministry of Economic Affairs, 72 percent of machine tool companies are located in Taichung, with only 16 percent in northern Taiwan and 12 percent in the south.
Accordingly, the MOEA and Taichung City Government staged the first Taiwan International Machine Tool Show in November 2010, with more than 1,300 booths.
Victor Taichung Machinery Works Co. Ltd., a leading machine tools enterprise, was on hand for the occasion. The company, established in 1954, said it weathered the Great Recession in 2009, and grossed NT$5.7 billion (US$197 million) in 2010.
“In the first half of 2011, our turnover reached NT$3.2 billion, for yearly growth of 19.21 percent,” Victor Taichung President Bert Huang told Taiwan Today. “And about 75 percent of our 700 orders were for computer numerical control, or CNC, lathes,” he said.
Huang said 50 years ago, his company was just a traditional iron workhouse where employees labored on lathes and planers. In 1979, it ventured into CNC machine tool production.
“CNC enables these metal facilities to be driven by programmed commands on computers instead of manpower,” Huang said. In 1992, Victor Taichung added CNC-based precision castings to its product line.
Another leading firm in the Taichung area, Yeong Chin Machinery Industries Co. Ltd., is also a CNC machine tool producer. To improve automated control in the manufacturing process, Yeong Chin created its own software, and launched it with horizontal and vertical machine tools in 2005.
Yeong Chin and Victor Taichung organized a strategic alliance this April, called M-team, along with three other companies. Their aim is to implement the same logistics and management principles that the Toyota Production System uses in automobile manufacturing.
“We expect this group will cut costs and create more value for our customers,” Huang said. The alliance has been extended to an additional 43 machine tool components manufacturers, he added.
Led by M-team, the industrial cluster in Taichung has attracted the attention of both researchers and the media. Business Weekly, a widely distributed magazine in Taiwan, included special coverage on it in May. The magazine touted the cluster—stretching 60 kilometers across Taichung’s urban area and countryside—a “golden corridor,” with the NT$900 billion worth of business in machine tool and its related industries generated in 2010.
“Without this cluster, half of the world’s 100 million iPhones could not be made,” the magazine pointed out.
Chen noted the historical reasons for the formation of the machine tool industry cluster in Taichung. “First, it is near Alishan, a main source of precious woods during the Japanese colonial period [1895-1945]. To process this lumber, many timber treatment plants were built, and they became the prototype for the machine tool industry.”
“Then the textile industry, aided by the Kuomintang administration from the 1950s to 1960s, also gathered around Taichung. Needing production equipment just as the timber plants did, these textile factories brought machine tool manufacturers together.”
“Finally, Taichung’s fine weather, not hot enough to influence steel flexibility nor humid enough to cause excessive iron rust, was another factor spawning the cluster,” Chen said.
The Economic Cooperation Framework Agreement signed between Taiwan and mainland China in 2010 did much to boost the machine tools sector. “Of the 539 kinds of goods on the early harvest tariff cut list, 107 are directly or indirectly linked to machine tools,” said Chiou Chyou-huey, director of the Metal and Mechanical Industries Division under the Industrial Development Bureau.
Thanks to ECFA, 15-percent and 8-percent tariff duties on polishing lathes and water-jet weaving machines, respectively, have been lowered to 5 percent since January. According to MOEA statistics, in the first six months of the year, orders for polishing lathes grew more than 25-fold year on year, while those for water-jet weaving machines increased 23 times.
Developments such as these have led the MOEA to forecast that Taiwan will replace Italy as the world’s third largest machine tool exporter by the end of the year, as noted by the Taichung mayor.
“Besides helping tap into the mainland Chinese market, we have also taken measures to strengthen the machine tool industry’s core competency,” Chiou said. The three-pronged program includes ensuring raw material sources, integrating supply chain resources and promoting investment in key parts, especially numerical controls.
“As raw material prices are surging worldwide, we have to guarantee a stable supply of metals. At the same time, more than 85 percent of the numerical controls used in Taiwan’s machine tools are provided by Japan’s Fanuc Corp. and Mitsubishi Electric Corp., so we have to build up our own numerical control competitiveness,” Chiou said.
“With ECFA, we expect an enlarged market will push the industry to invest more in research and development. Also, the government’s tax rebate for corporate R&D expenditures and foreign investment promotion will encourage local companies to design and produce numerical controls, which in the long run will take Taiwan’s machine tool industry to the center stage internationally,” he said. (THN)
Write to Aaron Hsu at pj1210meister@mail.gio.gov.tw