Taiwan Today

Taiwan’s manufacturing might demonstrates the benefits of creating synergies and boosting collaboration among industry participants.

Whenever Tom Liu (劉天民), secretary-general of Taipei City-headquartered Taiwan Industrial Fasteners Institute, discusses the Taiwan International Fastener Show, it is difficult not to be impressed by his enormous enthusiasm for the subject. “This is more than just a run-of-the-mill trade expo. It is a window on the latest trends and developments in one of Taiwan’s most unassuming industries,” he said.

Staged in southern Taiwan’s Kaohsiung City, the fourth edition of the show in 2016 attracted 402 businesses at 1,002 booths and nearly 2,000 buyers from 75 countries and territories. According to co-organizer Taiwan External Trade Development Council (TAITRA) under the Ministry of Economic Affairs (MOEA), the April 10-12, 2018, event is projected to chalk up even healthier numbers on the road to becoming one of the largest of its kind in the world.

“TAITRA has been inundated with applications for spots at the 2018 edition,” Liu said. “All the 1,100 booths are gone, confirming the great confidence of local manufacturers in their ability to attract buyers from the four corners of the globe, especially those in Europe and the U.S. who wouldn’t fly 10 hours to Taiwan for slim pickings.”

Growth Magnet

The international competitiveness of Taiwan’s fastener manufacturing owes much to the clustering of related small and medium enterprises (SME) in Kaohsiung’s Gangshan District. “The cluster emerged after locally based China Steel Corp. commenced operations toward the end of 1971,” he said, adding that the state-backed outfit served as a magnet of sorts for fastener SMEs and other businesses in the supply chain ranging from equipment manufacturers to processing plants.

Over time, the suburban district became home to around half of the industry’s 1,500 participant firms, with the cluster developing an elaborate division of labor characterized by the seemingly incompatible characteristics of flexibility and specialization.

According to Liu, this unique synergy enables members to work together in filling custom orders cost-effectively and quickly. Through face-to-face consultations, solutions are hashed out and seemingly insurmountable problems transformed into opportunities. “Such a cooperative relationship is incomparably efficient,” he said.

The organic cluster of fastener manufacturers in Gangshan and government-planned ones for Taiwan’s signature sectors like semiconductors in northern Taiwan’s Hsinchu Science Park are just some of the many industrial grouping success stories constituting the backbone of Taiwan’s economy. In the latest Global Competitiveness Report released last September by Switzerland-headquartered World Economic Forum, the country ranked third globally in the subcategory of state of cluster development under the main category of business sophistication. Overall, it was the 14th most competitive among the 138 assessed economies.

Chu Hsin-hua (朱興華), president of Taipei-headquartered Corporate Synergy Development Center (CSD), said SMEs comprise nearly 98 percent of businesses in Taiwan and the formation of clusters involving these firms is essential for the competitiveness of the country’s exports.

Since its establishment in 1984, the nonprofit partially government-funded organization has focused on strengthening the clustering effect of 194 manufacturing groups Taiwanwide. This has been achieved by building links among association members, guiding the process of addressing issues of mutual concern and providing the latest solutions to efficiency, equipment and production challenges.

“CSD’s approach is a response to the generally negative image of made in Taiwan products from decades ago and rising competition from [mainland] China,” Chu said. Concerning the latter, one of the center’s most fruitful strategies was the A-Team initiative in 2003 aimed at spurring a manufacturing cluster for bicycles in central Taiwan’s Taichung City, he added.

Shifting Gears

According to Chu, Taiwan’s bicycle manufacturing industry started suffering sharp declines in the early 2000s largely caused by a deluge of low-end products churned out at rock-bottom prices on the other side of the strait. In 2003, exports tumbled to 3.88 million units from 9.48 million seven years before.

This reversal of fortune prompted CSD to sit down with Taichung-based Giant Inc. and Merida Industry Co. in central Taiwan’s Changhua County and devise the A-Team initiative. Made up of local SMEs, the alliance sharpened the industry’s competitiveness through such measures as on-site inspections ensuring compliance with equipment upgrade commitments, analysis of manufacturing processes and the rollout of uniform bicycle part specifications.

“The initiative paid dividends,” Chu said, adding that it played a key role in shifting Taiwan’s bicycle industry toward the high-end of the market. Although the sector exported only 2.95 million units in 2016, the value surged to US$1.48 billion, up from US$583 million in 2003.

CSD and the bicycle industry’s accomplishment did not go unnoticed by Taiwan’s cluster of fastener-makers. In an effort to keep mainland Chinese competitors at bay, it reached out for assistance to China Steel and Metal Industries Research and Development Centre (MIRDC). The steel-maker and Kaohsiung-headquartered nonprofit tasked with upgrading the local metal industry wasted no time in advising a shift in market focus from widely produced standardized items to high-quality, specialized ones used by the automotive industry.

According to Liu, this is a win-win-win relationship in which the cluster’s membership enjoys healthy bottom lines, China Steel sells more raw materials to downstream manufacturers and MIRDC gains greater exposure as a can-do industry consultancy.

“By working together and incorporating the expertise of China Steel and the center, the members of the cluster produce 50,000 kinds of fasteners today compared with 30,000 in 2009,” he said. “As a result, Taiwan remains the second biggest exporter of fasteners worldwide and a leading production hub in the Asia-Pacific.”

The experiences of Taiwan’s outperforming fastener and bicycle manufacturing clusters proved invaluable when CSD turned its attention to the local agricultural industry in 2009. Over the past eight years, the center has strengthened more than 50 agricultural clusters and set them on the growth fast track by imparting the latest management practices and technology developments, as well as working closely with their innovation-minded managers.

True Believers

One such individual is Jennifer Hsiung (熊亞萍), president of Great Agriculture Technology Co. in western Taiwan’s Yunlin County. Her company, which markets and sells corn grown by a cluster of about 1,800 farmers in Yunlin and neighboring Chiayi County in southern Taiwan, began partnering with CSD in 2015.

Hsiung, a staunch proponent of industry clusters, has worked tirelessly to drum up enthusiasm for the concept among members. She regularly schedules a variety of business- and pleasure-themed activities for the farmers ranging from seminars and workshops on advanced agricultural techniques to sightseeing trips.

“The enthusiasm of the members during the events is infectious,” she said. “They proudly wear a uniform and take every opportunity to bond, learn from one another and seek benefits for the good of the group.”

But Hsiung is not one to tread water. She envisages a big future for the cluster and is constantly pitching new ideas to CSD for cooperation. One example is aerial drone surveys of corn crops greenlighted for funding in April by the Cabinet-level Council of Agriculture in conjunction with technology firms Taipei-based Avantech Co. and southern Taiwan’s Tainan City-headquartered Geosat Aerospace and Technology Inc. Another is formulating strategies for promoting the cluster’s produce in overseas markets like Hong Kong, Japan and Singapore.

The government also recognizes the merits of industry clusters and has prioritized their creation under the five-plus-two innovative industries initiative. A core component of the New Model for Economic Development, the initiative covers the biotech and pharmaceuticals, green energy, national defense, smart machinery and Internet of Things sectors, as well as the circular economy and a new paradigm for agricultural development.

Last year, CSD and Taichung-based Aerospace Industrial Development Corp. took the lead under the initiative in establishing an aviation industry cluster closely linked with national defense. A-Team 4.0, which comprises around 150 core members producing annual output of NT$100 billion (US$3.3 billion) in 2016, aims to take the competitiveness and profitability of the local aviation industry to new heights.

Chen Wen-yin (陳玟吟), an associate research fellow at Taipei-headquartered think tank Taiwan Institute of Economic Research (TIER), said the speed with which the aviation industry cluster got off the ground epitomizes a new spirit of collaboration coursing through the public and private sectors when it comes to the concept. “Case in point is TIER’s commissioning by the Industrial Development Bureau under the MOEA to carry out an inventory of the nation’s 62 industrial zones to discover suitable candidates for rapid re-orientation toward flagship projects under the initiative.”

According to Chen, the launch in November last year of the 22.8-hectare green energy technology park in the Shalun area of Tainan represents a golden opportunity to reshape the city’s existing industrial zones into clusters supporting the initiative’s primary mission as a regional base for sustainable development. “These assets could perform important R&D and testing functions while spearheading advances in renewable energy technology,” she said.

Lessons Learned

Over the past decades Taiwan’s industry clusters have remained robust due to constant upgrades among the close-knit groups of individual enterprises. “Generating synergy of businesses is the strong suit of Taiwan,” Chen said. “The lessons of the past decades have been well-learned. These firms understand the importance of perseverance and pulling together in order to keep adapting to new situations.”

For Chen, this recipe for success will keep Taiwan’s clusters outperforming and seeing off all manner of challenges ranging from global industry developments to increasingly fierce competition in mainland China. “I’ve the greatest confidence the country’s industry clusters and manufacturing competitiveness will continue going from strength to strength,” she said. 

Write to Oscar Chung at mhchung@mofa.gov.tw