Taiwan Today

The ROC government recently launched a five-year plan to help manufacturing industries automate production. It is in­ tended to boost industrial productivity and competitiveness, which many gov­ernment officials and manufacturers say are being weakened by rising wages and other production costs. According to of­ficial statistics, wages in the manufactur­ing sector have been growing at an annual 12 percent during the past six years, far above productivity growth for the same period, which averaged only 8.5 percent a year.

The statistics indicate that the sharp imbalance between productivity growth and production costs, combined with in­ creases in environmental protection ex­penses and a strong NT dollar, has drastically reduced the competitiveness and profitability of manufacturers. To cope, says Yang Shih-chien, director of the Industrial Development Bureau of the Ministry of Economic Affairs, Taiwan's manufacturing industries must accelerate their pace of automation. The bureau is responsible for implementing the five-year plan.

Formally announced on July 1,1991, the plan offers a wide range of incentives provided by the government to manufac­turers planning to partially or fully auto­ mate their plants and operations, from product design to manufacturing and ad­ministrative management. The incentives include tax deductions, low-interest loans, and technical assistance. The government will also run training programs in selling up automation systems and maintaining them. According to Yang, the ultimate aim of the five-year plan is to boost overall manufacturing productivity. He says, "We hope that, through the implementa­tion of the automation plan, by the year 2000 our per capita productivity in the manufacturing sector will rise from the present US$70,000 to US$120,000. "

It is uncertain when the first modern automatic equipment was first introduced into Taiwan's manufacturing sector. But it is known that formal government effort to promote automation began some nine years ago. The outbreak of the second world oil crisis once again underlined the need for industries to use automatic ma­chines to increase energy efficiency as well as to save labor costs. Since then, government-funded industrial technology research institutes have set automation technology research and assisting manu­facturers in automating as their two major tasks.

"A growing number of manufactur­ers have come to recognize the need to automate their production processes," says Joyce Yen, an editor at the Strategic Productivity Monthly. "They know they have to if they want to maintain their competitiveness in the world market." The monthly is a Chinese-language magazine that was established by the government-funded China Productivity Center. In the last few years, Yen notes, many manufacturers have successfully adopted automation methods at various stages of production and have saved con­siderable amounts on labor and produc­tion costs through the center's assistance.

Yet statistics compiled by the Indus­ trial Development Bureau show that the degree of automation in the manufactur­ing sector appears to be quite low in terms of both investment and the adoption of advanced automatic equipment. For ex­ ample, a table showing the ratio of automation investment to overall spending on plant equipment in five major industries indicates that as of 1989, automation in­vestments in the machinery-making in­dustry itself amounted to only 43 percent. Even the electronics and electrical ma­chinery industry, now Taiwan's most technology-intensive sector and its largest export earner, had not invested much more in automatic machines. Investment stood at 63 percent. For textiles, it was 46 percent, for plastics 49 percent, and for processed foods 69 percent. However, all the five industries had steadily increased their investment in automated equipment from 1985 to 1989.

In another table, also based on 1989 information, the bureau listed the four types of automatic machinery installed by the factories in the five industries. They were basic automatic equipment, nu­merically controlled machine tools, ro­bots, and flexible manufacturing systems. The installation of numerically controlled machine tools, which are widely used in industrialized countries, is not widespread in Taiwan. Relative to the four other in­dustries, the electronics and electrical machinery industry had the highest number of sophisticated machine tools, yet they accounted for only 25.5 percent of total automatic equipment.

The two tables clearly show that de­ spite the growing awareness among gov­ernment authorities and manufacturers of the need to automate production proc­esses, progress has been rather slow. During a seminar series on industrial au­tomation sponsored by the Strategic Productivity Monthly, automation indus­try executives, manufacturers, and gov­ernment officials listed several factors responsible for the slow pace of automa­tion among the island's manufacturing industries.

One of the factors is the lack of a strong local automation indus­try. Thus, manufacturers have had to rely heavily on foreign sources for the supply and maintenance of automatic equipment. According to the Industrial Development Bureau, 66 percent of the US$44.53 billion invested in production automation in 1990 was used to buy equipment and bring in maintenance technicians from abroad. "It's a major problem," says Hou Chen-hsiung, chairman of the Taiwan Steel and Iron Industries Association. "The equipment is not only expensive, sometimes it's hard to come by." Hou adds that steel and iron industries depend on foreign sources for most of their software technology. He says that although Taiwan is strong in computer production, it is weak in software design.

Another problem is the failure of au­tomation equipment suppliers to provide correct and necessary information, says Hsu Chia-ming, who a year ago estab­lished his own automation consulting company, Norm Pacific Automation Corporation. Hsu was formerly the di­rector of the government-funded Me­chanical Industry Research Laboratories, and has had more than ten years' experi­ence in machinery technology research. At the seminar, he pointed out that many companies interested in automating do not know what kind of equipment best meets their needs, and who are the most competitive suppliers. ''These companies need the help of automation consulting firms to do the assessments for them," says Hsu. "This way they will avoid paying unreasonably high prices or even buying the wrong equipment."

At present, Taiwan has more than a dozen private and government-funded firms and institutes offering a variety of services regarding automation. But most of the privately owned establishments were set up only in the last few years, and are themselves inexperienced.

Beyond the lack of a strong local au­tomation industry, manufacturers also face shortages of personnel skilled in au­tomation systems planning and in per­ forming other tasks arising from automated production. Sun Houng, chairman of the MIRLE (Mechanical In­dustrial Research Laboratories Enterprise) Automation Corporation, said at the same seminar that although manufactur­ers can hire consulting firms to design automation systems for them, they still must have their own people who can work with the consultants in planning their own systems. They also must have their own people to operate and maintain the equipment. Sun said that the vast majority of Taiwan companies he has visited did not have such personnel.

This is a problem faced by both small and large companies. At the seminar, M. Y. Lin, vice president in charge of machinery technology at Acer Inc., related his com­pany's own experience in automating its operations. Acer is Taiwan's largest producer of personal computers. Lin said that the most serious problem the corporation has encountered is the lack of skilled personnel. He added that Acer needs special­ists who can plan and operate a system called CIM (computer integrated manu­facturing). Under this system, tasks ranging from product design to engineering, testing, manufacturing, as well as tracking material requirements, are all carried out with the aid of computers. The company also needs specialists who can set up a system that can guide and monitor the company's global manufacturing and sales operations.

But in the view of Michael Hou, president of the Scien-Tech Automation Corporation, the slow progress in indus­trial automation is really the result of the impatience of manufacturers in waiting for returns on their investments. He says that a lot of manufacturers have been hesitant to invest in automatic machines because they are expensive, take time to set up, and are therefore slow in yielding benefits. This shortsighted view of automation, Hou notes, has led many manu­facturers to cope with high wages by moving their operations offshore to mainland China and Southeast Asia, where cheap labor is abundant. There are also many others who are reluctant to in­vest in labor-saving equipment as long as they can get around the government ban on hiring cheap foreign workers.

The various incentives offered in the five-year plan represent government ef­fort to solve the problems preventing the spread of automation in the manufactur­ing industries. A brief look at the plan's four major incentives—tax deductions, soft loans, technical assistance, and training—follows:

• Tax deductions: Manufacturers investing in equipment to fully automate their plants are allowed to deduct 20 per­cent of their total investment from busi­ness income taxes. This deduction rate, however, applies only to investment in locally made equipment. Only a 10 per­cent deduction is allowed for foreign equipment. Manufacturers who choose to only partially automate are entitled to a 15 percent tax deduction on local equipment, and 5 percent on imported machinery. In addition, companies are also allowed to deduct 5 percent of their investment in the purchase of automation technology and in training program expenses.

• Soft loans: Companies buying automatic machinery may apply to the government-owned Bank of Communi­cations for loans of up to 80 percent of their investment. The loans carry an in­terest rate 2.75 percentage points lower than the bank's prime rate and are repay­able within ten years, with a grace period of three years.

• Technical assistance: In the next five years, the Industrial Development Bureau will help establish one hundred fully automated pilot plants. It will pro­vide grants and entrust government­ funded industrial research institutes and private automation consulting companies with the design work. Companies willing to invest in the plants may also ask the bureau for help in acquiring plant sites as well as loans and tax breaks.

The bureau will also help six hundred existing factories in twenty-seven indus­tries to automate their manufacturing processes. According to Liu Chung-hung, director of the Mechanical Industries Re­search Laboratories, medium-sized fac­tories with a hundred to a thousand workers may apply for such assistance. Liu is head of a task force set up to render technical assistance. Aid will not be made available to large companies, Liu says, because they are usually resource-rich. But the government will continuously help small factories in increasing their product value, which is more economical than automating their production proc­esses.

• Training: In the next five years, government-funded training programs will be conducted for 10,000 people to cultivate the skills required to plan automation systems and to operate and main­tain equipment. An additional 15,000 persons will be trained to help design and operate computerized manufacturing processes, such as the CIM mentioned earlier.

The five-year plan to promote auto­mation in the manufacturing sector is only part of the effort launched nationwide by the government this year to raise produc­tivity. It also includes programs to en­ courage automation in the other three major economic sectors of commerce, construction, and agriculture. —Osman Tseng (曾慶祥 ) is a senior journalist based in Taipei.