Why has TSMC been so successful? Why has Foxconn become a global electronics industry foundry giant? Why did Japanese electronics companies gradually weaken after the 1990s? What are the similarities and differences between the rise of South Korea’s electronics industry and that of Taiwan’s region? And what are the weaknesses of American manufacturing?
Recently, these seemingly different but actually interconnected questions have been echoing in my mind. By sorting out the history of the development of Taiwan’s regional electronics industry and looking from the perspective of China’s national interests, the author believes that the rise of Taiwan’s electronic information industry can be defined with two statements: First, in the past 30 years, the rise of Taiwan’s electronic information industry has highly depended on the land, labor, market, and other elements provided by the mainland; Second, in the past 30 years, a large number of Taiwan-funded enterprises have played a role as a link for the mainland to integrate into the global industrial chain.
In the past 30 years, Taiwan-funded enterprises have grown themselves, achieved success across the strait, everyone has gained enormous benefits, and at the same time, they have made significant contributions to the global technological revolution and the improvement of consumer welfare, which is an important topic worth in-depth study. Below are some of the author’s rudimentary thoughts.
Taiwan-funded enterprises
Why did they take off in the ’90s?
Starting from the 1990s, Taiwan’s computer foundry industry began to enter the fast track, and the semiconductor industry also entered a period of rapid development. Today, the landscape of Taiwan’s electronic information industry is exactly what was established then, and the leading enterprises that have emerged also appeared at that time. So, why did Taiwan’s electronic information industry begin to take off in the ’90s? The author believes there may be several reasons:
The first is the frequently mentioned result of the region’s long-term industrial policy. As early as the ’60s, Taiwan already began encouraging export-oriented industrial policies. By the ’70s and ’80s, Taiwan’s shoe foundry industry had a significant impact on the global market. By the ’90s, Taiwanese companies already possessed very complete television manufacturing technology.
In 1989, Taiwan’s Yue Yuen shoe factory set up in Gaobu Town, Dongguan City, Guangdong Province, and had more than 120,000 employees at its peak.
In 1985, Morris Chang was invited to become the head of the Industrial Technology Research Institute of Taiwan, and two years later he founded TSMC. This can be said to be the fruitful result of the island’s adherence to industrial policy. Of course, neither the party extending the invitation nor Morris Chang himself could have anticipated that 30 years later, TSMC would be able to play the role of “Protector of the Island’s Mount.”
Even insiders in the chip industry could not have predicted that chip foundries could occupy such an important position in the global chip industry chain. After all, great innovations cannot be planned, and in the case of the chip foundry industry, policy only provided a direction for development and initial support for talent and research. At the micro level, the development of a business and the cultivation of its competitiveness cannot be provided by industrial policy.
Secondly, it’s important to note the phenomenon of industrial spillover caused by the fierce competition in the electronic information market between Japan and the US during the 90s. Before the 90s, Intel, which was capable of providing computer CPUs, was merely a component supplier and had not yet achieved a dominant position, because the personal computer development was mainly controlled by companies like IBM and Compaq, which could design personal computers.
To strengthen its competitiveness, around 1986, Intel abandoned the DRAM business, which was dominated by Japanese companies, and started to concentrate on CPU production. By around 1995, Intel had wrested control of the personal computer industry from the complete PC manufacturers.
What was Intel’s strategy? Simply put, it modularized the CPU and its related technologies, transforming the previously complex personal computer design into a simple assembly product. At the same time, in order to defeat giants in the PC industry chain such as IBM and Japanese companies like Toshiba across the ocean, Intel licensed its technologies to Taiwanese enterprises. This approach outsourced the “dirty and tiring” work of packaging, allowing Intel to focus on chip design itself.
In the electronic information industry, continuously expanding revenue, increasing R&D investment, achieving technological breakthroughs, and maintaining positive feedback in the aforementioned processes are the secrets to long-term competitiveness. Intel could never have imagined that the outsourcing companies it initially partnered with would later move from the periphery to the center stage, becoming the new leading actors of the era, surpassing Intel itself.
Finally, and perhaps most importantly, is the return of high-end talent from outside the island. The author notes that since the 1980s, more than 20,000 people who studied in the United States have returned to Taiwan’s electronics industry. Over the past few decades, the more successful companies in Taiwan have been founded by two types of individuals: those who grew up through the ranks locally, represented by Terry Gou, and those who returned from studying in the US, represented by Morris Chang.
Morris Chang during his time at Texas Instruments
This article is not a political commentary, but objectively speaking, the return of technicians from the US and the honeymoon phase of Sino-American relations, as well as the resumption of cross-strait exchanges, are directly related. In addition, following the burst of Japan’s economic bubble in the 90s, many Japanese retired or laid-off technicians began to seek opportunities in South Korean and Taiwanese businesses. In the 80s, it was quite difficult for Taiwanese companies to lure a technician away from a Japanese company.
Whether it’s the LCD industry or the semiconductor industry, the influx of a large number of talents has helped to expand Taiwan’s electronic information industry and made it an important part of the global production chain. For instance, in semiconductor foundries, Japan, the US, and the Netherlands have become providers of raw materials, technology, and parts, while Taiwanese companies are responsible for the packaging process.
The year 2002 was a turning point
for Taiwan-invested enterprises
At the end of the 1980s, cross-strait relations began to relax, and by the 90s, Taiwan’s investment in the mainland led by the footwear industry subsequently extended to the electronic information industry. Among these, 2002 was an extremely important year; it was from this year that Taiwan-invested enterprises entered a phase of rapid advancement.
2002 became an important year for several reasons, two of which stand out from a policy perspective.
The first is that on December 11, 2001, the mainland officially joined the World Trade Organization. This signified that China’s mainland was fully integrating with the developed Western nations. This was another historical move in China’s reform and opening-up, following the Eleventh Party’s Third Plenary Session and Deng Xiaoping’s southern talks. When joining the WTO, we also made certain commitments regarding future reform and opening-up measures, increasing predictability for foreign enterprises. Additionally, after the terror attacks on the United States on September 11, 2001, China quickly expressed its opposition to terrorism, which also stabilized relations between China and developed Western countries.
The second, more discreet reason is that the Taiwanese authorities repealed the ban on Taiwanese computer companies investing in the mainland in 2001. While there is a lack of research materials on the reasons for this policy change, the author speculates two driving forces: one being that the mainland joined the WTO, creating an overall optimistic and clear international environment; the second is pressure from American and Taiwanese businesses. In fact, American computer companies had long been urging Taiwanese businesses to relocate to places with cheaper labor to further reduce costs. As for shoe manufacturing, companies like Nike had requested Taiwanese companies to move their production to mainland China and Southeast Asia as early as the 1980s. Intense competition in the international computer industry further promoted the shift of the supply chain.
From the perspective of technological and industrial competitiveness, 2002 was also a significant turning point for Taiwan’s electronics and information industry. For example, the chip industry, post-2002, saw the government’s role diminish, with companies largely developing independently. This was because, after about 15 years of support and development, Taiwan had established a certain industrial foundation. Further government support and interference would have contravened the interests of some established businesses, which would oppose such actions.
In the computer manufacturing industry, the situation was very similar. Prior to 2001, Taiwanese computer manufacturing businesses purely provided OEM services, assembling computers or producing components strictly as per the requirements of American and Japanese companies. According to Japanese scholars, they were a “receiver of information,” that is, recipients of information and technology. After 2002, Taiwanese companies became a “source of information,” turning into providers of information and technology, and Taiwanese computer manufacturers transitioned from pure OEMs into partners for American companies.
Reciprocal benefit is the fundamental driving force behind the economic and trade growth across the strait
Basic Dynamic
Over the past 30 years, the development of Taiwan’s electronics and information industry could not have occurred without the staunch support and even concessions from the mainland, but fundamentally, cross-strait economic and trade interactions, and the circulation of technology, have been a mutually beneficial win-win situation. The author believes that if Hong Kong is seen as the financial bridgehead supporting the mainland’s leapfrog development (being the main entry point for foreign capital), then Taiwan serves as the link for the mainland to integrate into the global supply chain, forming a relatively stable triangular relationship between the mainland, Taiwan, and the United States in the electronics and information industry.
In the 1990s, marked by the United States launching the Information Superhighway project, a global information industry revolution officially commenced. Over the following 30 years, US enterprises played roles in fundamental research and development, software control, and sales channel control; Taiwanese enterprises acted as the implementers of production organization; Mainland China served as the provider of labor force and gradually became the world’s largest single consumer market. The tripartite collaboration provided global consumers with high-quality and cost-effective electronic products, a pattern that reached unprecedented heights following the birth of Apple’s smartphone.
In this division of labor within the industry, the biggest beneficiaries were naturally American enterprises, as they were at the highest end of the industry; followed by Taiwanese enterprises, as the mass production of inexpensive electronics not only created substantial profits for Taiwan’s computer and mobile phone OEMs, but also brought huge orders and profits to Taiwan’s chip-making companies (represented by TSMC) and packaging companies (represented by ASE). Meanwhile, enterprises in Mainland China, located at the bottom of the industrial chain, also achieved astonishing progress and development.
The rapid increase in China’s import and export value began after joining the WTO in 2001. Over the 20 years following 2001, more than 50% of China’s annual import and export value was completed by so-called foreign-funded enterprises (this percentage has declined in recent years), among which Taiwanese enterprises had the largest share. Essentially, Taiwanese enterprises acted as the technological industry link between the United States (as well as Japan and other countries) and Mainland China. The reason lies in the fact that the Taiwan region integrated into the international cycle 20 years earlier than Mainland China, accumulating more talent, technology, and capital during that time.
From the perspective of industrial radiation, Taiwanese enterprises have also played a promoting role in the development of Mainland China. The more developed regions for the footwear industry in China are Fujian and Guangdong provinces, related to the earlier investments of Taiwanese enterprises in these areas. As early as the late 1980s, companies such as Nike were asking Taiwanese enterprises to move production bases to places with cheaper labor.
In the semiconductor industry, the Taiwan region has seen good development in three areas: chip foundries (represented by TSMC), chip packaging (represented by ASE), and chip design (represented by MediaTek). MediaTek’s growth is also a model of peaceful development and mutual benefit across the Taiwan Strait. In the 90s, Taiwanese chip enterprises could not compete with large American and Japanese companies, but MediaTek, relying on rapid imitation and the Mainland market, grew rapidly, such as providing chipsets for VCD players in the 90s, chips for knock-off mobile phones after 2000, and venturing into the smartphone chip industry after 2010. It can be said that without Mainland China, MediaTek would not be where it is today. Conversely, without a batch of Taiwanese enterprises like MediaTek, the development of Mainland China’s electronic information industry would not have been so rapid.
With Taiwanese enterprises investing heavily in Mainland China after 2002, Mainland China became the world’s largest production base for computers and mobile phones. Although we do not hold the leading power, this has indirectly driven the development of China’s electronics component industry. When discussing Foxconn, the term “sweatshop” comes to mind. For Apple and for Foxconn, there is no reason to refuse good electronic component enterprises in Mainland China. The so-called “first to benefit from being closest to the source,” with the whole machine production in Mainland China, the related industrial chain is also more likely to develop.
The massive exports to China have brought more than just an increase in trade volume; they have also created huge changes in many unseen aspects by seamlessly integrating Chinese enterprises into the international industrial chain. Exports mean that all standards are managed throughout the entire process according to the highest standards of developed countries. This process has cultivated a large number of industrial talents, forming an important condition for China to become a world-class manufacturing powerhouse today.
In March 2018, the Trump administration initiated a trade war with China, which marked the beginning of significant changes, with geopolitical games bringing unpredictable and substantial impacts to cross-strait economic and trade cooperation. Even so, Taiwan-funded enterprises still play a pivotal role in mainland China’s economic foundation, especially in the export base. Undoubtedly, in the face of today’s situation, it is extremely difficult but wholly necessary to continue to promote further cooperation between both sides with an open attitude.
(The views expressed in this article represent only the views of the author)
