Wed, Jan 10, 2001 - Page 17 News List

Shanghai luring Taiwan's notebook manufacturers

COMPUTERS The city's attractive location, investment incentives and?ll-educated workforce are proving irresistible to firms such as Quanta and Inventec

By Thomas Ker  /  CONTRIBUTING REPORTER , IN SHANGHAI

Taiwan's government may soon follow the initiation of limited trade and travel links last week between Taiwan's frontier island groups of Kinmen and Matsu and China with an easing of the restrictions on Taiwan's high-tech sector to invest and manufacture in China. For Taiwan's notebook makers, such changes cannot come soon enough.

Slowing world demand for personal computers is forcing the world's biggest computer makers such as Compaq Computer Corp and Dell Computer Corp to search for and expand into new markets. Taiwan's notebook makers, which make computers for such computer heavyweights as Compaq on a contract basis, are facing ever tighter profit margins and demands by its major clients to move production to China.

As a result, Taiwan's ban on such notebook manufacturing in China creates a major dilemma. "To not go is not possible; to go is not possible," said an official at Quanta Computer Inc (廣達), Taiwan's largest notebook computer maker.

After making 2.6 million notebooks last year, Quanta plans to make four to 4.5 million laptops this year. But building new plants in Taiwan to increase capacity is proving increasingly difficult and expensive.

"Labor and land related reasons make expansion and increased production in Taiwan quite difficult and slow," said Hsu Wei-che, an analyst at Taiyu Securities.

Taiwan is also suffering from a worsening business environment and political deadlock, the American Chamber of Commerce in Taipei's Topics magazine said in its November issue, quoting Lin Kuen-Chong, chairman of the Chinese National Federation of Industries.

"It is true that Taiwan's investment climate is not as favorable as before due to higher wages, shorter working hours, the restrictive quota on foreign laborers, and especially the problems surrounding the Fourth Nuclear Power Plant," Lin said.

The issues at a glance

* Although Taiwan firms are barred from manufacturing notebooks in China, they are allowed to make parts there

* China's lower costs would allow Taiwanese notebook makers to maintain or improve their margins

Source: TT


The government cancelled construction of the plant in October. The cancellation exacerbated the difficult relationship between the government and its opposition parties.

Still, the main reason behind Quanta and other major notebook makers' investment in China is to increase production capacity, the notebook makers and analysts say. Indeed, Quanta is investing in China, not moving itself there, the company pointed out in an effort to dispel concerns that China's attractions and growth as a competitor spell the end for Taiwan's notebook industry.

Quanta received permission at the end of last year to invest US$26 million in the construction of two plants located in Shanghai to produce computer-related parts. Production can easily shift to notebook manufacturing if and when regulations change.

Taiwan's other major notebook makers are pursuing similar strategies.

"We already do have facilities in Shanghai," said an official at Inventec Corp (英業達). "However, all notebook manufacturing is still located in Taiwan," he said. Inventec made about 1.5 million notebooks last year for Compaq, its sole customer.

The company is in the midst of building a factory for computer-related products in Shanghai that can change to make other products if the government policy changes. "The plan for the new factory is notebooks," the official said, adding that production should come on line in the fourth quarter of this year. Production may begin earlier if the government removes or reduces restrictions before then, he said.

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