Japanese electronics companies are now following US companies by placing orders to Taiwan -- a development which is likely to replicate the US-Taiwan marketing-manufacturing model that made Taiwan Asia's Silicon Valley.
In 1999, Taiwan's exports to Japan totaled US$11.9 billion while imports stood at US$30.29 billion, mostly in key components and machinery. The figures show that trade relations between Taiwan and Japan remain strong.
As the Japanese outsourcing trend picks up steam in the next few years, the correlation between the two high-tech sectors should only increase. Competitive advantage in electronics exports has enhanced Taiwan's position in the global IT supply chain in the past year. Exports of IT products (electronics and information and communication products) amounted to US$28 billion from January to July, up 42 percent on the same period last year, making one third of Taiwan's total exports.
Not surprisingly, growth of 44 percent in shipments to Japan, has far outpaced that of other markets, proving the robustness of the trend in increased outsourcing.
The orders are coming from the biggest of the Japanese blue chip firms. Toshiba has increased its OEM orders to Taiwan by NT$80 billion this year, which is nearly double last year's level. Executives have told the ChinaTimes Interactive that NEC, Sharp and Hitachi are expected to buy 50 percent of their total shipments from Taiwan.
"So far, Japanese companies are quite conservative when placing orders to Taiwan companies, but that may change when Japanese companies are fully convinced about the manufacturing capabilities of the Taiwan firms," says Kenji Nishimura, a senior analyst with Daiwa Research Institute (DRI).
Japanese outsourcing is mainly concentrated in two areas -- notebook computers (where margins are squeezed due to rising costs) and DRAM (where they need capacity as they divert their energy to manufacturing Flash).
Taiwan seems to be the natural choice for Japanese firms. Taiwan is the largest producer of notebook computers in the world, accounting for 49 percent of the global market share. Top ten international PC makers are expected to place orders for 21 million units of notebook computers (up nearly 60 percent from 6 million units in 1999). Toshiba is placing orders to companies such as Winbond and Compal -- while Mitsubishi is bolstering its orders to Powerchip.
This outsourcing trend will increase further as the Japanese economy -- its exports, in particular -- finally show signs of energy. While it is too early to gauge the speed of the recovery in the world's second largest economy, the economy grew by 2.4 percent in January to March, principally thanks to growth in private sector domestic demand.
Nomura Research Institute, think-tank arm of the country's largest investment bank, believes that the earnings are growing again and with them capital investment, which means incomes, and thus consumer spending, should start to pick up. Nomura expects real GDP to grow by 1.7 percent in 2000 and by 1.9 percent in 2001.
The Bank of Japan (BOJ), which recently shocked the world by raising interest rates, has come out with a rather optimistic assessment of the economy, even though private consumption, which accounts for 60 percent of GDP, still remains sluggish and the number of bank-ruptcies (as shown by the June collapse of Sogo) has failed to abate.
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