Taiwan’s technology sector is finally dancing to the tune of India’s growth story.
The blue-chip Foxconn Group’s recent announcement that it is to invest US$5 billion in the state of Maharashtra over the next five years — creating tens of thousands of jobs — is just one indication. The deal is being touted as the largest single foreign investment in India’s history.
And where else if not in a place where more than three-quarters of the population are under the age of 30 with a vast pool of skilled manpower and a market worth hundreds of millions making cellphones and laptops per year. Reports say that the company, which makes Apple iPhones, even has Bollywood dreams and is discussing taking a stake in a listed company run by a director known for his blockbuster films.
This Taiwanese foray into India comes at a time when China, Taiwan’s erstwhile favorite destination, is bracing for a downturn. China is likely to continue to be an important market but for the Taiwanese technology sector the time has come for a strategic shift. The industry is ruthlessly competitive, product lifecycles are short, innovation is critical for survival and profit margins are thin.
There is little room for complacency, not least to offset the effects of China’s slowdown. This downturn is a major concern for Taiwanese investors and for the economy in general, because of its close ties with China. Taiwanese investors have enjoyed great success there in the past, not least the IT manufacturers, but Chinese labor costs are no longer competitive and there is actually a labor shortage. Little surprise there, though. After two decades of spectacular growth, the Chinese have become relatively affluent. Not all are willing to toil in factories under their Taiwanese paymasters. Foxconn has had to deal with labor unrest at its Chinese factories in the past.
Chinese tourists now come to holiday in Taiwan, to eat in expensive restaurants and talk loudly — not just on their iPhones — and be rude to locals. They even gamble in the stock market, literally taking a leaf out of the Taiwanese playbook.
So what do Taiwanese do now?
Taiwanese leaders in the past — especially the ardently anti-China ones such as former president Lee Teng-hui (李登輝) — had long scratched their heads in frustration over the overly exuberant Taiwanese businessmen putting “all their eggs in one basket.”
In response, policymakers have come up with strange industrial zones in places like Subic Bay in the Philippines — which did not go very far — because at that time everyone was busy jumping on the China bandwagon. Though commercially logical, that strategy was more politically motivated as they did not want to see the Taiwan economy becoming too dependent on a neighbor which not only had missiles pointing at it, but also claims it as its own.
And the timing was not right. Now to stay ahead of the game as the best IT sector in the world, Taiwan needs to search for a new hinterland.
And that is how India comes into the picture. India is probably one of the toughest places to do business and the bureaucracy is a nightmare, though for projects of such size receive preferential treatment. And for all the cultural differences, it seems quite a natural destination for Taiwan and there is an obvious synergy: one specializes in hardware, the other in software; one is hungry for capital and is growing fast and the other has surplus capital and is in a slowdown. Ultimately, it is often the hard rules of economics rather than anything else that determine where companies go.
The Indian domestic market is significant, which means not going there would risk ceding market share. So there is not a lot of choice for Taiwanese IT firms other than to go sailing along with the shifting winds of the global technology industry.
Given its status in the IT food chain, Foxconn’s moves are widely watched. The latest decision is likely to encourage other IT companies waiting on the sidelines to take the plunge into India.
Who would have guessed 20 years ago that India, not China or any other Asian country, would one day become Taiwan’s new technology park.
Tsering Namgyal, a former Taipei Times reporter, is a financial journalist based in Taipei and Hong Kong.
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