On Thursday, Foxconn Technology Group chairman Terry Gou (郭台銘) was at the center of a news conference in the White House that shook Taiwan.
While Taiwan is experiencing difficulties in the international arena, Gou announced that his company is making a US$10 billion investment in Wisconsin in support of US President Donald Trump’s policy to revive the US manufacturing industry.
This decision will place the international spotlight on Taiwan’s manufacturing industry, and this is a good thing.
However, in addition to being an example of people-to-people diplomacy, Foxconn’s move in the US is also of major significance to the development of Taiwanese industry.
The focus of Foxconn’s investment in the US is on 8K ultra-high-definition television panel factories. This is the first time a Taiwanese firm has announced a major investment in the next-generation panels. It is also the first real instance of cooperation between Taiwanese and Japanese industry following Hon Hai Precision Industry Co’s (Foxconn’s name in Taiwan) acquisition of Sharp Corp last year.
The production and use of panels with 8K resolution is still being tried out by companies in various nations and Sharp is the world leader in 8K TV panels.
In 2015, Sharp unveiled the world’s first 8K television set. It had an 85-inch screen, weighed 100kg and cost ¥16 million (US$144,624). It appears to have sold about 100 of them, mainly to Japanese public broadcaster NHK for experimentation with 8K video.
This year, Sharp announced a second model, with a 70-inch screen. Price and weight will probably come in at about half of the old model and the main customers will once again be TV stations using it for video experimentation.
Sharp’s experience from the production of 8K TV sets explains why Foxconn is building the plant in the US.
First, 8K TV sets mainly have large screens, and the size and the weight means that they are not suitable for transportation over long distances.
The technology is still in the experimental stages and prices are very high, with a single unit reaching into several million New Taiwan dollars. Even if prices were to come down as production volumes increase, the price of an 8K TV set would still be higher than those of other TV sets.
This means that high salaries in the US will have a relatively smaller impact on revenues.
Taiwan’s original equipment manufacturing industry has been producing mature products for a long time, which command a gross margin of only 3 to 4 percent.
However, by setting up production in the US, Foxconn is using Sharp’s technology to invest in cutting-edge products in preparation of taking on the next generation of products. This kind of ambition is praiseworthy.
If Foxconn had not decided to take on the challenge of the US’ 8K TV market at this moment, the market would very likely have been monopolized by South Korean and Japanese companies.
Apart from Sharp, there are no other companies in Japan that produce large panels, so Japanese industry would likely buy its panels from Taiwan’s two 8K panel manufacturers.
In the end, South Korean and Japanese companies would control the sales of high profit 8K TV sets while Taiwanese companies would be left with the low-profit panel component. If the Chinese Boe Technology Group Co also entered the fray, that profit would be lower still.
However, now that Foxconn is taking on the challenge of developing 8K panels and other related products, that could create a clustering effect.
For example, at the moment, an 8K TV signal receiver developed by Sharp is priced at about ¥7 million, about the same as the price of a complete TV set.
To popularize 8K panels, companies will need to bring down the cost of components, including receivers and chips for various resolutions. That would be a suitable opportunity for Taiwanese businesses, which are typically good at bringing down costs.
Foxconn’s US flat-panel plant has brought new hope to Taiwan’s flat-panel manufacturers, chip designers and TV peripherals producers. However, the question is whether the government will be able to keep up with its plans and vision.
The nation’s flat-panel industry is worth more than NT$900 billion (US$29.7 billion) and it employs more than 100,000 people, yet it has not made the list of industries included in the government’s “five plus two” innovative industries plan — the development of an “Asian Silicon Valley,” “intelligent” machinery, “green” energy technology, biomedicine and national defense, as well as a new agricultural business model and a circular economy — which is meant to boost the nation’s major industries.
The government should quickly establish a mechanism that promotes cooperation between Taiwanese and Japanese businesses on the development of 8K flat-panels.
As it stands, Japan is hoping to develop 8K flat-panels, but — since Sharp is now owned by Foxconn — there are no Japanese companies making large panels.
On the other hand, although Foxconn has the ambition to make 8K panels, the companies leading in 8K video processing and broadcasting technology are Japanese companies, led by Japanese public broadcaster NHK.
The moment of truth for the flat-panel industry worldwide will be the 2020 Summer Olympics in Tokyo.
With only a few years before then, the government should try to catch up to Foxconn’s vision and help create a cluster around it to transform the company’s success into the collective success of a new industry for Taiwan.
Guo Yung-hsing is a professor of international trade at National Taichung University of Science and Technology.
Translated by Perry Svensson and Tu Yu-an
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