As government officials put the final touches on new China investment rules, business leaders in the notebook industry have a message for them: don't bother, we have already gone.
The new government has promised no less than four times since last year to work out a coherent policy on cross-strait investment for the laptop computer and semiconductor industries -- and put off decisions each time.
In recent weeks, policy-makers say they have put together plans from four government agencies in order to finalize a fair set of rules for high-tech players looking to China. But it's too late.
Tired of government foot-dragging on the issue and fearful of the consequences for their companies if they put off the move, Taiwan's notebook industry has already made the leap to China.
The six biggest notebook makers in Taiwan -- Quanta Computer Inc (廣達), Acer Inc (宏電), Compal Electronic Inc (仁寶), Inventec Corp (英業達), Arima Computer Corp (華宇) and First International Computer (大眾) -- have already set up production facilities in China, purportedly to build "bare bone systems," a notebook minus a few chips or other parts.
In reality, officials from some of these firms say their factories are already churning out complete systems there.
Taiwan produced 58 percent of the world's notebook computers last year, surpassing Japan to become No. 1 in the world for the first time ever. Production for these six firms, considered to be the top tier in Taiwan, is estimated to be around 12 million notebook PCs this year.
Government officials regard the industry as vital to Taiwan, and maintain a wary eye on rising unemployment when planning cross-strait trade laws.
But a slowing world economy and the benefits of going to China are putting pressure on firms in Taiwan to move their entire operations. Adding to the notebook industry's woes, foreign firms that source laptops in Taiwan asked companies earlier this year to cut their profit margins by a few percentage points in an effort to "share the pain."
On top of that, the nation's top six notebook makers have watched second- and third-tier competitors from Taiwan move quickly to take market share in China's domestic notebook market.
In a 1999 market share rating, notebook maker Twinhead (
Still, for top notebook makers such as Quanta Computer, the message was clear. Either move to China and take advantage of lower labor costs, tax incentives and cheap land rents, or watch as the competition blows by.
Earlier this year, Acer Group Chairman Stan Shih (
Multinational firms, which normally source laptops from Taiwan, also see Taiwan's slow move toward China as an opportunity to leap in. Toshiba, Japan's largest notebook computer seller and Compal Electronics' biggest customer, finished construction on a notebook manufacturing facility in China two months ago.
The Toshiba plant remains in pilot production, putting out 10,000 to 20,000 notebook computers per month. Once it ramps up, Compal stands to lose a substantial amount of orders.
Other Japanese firms are looking to work under the same model as Toshiba, making their own notebooks in China rather than ordering on an OEM basis from expensive Taiwan.
As Shih pointed out, Taiwan should move forward into areas such as design, marketing and services, as "it has no future in low-end, labor-intensive manufacturing, and authorities should do nothing to deter companies from making such investments in China."
In the place of granting legal authorization for notebook industry players to move across the Strait, the government prefers silence and sneaking. Business people in Taiwan, however, take the view that following government policies places themselves in greater jeopardy than by going ahead with investment plans.
Perhaps no one has voiced this concern in a more stark manner than Morris Chang (
Quanta followed the law and it could have cost the firm dearly. When the government first discussed allowing notebook manufacturers the freedom to move to China, Quanta officials balked. They had no plants in China -- as a result of following investment laws -- while the rest of Taiwan's notebook makers already had computer monitor facilities, motherboard lines and other related factories in full production.
Quanta has since built "bare bones" notebook making plants in Shanghai, ready for any liberalizing moves on the part of the government. If the company had missed the boat, competitors would have enjoyed a six month lead over Quanta, offering at least 5 percent discounts and undercutting Quanta's lowest possible price, according to analysts.
A period of six months means life and death in this industry. Multinational firms go for low prices and high quality and could have deserted Quanta for another notebook maker.
Hence the lesson for semiconductor makers such as TSMC's Chang: It's safer to skirt the law rather than follow it to your own demise.
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