Cameramaker Premier Image Technology Inc (普立爾科技) may be the perfect example of how high-tech companies in Taiwan are growing by using China as a production base.
The company set up camera factories there a decade ago in order to cut costs and tap a market 57 times larger than the Taiwan market.
Annual growth of up to 40 percent per year prompted the company to move into digital cameras.
"You cannot just cut costs. If you only do that, then the only thing that will drop is your earnings. You have to upgrade," said Premier Image Technology President Cliff Liu (
The company is one of many local technology companies that have built plants in China over the past decade to manufacture products ranging from computer components to the iPaq personal digital assistants made on a contract basis for Hewlett-Packard.
Around 72 percent of all high-tech products made in China are made by such companies, according to the Taipei Computer Association (TCA,
On the move
"Taiwan is a very interesting country," said Frank Huang (黃崇仁), chairman of the Taipei Computer Association and head of Powerchip Semiconductor Corp (力晶半導體), a manufacturer of DRAM products.
"There are many people who are pessimistic about Taiwanese companies moving to China. I'm different. If companies move to China, they have a better chance to grab a slice of the market. Once you have a bigger market, you have money to put into R&D. If you don't grab this market and the market disappears, then you won't have money for R&D," he said.
Taiwanese companies believe it will take years for China to catch up in management, engineering, logistics and other integral areas of business. Huang said experience is a key issue.
As one of the "four little dragons" in Asia's information-technology revolution, Taiwan has been an integral part of the development of the computer industry for over 20 years, while China's entry into the sector was delayed by the Cold War.
As Taiwan began to outgrow manufacturing, China opened its economy to market forces.
Millions of workers laid off by poorly run, state-owned companies over the past decade have become an eager work force for manufacturers from the private sectorwho are seeking to reduce production costs.
"If our production was still in Taiwan today, Premier Image Technology would be bankrupt," Liu said.
Working together
Now, as China climbs the IT totem pole -- it passed Taiwan to become the third-largest manufacturer of technology-related products in the world last year -- Taiwan has positioned itself at the forefront of a growing partnership. China does the manufacturing while Taiwan provides the R&D and marketing expertise.
New questions troubling politicians in Taiwan are how to replace manufacturing jobs in the near term and how to drive the domestic economy forward.
China still has a long way to go before it can overcome Taiwan in areas such as engineering, management and marketing.
"I think it will take 3 to 5 years for Chinese personnel to catch up. They have some good engineers, but they don't have the experience in product development needed to take a basic item and transform it into a marketable product," Huang said.
Workers with skills in product design, hardware engineering, electrical engineering are now highly sought after by Taiwanese companies.
Liu said Taiwan is following the US' example.
"The reason Japan's economy cannot recover is because they want to do everything by themselves ... but the US economy has boomed since their last downturn because they outsource," Liu said.
"We should also be very careful. If workers in China or India can do a good job, then we should let them do it and we should do what we are good at -- we should not do everything," he said.
The government has already set aside billions of dollars for biotechnology, nanotechnology and microchip development. Companies here only place, on average, about 3 percent of of their net profits into R&D -- far less than Japan and US-based companies.
"We need to go as high as 5 percent to stay competitive. I hope the government can provide subsidies, grants or can contribute in some other way, at least 1 percent and our companies increase their R&D investments by 1 percent within the next two years," Huang said.
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