The COVID-19 pandemic, which has upended the global economy, might have a silver lining for Taiwan’s manufacturing industry, as it gives corporate executives an opportunity to reflect on their traditional business models in preparation for a sea change in global trade amid narrow profit margins and rising competition from the “red supply chain.”
The US-China trade dispute provides an additional catalyst for Taiwanese firms to seek new growth engines, as Beijing seeks to decouple from the US and Taiwan by fostering its own supply chains.
Innolux Corp and AU Optronics Corp, which used to be among the world’s top three flat-panel suppliers, have been forced to concentrate on specialized products, such as displays for medical equipment, as Chinese rivals led by BOE Technology Group have snatched their market share through rapid capacity expansions.
The two firms’ efforts have paid off, as demand for medical equipment has been on the rise amid new waves of COVID-19 infections worldwide, spurring demand for virus testing and health checks. Specialized flat panels deliver much better margins than the standard products made by their Chinese peers.
AUO and Innolux are also developing miniLED technology, which Innolux considers the next generation in display technology, due to its affordability and scalability.
Meanwhile, Catcher Technology Co, a major metal casing supplier for Apple Inc’s iPhones, on Aug. 18 said it would exit the competitive and saturated phone casing market by selling two of its Chinese factories to Lens Technology Co, a Chinese touch-panel cover glass maker, for US$1.43 billion.
The decision was made with the best interests of its shareholders in mind, amid changes in global trade and customers’ strategies, as well as deteriorating price competition, Catcher said. The firm said it is exploring new business opportunities in 5G and automotive electronics, which have ample room to grow, chairman Allen Hung (洪水樹) told reporters.
Being an Apple supplier, Catcher has been making slim profits amid rising costs, similar to its peers in the supply chain. Last year, Catcher’s net profit slumped nearly 60 percent annually to NT$11.27 billion (US$381.7 million at the current exchange rate).
Apple has been adding more Chinese firms to its supply chains in a bid to boost its pricing power and trim costs. It has been reluctant to help its assembly or component partners access expensive high-end manufacturing equipment.
Combined with the fallout from the pandemic, it would be difficult for independent smartphone casing suppliers, such as Catcher, to absorb the spike in manufacturing costs.
IPhone assemblers Hon Hai Precision Industry Co and Pegatron Corp supply their own handset casings.
The decision by Wistron Corp, another iPhone assembler, to sell its Chinese iPhone assembly lines to China’s Luxshare Precision Industry Co for 3 billion yuan (US$438.37 million) took the market by surprise, raising investor concerns about the increasing threat from the “red supply chain.”
Luxshare is the first iPhone assembler to originate in China and has been nibbling at major assembler Hon Hai’s market share.
At the same time, Wistron is setting up new assembly lines in India to produce new models of the affordable iPhone SE, further moving its production out of China.
The shifts in Apple’s supply chain suggest that the company is increasing its number of Chinese assemblers to maintain a stable iPhone supply while minimizing risks from the US-China trade spat.
Taiwanese manufacturers should seek to generate profits from the changes in the global trade landscape and invest in new areas to prepare for post-pandemic market demand.
With escalating US-China competition and mutual distrust, the trend of supply chain “friend shoring” in the wake of the COVID-19 pandemic and the fragmentation of the world into rival geopolitical blocs, many analysts and policymakers worry the world is retreating into a new cold war — a world of trade bifurcation, protectionism and deglobalization. The world is in a new cold war, said Robin Niblett, former director of the London-based think tank Chatham House. Niblett said he sees the US and China slowly reaching a modus vivendi, but it might take time. The two great powers appear to be “reversing carefully
As China steps up a campaign to diplomatically isolate and squeeze Taiwan, it has become more imperative than ever that Taipei play a greater role internationally with the support of the democratic world. To help safeguard its autonomous status, Taiwan needs to go beyond bolstering its defenses with weapons like anti-ship and anti-aircraft missiles. With the help of its international backers, it must also expand its diplomatic footprint globally. But are Taiwan’s foreign friends willing to translate their rhetoric into action by helping Taipei carve out more international space for itself? Beating back China’s effort to turn Taiwan into an international pariah
Typhoon Krathon made landfall in southwestern Taiwan last week, bringing strong winds, heavy rain and flooding, cutting power to more than 170,000 homes and water supply to more than 400,000 homes, and leading to more than 600 injuries and four deaths. Due to the typhoon, schools and offices across the nation were ordered to close for two to four days, stirring up familiar controversies over whether local governments’ decisions to call typhoon days were appropriate. The typhoon’s center made landfall in Kaohsiung’s Siaogang District (小港) at noon on Thursday, but it weakened into a tropical depression early on Friday, and its structure
Taiwan is facing multiple economic challenges due to internal and external pressures. Internal challenges include energy transition, upgrading industries, a declining birthrate and an aging population. External challenges are technology competition between the US and China, international supply chain restructuring and global economic uncertainty. All of these issues complicate Taiwan’s economic situation. Taiwan’s reliance on fossil fuel imports not only threatens the stability of energy supply, but also goes against the global trend of carbon reduction. The government should continue to promote renewable energy sources such as wind and solar power, as well as energy storage technology, to diversify energy supply. It
RSS