Taiwan's electronic companies are targeting Europe

TAIWAN’S ELECTRONIC COMPANIES ARE TARGETING EUROPE

Taiwan’s Electronic

MICHAEL MCDERMOTT, Lecturer, Unwerszty of Strathclyde Internatzonal Buszness Umt

The market penetrative power of Taiwanese exports is a well-known story. Less is known about Taiwan’s strongest export companies, in electronics, which have been targeting Europe in preference to the USA in then marketing strategies since 1986, and have succeeded in making it Tarwan’s fastest- growing export market.

Michael McDermott considers the roots of Taiwan’s electronics industry, its internationalization, and diversification from consumer to industrial electronics. He then sets out the facts on Taiwan’s striking export and investment record in the Single European Market and offers forecasts for the future.

efforts on the US market In 1981 Goldstar became the fust South Korean company to establish an overseas production fadlty, a wholly-owned plant m Alabama, USA Samsung followed suit m 1984 at Los Angeles and Daewoo did hkewlse m 1986 m Cahforrua Thus by 1986, these three companies had ceased to rely on exports and instead used local production to serve the US market It should be noted too that Korean electromcs production and exports were dommated by lust three products colour televlslon, video cassette recorders and microwave ovens

Thus during 1986, the Koreans rapidly turned then attention to the EC market The sudden upsurge m exports led to a series of EC anti-dumping mvestlgatlons, and mdeed the lmposltlon of antl-

Introduction dumping duties An exammatlon of Korean electromcs plants m the EC reveals that virtually all of these

[n 1990 Taiwan’s exports amounted to $67 2bn, making It the world’s 12th largest exporting natlon The economic transformation of Taiwan over the past three decades has been due to Its successful export-onented development strategy Manufactured goods now account for around 95 6 per cent of Taiwan’s total exports Textiles was Taiwan’s largest export Industry until 1984 when It was superseded by electromcs Electronics remam the largest export sector, and It :ontmues to grow rapidly due to the dynamic cnformatlon products subsector

investments comclded with either the mvestlgatlon process or the lmplementatlon of penalties

In this paper, It will be seen that Taiwan’s electronics manufacturers have recently targeted the EC and that 1992 and fears of ‘Fortress Europe’ will result m a wave of Talwanese investments m the EC The locatlon- specific advantages of EC member countries 1s considered based upon the Talwanese perspective, and a plant location declslon model 1s provided

As recently as 1985 the USA still accounted for almost half (1 e 48 8 per cent) of Taiwan’s total exports while Europe absorbed a mere 10 per cent Europe 1s now ralwan’s fastest-growmg export market and m the first jm months of 1991 It accounted for 20 6 per cent of total exports Durmg the same penod, the USA saw Its share $11~ to 28 per cent This paper thus focuses on a market

Lastly, the opportumtles and threats for and to EC electromcs compares and the European mdustry overall 1s considered First of all, It 1s necessary to trace the development of Taiwan’s electromcs industry

The Origins and Growth of Taiwan’s :1 e Europe) and sector (electromcs) which will be of mormous importance m determmmg the overall performance of the Taiwan economy during the 1990s

McDermott (1990) exammed the mternational marketmg jtrategles of South Korean electronics companies It was seen that the ‘big three’ (that is, Goldstar, Samsung Electrorucs and Daewoo Electrorucs) focused their export

Electronics Industry In 1961, the Taiwan government formally recognized that an outward-oriented economic development strategy was necessary to foster economic growth for Its low-labour cost economy which lacked capital and natural resources It thus passed The Statute for Encouragement of Investment m an effort to attract foreign direct investment (fdl), and boost mdlgenous

466 EUROPEAN MANAGEMENT JOURNAL Vo19 No 4 December 1991


rable 1 Value of electronics ,roduction of world’s leading Droducers in 1988 (Sbn)

Rank Country Value

1 USA 192 2 Japan 130 3 West Germany 35 4 France 24

5 UK 23 6 South Korea 22 7 Taiwan 16 8 Italy 14 9 Singapore 8

10 Netherlands 7

Source Electromcs, lndustrlal Development Board, Mmlstry of Economic Affairs, Talpel, Taiwan, 1990, pnvate discussions with IDB staff

investment The same year Tatung country’s fu-st radio

Table 2 Value of Table 3 Distribution of Taiwan’s elec- Taiwan’s electronics tronic exports by nature of product, 1978- exports 1978-88 ($m) 88

Year Value

1978 1,812 0 1979 2,374 3 1980 2,957 3 1981 3,629 2 1982 3,550 7 1983 4,251 1 1984 5,461 4 1985 5,092 7 1986 7,254 9 1987 11,038 4 1988 13,613 3

Source see Table 1

produced the

In 1964, the US MNE, General Instrument, became the first of many foreign investors, establlshmg a plant to produce radios The same year saw Tatung dlverslfy Its product range when it and mdlgenous rival, Sampo, commenced production of black and white televisions Today, these two firms remam Taiwan’s leading producers of consumer electromcs

Before the mid-1970s, the growth of Taiwan’s electromcs industry had been the result of activity by the forelgn- owned sector and mdlgenous manufacturers, acting mainly as subcontractors to US and European MNEs, assembling consumer electronics In the mid-1970s though, the industry took a new dlrectlon when a number of Talwanese entrepreneurs established mformatlon products companies Today, Acer (founded m 1976) and Mltac (founded m 1974) are Taiwan’s leading producers of mformatlon products (that IS, computers and peripherals)

By 1980, the Talwanese government had ldentlfled mformatlon products as a dynamic sector compatible with Taiwan’s resource base and development strategy [t thus established Hsmchu Science-based Industrial Park, Taiwan’s S&on Valley, and accorded mformatlon products ‘priority’ status

By 1988 Taiwan had become the world’s seventh largest electronics manufacturer, with output of $16 Obn of which $13 6bn or 85 per cent was exported (see Tables 1 and 2) Consumer electronics accounted for 21 2 per cent of total output, mdustrlal electronics 42 per cent, and parts and components 37 per cent (see Table 3)

The industry consisted of 3,300 factories with 350,000 employees, and it made a dlsproportlonate contrlbutlon to the manufacturing sector It accounted for

Parts and Consumer lndusfrral components

1978 51 4 45 1979 50 3 47 1980 47 4 49 1981 47 4 49 1982 42 6 52 1983 36 15 49 1984 33 22 45 1985 27 30 43 1986 27 35 38 1987 26 38 36 1988 21 42 37

Source see Table 1

. 4 0 per cent of total manufacturing enterprises,

. 15 6 per cent of total employment,

. 13 8 per cent of the value of total production, and

. 26 0 per cent of total exports

Even as recently as 1988, the USA accounted for 43 pei cent of Taiwan’s electronics exports, as against 56,l pel cent m 1978 The section below examines the mternatlonallzatlon strategies of Taiwan’s two malr consumer electronics companies

Internationalization of Taiwan’s Leading Consumer Electronics Companies Tatung began exporting m 1954, selling electric fans to the Phlllppmes Irutlally it focused its export actlvltles on other Asian markets, finally targeting Japan m 1968 These countries were relatively close to Taiwan culturally and geographically, thus Tatung m its choice of export markets was adhering as far as possible to advice commonly given to exporters

‘An Ideal export market IS one that 1s zdentlcal to the home market, speaks the same language and IS geographzcally close’ (Katz, 1990)

In 1971, Tatung commenced exporting fans to the USA Despite the fresh challenge mvolved m exporting to this culturally and geographically remote market, it was immediately successful A US marketmg subsidiary was established m the followmg year, an mdlcation of greater commitment to the market In 1974 Tatung opened its and Taiwan’s fu-st overseas manufacturmg plant, at Los Angeles to produce electric fans The product lme of this facility was extended two years later to include colour televisions Thus, Tatung was the pioneer m the mternatlonallzatlon of Talwanese busmess Arch-rival Sampo has followed closely behind Tatung

EUROPEAN MANAGEMENT JOURNAL Vo19 No 4 December 1991 467


In 1981 Tatung opened Its second plant m the USA, AT Atlanta, to produce colour televlslons and home appliances More slgmflcantly though, this year also saw Tatung become the first Talwanese company with a manufacturmg presence m the EC, having estabhshed a marketmg subsldlary m the UK and Luxembourg m 1980

Tatung entered the UK market by acqumng the consumer electronic business of Decca Radio and Televlslon Ltd The followmg year Samsung became the first Korean company to mvest m Europe, estabhshmg a plant m Portugal During the second half of the 1980s Korea’s ‘big three’ established several plants m the EC, but Tatung remained the sole Talwanese investor until late 1990 In the meantime though, Tatung had moved m 1985 from its Bndgenorth plant to a 43 acre greenfield site at Telford, England It has invested circa f20m m the Telford plant which produces darly 1,500 colour televlslons and 800 computer monitors Moreover, 95 per cent of components are produced m-house Irutlally the ethnocentric approach to labour relations created tensions between the plant’s Talwanese management and British workforce, but a move towards poly- centnclsm has ameliorated this situation The unlonlzed Telford plant currently has 900 employees, and a further 100 lobs will be created durmg 1991 with the expansion of its R&D facility Agam m the context of the European market, Tatung has pioneered Tamwanese expansion, and m terms of Porter’s value cham, all primary actlvltles have been transferred to the UK

During the second half of the 198Os, Tatung and Sampo’s mternatlonahzatlon process took a new dlrectlon Rlsmg costs forced them to locate labour-mtenslve activltles m low-cost Asian countries Tatung has a plant m Malaysia and also one m Thailand The Thai plant exports all of its output It has an annual productlon capacity of 400,000 colour televlslons and 350,000 satelhte receivers which are destined mamly for the EC, and 1 m printed circuit boards which are exported to Taiwan for final assembly The Malaysian facllltles produce components Sampo has a lomt-venture m Thailand and a plant m Chma It 1s currently consldenng opening a third facility m Indonesia Figure 1 sum- marlzes the mternatlonahzatlon process of Tatung, revealing Its presence m each region of the Triad (I e USA, Europe, Asia) Despite havmg transferred productlon overseas, Tatung ranked as Taiwan’s second largest exporter m 1989, with exports of $414 5m, behmd Nan Ya Plastics Corporation ($508 3m)

In contrast to Its larger rival, Sampo 1s yet to establish a manufacturing presence m the EC Until recently the USA accounted for 80 per cent of Sampo’s total exports from Taiwan, but this share has shrunk to 40 per cent, w&h the emergence of the EC as a key market Marketing subsldlarles were estabhshed first m Germany (Dusseldorf, 1989) and m the UK (London, 1990) Sampo’s mam exports to the EC are, m descend- mg order, computer peripherals, telecommumcatlon equipment, and microwave ovens The company 1s

Figure 1 Tatung’s internationalization process

currently undertakmg a review of appropriate locations m the EC for each product As of September 1990, the preferred locations were as follows

. computer plant - Germany because of infrastructure and market size,

. telecommunications - Spam or North East England Avallablllty of quahty auxiliary supphers will be the determmmg factor, given that components account for around 70 per cent of total production costs

. microwave ovens - North East England where Goldstar and Samsung already make microwave ovens

Tatung 1s also likely to open another plant m the EC, most likely m Germany, to produce computers Thus, clearly both Tatung and Sampo have dlverslfled with success from consumer to mdustrlal electronics However, the author’s view 1s that those compames which are dedicated to manufacturing mformatlon products will provide the bulk of Talwanese fdl m the EC over the next few years, but especially m 1992

The Information Industry: Its Achievements and Changing Structure In 1989 Taiwan’s productlon of mformatlon products amounted to $5 5bn, of which exports accounted for $5 2bn or 96 per cent The mdustry was responsible for 2 7 per cent of Taiwan’s GNP, and mformatlon products ranked as the country’s third largest export earner In 1989 there was a total of 5,000 firms engaged m the mdustrjr with a total labour force of 80,000

By 1988 Taiwan was the world’s sixth largest manufacturer of mformatlon products Its growth rate was appreciably higher than its nearest rivals (1 e the



Table 4 Information industry revenues in 1988 of top Table 5 Taiwan’s worldwide market share for

ten manufacturing countries ($bn) selected information products (1989)

Rank Country Value Growth rate (%)

1 USA 52 1 90 2 Japan 35 7 90 3 West Germany 88 85 4 UK 64 88 5 France 57 81 6 Taiwan 52 38 7 7 Italy 45 63 8 Smgapore 29 26 0 9 Ireland 23 129

10 South Korea 22 45 0

Source see Table 12

Product Worldwide market share (%)

Mlcrocomputers 105 Colour momtors 34 7 Monochrome monitors 29 4 Mamboard 60 8 Termmals 33 2

Swltchmg power supply 183 Keyboards 28 7 Graphic cards 32 9 Control cards 52 0 Disk drive 02

Source Market lntelllgence Centre, Institute for lnformatlon Industry

UK and France m fifth and fourth posltlons) (see Table 4) It 1s thus very likely that 1990 will conflrm Taiwan as the world’s number three producer behind the USA and Japan It 1s already the leading supplier of monitors, number two m termmals and number three m personal computers Its worldwide market share for ten major mformatlon products 1s presented m Table 5 This success 1s largely due to the popularity of Taiwan for offshore production and subcontractmg More recently though, and slgmflcantly for the industry’s long-term prosperity, mdlgenous manufacturers (e g Acer, Mltac, Tatung etc ) have increased the proportion of own brand sales

Table 8 Breakdown of type of exports of Taiwan’s information industry (%)

OBM OEM OSM

1984 3 40 57 1985 5 37 58 1986 17 39 44 1987 20 41 39 1988 20 44 36 1989 22 43 35

In the first half of the 1980s the growth of the mdustry was due largely to foreign-owned firms (e g Atari,

OBM = Own Brand Manufactunng OEM = Ongmal Equipment Manufactunng OSM = Offshore Manufactunng

Source see Table 5

Table 7 Taiwan’s top 18 exporters of information products, 1989

Rank Rank Rank Marn export Items Value of 1989 exports 1984 1988 1989 Company PCs Termmal Momtor Printer Components

More than US$300 m 1 2 1 16 3 2

US$200-299 m - 5 3 6 6 4

US$lOO-199 m 9 1 5 3 7 6

- 10 7 2 4 8

- 13 9 11 8 10 - 11 11 12 15 12

US$50-99 m 23 16 13

8 14 14 - 19 15 15 12 16 5 18 17

- 30 18

Tatung Acer PhilIps Atan Wyse Wang Mitac Digital

Equipment DTK Components Captronic AST Research Sampo Copam

Electronics Zenith Compal ADI Teco TDK

X X

X

X

X

X X

X X

X X

X X X

X

X X X

X X X

X

Source The Way Approaching Miracle The Dgest of Taiwan’s lnfofmabon industry, Chma External Trade Development Council, Industrial Technology Research Institute, Electronic Research and Service Orgamsatlon, Institute for lnformatlon Industry, Talpel, 1990



Table 8 Percentage breakdown of productlon type of selected information products made in Taiwan 1985-88

Year OBM OEM OSM Total

Mlcrocomputers 1985 1986 1987 1988

Dlskdrwes 1985 1986 1987 1988

Prmter 1985 1986 1987 1988

Terminal 1985 1986 1987 1988

Monitor 1985 1986 1987 1988

Other Peripherals Components 1985 1986 1987 1988

9 27 64 100 28 22 50 100 36 23 41 100 39 24 37 100

6 29 65 100 - 8 92 100

5 23 72 100 4 21 75 100

- 9 91 100 - 2 98 100 3 21 76 100 1 21 78 100

4 56 40 100 17 41 42 100 23 37 40 100 23 37 4 100

6 32 62 100 5 25 70 100

10 19 71 100 11 19 70 100

35 63 100 24 69 100 22 71 100 25 69 100

Source see Table 5

Digital, Phllps, Wang) which had established a manufacturing presence m Taiwan Indeed, until 1986 foreign multmahonals were responsible for the malorlty of the Industry’s exports (see Table 6) In 1984 offshore manufacturing (OSM) accounted for almost three-fifths (1 e 57 per cent) of the mformatlon industry’s total exports In 1984 two US multmatlonals, Digital and Wang, were the industry’s second and third largest exporters (see Table 7)

By 1989 OSM’s share of total production had fallen to lust 35 per cent Nevertheless, five of the sector’s eight largest exporters, including Wyse (a US company acquired m 1989 by a Talwanese consortia), were foreign multmatlonals In certain products (e g disk drives) OSM accounted for the bulk of Taiwan’s production (see Table 8)

lesplte rlsmg labour costs and labour shortages, not to nentlon the appreclatlon of the NT$, it 1s dlfflcult to magme a mass exodus of these firms to lower cost

locations Certamly, labour intensive operations with very httle value added are likely to be transferred overseas, but OSM will contmue to make an important, albeit dummshmg, contrlbutlon to Taiwan’s mformatlon sector However, m 1989 some firms (e g Ampex and Commodore) ceased manufacturmg m Taiwan

In the early 1980s Taiwan was still a low-cost location and local manufacturers were awarded large subcontractmg contracts from foreign multmatlonals Indeed, despite rlsmg costs, orlgmal equipment manufacturing (OEM) busmess has accounted for a steady proportion of the mdustry’s total production durmg the period 1984-89 Indeed, leading US computer manufacturers (e g Apple, Compaq, IBM, Umsys) have all estabhshed Internatlonal Procurement Offices m Taiwan These and numerous other firms source monitors from Taiwan, so httle wonder that It produced one m three of all momtors manufactured worldwide m 1989

In the long term, OEM busmess 1s hkely to become less important Some manufacturers (e g Acer and Mltac) are seeking to convert OEM busmess to own brand manufacturing (OBM) In contrast, other firms - the malorlty - still rely heavily on OEM busmess Hence the loss of subcontractmg contracts still represents a serious threat to the mformatlon industry m Taiwan

In 1984 only three per cent of all mformatlon products made m Taiwan were sold under a Taiwan company’s brand name Thus, the industry was m a very vulnerable position Foreign multmatlonals could decide to close up and move production overseas, or terminate OEM busmess which IS very cost-sensltlve Therefore, by developing OBM, Taiwan’s mformatlon compames are pursuing stability and simultaneously movmg to higher added value products with better profit margms By 1989, OBM accounted for 22 per cent of the industry’s total exports, with particular success recorded m microcomputers and monitors

Table 9 Value of Taiwan’s exports of main information products (US$m)

1983 1984 1985 1986 1987 1988 1989

Mlcrocomputers 16 152 240 393 761 1,154 1,244 Momtors 130 319 303 500 877 1,081 1,251 Disk drives 15 86 42 71 97 119 115 Pnnters 12 23 45 41 44 43 39 Terminal 97 207 226 317 414 505 458 Other 104 205 257 299 80 81 102

Sub-total 374 992 1,113 1,601 2,273 2,983 3,209 Parts &

components 129 113 112 462 1,428 2,016 2,035

Total 503 1,005 1,225 2,063 3,701 4,999 5,244

Source see Table 5



rable 10 Analysis of growth in Taiwan’s exports of information products to major markets, 1988-87 (US$m)

Export value No of exporters 1986 1987 % change 1986 1987 o/o change

USA 1,175 1,910 63 1,355 1,629 20 Netherlands 140 275 96 283 428 51 West Germany 103 214 108 546 839 54 UK 103 194 88 334 484 45 France 44 108 145 316 497 57 Hong Kong 47 88 87 526 708 35 Italy 30 70 133 262 387 48 Smgapore 32 70 119 375 602 61 Total mformatlon

products exports 2,063a 3,701= 79 2,788b 3,720b 33

a lncludmg others b Exporters may be dupkated across countnes Source The Way Approachrng Miracle The Digest of Tatwan’s /nformat/on Industry, Chma External Trade Development Council, Industrial Technology Research Institute, Electronic Research and Service Organisation, lnsbtute for InformatIon Industry, Taipei, 1990

Parts and components account for a slgruflcant chunk per cent excluding parts and components Monitors of Taiwan’s exports of mformatlon products In 1989 were the single largest export item m every year, except their export value amounted to $2 03bn or 39 per cent 1988, during the seven-year period from 1983 to 1989 of the sector’s total In 1983 the value of such exports Microcomputer exports have recorded the most had been a mere f 129m, and accounted for lust over a lmpresslve growth rate during this period, rlsmg from quarter of total exports (see Table 9) lust $16m m 1983 to $1 24bn m 1989

Concentrating now on actual equipment, five products (m descending order of importance - monitors, microcomputers, terminals, disk drives, and printers) recorded exports of $3 2bn m 1989 These amounted to 61 per cent of total mformatlon product exports or 97

Although the USA 1s the largest export market for Taiwan’s mformatlon products, exports to other major markets (e g France, Germany, Holland and the UK) are increasing at a faster rate (see Table 10) Indeed, Europe 1s already a much larger market than North

Table 11 Export markets for information products, 1985 (%)

Area

information products (Includmg computer

components) Micro

computers Disk

drives Prm ters Termmals Monitors

USA 51 62 33 94 52 92 57 77 70 04 56 70 Canada 1 82 1 82 1 16 0 03 0 13 1 85 North America 53 44 35 56 54 08 57 80 70 17 58 55 Netherlands 7 44 9 44 1087 21 01 1229 8 86 West Germany 5 78 6 62 6 67 2 85 1 59 4 91 UK 5 25 7 74 7 07 3 62 4 40 6 20 France 2 93 5 51 2 56 0 24 0 99 2 94 Italy 1 90 3 18 1 15 0 44 1 24 1 71 Switzerland 1 52 3 40 1 05 0 81 0 06 0 64 Belgium 1 04 1 39 4 73 0 14 0 24 1 27 Others 6 16 1286 1 24 4 60 3 37 4 02 Europe 32 02 50 14 35 34 33 71 24 18 30 55 Hong Kong 2 39 0 36 2 34 1 05 0 73 1 85 Singapore 1 88 1 04 2 66 0 56 1 69 1 41 South Korea 0 51 0 16 0 73 0 07 0 01 0 38 Japan 1 47 0 38 0 80 0 27 0 34 0 69 Australia 2 61 3 32 1 52 3 53 2 08 2 18 Others 1 05 1 07 0 44 1 24 0 19 1 50 Asia & Pacific 9 91 6 33 8 49 6 72 5 04 8 01 Other areas 4 63 7 97 2 09 1 77 0 61 2 89 Total 100 00 100 00 100 00 100 00 100 00 100 00

Source The Way Approachfng M/racle The Dfgest of Taiwan’s lnformatlon Industry, China External Trade Development Council, Industrial Technology Research Institute, Electronic Research and Service Orgamsation, Institute for lnformatton Industry, Taipei, 1990



Table 12 The World’s top 15 markets for Table 13 Selected financial data on Acer and Mitac microcomputers (000 sets) (USSm)

Country Volume

1 USA 8,715 2 Japan 1,200 3 France 588

4 West Germany 577

5 England (SIC) 534

6 Italy 316

7 Holland 215

8 Australia 195

9 Taiwan 165

IO Sparn 144

11 Sweden 132

12 South Korea 123

13 Switzerland 115

14 Smgapore 48

15 Indonesia 28

16 Malaysia 24

17 Hong Kong 21

Acer Mltac Sales Net mcome Sales Net income

1983 283 - 500 - 1984 51 6 04 800 - 1985 94 8 51 1000 -

1986 165 3 39 1300 -

1987 331 2 153 235 0 -

1988 530 9 26 5 300 0 - 1989 688 9 58 380 0 - 1990 949 5 24 500 0 -

Source Acer and Mltac

a slzeable proportion of then sales from own brand sales, and are mvestmg to boost their brand and corporate image m international markets

Source see Table 5

America for Taiwan’s exports of microcomputers (see Table 11) Wlthm the EC, the Netherlands IS the largest market for such exports, reflectmg the fact that this country 1s the major dlstrlbutlon point for the EC market, rather than the one with the biggest domestic export This fact, plus the relatively high proportion of own brand exports to the EC suggests that a number of Taiwan’s nucrocomputer manufacturers will establish a manufacturing base m the EC prior to 1992 Moreover, the EC accounts for su( of the world’s ten largest markets for microcomputers (see Table 12)

Until 1988 Acer was known as ‘Multitech’ but the latter name was dropped because It did not possess ‘the dlstmctlveness necessary for us to make a real impact on the world market’ In 1990 both companies introduced their new marketing slogan Acer replaced ‘Your Computmg Friend Cares Everywhere’ with ‘Global Partner m Computmg’, while Mltac abandoned ‘Growth Without Chaos’ m favour of ‘People Committed to Infotech’

Despite the entry of the large ‘chaebols’ (1 e large conglomerates) mto the mformatlon industry, the value of South Korea’s exports of mformatlon products still lags well behind those from Taiwan In each of the five mam products discussed above, plus parts and components, Taiwan leads South Korea In 1987 South Korea’s exports of mformatlon products were worth $146bn against Taiwan’s $3 7bn

The Internationalization of Taiwan’s Information Products Manufacturers Acer and Mltac began manufacturmg computers m 1981 and 1984 respectively Fmanclal data on both compares 1s provided m Table 13 Their domestic plant(s) are at Hsmchu and m 1989 they ranked behind Tatung as Taiwan’s top, second and third largest exporters of mformatlon products

Table 14 shows that Europe 1s now clearly the largest export market for Acer Inc and Mltac Inc This position has been achieved even though Acer has only recently targeted the EC market In order to enhance own brand sales it adopted a market concentration strategy, begmnmg with developing countries and gradually moving to more competltlve markets once It succeeded (1 e a top five market position) Its tactics are comparable to those utilized m the Chinese chess game, Go, where the oblectlve 1s to make terrltorlal gains rather than capture the opponent’s pieces This strategy has worked Acer 1s market leader m many less developed counties (LDCs) (Bolivia, Bahram, Chile, Cyprus, India, Jordan, Mexico, the Phlhppmes and Thailand) It 1s among the top five best selling brands m countries such as Finland, Singapore, South Africa and the United Arab Emirates

Table 14 Distribution of sales by market for Acer Inc. and Mitac Inc.

Acer Inc (1991, l-6) Mitac Inc (1989)

In 1984 Acer won its first OEM contracts (from the US MNEs, ITT and NCR) The followmg year, Mltac secured Its first large OEM order, also from ITT In 1986 It gamed other busmess from Memorex (USA), which m 1990 was its largest customer, Commodore (USA) and Philips (the Netherlands) Both compames now derive

North America Europe Rest of World

Total

27 37 42 27 31 36

loo 100 -

Source see Table 13



Notes Numbers cdcate (roughly) sequence of mlernat~onallsallon

- equals export (arrows clonatmg ongm and destmation of products)

4 equals transierral of production (arrows donatmg ongm and destmatlon)

Figure 2 Acer’s international markerting

development for own brand products - GO tactics

The international marketmg development process for Acer’s own brand products IS shown m Figure 2 Acer reached stage 10 m 1990 when It acquired the Dutch computer company, Kangaroo Computer BV During 1991, it 1s expected to select a greenfield site m the Netherlands

Figure 3 provides a slmpllfied model of the plant location decision-process of Talwanese manufacturers looking to establish a plant m the EC This model IS appropriate for those Talwanese manufacturers that intend to develop their own brands Such firms are also members of Brand International Promotion Assoclatlon (Blpa), founded m 1989, to promote Talwanese brands m international markets

The EC will also attract fdl by Talwanese subcontractors to the world’s malor computer companies In 1990 Delta Electronics, for example, located near Glasgow m Scotland to be near its mam customers, IBM and Compaq As Figure 3 shows, the UK, Ireland and the Netherlands, appear the preferred locations among Talwanese investors

In the spring of 1990, Yuen Foong Yu Group, a paper conglomerate and one of Taiwan’s largest business groups, purchased a 50-acre site near Cork m Ireland Its aim 1s for the site to become a ‘Hsmchu m Europe’ A year later, Northern Ireland’s Industnal Development Board set aside a 139-acre mdustrlal zone at Ballyhenny, near Antrlm, for Talwanese investors The prolect has the support of the Taiwan Electrical Apphcance Manufacturers Assoclatlon (TEAMA) which will encourage its member companies to locate on the zone

It 1s the author’s view that during the 1990s the contrasting characteristics of Taiwan’s and Korea’s electronics industry will have unportant lmpllcatlons for inward investment m the EC Taiwan may well be the

source of a greater number of cases of fdl but m value terms Korea will be much more slgmflcant

Talwanese electronics companies are also perhaps more likely to establish a manufacturing presence m the EC market through acqulsltlon rather than greenfield investment In the spring of 1990, Japan’s Mitsubishi outbid Acer and Mltac to acquire Apricot Computers for f49m Both Acer and Mltac have already concluded one large acqulsltlon of a US company In 1990 Acer paid $94m for Altos Computers and m 1989 Mltac was part of the Talwanese consortmm which paid $270m for Wyse Technology, taking a 12 per cent stake

Conclusions The Taiwan electronics industry has successfully diversified from consumer to mdustrlal electronics The leading consumer electronics companies have moved mto mformatlon products, but the rapid growth of this subsector 1s due mainly to the staggering growth of companies which have been founded since the early 1970s and which have focused exclusively on mformatlon products Until recently Taiwan’s electronics firms have been heavily dependent on the US market, but they are now being pushed and pulled towards the European market, especially the EC with the prospect of ‘1992’ Even before the unsuccessful coup m the Soviet Union m August 1991, the Eastern European dimension had little bearing on the plant location decision, with three North Atlantic economies (1 e Ireland, the Netherlands and the UK) the apparent favourlte choices

Figure 3 Simplified EC plant-location decision making process of potential Taiwanese manufacturers of information products



The Irish Republic and the Netherlands are likely to attract information product manufacturers, but the UK could well attract Taiwanese investments in consumer electronics and information products. The North East of England and Northern Ireland are likely to prove the preferred location for consumer electronics investments. In June 1991 Wales launched a special initiative to attract information technology companies, especially those from South Korea and Taiwan. Indeed the Welsh Development Agency seems to be focusing increasingly on Taiwan at the very moment its main rivals are finding their powers weakened (i.e. Locate in Scotland - see Hood, 1991) or the agency is being disbanded (e.g. Telford Development Corporation).

Ironically though, this inter- and intra-country competition in the EC to attract Taiwanese investment will accelerate the loss of competitiveness of indigenous European electronics companies and foreign divestment mainly by ailing US computer companies.

Note This paper is based on primary research conducted by the author during two visits to Taiwan in 1990. To avoid offending through omission, the author would like to express his gratitude to the numerous executives of several leading electronics companies, who kindly agreed to be interviewed and who provided valuable documentation. Officials of Brand International Promotion Association, the Industrial Development Bureau, the Industrial Development and Investment Centre, the Institute for Information Industry, the Taipei Computer Association, and the Taiwan Electrical Appliance Manufacturers Association.

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Taiwan's electronic companies are targeting Europe

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