INNOVATION & START-UP
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The Next Big Thing

Watch out, Shenzhen! Taiwan is upgrading to grab manufacturing orders from China’s not-so-cheap boomtown

PUBLISHED : Wednesday, 14 October, 2015, 7:01pm
UPDATED : Wednesday, 14 October, 2015, 9:33pm

Can Shenzhen, the former boomtown in southern China’s Guangdong province known for its pioneering economic reforms, remain the “world’s factory” for global technology start-up firms?

The head of a start-up accelerator in Taiwan that is backed by the nation’s government believes her team can change the playing field by leveraging the island’s unique advantages in terms of design and quality of hardware.

Anita Huang, a former regional executive for US technology giants Google and Yahoo, was appointed the head of Taiwan Startup Stadium (TSS) earlier this year.

The accelerator is funded by the National Development Council (NDC), a government branch of the Executive Yuan, or Taiwan’s cabinet.

Huang has two key missions: putting Taiwan’s start-ups on the world map, and finding a way to attract start-ups from other countries to do business with the island.

The TSS was only launched a few months but it has already generated plenty of buzz among the international start-up community, for example by aggressively promoting local start-ups at a high-profile event in the US last month.

The new body has also attracted the attention of foreign companies by promoting Taiwan as a destination for hardware sourcing and manufacturing, after growing concerns about product quality in Shenzhen, which lies just across the border from Hong Kong but in some ways is a world apart.

“If you want to compare price [with Shenzhen], we can’t beat China,” Huang said on the sidelines of a Google-sponsored event in Taipei focusing on start-ups and innovation.

“Yes, you can find cheaper stuff in Shenzhen, where prototypes can typically be manufactured at a very fast speed,” she said.

“But if you think twice and consider the excellence in product design and manufacturing quality, many clients actually come back to Taiwan for business after trying Shenzhen.”

Shenzhen has served as the home base for a number of Chinese technology giants including internet portal and real-time messaging service leader Tencent, as well as the two biggest manufacturers of telecoms equipment on the mainland, namely Huawei and ZTE.

DJI, which controls about 70 per cent of global market for civilian drones, is also headquartered in this industrial but sun-stroked city.

Many technology start-ups from Europe and the US have chosen Shenzhen as the production base for their early prototypes because of its extensive supply chains, clusters of manufacturing vendors, cheap labour costs and proximity to the giant Chinese market.

They often head here first because it is a cheap and effective way to get demonstration products made before they head out to court venture capital investors and pitch for funding.

But while this special economic zone endorsed by late leader Deng Xiaoping has maintained its reputation as a world factory for three decades, inflation and labour costs have shot up in recent years to erode its competitive advantage.

It is also facing challenges related to intellectual property rights as some of the Chinese tech companies that originated there have been dubbed clones of advanced products originating in the West.

In some cases, high-quality counterfeits of iconic tech products can be purchased in Shenzhen even before they are officially released on the Chinese mainland or in other markets. A case in point would be the recently released iPhone 6S.

Just this week, local media in Shenzhen reported that several factories in the Pearl River Delta, including a mobile phone plant belonging to Jingchi Plastics in the Fenggang township of Dongguan, were shut down immediately after China took a week off to celebrate its national day.

This further stoked concerns that electronics manufacturers in the region, in which Shenzhen always plays a leading role, have been losing out to their foreign rivals.

The spate of shutdowns followed a drop in demand for exports of electronic information products like trendy wearables and other gadgets.

Moreover, rising costs at factories in Guangdong are prompting companies from Hong Kong, Taiwan and elsewhere to withdraw from the province and relocate to cheaper neighbouring countries like Vietnam.

For Huang, this translates as a golden opportunity for Taiwan to grab more international clients as the island is well-known for its talent pool of programmers and engineers, as well as its hardware production capacities.

Huang related the story of how one non-Chinese maker of electronic devices travelled to Shenzhen first to get some prototypes made but was disillusioned after the local vendor failed to deliver the required quality. In frustration, the client quit the city and headed to Taiwan.

Huang said Shenzhen can still lean on its formidable reputation, but no one knows for exactly how long.

“Shenzhen still has a lot of advantages, especially in terms of manufacturing scale, and it already has a good reputation, as many people already know what Shenzhen can do when it comes to technology manufacturing,” she said.

She said manufacturing speed was one area where Taiwan is racing to catch up, but that it must do so without sacrificing either quality or its competitive prices.

TSS has worked with more than 100 homegrown start-ups and partnered with dozens global tech leaders including Google, which chose Taiwan as the location for its regional data centre, to help them expand beyond the island into Asia.

Last month, Huang led a group of 30 people, including representatives from a dozen Taiwan start-ups, to join the highly influential TechCrunch Disrupt event in San Francisco.

Her team also used the event to pitch the idea of doing business in Taiwan to a number of European and US start-ups, she said.

“Eventually we hope there will be some unicorn companies born in Taiwan, so we can put more Taiwanese start-ups on the world map,” she said, referring to a popular investment industry term for a start-up whose valuation has risen above US$1 billion even before it goes public.

Recent examples of unicorns include Xiaomi, often known as the “Apple of China”, and Uber, the San Francisco-based car-hailing app that has transformed the way people move around big cities.