Taiwan multinationals eye new markets amid supply chain fracturing and talent shortage
- Industry insiders point to ‘growing pressure’ in the West to ‘start seriously creating alternate supply locations’ outside mainland China
- Even semiconductor makers, which are among Taiwan’s most established companies, are showing signs of being on the move
Companies from global tech hub Taiwan are expected to branch out their business this year to once-unlikely global markets, in pursuit of post-Covid consumer demand as talent runs short at home and the East-West supply chain decoupling becomes more impactful.
Larger Southeast Asian countries have joined the likes of Australia, India, Japan and the United States as destinations for Taiwan’s tech-intensive firms to make gear or sell their services among local clients, companies report.
Taiwanese investors in mainland China – a traditional go-to place for decades because of its lower costs and large market – are not packing up shop, for the most part, but rather looking elsewhere for their expansion plans.
Many corporate clients in the newer markets want help digitising big chunks of their business after shifting some work online at the height of Covid-19.
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“Taiwan companies are likely to seek to expand their present footprints outside of China, including to the US, Vietnam, Singapore and Japan,” said Rupert Hammond-Chambers, president of the US-Taiwan Business Council. “All [countries] are likely to have solid FDI gains from Taiwan investment.”
He pointed to “growing pressure” in the West to “start seriously creating alternate supply locations” outside mainland China. Taiwan government policy, from funding priorities to bans on certain business activity on the mainland, is also behind the push.
Acer, the sixth-largest PC brand by global market share, now has assembly lines in Australia, India, Indonesia, Thailand and the Philippines, as well as at home in Taiwan – often working together with original design manufacturers. But the company website calls mainland China its “primary production base”.
An Acer spokeswoman said this spread has an “aim of increasing sales and manufacturing flexibility to meet local production needs, such as government tenders”.
Gogolook, an 11-year-old Taiwanese developer of anti-scam smartphone apps, is expanding its staff of 150 offshore, including to Hong Kong and Malaysia, because it expects to grow markets there as the pool of software engineers declines in Taiwan, CEO Jeff Kuo said.
“The death rate has exceeded birth rates,” he said. “This represents a huge structural problem.”
Turnover among Taiwanese engineers is too “quick” because they can easily land jobs elsewhere, he added, while a lot of the company’s work can be done remotely, including offshore.
Kuo’s firm has avoided mainland China, which he said is a suspected source of some of the scams that his apps target, to ensure that he can get clients and funding in other parts of the world.
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For Appier, a Taipei-based software-as-a-service company, revenue from the US, Europe and Middle East during the third quarter of 2022 increased more than sevenfold, year on year, and represented 13 per cent of the firm’s total profits.
Appier CEO and co-founder Yu Chih-han pointed straight at the pandemic.
“One of the biggest shifts we’re observing is the adaptation to the post-Covid environment, as businesses rapidly evolve to adapt to changing consumer patterns,” Yu said.
“This includes the emergence of ‘revenge’ trends across travel, shopping, entertainment, and dining, as consumers make up for lost time across the last two years of lockdowns and restrictions,” he said. “In the post-Covid environment, marketers are looking for higher efficiencies.”
Gogoro, a 12-year-old developer of electric motor scooters and batteries, expects to venture further into India, Singapore and the Philippines, a company spokesman said. Gogoro already has partnerships in all three countries.
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Chip makers are among Taiwan’s most established companies, and they are on the move too. Tech, as a whole, makes up 30 to 40 per cent of Taiwan’s exports.
Taiwan Semiconductor Manufacturing (TSMC), a major Apple supplier and the world’s largest contract chip maker, is building its first US plant at a cost of US$12 billion in the state of Arizona.
And that facility is spurring other Taiwanese firms, including Sunlit Chemical and Taiwan Puritic Corporation, to start producing in Arizona as parts of the semiconductor supply chain, said Rajiv Biswas, Asia-Pacific chief economist with S&P Global Market Intelligence.
Fellow Taiwanese chip maker United Microelectronics said it approved a plan last year to build a new factory next to an existing one in Singapore. It is set to launch next year with a monthly capacity of 30,000 wafers.
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Also in the tech space, Taiwan-based assembler Foxconn Technology is investing in India to assemble iPhones for the growing Indian market for consumer electronics.
Southeast Asian countries such as Indonesia, Malaysia, Thailand and Vietnam allow younger Taiwanese firms to grow faster than in larger, more mature markets full of competitors, said John Allen Ku, director of Startup Island Taiwan, a government-backed brand for new companies.
“You can create your economy of scale earlier and be a big player first, because that’s a growing market,” Ku said. “So, a lot of companies are investing a lot locally there.”
Southeast Asian firms are relatively willing to hire people offshore, as they similarly face talent shortages. And that’s a boon to CakeResume, a seven-year-old Taipei start-up that matches millions of resumes with employers. Indonesia and Vietnam rank among its biggest sources of resumes.
“That’s a very important trend – to cross borders to find talent,” CakeResume CEO Trantor Liu said.
Some of Taiwan’s 14,000 machinery firms have invested in Vietnam and India because both have ample workers and consumers, the Taiwan Association of Machinery Industry said in a statement to the Post. The value of Taiwanese machinery exports last year reached US$34.81 billion.
US policy is pushing some Taiwanese companies offshore and away from mainland China, analysts say. Washington in October ordered US companies to stop supplying chips, chip-making devices and related updates to Chinese companies.
“A lot of Taiwan’s manufacturers have moved their factories to Southeast Asia or India,” said Jay Yang, deputy director general of the Market Intelligence & Consulting Institute in Taipei. “A lot of companies have conducted their surveys in India, and they’re ready to go. They have to move, due to American policy. You have to move out of China to somewhere else.”
Manufacturers are “gradually adding” US-bound exports and pulling back on shipments to mainland China, the machinery association said. It added that the US now offers “preferential policies” to Taiwanese manufacturers, while the mainland’s coronavirus controls and restrictions in its tech sector have become a deterrent.
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However, for Taiwanese multinationals that already depend on mainland China for sales or manufacturing, no one foresees an all-out exit. Some Chinese factory operators have been making goods there since the 1980s.
Any shift from the mainland will take years or decades to “fully mature”, Hammond-Chambers said.
Chinese Vice-Premier Liu He said at the World Economic Forum in Davos, Switzerland, last week that mainland China’s economy is rebounding more quickly than expected, despite its 40-year record slow growth in 2022. Liu also vowed that China would remain open to foreign businesses and not return to a planned-economy model.
“China’s strengths are not easily replicated, including its infrastructure, workforce and integration into present markets,” Hammond-Chambers said. “China will remain the top location for FDI, either through direct investment or via third-party locations in the Caribbean.”
