Strategic Shifts in Taiwan's Tech Industry

A recent article on Business Week highlights that while the tech industry in Taiwan is still doing well with increased demands from China, many of the major companies such as TSMC are getting ready to change their strategies and are starting to diversify into higher margin products. Business Week says:

TSMC is stuck in a maturing industry, and its primary business of making chips for other companies is likely to grow just 8% annually in coming years. So Chang wants to boost TSMC's presence in solar power and light-emitting diodes (LEDs). The two have technological overlap with chip production, but they offer far better margins and more potential. "They are going to be fast-growth industries," Chang says.

Executives across Taiwan's tech industry are making similar strategic shifts. Shi-Wei Sun, chief at chipmaker United Microelectronics (UMC), in August launched a division focusing on solar and LEDs. Peter Chou, CEO of smartphone maker HTC, is reducing his company's reliance on Microsoft Windows-based handsets, adding more phones using Google's Android operating system. And Au Optronics (AUO) is plotting a move beyond its traditional LCD displays, which require investments of billions of dollars every few years for companies to stay ahead of rivals. "Coming out of the recession, AUO is a completely different company," says C.T. Liu, chief of AUO's consumer display business. First up, he says, will be e-readers and electronic paper, newfangled displays that can be rolled or folded. Both technologies will let AUO capitalize on its display-making expertise.

The article also highlights how recent developments in relationships between China and Taiwan have been good for Taiwan's tech industry and argues that this integration will continue to stimulate on-island growth. Later the article also describes how Simon Lin, Wistron head, intends to diversify into the PC recycling industry and how he is trying to equipe his company for the post-PC era.

None of this is surprising. I remember reading at least five years ago of how Taiwan's chip giants were looking to moving into manufacturing solar cells and these kinds of stories have been in the news for a while. The real challenge for these companies is to develop the right strategies going forward. As the article rightly states, Taiwanese companies are very strong competitors in low-margin industries as they are, within their culture, very concious of cost. A friend once emphasized the Chinese are a frugal race and know how to save money and reduce expenses. Competing in a race to the bottom in terms of cost is something they know how to do very well.

However, high-margin industries may demand different cost structures that they are not willing to adopt. A conversation I once had with an executive working at a large Taiwanese Mobile phone company said that when he talks to his managers about cost, they struggle to understand the difference between cost-competitive and cost-down strategies and whenever an issue of cost comes up, they just cost down all the time.

So to my mind this would be one of the biggest challenges for the businesses in Taiwan. It is not so much that the executives don't understand this. Rather inculcating these ideas into the nuts and bolts managers will be imperative for the companies to become world class in high-margin industries.

This problem is particularly highlighted in many Taiwanese companies that want to become global brands but refuse to spend the money on the right marketing people that can guide the strategic direction of the products and search for opportunities in nascent markets and spaces.

So well the immediate futrure for Taiwanese companies is seemingly secure, as the PC industry fades and these companies transition into other areas, there will have to be fundamental shifts in strategic thinking throughout organizations and indeed, possibly a large part of the on-island tech industry.

Business Week: Taiwan's New Tech Dreams