As of 2004, the relative importance of Taiwan in the Asia-Pacific region as well as the world IT market, is 5.6% and 0.7% respectively. With 4.8% and 0.7% respectively in 2008, Taiwan's relative importance is forecast to decline slightly in the Asia-Pacific region.
Taiwan hardware field accounts for 16.3% of the entire Taiwan IT market with a scale of $2.98 billion in 2004, according to Gartner's latest report, an IT influential survey institution. Taiwan's hardware field is forecast to grow, up 5.8% in 2005 in comparison with the preceding year. On the other hand, the hardware industry is forecast to reach $3.1 billion by 2008, growing annually by an average 2.2% from 2003 to 2008.
The IT service field appears to account for 8.0% in the entire Taiwan IT market with a scale of $1.47 billion in late 2004. In 2005, Taiwan's IT service field is forecast to be $1.57 billion, up 6.8% in comparison with the preceding year. The IT service part is forecast to reach $1.92 billion by 2008, growing annually by an average 6.9% from 2003 through 2008.
The software field accounts for 1.5% in the total Taiwan IT market with a scale of $270 million in 2004. In 2005, it is forecast to reach to $300 million by growing 10.9% in comparison with the preceding year. As the highest growth rate annually averaging 10.5% during the period of 2003~2008 is expected, Taiwan's software field is forecast to reach to $410 million by 2008.
The telecommunication field's relative importance is the largest as it accounts for 74.2% in the total Taiwan IT market with a scale of $13.58 billion in 2004. In 2005, it is forecast to reach $13.97 billion, growing 2.9% compared with the preceding year. On one hand, as it is seen to grow annually by an average 3.6% over the period of 2003~2008, Taiwan's telecommunication field is forecasted to reach $20.49 billion by 2008.
Taiwan IT industry's change and our challenge
1. Change pattern: from OEM to ODM
Influential global IT corporations regarded the 1980s~1990s as a transformation period to change their business model with a form to sell factories in their country and to concentrate on R&D and sales due to a boundary of cost competitiveness.
In this process, Taiwan fostered growth into production specialized enterprise by taking advantage of low personnel expenses and by getting a ride on the trends of the times. These efforts came to be able to play an axis as a production OEM manufacturing base. Though China is rising rapidly, such elements became a background for Taiwan to still exercise its influence on global IT product manufacturing.
As much as 72% of global notebook PCs, 79% of PDAs, and 68% of LCD monitor appear to be produced by Taiwanese corporations, according to Business Week. Besides, over 30% in the case of digital cameras, servers, cable modems, etc. as well, appear to be produced by China factories of Taiwan corporations. Hence, Taiwan's influence is considerable in the global IT industry.
Western companies could not generate big profits through Taiwan in those times so they outsourced simple manufacturing alone. For instance, even Motorola and Sony- Ericsson, which are outsourcing over 70% of cellular phones fought hard due to market share and profitability aggravation from 2001 through 2003, the early days of their outsourcing.
This on one hand provided Korean cellular phone manufacturers equipped with mass production systems from development to production with a momentum to be able to enlarge market control as they launch state-of-the-art product in advance.
In the case of the cellphone industry, product lifecycle was short and at that time premium market came to lead industry growth. Early launching of new products was linked directly to corporate performance and manufacturers who launched cellular phone applying new technology and design in advance, were able to construct high-grade image while gaining profit with high sales price. In contrast, latecomers who launched new product later than competing companies came to absorb the burden of price decline and stock increase. This became directly an element to allow Korea to emerge rapidly in this industry rather than Taiwan by far.
Combination of Taiwan IT corporation and Western brand
Taiwan IT corporations that faced such issues began to construct business models allied with Western brands in recent years. Such efforts by Taiwan business circles started to appear from 2003. As ODM's relative importance increases in the case of Motorola and Sony-Ericsson since 2003 and their performance also are improved, this is forecast to become a blueprint of Taiwanese IT industry for the future.
As emerging low price markets like the Middle East, Africa, and India are growing, the importance of Taiwan ODM companies grew larger. Motorola utilized outsourcing actively from its development stage in the case of low-priced cellular phones, a key product for this market. Taiwan companies such as Compal, etc., carry out the major part of it.
By contrast, its premium phone RAZR was thoroughly internalized from development to its production. As a result, Motorola is equipped with a company structure that can cope with a polarized market effectively as the company's development cost and production complexity diminishes and its product lineup is beefed up.
Like this, Taiwanese companies are fast becoming a source of Western enterprise development innovation, moving away from simple manufacturing outsourcing. It was general even two~three years ago that Western enterprises take the initiative of product development and design and Taiwanese companies concentrate on just product assembling. However, in recent years Western enterprise's business model is evolving into a mode that sells by attaching their brand to Taiwanese company's product.
2. Changed background: low-priced superior human resources
The background to why Taiwanese corporations came to grow as the most optimal partner for Western IT enterprises by securing development capabilities, is the supply of low-priced superior R&D human power.
The annual salary of an engineer for Taiwanese corporations is one-third in comparison with a U.S. engineer and is said to be two-thirds of Korea's. Yet, these Taiwanese engineers' real abilities are not assessed to be inferior to Korean or Japanese engineers.
A copy of Korea IT large corporation growth history
In recent years, Taiwanese corporations have been attempting an evolution of their business model by enlarging their scope up to brand business. Taiwanese corporation's development process, which is linked to R&D capability security and brand business enlargement for itself, starting from an assembling base, resembles the growth history of large Korean IT corporations.
As the most representative company of such a phenomenon, BenQ can be cited as an example. BenQ, the largest cellular phone manufacturer in Taiwan, acquired the cellular phone business division of Siemens, Germany's worldwide cellular phone company, in late June. BenQ side made clear that the company would strengthen brand business for itself, judging that BenQ is faced with a boundary of its growth with OEM business alone.
Acer, Taiwan's representative PC manufacturer, also is widening the company's brand location ceaselessly. Acer, which emerged as one of the five largest PC makers globally by pushing Toshiba out for the first time, rose to No. 4 manufacturer globally with 4.4% in terms of market share in the second quarter, 2004. Accordingly, Acer is being assessed as the fastest emerging PC brand in the world from the capital market.
On the negative side, Taiwan's IT corporations are already putting spurs to brand business. Already with current performance alone too, they threaten Korea's IT corporations because their design capability and speed are high-level. However, there are many negative opinions also that it would be premature to assert Taiwan corporations' leap into global major brands based on present performance alone.
Their application technology as well as design ability are excellent, but there is a shortage of core technology and at present brand business' performance also is limited to China as well as Taiwan market for the most part.
If we look back on Korea's case which grew rapidly thanks to bold marketing investments in an IT industry's revival period including cellular phones after preparing its take off while accumulating R&D capability for itself, starting from a manufacturing base of global companies at first, it seems not to be impossible that Taiwan corporations would leap into becoming global companies.
Thus, if we examine Korea IT corporations' growth process from a positive standpoint, it is not easy to ignore the possibility that Taiwan corporations would rise into global companies. Since Taiwan corporations also have already sufficiently accumulated production as well as design experience plus soft capabilities like marketing as well as meeting customer demands, it is not distant for Taiwan corporations to leap into global companies.
Suggestions for Korean companies
In recent years, Taiwan IT corporations' fighting admirably is forecast to become a bigger burden for Korean corporations. It is no exaggeration to say that Taiwan IT corporations' high growth is acting already as a big threat to Korean companies and thus, securing fundamental competition superiority is necessary for Korean companies to shake them off.
First off, as Taiwan corporations act as an R&D resource for Western enterprises, global IT corporations' competitiveness will be even more strengthened. If so, our corporations also are likely to propel active outsourcing by taking advantage of Taiwan corporations. Yet, clumsy outsourcing must be cautioned since global corporations were able to secure their profitability thanks to firm superiority about the core technology and brand power while increasing market share through outsourcing.
In case that Korean corporations' revealing weaknesses in such segments separates development and production, Korean corporations ability to launch premium product in advance, which is deemed to be existing cutting edge for us, has a high hazard to fall considerably.
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