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Localism, US/China Trade War Impacts Taiwan's Manufacturing Industries

By Korbin Lan
Published: Apr 21,2019

As Taiwan’s top applications technology research and development institution, Industrial Technology Research Institute’s (ITRI) flagship “Industry, Science and Technology International Strategy Center (ISTI)” has a different viewpoint on trends than other market research institutions. This is especially the case regarding the local Taiwanese technology industry, for which the center has a sense of mission with honor and disgrace, and due to this caring sense, it also has the capability of providing more realistic and pragmatic advice.

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ISTI General Director Mr. Stephen (Meng-Tsung) Su reminded Taiwanese industry figures that in 2019 they must exercise caution because this year is not going to be a smooth and stable year. The effects of many international political factors are bound to impact industry operations to a greater or lesser extent.

“Under the influence of the rise of localism along with the trade war between the United States and China, economic growth in 2019 will experience a slowdown,” said Mr. Stephen Su.

He also stated that the influence of these two significant variables will inevitably spread to the technology industry in Taiwan, which is dominated by manufacturing. Consequently, in consideration of the industry layout, more flexible strategies should be adopted, and if industry figures have the intention of manufacturing in different locations, they should carry out more cautious assessments of potential negative influences that may be produced by these factors.

On the other hand, more intense international confrontations will also cause greater risk in foreign exchange markets, and for Taiwanese industries the influence of the rise of localism will present serious challenges. Therefore, finding ways of properly leveraging operations will be a major focus of business management.

New Technological and Business Models will Change Existing Blueprints for Suppliers

Nevertheless, when there is a crisis there is also a turnaround, and Mr. Stephen Su believes that in the midst of these changes Taiwanese companies may find a place to gain traction. Taking localism as an example, Taiwanese suppliers for both the automation industry and smart machinery may profit from roles as solution providers. This is especially is case in the current era of smart manufacturing wherein lies opportunities for Taiwanese machine tool companies.

Figure one
Figure one

Furthermore, in the domains of technology and industry Mr. Stephen Sue pointed out that being driven by technology and business models will stimulate more new and burgeoning industries to take shape. At the same time, it is possible that the current structure of suppliers will also produce variations. These changes then may create new technologies from recombinations of business models, including self-driving automobiles, AI, 5G, and IoT.

Although international political and economic situations may repress the business growth of companies in 2019, advances in science and technology are full of momentum, hence Mr. Stephen Su is optimistic about the development of new technologies this year.

“In the realm of technology there will still be progress. For instance, AI and self-driving automobiles will turn over a new leaf, the depth of voice recognition services will increase, and 5G will enter a pre-commissioning phase in business,” noted Mr. Stephen Su.

He further elaborated, claiming that AI applications are comprehensive and will assist innovation in Taiwan’s electronics industry, semiconductors, memory, and software industry. Meanwhile, self-driving cars will have numerous applications for sensors, which will bring numerous benefits to Taiwan; moreover, they will also have more multimedia applications for automotive use. Voice recognition will also progress from command recognition to emotion recognition to facilitate more elaborate services for people. As for 5G, when it enters the pre-commissioning phase in business, there will also be demand for equipment and key components.

In addition, Mr. Stephen Su also noted that the rising smart manufacturing trend in global industry 4.0 will also bring about business opportunities for Taiwan’s machinery industry. Even though Taiwan will be impacted by international political factors, overall the benefits will still outweigh the disadvantages.

Therefore, from the perspective of applications technologies, 2019 is completely worthy of anticipation.

Seizing the Next Growth Wave – Companies Should Plan Ahead

Nevertheless, Mr. Stephen Su also reminded companies that due to the continuing friction between the United States and China, there will be a tendency for inter-regional relations to be tense, and these tensions will not be positive factors in the development of industries. Consequently, correctional situations will arise. This is particularly the case for the already closely intertwined trade relations between Taiwan and Mainland China, and if China undergoes major corrections, their influence on Taiwan will be significant. On the other hand, the United States’ current localist manufacturing strategy will also have a slight impact on Taiwan’s manufacturing industries.

Because of adjustments to these variables and several countries’ policies, Mr. Stephen Su recommends that companies adopt an attitude of cautious optimism when facing the economic situation, especially regarding alterations in foreign exchange markets and related policies, both of which are worthy of attention.

However, he also encouraged industry figures to make use of this adjustment period and expand the layout of their technologies. In particular, there are several technologies which are currently fermenting and companies should think about longer-term strategic direction.

Mr. Stephen Su also stated that these technical applications which are unfolding in front of our eyes will reach a mature phase in an estimated three to five years from now, and each company should make preparations in advance in order to seize the business opportunities which will take off in the future. Furthermore, for the orientation and scope of their layouts, they can be more proactive – for instance there could be more alliances and further expansion of overseas markets.

(TR/ Phil Sweeney)

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