Taiwan’s iconic hi-tech sector drifts towards India, Thailand, Vietnam to hedge political risk

With an eye on migrating risks, Taiwan-based Acer, the world’s No 5 PC vendor by market size, expanded its influence in India last year by licensing its name to a local start-up.

The move came as the 48-year-old company has been watching other players in the Taiwanese tech-hardware supply chain move some of their production to other countries, according to chief operating officer Jerry Kao.

“The supply chain is moving out of Taiwan already,” Kao said on the sidelines of the Computex Taipei 2024 tech show in early June. “They’re going to Vietnam or Thailand or somewhere else. We follow the trend.

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“As long as we see some risk, we will start to diversify. We have local assembly in countries like India and Indonesia, so if there’s something wrong we can shift to those factories.”

Acer – with 7,725 employees and NT$241.31 billion in revenue last year – has joined other major Taiwanese tech developers by embracing what analysts have seen as a shift over the past few years toward South and Southeast Asia, rather than opting to expand at home or in mainland China.

We won’t pull out of China, but we will add in Southeast Asia or South America
James Hsieh, AcBel Polytech

For the past 40 years, Taiwan’s US$130 billion tech industry has supplied the world with PCs, phones and other consumer electronics plus their components. Taiwan Semiconductor Manufacturing Company (TSMC), for example, is the world’s largest contract chipmaker.

“In terms of [computer] notebook production, Vietnam and Thailand are the two most favourable countries right now, for their lower labour costs, improving infrastructure and growing domestic market,” said Sanesha Huang, an analyst with the Taipei-based market research firm TrendForce.

“India is becoming more attractive as well, with its vast talent pool ... as well as government-incentive policies.”

Taiwan’s tech sector faces global political shifts that have arisen since a trade war between mainland China and the United States kicked off in 2018.

US laws now ban Taiwanese firms that sell sensitive parts to American customers from doing the same in mainland China. At the same time, Taiwanese tech giants have diversified production away from Taiwan to hedge against any conflict with mainland China that would make those parts hard to reach for overseas customers.

Those customers may ask that their Taiwanese suppliers relocate to steer clear of geopolitical risks and to lower shipping costs, some operators say.

“Every customer – they like to put a lot of different manufacturers in different kinds of sites,” said James Hsieh, assistant vice-president of PC-power-supply developer AcBel Polytech. AcBel has a China plant and has been scoping out new investments in Southeast Asia. “We won’t pull out of China, but we will add in Southeast Asia or South America.”

Sysgration, a 47-year-old Taiwanese designer of automotive electronics systems, is studying how to get set up in Vietnam, according to senior product manager Tony Wang. He said the company, with more than 600 workers, already operates two mainland China plants plus a US factory “in case [American] customers don’t let us export to [mainland] China”.

“If clients want it made in [mainland] China, we can make it in China, and if they want it made in the US, we can make it in the US,” Wang said, noting that the China-Vietnam border would offer a “geography dividend” for shipments.

Before 2018, Taiwanese firms normally picked mainland China for factory work. The mainland offered relatively cheap land and labour, a solid supply chain and a large domestic market for product sales.

Several thousand Taiwanese companies across sectors have operations on the mainland. After 2019, they moved US$60 billion worth of investments back to Taiwan, the island’s former economic affairs minister, Wang Mei-hua, said during a US think tank forum two years ago.

More than 70 per cent of polled Taiwanese companies for a 2022 Centre for Strategic & International Studies survey said that Taiwan must reduce its economic dependence on China, citing risks posed by a potential US-China conflict or cross-Strait conflict.

Vietnam is valued for its low costs and new transport infrastructure. Taiwanese have invested in the country for some 15 years, and they got approval to invest US$1.23 million there from January 2023 through April this year, according to Taiwan’s Department of Investment Review.

Quanta Computer of Taiwan signed an agreement last year to start production in Vietnam, and iPhone assembler Foxconn Technology was already there.

Thailand is known for its manufacturing-related infrastructure, pro-investment policies and skilled labour. As of mid-2023, Taiwanese electronics firms had been approved for 20 projects with a total investment of 30 billion baht (US$816 million), the Bangkok Post reported.

Across industries, Taiwanese got approval from their government to invest US$959.82 million in the country from 2021 through April this year, higher than annual figures of no more than US$70 million in all previous years.

India has garnered attention for its large, young and fast-growing market, plus its abundant labour force and an investment-protection pact with Taiwan. About 150 Taiwanese firms were operating in India as of last year, including electronics heavyweights such as assemblers Foxconn, Wistron and Pegatron, the Taiwan-based Topics magazine reported.

Taiwanese were approved to invest US$5.6 billion in India in 2023 and the first four months of this year, compared with US$2.8 billion for all of 2021 and 2022 combined, according to Department of Investment Review data.

Companies with small staffs and a limited scope of products often just stay in Taiwan, according to executives who exhibited at this month’s Computex Taipei. Staying put helps “control the quality”, said Gary Hsu, a manager at computer-chassis designer Guanghsing Industry.

Those with mainland China factories are not always eager to leave. The market size remains, as does a vibrant supply chain. Mainland suppliers sell some electronics parts at “low prices” that are harder to find in Taiwan, according to Angela Huang, an analyst with the Taipei-based Market Intelligence & Consulting Institute.

Investments approved for Taiwanese companies in the mainland reached about US$3 billion in 2023, marking a 22-year low.

“Recently, China has been aggressively competing with low prices, leading Taiwan brands to outsource some entry-level products to Chinese original design manufacturers to reduce production costs,” Angela Huang said.

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