June 12, 2021

Taiwan, a tech superstar between Trump and Xi Jinping

Posted on Sep 12, 2019 at 4:08 PMUpdated Sep 12, 2019, 5:57 PM

The stand is plunged into darkness. Red neon lights similar to those in a nightclub light up the faces of curious people who jostle to manipulate the products. Here, computers with their giant screens of 49 inches perfectly curved. There, keyboards and mice that magically light up in the colors of the rainbow. The towers of these super-PCs carry water cooling systems, worthy of those … of a nuclear power station!

Welcome to Taiwan, to Republic of Gamers, the brand gaming created in 2006 by Asus, the world’s sixth largest PC maker. With Acer or HTC, this company of 12,500 employees is one of the former high-tech glories of this democratic country of 23 million inhabitants, as large as the Netherlands, located directly opposite China. Although Taiwan is de facto autonomous, Beijing has always regarded this tropical island as an integral part of its territory, destined to one day return to the fold of the motherland – by force if necessary. The recent events in Hong Kong therefore have a special resonance for the Taiwanese, who have just bought $ 2.2 billion worth of arms from the United States.

But on this hot early summer day in Taipei, the geopolitics of the Strait of Formosa, the arm of the sea that separates the island from the mainland, is not really on the minds of Asus executives. In the capital, the manufacturer celebrates its 30th anniversary that evening by holding a keynote in front of several hundred people. The opportunity for the manufacturer to reaffirm its strategy and reassure because, in 2018, its turnover fell by 10% and its profit by 78%. After losing ground on the declining PC market and never having succeeded in establishing itself on smartphones, the manufacturer must get off on the right foot.

Strong growth and added value

To do this, it is investing heavily in the PC market and accessories for gamers. A fast-growing niche segment with higher added value. These super powerful computers, optimized for the very specific needs of video games (heat resistance, improved graphics, autonomy, etc.) can be worth several thousand euros. “You have to look reality in the face, recognizes Jonney Shih, the president of Asus, in a small private room at the headquarters of the company. We want to provide the best products. To retreat, that would be too short-term […] Today, everyone is betting on gaming! “

The large open-air market in Tapei. Now that everyone has a smartphone, the tech giants must find new sources of growth © Dina Litovsky / REDUX-REA

Asus is far from an isolated case. Like him, many other “made in Taiwan” tech giants are forced to transform. Crushed by the steamroller of Chinese behemoths like Huawei or Xiaomi, having never really succeeded in emerging as strong brands, Taiwanese companies in the sector are embracing new professions. This is the case for PC and smartphone manufacturers like Asus or Acer, with this big shift in gaming. But also to computers for professionals. A niche, there too, which resists better than mainstream PCs.

Historical tumble

This diversification also affects Taiwanese leaders in electronic subcontracting, such as Foxconn. Terry Gou’s company assembles almost all iPhones in its gigantic factories in mainland China. But Foxconn was hit by declining sales from Apple to the world’s second largest economy. He must therefore prepare for the after-smartphone.

The same priority at TSMC, which manufactures half of the world’s semiconductors, components essential for the operation of mobile phones. But in 2018, the smartphone industry recorded its first annual decline, with sales down 5%, according to Strategy Analytics. A historic tumble in this industry where until now the quarters alternated decreases and increases. TSMC must therefore find a plan B.

“We are closely monitoring smartphone sales, but even more so global GDP growth. In our industry, it is the primary driver, explains Mark Liu, the president of TSMC, from his office in Hsinchu, a small town on the west coast of Taiwan. With 5G, supercomputers, the Internet of Things and self-driving cars, we still have plenty of opportunities ahead. “

The factory of the world

This transformation does not happen at any time in the history of the island. It arises thirty or even forty years after the birth of these groups in the wake of the democratic transition. In 1987, Taiwan put an end to four decades of martial law. Restrictions on the media and political parties have been lifted, allowing, among other things, the formation of the first opposition party, the DPP, currently in power. In the business world, these years also correspond to the arrival of the first PCs.

In the United States, Microsoft (1975) and Apple (1976) were launched shortly before. On the other side of the Pacific, Taiwan is also preparing this revolution. But the country is positioned upstream in the chain, and quickly becomes essential for electronic subcontracting and the manufacture of components. The government is going as far as the United States to recruit certain Taiwanese engineers and encourage them to come back and participate in this huge industrial project. This is how Foxconn (1974), Acer (1976), then TSMC (1987) and Asus (1989) were born.

Communist China, meanwhile, has just started, under the leadership of Deng Xiaoping, its policy of opening up to the outside world. “Made in China” is still in its infancy. Taiwan is then “the factory of the world”.

The Five Plagues of Taiwan

Gradually, manufacturers move up the value chain. Asus, born in 1989 after designing the very first motherboard for computers, launched under its own name, marketing its own PCs and smartphones. But very quickly, the Taiwanese giants suffered a violent blow of the bamboo, with the arrival … of new heavyweights from China. In 2004, the Chinese Legend Holdings changed its name to Lenovo and, a year later, bought the PC division of IBM. A clear message on its ambitions. The group is now the world number 1, ahead of the American HP, with more than 22% of the market, according to Gartner.

Shortly after, it is Huawei that surges. In 2009, the telecoms equipment manufacturer, which previously only addressed operators, entered the general public market with its first Android smartphone. Checkmate, the Shenzhen firm is now the second largest manufacturer in the world. Then comes Xiaomi, created in Beijing in 2010, which in a short time has already climbed to fourth place.

It is difficult to resist these champions who spend billions of dollars, and more generally the industrial power of China. “We lack available land, low-skilled workers, brains, water and even electricity! A formula passed into everyday language even says that these are the five plagues of Taiwan “, laments Chen Pei-li, the secretary general of the Industrial Development Bureau (IDB) of the Ministry of the Economy – the equivalent of the DGE (General Directorate of Enterprises) of Bercy -, in charge of supporting businesses.

The future is in niche markets

Little by little, the Taiwanese groups are drinking the cup. If Asus is still number 3 in Taiwan for smartphones with 13% of the market, according to Strategy Analytics, it only holds 1% of the global market. And on PCs, an activity which still provides 70% of its turnover, the group has lost two places in three years.

His compatriot HTC is not doing much better. In 2017, Googlea bought part of the group for $ 1.1 billion. Some 2,000 engineers from the Taiwanese manufacturer of PCs and laptops have visited the Mountain View firm. The acquisition, certainly flattering for the reputation of local engineers, also sounds like an admission of failure: the Taiwanese tech champions have never really succeeded in establishing themselves as strong brands internationally.

At Computex 2019, Asus showcased new products, including high-end motherboards © Chiang Ying-ying / AP / SIPA

“We lacked talent in international marketing, recognizes Chen Liang-gee, Minister of Science and Technology, in his offices near Da’an Park. The closer you are to the consumer, the more you need a brand that resonates. ” Yet Taiwan had historically chosen B2B, first serving the big names in the industry … “That said, in Taiwan, we have good engineers,” continues the minister. This is why our future lies in specialization, and niche markets. “

Pull the chestnuts from the fire

The Taiwanese tech giants therefore have their work cut out for them. Especially since this shift towards these niche markets comes at a time when several emblematic CEOs of the sector have passed the torch. At Asus, Jonney Shih, one of the figures in the sector, gourmet and passionate about management as well as technology, has given way to a two-headed management. In Hsinchu, TSMC founder Morris Chang, who was trained at Harvard and MIT, passed the baton in 2018. Even Terry Gou let go of Foxconn so he could run for the Kuomintang primaries and possibly become the next president. of Taiwan in 2020 – primary at which he was beaten (box opposite).

In the meantime, the Taiwanese government hopes to take advantage of the trade and technological war that has been playing out for many months between China and the United States. To avoid being affected by US customs duties on Chinese exports to the United States, several Taiwanese electronics manufacturers, including Quanta, have repatriated part of their factories located in mainland China to the island. Since the beginning of the year around 100 local businesses have planned, according to the IDB, to invest $ 16 billion in Taiwan as part of a government program aimed at bringing them back “home”.

In Taipei, the capital, Chen Pei-li welcomes them in any case with open arms. And attracts them via tax rebates on R & D activities, installation facilities in some 60 industrial parks in Taiwan. “We can already see that exports to the United States are increasing! “ rejoices the secretary general of the IDB. Taiwan expects a GDP growth rate of + 2.6% for 2020.

Until then, the young leader is ready to do anything to get rid of Taiwan’s “five plagues”. By becoming attractive again thanks to a violent conflict between the two leading powers on the planet, this small disputed territory, threatened by typhoons and the Chinese army which watches out for the sea, may have won a first round.

Terry Gou’s failed entry into politics

Last April, he justified his entry in the primary of the opposition Kuomintang party for the 2020 Taiwanese presidential election by “A call from the sea goddess Matsu”. Alas, the richest man on the island came only second, with 27.8% of the vote. Terry Gou therefore does not seem to have the same success in politics as in business. Born in Taipei in 1950, a year after his parents exiled to Taiwan, he founded Foxconn by first manufacturing plastics for televisions. In 1980, his company took off thanks to a contract for Atari joysticks. Orders from Compaq in 1996 then opened up other juicy markets for it with HP, IBM, then Apple, of which Foxconn became an essential supplier. Last April, Terry Gou handed over the reins to Young Liu, head of the semiconductor branch, to focus on his candidacy.