As the China government continues to pour money into fostering local supply chains in terms of capacity and technology, Taiwan makers are starting to feel the heat, and as a result are calling on the Taiwan government to increase support locally and further structure policies geared toward helping local industries compete.
The manufacturing industry in Taiwan accounts for 25% of the island's GDP. If supply chains are struggling and fall to rising supply chains in China (currently being coined as "Red Supply Chains" by Taiwan makers), Taiwan's exports are likely to take a hit and economic growth-decline would follow.
Taiwan makers have already seen an increased China presence in the supply chains of major vendors such as Apple. In 2011, there were seven major makers from China that provided components for various Apple products. That number increased to 12 in 2013. Over the same period, the proportion of component hardware costs for iPhone provided from China makers rose from 7% to 11%.
Not all Taiwan makers believe that increased funding from the China government will help local industries monopolize the market. Semiconductor firms believe China-based makers lack sufficient technology and experience. However, when it comes to the panel industry, into which the China government has been investing billions of dollars to foster local production and growth, makers such as Innolux believe that capacity will be a major threat, and hence the company has been looking to new strategies such as product differentiation to offset potential competition.
Some market observers believe, however, that what Taiwan is experiencing is nothing new. Local makers have been up against rising competition from Japan and Korea for years, and yet have managed to find their niche. The Taiwan government also has a history of supporting local industries to push local economic development, albeit lagging in comparison over the last several years.
Taiwan is going through a challenging transitional period where it is no longer the main "go-to" place for components. Various makers across the island still hold technological advantages over makers in China but as time goes on it is now probable that with China's continuous funding and recruitment of foreign talent its local industries may very well catch up or even surpass Taiwan.
The next few years will be crucial to Taiwan's development and whether the local government steps up to help aid local makers and the strategies local makers take could very well make or break certain industries.
