Taiwan Economy Boosted by Turnkey Exports

Ten strategic sectors have been identified as having the best potential for selling system integration solutions to overseas markets.

The Taiwanese economy limped along in 2015 as an export slump pushed GDP growth down to an estimated 1%. That anemic performance was Taiwan’s worst since the global financial crisis of 2008-2009, when the economy went into recession.

A main reason for Taiwan’s economic malaise is the island’s high dependence on the export of low-margin, price-sensitive electronics components. That business model is not regarded as sustainable, even if it can bear fruit in the short run.

 The popularity of the big-screen iPhone models has led to record profits for Taiwanese suppliers like Largan (maker of the iPhone’s camera lens) and Catcher (which manufactures metal casing for the Apple handsets) and sent the shares of those firms soaring.
The popularity of the big-screen iPhone models has led to record profits for Taiwanese suppliers like Largan (maker of the iPhone’s camera lens) and Catcher (which manufactures metal casing for the Apple handsets) and sent the shares of those firms soaring.

To be sure, when Taiwan’s key partners in the technology sector prosper, as Apple has done with the iPhone 6 and iPhone 6 Plus, some of the profits trickle down to Taiwanese component suppliers. The popularity of the big-screen iPhone models has led to record profits for Taiwanese suppliers like Largan (maker of the iPhone’s camera lens) and Catcher (which manufactures metal casing for the Apple handsets) and sent the shares of those firms soaring. Largan’s shares were among the highest priced on the Taiwan Stock Exchange last year.

Yet the success of Apple’s Taiwanese partners can be ephemeral. In January, Largan reported its lowest monthly sales in nine months, which analysts attributed to weak demand for the iPhone 6S and iPhone 6S Plus. It was the first time Largan had posted an annual decline in sales since June 2012. Catcher too gave a gloomy forecast for the first half of 2016, saying that consumers were losing interest in the iPhone.

Even if the doom and gloom about Apple is overblown, the need for a change in Taiwan’s export strategy is pressing. With that in mind, Taiwan in October established a System Integration Promotion Alliance (SIPA) that aims to help transform the troubled technology hub into an exporter of high-quality turnkey solutions.

“We must direct our attention to exporting high value-added systemized products and services, especially to emerging markets,” said Premier Mao Chi-kuo during the opening ceremony for the launch of the office. “At the same time, greater emphasis should be placed on developing brand names and online business opportunities in these parts of the world.”

10 sectors targeted

The government has identified 10 sectors for strategic promotion. They include electronic toll collection, green transportation, smart logistics, smart campuses, smart healthcare, e-government, LED lighting, cloud systems, solar power plants, and petrochemical plants. According to the Ministry of Economic Affairs (MOEA), those sectors are expected to generate “trade openings” exceeding US$318 billion by 2020.

Sam Shen, director of the System Integration Promotion Alliance (SIPA) (Photo: Matt Fulco)
Sam Shen, director of the System Integration Promotion Alliance (SIPA) (Photo: Matt Fulco)

“By leveraging turnkey solutions, we hope to drive exports of software, hardware, and supply chain products,” says Sam Shen, director of SIPA and a senior director at the government-backed Market Intelligence & Consulting Institute (MIC).

In the short term, SIPA plans to assist companies in the 10 selected industries that have a strong track record in export sales and exhibit high potential, Shen explains. He adds that the focus will later shift to emerging solutions with growth potential, such as smart cities, Productivity 4.0, the Internet of Vehicles, and big data.

Among the export systems, there are four that currently show particularly strong potential: e-government, smart campuses, solar power, and electronic toll collection.

E-government, particularly police and public security surveillance, is already well-established in Taiwan. A total of 36,178 surveillance cameras have been installed in streets across Taipei, New Taipei, Keelung, Taoyuan, Hsinchu, Taichung, Changhua, and Nantou, according to the MOEA’s Industrial Development Bureau (IDB). In addition, a cloud-based police dispatch system is improving the mobility of law enforcement nationwide.

The IDB has found that Taiwanese vendors’ success in supplying advanced police service solutions to Singapore has allowed them to gain a foothold in a number of other first-tier cities in Southeast Asia and boost their exposure at major global industry trade shows.

The smart campus is another area in which Taiwan has strong advantages, Shen says. The concept encompasses a suite of connected services such as digital tutoring, an “e-school bag” (comprised of mobile learning and a parent-teacher contact e-book), an online order system for school lunch management, and a smart classroom wired for online teaching. It comes equipped with an e-whiteboard and tablets.

Smart campus demo projects across Taiwan have shown considerable promise, according to the IDB. Those projects have involved partnerships among the tech firms Wistron, Delta, and MiTAC and a number of educational institutions in Taipei.

SIPA is helping to export Taiwan’s smart campus solutions to both China and Southeast Asia. Vietnam is a market of particular interest. MiCampus, a government-backed smart campus solution operated by MiTAC, will be initially implemented on five campuses in major Vietnamese cities, with the goal of expanding to 200 campuses nationwide, according to MIC.

LiveABC, a leading Taiwanese publisher of multimedia language-study materials, plans to send 10,000 trained English teachers to Vietnam as well. The company says it has published more than 100 “top-selling” books for learning English and has been recognized by the Taiwanese government for its achievements with a triple-A “Digital Learning Material Quality Certification.”

The estimated global market value of the smart campus sector is forecast to reach US$4.8 billion by 2020, according to the IDB.

TAINAN, TAIWAN -- MARCH 4, 2014. A giant wall of solar panels is a distinctive feature of the National Museum of Taiwan History in Tainan City which was completed in 2012. Taiwan's experience in the solar-energy field is expected to give it an edge in marketing solar power plants for export.
TAINAN, TAIWAN — MARCH 4, 2014. A giant wall of solar panels is a distinctive feature of the National Museum of Taiwan History in Tainan City which was completed in 2012. Taiwan’s experience in the solar-energy field is expected to give it an edge in marketing solar power plants for export.

Taiwan is also moving to step up promotion of solar power-plant solutions. The export model involves exporting software products facilitated by hardware makers. Taiwan’s capabilities in the solar sector are extensive: It is able to design and construct solar power plants, solar cell modules, and plant-management systems to oversee operations and maintenance.

Neo Solar Power (NSP), Taiwan’s largest solar power company, will be a key player in the export of the island’s solar systems. The company’s first production line reached 24/7 100% utilization in 2006. Since then, NSP has built solar power-generation plants in Japan, the United Kingdom, and the United States. The 25MW solar photovoltaic (PV) plant it built at the Indianapolis Airport – completed in December 2014 – is the largest airport PV system in the world and has a total contract value of NT$2 billion (about US$60 million).

The export value of complete plant solutions will be considerable, averaging NT$250 million (US$7.5 million) per project, the IDB reckons. It is anticipated that as many as 40 plants could be sold per year.

The global market for complete plant solutions is expected to reach US$100 billion in value by 2020, according to the IDB.

Flagship export system

Among the 10 systems for export, electronic toll collection may be the most promising. According to the National Freeway Bureau, Taiwan is the first country in the world to have an ETC system installed on all national freeways. Taiwan’s successful migration from a manual toll collection system to a full ETC system, which charges motorists according to the distance traveled, led to the bureau’s winning the International Bridge, Tunnel and Turnpike Association’s Toll Excellence Award in 2015.

Taiwan’s ETC system records an average of 14 million transactions per day, with an accuracy rate of 99.97% and detection accuracy of 99.9%, the highest in the world, according to government data.

“Remember sitting in your car in a traffic jam at a toll booth? That’s a thing of the past in Taiwan,” says Y.C. Chang, managing director of the Far Eastern Electronic Toll Collection Co., the company operating Taiwan’s eTag ETC system. “Our eTag system is proven and in operation.”

One of the over three hundred gantries on the Taiwan freeways that enable the system to track and bill vehicles with eTag stickers.
One of the over three hundred gantries on the Taiwan freeways that enable the system to track and bill vehicles with eTag stickers. (Photo: Matt Fulco)

The benefits of switching to electronic toll collection are vast, Chang says, noting that the installation of the system in Taiwan has reduced CO2 emissions by 350,000 metric tons a year – equivalent to the amount of CO2 captured by trees in 45 parks the size of New York’s Central Park – and saved 150 million liters of fuel, enough to fill 60 Olympic-sized swimming pools.

Although some of the former workers in Taiwan’s tool booths were dissatisfied with the offer and staged protest demonstrations, Chang says they were given the choice of a five-month severance package or the option to join FETC in another capacity at the same pay level as their former position.

FETC is now moving to export its eTag system overseas in cooperation with SIPA. Chang says the company signed an agreement with the Vietnamese government at the end of last year under which FETC will advise Vietnam on the installation and operation of an ETC system. Vietnamese officials were impressed with Taiwan’s ability to execute a “multiple-lane free-flow mechanism” on freeways during a visit they made to July last year, he says.

A worker manually processes tolls for motorists without eTag stickers. Of the average 14 million electronic toll transactions per day, only 0.8% require manual identification of license plates. (Photo: Matt Fulco)
A worker manually processes tolls for motorists without eTag stickers. Of the average 14 million electronic toll transactions per day, only 0.8% require manual identification of license plates. (Photo: Matt Fulco)

In addition to its project in Vietnam, FETC is also seeking opportunities in other Southeast Asian countries and the Middle East, Chang says.

Despite the promising prospects of SIPA projects, implementation will face its fair share of challenges, Shen says. For instance, “it’s going to take time to educate the diplomatic corps so that they are well prepared to promote the different systems,” he says, noting that diplomats are not typically familiar with the technologies used in SIPA.

At the same time, the Ministry of Foreign Affairs and the Ministry of Economic Affairs will need to coordinate their efforts, he observes, since the two government departments have not previously cooperated on this type of project.

Taiwan will also face competition across Southeast Asia from Japanese and South Korean companies. Japan, in particular, has a strong presence in Southeast Asia, he notes.

Still, Shen is optimistic about SIPA’s prospects. “In the mid- to long-term, SIPA will develop innovative solutions, conduct domestic field testing, and drive the export of entire supply chains for emerging solutions with high future potential,” he says.

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