Industrial Automation September 2020

Taiwanese Manufacturing Output Has Major Growth Ahead: A MIO Case Study

Tim Dawson
Adrian Lloyd

Adrian is a 20+ year veteran of technology research and has pioneered many data analysis techniques that are used widely by analysts today. He brings his expertise to many technology markets from industrial automation products to semiconductors.

Here at Interact Analysis, we pride ourselves in providing a deep, data-driven analysis of the economic performance… historical, present, and predicted… of a wide range of manufacturing sectors across 38 countries and regions*. This granular data, generated by our analysts on the ground in close contact with manufacturers, and its resultant predictors, features heavily in our quarterly-updated Manufacturing Industry Output (MIO) Tracker, making our tracker an invaluable document for industrial strategists, at the individual manufacturing sector and at the overall-country level.

This insight on Taiwan is the fourth in a series of pieces looking at different economies, using the most recent data from our MIO. Here you can see previous articles in the series looking at India, Germany/ Eastern Europe, and Australia.

A Difficult 2020, Followed by a Significant Recovery

When we compare individual economies’ domestic manufacturing outputs, we see that Taiwan is very much a junior member in the Asia region. Our MIO tracker figures calculate the value of the total output for Taiwan in 2019 as being $371.4bn, whereas for the Chinese mainland, Japan, Korea, India, and Australia it stood in the same year as $17,770.7bn, $3,015.7bn, $1,379.9bn, $1,167.7bn and $324.7bn respectively. Huge differences, with mainland China, obviously, way ahead; but what does the future hold?

Our figures highlight some interesting developments for this small economy of 25 million people. Though our analysts predict a significant COVID-induced output contraction of -7.4% for 2020 when compared with -3.5% for mainland China, overall Taiwan compares well in this respect with the other Asian economies, and with most developed nations globally, many of which are forecast to experience output downturns for 2020 in double-figure percentages. Taiwan is considered to have dealt successfully with the coronavirus crisis. Lessons learnt from the SARS pandemic of 2003, when this region was hit hard, have seemingly spurred the island on to being better prepared than most for the COVID-19 pandemic. The Taiwanese government introduced effective measures early on, for example introducing a travel ban with the Chinese mainland, Hong Kong, and Macau as soon as cases started to rise in those areas. This success is one reason why our data up to 2024 predicts double-figure year on year increases for Taiwan for 3 of those 4 years, far outstripping the increases in output of all its other Asian competitors. Our data for 2021 for Taiwanese manufacturing output really underscores the swiftness of the recovery, with nearly all manufacturing sectors predicted to make double-figure increases in output, including a significant number of sectors achieving 20+ percentage points of growth, and aerospace production coming top with a predicted 32% growth.

Key Manufacturing Sectors

Taiwan moved swiftly from being an agrarian economy to an advanced industrial economy in what became known as the “Taiwan Miracle”. Together with South Korea, Hong Kong, and Singapore, the Taiwanese economy is regarded as one of the “Four Asian Tigers” or “Four Asian Dragons”, in recognition of their economic dynamism and skilled workforce.

But Taiwan cannot possibly compete with mainland China in terms of the range of products manufactured, so, naturally, it specializes in a smaller number of industries. Government initiatives and investment have promoted advanced manufacturing. The Tsai Ing-wen administration has identified five “pillar industries” as part of their “5+2 Major Innovative Industries” policy: smart machinery, biomedical, Internet of Things (IoT), green energy and defence.

Let’s not get too carried away with aerospace production. The manufacturing output value for that sector in 2019 was $2.2bn. Relatively speaking, this is chicken feed compared to other sectors. Taiwan is renowned for producing intermediate goods, unlike mainland China, which is known for manufacturing the finished article ready for sale to consumers, emblazoned with its ubiquitous ‘Made in China’ label. The main industries in Taiwan are electronics, metals, and communications & information technology products. Petroleum refining, armaments, chemicals, textiles, and industrial machinery are also significant sectors. In 2019, the semiconductor and electronic components sector dwarfed other sectors, producing an output worth $130.8bn, and we predict output to be over $180bn by 2024. Competition from near neighbours has spurred on the development of Taiwan’s manufacturing base. The economy is open to new technologies, particularly where automation and robotics are concerned. In 2018 Taiwan was reported to be ranked 10th in robot density in manufacturing worldwide, with mainland China sitting in 23rd position. The yearly Taiwan Automation Intelligence and Robot Show showcases the latest technologies in this sector.

A Small Player On The World Stage, But With Potentially A Large Role To Play

Although Taiwan is a small economy, it is home to some of the largest manufacturers in the world. It exports far more than one would expect for its size, making it a mini manufacturing powerhouse.

A list of key manufacturers operating in Taiwan gives us an insight as to the global, outward-looking nature of the country’s manufacturing base. These manufacturers include:

Hon Hai Precision, also known as Foxconn, which makes iPhones and iPads for Apple;
Taiwan Semiconductor Manufacturing Company, which makes chips;
Quanta Computer, one of the world’s largest manufacturers of notebook computers;
Acer, another computer and computer peripherals manufacturer;
HTC, the communications technology giant; and
Delta Electronics, which specialises in industrial and infrastructure technologies.

Taiwan’s top exports for 2019 include:

Electrical machinery, equipment (e.g. flat screens, touch screens, microchips): US$147.4 billion (44.7% of total exports)
Machinery including computers: $42.7 billion (13%)
Plastics, plastic articles: $19.9 billion (6%)
Optical, technical, medical apparatus: $15.8 billion (4.8%)
Mineral fuels including oil: $12.9 billion (3.9%)
Vehicles: $10.3 billion (3.1%)

Earlier we mentioned competition as being a spur to Taiwan’s manufacturing development. Another and very major driver comes in the shape of the Sino-US trade wars. Rising tensions between Washington and Beijing, coupled with the recent COVID-19 crisis, have resulted in a global push to move supply chains out of mainland China. Taiwan’s tech manufacturers have found themselves at the forefront of this movement, as world demand for servers and chips produced outside mainland China spirals. The Financial Times ($) recently reported that Quanta, which supplies data centre servers to US technology giants such as Facebook and Google, using parts made in mainland China, is investing 15 billion New Taiwan dollars in new parts manufacturing capacity in Taiwan. Quanta is not alone. The FT reports that since January 2019, 189 companies have applied for government incentives to invest NT$761.4bn. Most of them are tech companies.

It looks like Taiwan will be a major beneficiary as global economic tectonic plates shift.

*Taiwan is analysed independently to mainland China due to the fact that its manufacturing source data is gathered separately, allowing a clear illustration of the unique ecology of its manufacturing industry


About The Manufacturing Industry Output (MIO) Tracker:

This tracker offers the most complete and unified analysis of the manufacturing industry globally. It quantifies the total value of manufacturing production with deep granularity for over 35 industries and machinery sectors, across 38 countries; presenting 13 years of historical data alongside a credible five-year forecast. For more information on the MIO Tracker, please click here.

Posted in: Industrial Automation.