Signs are there to indicate that China's second largest machine tool supplier, Taiwan has been in a struggle in the China market, which is driving them to find ways to in recent years to cope with the difficult situation.
Problems
Last year, the export value of Taiwan to Mainland China only slightly increased 3.6%, while those of Japan and Germany surged 12.0% and 24% respectively compared with 2004. And in the first quarter this year, furthermore, Taiwan exported machine tools of US$231.32 million to China, which accounted for 36.6% of the island's machine tool export, down 0.5% compared with the same period last year, according to the latest statistics from Taiwan customs.
For Taiwanese machine tool builders, a big headache is the severe price competition from Chinese local machine tool manufacturers. "I don't understand why Chinese manufacturers can offer machine tools at such a low price and that's why I come here to find the answer," said Zhou Hai Wen, Market Manager of the Taiwan-headquartered Shanghai Liang Lih Machinery & Electric Co Ltd, at CIMES & CMTF 2006. Further, he accused some of the Chinese manufacturers of simply replicating.
At the same time, Taiwanese companies are facing structural problems arising from their market positioning. Taiwanese machine tools are well known for its excellent performance-price ratio, giving them a dominant share of the middle- and low-end segments in China. However, customers in these segments are never easier to be pleased. They ask for comparable quality and cheap prices, resulting in limited profit margins. The average unit rate of Taiwanese machine tools in China is US$24,175, compared with US$77,435 for Japan's, and US$210,812 for Germany's.
Solutions
In order to cope with the harsh market environment, many Taiwanese manufacturers are moving their production bases to China in an effort to further reduce their production and assembly costs. Among them, Good Friend Machinery has the biggest Taiwan-invested plant in China, which manufactured 1,000 units of machine tools in 2004.
Joseph Chang, General Manager of Chevalier, a Taiwanese machine tool company which entered the China market four years ago, told our reporter that they had tentative plans to expand its Shanghai's factory in few years' time, producing machine tools for China as well as Southeast Asia, America, Mexico, and so on. Another machine tool builder from Taiwan, Litz Hitech Corp will also have its new China plant in operation at the end of this year.
Opening up emerging markets other than China is also a strategy for Taiwanese enterprises. The booming manufacturing and automotive industries in Eastern Europe and Southeast Asia, for instance, have attracted investments from many Taiwanese companies. In the first quarter this year, Taiwan's export to other countries saw positive growth. The growth in some markets even reached double-digit numbers - on a year-on-year basis, the value of Taiwan's machine tool exports to the US, Turkey, the Netherlands, Korea, Italy, UK, Japan, India, Germany, Russia and Singapore were 10.4%, 13.6%, 21.5%, 25.3%, 34.8%, 16.4%, 43.3%, 61.8%, 27.1%, 48.6% and 29.4% respectively.
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