AAS Annual Meeting

China and Inner Asia Session 242

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Session 242: Taiwanese Firms in the World

Organizer: Yi-feng Tao, National Taiwan University, Taiwan (R.O.C.)

Chair: Gary G. Hamilton, University of Washington, USA

Discussant: Gary G. Hamilton, University of Washington, USA

Taiwan’s traditional strength has been in product manufacturing (Berger and Lester, 2005; Porter, 2001), and that focus has brought significant benefits to the island. Can the approach be sustained? Or is Taiwan’s future to be like Hong Kong today, where most factories have moved to China and only a small fraction of its GDP is related to manufacturing. With mainland China having become a workshop to the world, should we expect everything to move to China? As far as firm operations are concerned, China’s low cost labor and other cheap inputs have certainly proven alluring. Many leading multinationals have often put significant pressure on their suppliers to set up operations there. The goal of this panel is to understand the overall internationalization patterns of Taiwanese manufacturing firms and some of the implications of those patterns for some industries in particular and for Taiwanese society more generally. We will have five papers to address these questions from different perspectives. In “Taiwanese Enterprises as Global Firms,” Professor Brookfield will examine how multinational the Taiwanese firms have become in both degree of ownership internationalization and business strategies with a specific focus on machine tool industry. In “The Restructuring of Production Network,” Professor Hsieh will tell a story of how the industrial district of small firm networks in bicycle industry in central Taiwan has managed to survive the impacts of globalization. In “Fast Fellower’s Innovation,” Professor Wang will analyze how Taiwanese firms in computer and IC design industries have utilized “networking” across public-private R & D platforms, rather than “upscaling,” for industrial upgrading. After examining the development of Taiwanese firms in three specific industries, Professor Chen’s paper, “Toiling for the World,” will analyze the impact of Taiwanese firms’ investment in coastal China on the society with a specific focus on labor process in subcontracting firms. Finally, in “Curse in Disguise,” Professor Tao will discuss the locked-in effect of Taiwan’s success in export manufacturing on the economy as a whole.

Taiwanese Enterprises as Global Firms
Jonathan Brookfield, Tufts University, USA

What is a global firm? Some argue that firms are increasingly ‘born global’ (Rennie, 1993; Oviatt and McDougall, 1994; Knight and Cavusgil, 1996). Others are skeptical that global firms exist at all (Rugman, 2001; Rugman, 2005). Clearly, there are many different ways to think about the level of a firm’s multinationality. Some may measure things in terms of international sales; others, the location of a firm’s assets. It may also be that inputs matter. Where do a company’s raw materials come from? Where do its people come from? How much purchasing does it do from abroad? Where does a company’s capital come from? For Michael Porter, the interdependency of a firm’s worldwide activities is critical. For Perlmutter, only when the mindset of a company’s top managers is appropriately open can a firm be considered truly geocentric. Overall, this presentation has two goals. The first is to better understand the level of Taiwanese firm internationality by analyzing the degree to which foreign investors have gotten involved as equity investors in publicly listed Taiwanese firms and how this has changed over time. The second is to begin to understand some of the choices facing Taiwanese manufacturing firms in terms of their global strategy by analyzing some of the current business strategies of firms in Taiwan’s machine tool industry. As far as firm operations are concerned, China’s low cost labor and other cheap inputs have certainly proven alluring, and the importance of China as a market continues to increase. In addition, the recently signed Economic Framework Cooperation Agreement (ECFA) between the two sides of the Taiwan Strait is likely to facilitate continued economic interaction. That said, as Professor Florida reminds us, the world is still spiky. This presentation should provide an interesting look at some changes in the international profile of a number of different Taiwanese firms as well as a more in depth look at the strategic choices faced by several Taiwanese manufacturing firms over time.

Fast follower’s innovation: the pattern of Taiwanese firms’ technological upgrading
Jenn hwan Wang, National Chengchi University, Taiwan (R.O.C.)

This paper discusses the pattern of Taiwanese firms’ technological upgrading and innovation. Different from Amsden and Chu’s (2003) argument, which maintains that upscaling is the method that latecomer firms can use to upgrade its technological level, this paper argue instead that networking is the way in which Taiwanese firms adopt to upgrade their technology. We argue that due to their smaller scale, Taiwanese firms have largely depended on the state-sponsored R&D institutes, global firms’ outsourcing as well as local production networks to upgrade their technological level. Even in today, most Taiwanese firms stare still dependent on collaborating with state-sponsored R&D institutes to develop key components. This public-private collaboration, together with local production networks, can be called as ‘fast follower’s innovation networks’ which sustain Taiwanese firms’ industrial upgrading. We argue that fast follower’s innovation networks have the following characteristics: since Taiwanese firms do not have frontier technologies, in fact they are technological followers, therefore they do not enjoy handsome technological rent. They most of the time depend on hardworking, flexibility, mass production and close networking to reduce the production cost and production time in order to sustain their competitiveness. In this sense, the pattern of innovation of Taiwanese firms is mainly depended on organizational innovation that can generate effect of cost down. As a result, a virtually integrated industrial structure has been developed out of the vertical disintegrated organizational form and become even more closely knitted that can cope with the demand of the economies of speed, flexibility and low cost. We will use computer and IC design industries to illustrate this innovation pattern and organizational upgrading. In conclusion, we argue that this type of fast follower’s innovation pattern has reached its limits, due to the fact that this innovation pattern is much depended on cost reduction, rather than on fundamental innovation that can generate technological rents.

The restructuring of the production network of small and medium-sized firms: a case study of the Taiwanese bicycle industry
Michelle F. Hsieh, Academia Sinica, Taiwan (R.O.C.)

Recent literature on industrial districts/ regional economies concerns the impact of increasing globalization of the production on the sustainability of industrial districts. The original thesis of industrial district, which involves an extensive division of labour in production among a system of small and medium-sized enterprises (SMEs) clustered in a geographical locale, assumes that the cooperation and trust among the network of SMEs allow them to outcompete a production system based on large vertically integrated firms. Yet, increasing globalization of production has cast doubt on the sustainability of this localized development model. The presumption is that to sustain the growth and competition from other low-wage countries, it requires innovative capabilities of firms. Yet, this would require large firms and development of a quasi -hierarchy governance within the cluster. The rationale is that upgrading involves a large scale R&D investment thus favoring the so-called hub and spoke type of cluster where large leading firm orchestrate the production. Moreover, Multinationals acquire these successful district firms and thus weaken the cohesion among SMEs. These changes imply that the mechanisms (i.e. cooperation) upon which the initial success was built is being undermined, thus marking the final chapter of industrial districts. This paper joins the debate through an in-depth case study of the Taiwanese bicycle industry. Contrary to these pessimistic claims, the findings suggest that a system of SME production network is able to sustain and restructure itself under a specific social structure. The SME network of firms not only actively coordinates internationalization of production, but the existing cluster also continues to thrive. Factors such as the role of inter-firm relationships and the role of institutional arrangement that explain the vitality and resilience of the cluster will be discussed.

Curse in Disguise: The Locked-in Effects of Taiwan’s Success in Original Equipment Manufacturing Production
Yi-feng Tao, National Taiwan University, Taiwan (R.O.C.)

Since the late 1980s, Taiwan’s export-led growth has evolved in a path increasingly diverging from the ones of Japan and South Korea. Economic sociologists have found that Taiwan’s small- and medium- firm networks are particularly good at subcontracting manufacturing for buyer-driven global commodity chains, while Japan and South Korea continued to expand their producer-driven production system. Taiwan’s success in demand-responsive original equipment manufacturing (OEM) has become even more significant when Taiwanese firms deployed their production lines across the Taiwan Straits. However, the success seems to become a curse in disguise to Taiwan’s economy in the 2000s when it started to show some weakness in comparison to South Korea. First of all, it has become too much relied upon exports of components to China for its economic growth. Besides concentration of exports in industries and destinies, the competiveness of Taiwan’s exports in terms of both market share and value-added have been surpassed by South Korea during the time. At aggregate level, the economy as a whole also performed not as good as South Korea in income growth and distribution. This paper argues that the economic weakness that Taiwan’s economy has shown is actually a result of its early success in adjusting to demand-responsive OEM. Exactly because of its early success in adjustment, Taiwan has developed a tunnel view for government policies, business strategies, and individual choices focusing on OEM production, which in turn constrained the economy from developing to a more diverse and complicated one.

Toiling for the World: Labor Processes in Taiwanese Export Manufacturing Firms in the Coastal China
Ming-chi Chen, National Tsing Hua University, Taiwan (R.O.C.)

Since the spring of 2010, a series of suicides and strikes has shattered the image of Chinese workers as being docile and hard-working. The events in Foxconn and Honda in Guangdong challenged our understanding of Chinese workers. In explaining Chinese workers’ adversities in the foreign factories on China coast, labor scholars, such as Ching-kwan Lee and Pun Ngai, used to focus on the Chinese dualistic urban regime which puts the onus on the young migrants from the hinterland while denies their full citizenship. To paraphrase Michael Burawoy, they emphasize the politics of production to the oblivion of the production politics. Without rebuffing the importance of such circumstantial factors, this paper however puts the labor process at the forestage and argues the task environment of the Taiwanese firms in China, namely the buyer-driven, demand-responsive global value chains, has contributed to mold the ways managers discipline the young migrant workers and the ways the latter react heavily. I use years of observation in Taiwanese firms in the Pearl River Delta and the Yangtze River Delta to illustrate the following significant contextual factors: (1) Tayloristic labor process and unobtrusive control; (2) dormitory regime and internal police; (3) unintended cities and collection of atomic individuals; (4) the changing of meaning of work of the second generation migrant workers.