The electronics industry of the world and in Taiwan is at a crossroads, driven by geopolitical shifts and the ever-present need to diversify supply chains. Firms that once thrived in China are now scouting new homes in ASEAN and Vietnam, places where the cost of production and the availability of skilled labor offer both challenges and opportunities.
As international manufacturers consider these new landscapes, they must ask themselves: Where should they go next, and what factors should drive those decisions? In an exclusive interview with DIGITIMES Asia, Colley Hwang, founder of DIGITIMES, delved into the evolving investment landscape for Taiwan's electronics industry.
Hwang, a seasoned ICT analyst, shed light on the changing dynamics, emphasizing that the electronics industry must rethink its strategies in the face of global uncertainties.
Laying the foundations: top-down vs. bottom-up approaches
Hwang began by laying out some frameworks as the foundation for the industry's strategy in the region. He first identified two types of industries.
The first is high-value-added industries, such as semiconductors and server-related technologies, which require a top-down approach. These industries are capital-intensive and rely on advanced technology, making them more suited for regions with established infrastructure and a skilled workforce.
The second category includes commodity industries, such as PCs, mobile phones, and networking products. For these industries, a bottom-up approach is essential, focusing on manpower and the availability of skilled engineers. This difference in approach is crucial when considering where to locate manufacturing operations.
Location, location, location
Hwang uses the country of Vietnam as an example to illustrate the paramount importance of considering what each locale offers when making expansion choices in an emerging nation.
Following the geopolitical tensions in 2019, many Taiwanese companies relocated their production sites from China, with Hanoi emerging as the top choice.
The proximity of Hanoi to Shenzhen and Dongguan in China—both critical manufacturing hubs for Taiwanese firms—made it an attractive option due to the logistical ease of moving goods between these regions.
Furthermore, Hwang noted that Samsung's significant investment in a production site in Hanoi—with a capacity of 240 million mobile phone units—created an ecosystem into which Taiwanese companies could integrate, making the region even more appealing for commodity product manufacturing.
Despite Hanoi's advantages, Hwang pointed out the geographic challenges within Vietnam. The distance between Hanoi in the north and Ho Chi Minh City in the south (around 1,600 kilometers) means that companies must adopt different regional strategies.
While Hanoi is ideal for commodity manufacturing, Ho Chi Minh City, along with nearby provinces like Binh Duong, presents opportunities for higher-value industries such as semiconductors and industrial PCs.
Hwang emphasized that Binh Duong is rapidly becoming a new type of industrial city, akin to Taiwan's own Zhongli City, where advanced manufacturing facilities coexist with corporate offices. He mentioned that 30 to 40 listed electronic companies have already set up headquarters there, underscoring the region's growing significance.
Hwang stressed that every country offers different strengths and opportunities, and investors must carefully evaluate these based on their strategic goals. He warned against selecting investment locations solely based on favorable treatment from the host country. Instead, companies should focus on whether the location aligns with their long-term business strategy.
For example, while Binh Duong offers a promising environment for building production sites and offices, companies need to consider their specific needs whether it's proximity to skilled labor, infrastructure, or industry ecosystems before making investment decisions.
Talent: the key to sustainable growth
Another factor Hwang says that various stakeholders should rethink when considering relocation efforts in ASEAN nations is talent. He highlights that from 2018 to 2023, Quanta's revenue after tax grew from US$500 million to US$1.2 billion.
However, despite these gains, the company's workforce shrank dramatically, from 150,000 employees in 2018 to just 58,000 in 2023. This significant reduction underscores a broader trend in the industry: the growing need for skilled labor rather than just basic manpower.
While Southeast Asian countries like Vietnam boast large populations and abundant manpower, he stresses that companies must also consider the availability of skilled workers. As production processes become more technologically advanced, the demand for a workforce capable of handling complex, technical tasks has increased.
Hwang notes that many Southeast Asian nations are improving rapidly in this area, which could make foreign direct investment (FDI) smoother and more successful if these countries can continue to develop their talent pool.
Additionally, Hwang believes that Taiwan could play an essential role in supporting education in Southeast Asia; to illustrate this point he draws upon Taiwan's experience.
For instance, in 2023, TSMC hired approximately 6,000 new employees, many of whom came from abroad due to the limited availability of qualified engineers within Taiwan. This reflects the increasing globalization of the tech industry, where companies must often look beyond their borders to find the right talent.
Hwang believes that emerging countries can learn from Taiwan's journey in building a robust tech industry from the ground up. He encourages these nations to study Taiwan's model, where around 1,000 listed electronics companies provide a wealth of publicly available financial data, offering valuable insights into the industry's operations.
As the conversation shifts to the evolving nature of the electronics industry, Hwang notes that the focus is no longer solely on the mass production of commodities like PCs and mobile phones, which used to be driven by decisions from major brands such as Apple, HP, and Dell.
With the rise of AIoT (Artificial Intelligence of Things) and the increasing need for data centers, even emerging economies are now keen on developing high-tech sectors. Hwang stresses that for countries like Vietnam, Malaysia, and Thailand to succeed in these ventures, they must understand how to collaborate effectively with Taiwanese companies, which have honed their expertise through decades of experience in the electronics industry.
Hwang further contrasts the development models of Taiwan and South Korea, and points out that while both countries have been highly successful in the tech industry, their approaches differ significantly.
Taiwan has developed a more diversified industry ecosystem, with a substantial share of the global IT design market. In contrast, South Korea's success has been driven largely by its chaebols (conglomerates) like Samsung, LG, and SK Hynix, which dominate various high-tech sectors. Despite these differences, Hwang emphasizes that both Taiwan and South Korea offer valuable lessons for emerging economies aiming to build their high-tech industries.
Lessons from China: a playbook for emerging economies
China's strategy in attracting international manufacturers offers critical lessons for ASEAN countries and India, especially in light of the "China Plus One" trend. Hwang notes that Chinese officials have become highly skilled in managing FDI, often providing not only the necessary processes but also valuable advice to foreign companies.
China's advantage also lies in its numerous national industrial parks—over 50 of them—each competing to attract FDI. This competition fosters a favorable environment for foreign companies, benefiting China's economy by creating job opportunities and preparing the country for future industrial needs.
Today, China is no longer just a production site; it has become a leader in new technology sectors, producing more than half of the world's electric vehicles and dominating the global smartphone market with brands like Vivo and Oppo.
However, Hwang acknowledges that the current political climate, especially the US-China trade wars and global power dynamics, has opened up new opportunities for ASEAN countries and India to attract FDI. He stresses that these countries must do more than just replicate China's model. They need to learn from China's success in attracting multinational investors, focusing not only on offering incentives like tax holidays but also on developing local industries and linking them with the global market.
Hwang uses India as an example, pointing out that it has become the world's second-largest smartphone market and a significant player in other industries like PCs and motorbikes. However, India still imports a vast amount of semiconductor devices—over US$100 billion worth—which presents both a challenge and an opportunity.
As India approaches its goal of becoming the world's third-largest economy by 2028, it must find its path, blending domestic strategies with lessons from multinational firms.
In discussing India's tech industry, Hwang highlights the discrepancy between India's number of IC designers and its global market share. While India has as many IC designers as Taiwan—about 57,000—Taiwan captures over 20% of the global market, whereas India has little share.
This is because many Indian designers work for multinational companies like Qualcomm and MediaTek, rather than for the domestic market. Hwang argues that India must leverage its conglomerates, such as Tata, Infosys, and Wipro, to build a more robust domestic tech industry.
Hwang also touches on India's complex regulatory environment, with 29 different states each having their own policies and tax systems. He advises foreign investors to partner with multiple local companies to navigate these complexities effectively. Hwang emphasizes that building a successful tech industry in India requires more than just attracting investment; it requires creating a sustainable business model that delivers returns in the short to medium term.
Hwang advises companies investing in Asia to adopt a tailored approach for different regions, recognizing that India's tech landscape differs significantly from that of other ASEAN countries.
He also recalls his discussions with leaders in Vietnam, where he advised them to be patient in developing their high-tech sectors, as it takes time to build a robust ecosystem. Drawing on his own experiences, Hwang stresses the importance of sharing knowledge and avoiding costly mistakes, particularly in a complex and rapidly evolving global market.
AI eats software, software eats hardware, hardware eats AI?
The conversation shifted to Taiwan's unique position in the global supply chain. Hwang contrasts the focus of high-tech professionals in Silicon Valley with those in Taiwan. He observes that while most Silicon Valley experts concentrate on advanced topics like AI, quantum computing, and big data, only a small percentage discuss supply chain management. This lack of attention, Hwang suggests, represents an opportunity for Taiwan, which has a strong foundation in this area.
He highlights Jensen Huang, founder of Nvidia, as a key figure who understands the significance of supply chains. Huang has increased his visits to Taiwan, staying longer each time due to Nvidia's reliance on Taiwan's TSMC for producing advanced chips like GPUs and NPUs. Nvidia's close ties to Taiwan extend beyond TSMC, as the company also depends on Taiwanese firms for graphic cards, PC components, and servers.
This deep integration underscores Taiwan's critical role in Nvidia's supply chain. Huang famously said AI is eating software, and software is eating hardware. But Hwang argues in his point of view hardware is also capable of eating AI.
He believes that AI's rise offers even more opportunities for hardware to play a dominant role, especially when it is integrated into Taiwan's well-established supply chain ecosystem.
Hwang emphasizes that Taiwan's unique position in the global supply chain is not only due to TSMC but also because of its robust server production capabilities. Taiwanese companies, such as Foxconn, Quanta, Wistron, and Advantech, are essential players in assembling and supplying servers for major tech companies.
In discussing the server industry, Hwang points out that the demand side is dominated by tech giants like Amazon, Google, and Meta, as well as branded companies like HP and Dell, who procure servers from Taiwan. On the supply side, despite American firms like Nvidia, AMD, and Intel controlling the chips, Taiwanese companies manage much of the manufacturing and assembly process.
DIGITIMES: the navigator of the shifting new landscape
Since 2018, eight companies have surpassed a market value of US$1 trillion, with TSMC being the sole representative from Taiwan.
Hwang stresses that the nature of information required to navigate such high-stakes environments differs from general-purpose data. In his view, timing is more critical than cost, making access to timely and accurate information essential for decision-making.
As a professional informational provider, Hwang believes his firm DIGITIMES, offers precisely this type of specialized information. Unlike American firms that rely on demand-side economics, Taiwan's small but highly specialized market necessitates a focus on professional and supply-side information.
Hwang recounts how he built the company on a business model that diverged from typical American internet ventures, focusing instead on charging for professional-grade content. His belief in Taiwan's unique market dynamics led him to prioritize quality over quantity, opting for a subscription-based model that has sustained the company for over 37 years.
DIGITIMES publishes around 100 articles daily and 300 reports annually, many of which are translated into English for a global audience. This has attracted over a million professional visitors each month to its English website.
The founder emphasizes he aims to provide valuable insights into the supply chain, particularly from an Asian perspective to industry professionals in America, Europe, Japan, and Korea.
In his final remarks, Hwang explains that DIGITIMES not only provides data but also frameworks for understanding market trends. For instance, while research firms might project the global semiconductor market to reach US$620 billion by 2024, Hwang prefers to break down this figure into specific sectors, such as PC, mobile, and industrial components.
This granular approach allows DIGITIMES to offer a more nuanced perspective on the industry, helping companies better navigate the complexities of the global supply chain.
Ultimately, Hwang asserts that he's mission is to bridge the gap between supply and demand-side perspectives, offering a professional, systematic approach to understanding and managing the intricate dynamics of the tech industry.
Taiwan's ICT Surge & ASEAN's Talent Evolution - New Thinking & New Models Part 1
This is the pilot episode of a four-part series where DIGITIMES founder Colley Hwang delves into the background and implications of the supply chain expansion in South and Southeast Asia. The following three installments will release on the DIGITIMES News Center YouTube channel every Monday at GMT+8 15:00.
