Apart from causing human tragedy, the Japanese earthquake and tsunami on 11 March 2011 and the floods in Thailand later that year were a test of the global technology supply chain. That supply chain turned out to be vulnerable to local events, which in turn has made having backup manufacturing infrastructure much more valuable. Now Taiwan is positioning itself to become a major backup production base for Japanese firms involved in the electronics supply chain.
In 2011, the Taiwanese government assisted 25 investment deals involving Japanese firms valued at NT$107.9 billion (US $3.66 billion), and the government projects many more in 2012. It’s quite a turnaround. Japan accounted for one-third of foreign direct investment in Taiwan in the 1980s, but its investments dropped to 11 percent over the past decade.
“We predict that the trend will continue to grow in the following two to three years, because the reconstruction in Japan takes time,” says Wen-ke Yang, director-general of the Central Taiwan Science Park Administration.
Officials attribute the new investment not only to the challenging investment environment in Japan—which involves a lengthy construction process and the appreciation of the Japanese yen—but also having access to China. In 2010 China and Taiwan signed the Economic Cooperation Framework Agreement (ECFA), which offers preferential tariffs or easier market access to goods traded across the Taiwan Strait.
The island nation, which hasn’t had diplomatic relations with Japan since 1972, is going all out to bring in Japanese firms. In September 2011, Taiwan inked a deal that makes it possible for companies to enjoy the same benefits as domestic firms when investing in each other’s territories. And it streamlined the process of getting government help with Japanese investment in March.
More concretely, in February, Taiwan set aside a special 73.6-hectare zone, called the Taiwan-Japan Park (TJ Park), enough for dozens of manufacturers, according to Wei-cheng Lin, deputy director-general of the administration bureau of the Southern Taiwan Science Park. Lin says his science park now hosts 18 Japanese firms out of a total of 43 in Taiwan’s three science parks and is reviewing applications from 5 more.
TJ Park is part of a bigger five-year plan to establish more ties between Taiwanese and Japanese firms. Other strategies include a venture fund, loans, and incentives for joint R&D projects.
The Japanese newcomers include makers of equipment and materials used in semiconductor manufacturing. For example, Hitachi Chemical Co., which makes chemicals for silicon wafer polishing, plans to invest 2 billion yen (NT$730 million and US $25 million) at TJ Park to build its first overseas production line.
Hitachi will be joining many others, such as glassmaker Ohara Optical Co., which plans to invest NT$400 million (US $13.57 million) in a site at Central Taiwan Science Park and shift 30 percent of its glass-melting production there in 2013.
Ohara also expects the Taiwan subsidiary to have better access to rare earth metals from China than production bases in Japan do. Japanese firms have had to reduce rare earth consumption, thanks to China’s export controls. So the company’s investment points to reasons other than disaster-proofing its supply chain for a new plant in Taiwan.
About the Author
Yu-Tzu Chiu is a Taipei correspondent for Bloomberg BNA. “Taiwan’s Tech Hubs Take Advantage of Disasters” is her second story about the effects of last year’s earthquake and tsunami on the global supply chain. She has chronicled Taiwan’s tech policies for IEEE Spectrum since 2000.