Post-global Meltdown Challenges for Taiwan's Traditional Manufacturers
2013/02/18 | By Steve ChuangReport urges makers to target ASEAN and emerging markets
Since the global financial tsunami severely hammered developed economies worldwide, Taiwan's traditional manufacturing industries have undergone market changes, with increasingly growing concern among operators who are trying to seek out new ways to sustainable development, according to an industry research report authorized by Metal Industries Research & Development Centre (MIRDC).
The Ministry of Economic Affairs defines traditional manufacturing as the three major industries of metal, metal products and machinery; chemicals; and basic supplies and daily commodities as cigarettes, clothing, wooden products, furniture and other non-metal products, which generally call for intensive labor and low technologies.
Market-wise, MIRDC describes traditional manufacturers as those that once propelled a nation's economy as major contributors, but wield waning clout in the market today.
Slow Growth
MIRDC's report says that the three abovementioned traditional manufacturing industries have seen growth steadily decelerate in employee numbers and overall output value since 2002, mainly due to global economic fluctuations and market changes.
For instance, the report shows that a compound annual growth rate (CAGR) of output value of Taiwan's sector of basic metal reached 44.8% during 2004-2007, but then plummeted to only 7.3% from 2008 through 2011. Local chemical makers also witnessed their CAGR in terms of output value plummet to 19% 2008-2011 from 46.9% four years earlier. The three major traditional manufacturing industries could still maintain stability, but with slow growth in output value, of which the combined all-time high reached NT$1.128 trillion in 2011.
Compared to output value, growth of employee numbers has been even flatter in the past decade. Although the three industries' employees totaled 1.722 million in 2011, a new high since 2001, the CAGR reached only 0.4% from 2004 through 2011, according to the report, and that except metal and machinery, the other two industries, unfortunately, failed to consistently create new jobs in the past years.
Domestic-market Driven
MIRDC's report indicates a notable change among most traditional manufacturers in the three industries, and that domestic sales have propelled output value growth more than exports, especially after the global financial tsunami.
According to the report, the 2004-2007 CAGR of the three industries' total output value reached 23.2%, 13.2 percentage points of which by exports. Exports persistently increased to make up 40.7% of total output in 2008 from 35.8% in 2004, which safely suggests Taiwan's traditional manufacturers mostly having counted on foreign markets to grow in the past years.
But after the global financial tsunami, which caused a ripple effect through developed countries and impacted Taiwan's export-driven economy, the 2008-2011 CAGR of Taiwanese traditional manufacturers' overall output declined to 11.1%, with exports' contribution declining to only 4.1 percentage points. This, the report notes, shows an ongoing transition that domestic sales have displaced exports to drive industry growth.
Such transition affects manufacturers of metal products, auto parts, other transportation tools and petroleum and charcoal products more than any others in the metal-and-machinery and chemical industries, according to MIRDC. The center adds that the other traditional manufacturing industry also profited from a stronger domestic market to finish the 2008-2011 period with a CAGR of 13% in output value, significantly improving from 1.8% before the global financial tsunami.
Export Outlets Shift
Another remarkable trend in Taiwan's traditional manufacturing industries, MIRDC states, is the shifting of export outlets from North America and Europe to ASEAN (Association of South East Asian Nations) countries and China.
China has become the biggest outlet for Taiwanese traditional manufacturers' exports in the past few years. In 2011, the world's most populous country absorbed 33% of total exports from the industries, shows MIRDC's report. At the same time, exports to the ASEAN market made up 19% of the total in the year, compared to 15% in 2004, with those to North America commanding smaller shares year by year.
Separately, the chemical industry, which exports mostly to China and ASEAN countries, saw exports to Europe and the U.S. change moderately in 2011; the industry of basic supplies and daily commodities shipped 27% and 21% of overall exports to China and the ASEAN region, respectively, but delivered 15% to North America, down from 21% in 2004.
In the meantime, combined exports by the industry of basic metal, metal products and machinery to China accounted for 28% share of the total in 2011, dipping from 31% in 2004. Worth mentioning is that the contribution of exports by basic metal and metal product manufacturers dropped significantly from 52% in 2004 to 39% in 2011, and from 20% to 13%, respectively. The share of the industry's exports to North America also declined to 17% from 25%.
But the industry's exports to the ASEAN countries have surged in the past years, mainly thanks to Taiwanese companies' investments there, which stimulate considerable local demand for steel and related products, comments MIRDC.
Future Trends
MIRDC concludes that so far most of Taiwan's traditional manufacturers have almost recovered from severe business downturns following the global meltdown, but have to tackle an increasingly challenging global market in the short term, partly due to huge public debt miring economies in the U.S. and Europe, and partly due to weakening GDP growth in China amid growing wages in the years to come and until its industrial restructuring is completed. Under the scenario, MIRDC forecasts that Taiwan's traditional manufacturers will very likely lose growth momentum, without adapting to market changes.
So, MIRDC urges Taiwanese traditional manufacturers to shift global deployments from the U.S., Europe and even China to the ASEAN and other emerging countries, and seek governmental help to explore new overseas markets to secure sustainable development.
Domestic Sales/Exports Vis-à-vis Taiwan's Traditional Manufacturers' Output Value Growth
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Industry | 2004-2007 | 2008-2011 | ||||
Growth of Output Value | Contribution by Domestic Sales | Contribution by Exports | Growth of Output Value | Contribution by Domestic Sales | Contribution by Exports | |
Metal & Machinery Industry | 22.2% | 8.7% | 13.5% | 12.3% | 7.1% | 5.3% |
Basic Metal | 44.8% | 23.8% | 21.0% | 7.3% | 3.5% | 3.8% |
Metal Products | 9.5% | 3.2% | 6.3% | 9.7% | 7.8% | 1.9% |
Machinery | 26.0% | 11.1% | 14.9% | 17.5% | 4.6% | 12.8% |
Automotives and other Transportation Tools | -5.6% | -12.8% | 7.3% | 24.5% | 20.3% | 4.1% |
Chemical Industry | 35.4% | 15.0% | 33.2% | 9.2% | 6.3% | 2.9% |
Petroleum & Charcoal | 62.0% | 28.8% | 33.2% | -5.7% | 0.2% | -5.9% |
Chemical Materials | 46.9% | 23.5% | 23.4% | 19.0% | 12.1% | 7.0% |
Chemical Products | 15.1% | 1.3% | 13.8% | 15.8% | 2.2% | 13.6% |
Plastic | -8.9% | -15.1% | 6.2% | 5.1% | -1.9% | 7.0% |
Industry of Basic Supplies and Daily Commodities | 1.8% | 3.0% | -1.2% | 13.0% | 8.3% | 4.7% |
Food, Beverage and Cigarettes | 10.1% | 11.6% | -1.6% | 19.0% | 16.9% | 2.1% |
Textile and Closing | -8.9% | -3.0% | -5.9% | 12.8% | 5.8% | 7.0% |
Overall Performance | 23.2% | 10.0% | 13.2% | 11.1% | 7.0% | 4.1% |