Taiwan Machine-Tool Makers Face Tough Competition From Korea's Daewoo

Taiwan's export-oriented machine-tool industry is encountering stiff price competition from South Korea in the international market. For instance, Daewoo Machinery Corp., South Korea's biggest in the line, has recently offered prices that are 10% to 15% under those quoted by Taiwanese suppliers for equivalent items.

Victor Taichung Machinery Works Co., one of Taiwan's largest makers of CNC (computerized numerically controlled) lathes, reports particularly harsh competition from Daewoo in the European market, especially in Germany, the Netherlands, and Italy, where the Korean firm is using lower prices to win international procurement bids.

As a result, the chances of Victor Taichung winning a bid in competition with Daewoo has recently dropped from 50% to only 30%.

Tong-Tai Machine & Tool Co., Taiwan's leading supplier of whole-line production equipment, laments the loss, over the past several months, of several billion NT dollars worth of international bids for auto-parts equipment to Daewoo in such fast-growing markets as mainland China, South Africa, and India.

Daewoo will roll out an estimated 6,000 units of machine tools this year—almost the same amount as such world-class Japanese companies as Okuma Corp., Mazak Corp., and Mori Seki Corp. The Korean company is rumored to be intensifying its negotiations for the acquisition of Doosan Machinery, another South Korean machine-tool manufacturer; if the negotiations succeed, the merged enterprise will be the largest machine-tool maker in the world with an annual production capacity of around 7,500 units. This would mean stronger advantages in terms of economic scale and cost control, and would thus pose an even greater threat to Taiwan's manufacturers.

Support From Carmakers

Founded in 1937, Daewoo has enjoyed support in recent years from South Korea's robust auto industry and has expanded beyond the scale of its Taiwanese counterparts. It has also extended its production range from single-unit machines to more sophisticated whole-line equipment by nurturing an integrated capability in the design and production of system products.

As a result, Daewoo has grown into a comprehensive conglomerate with a product line that includes construction equipment, industrial vehicles, and diesel engines, in addition to its original machine tools.

The company's machine-tool unit currently employs 2,300 workers. It sold 5,000 machine tools worth US$600 million last year; for 2004, the target is 6,000 units worth US$800 million. With its other products added in, Daewoo's sales will challenge the US$3 billion mark this year.

Yen Jui-hsiung, Tong-Tai's general manager, says that Daewoo has been accepting low profit margins in its struggle for orders in recent years, cutting prices despite the fact that its production costs for whole-line equipment are almost the same as Tong-Tai's. In the face of this price competition in the international market, Yen calls on Taiwanese manufacturers to seek out emerging markets instead of going head-to-head with Daewoo in traditional marketplaces.

She Hong Industry Co., a large Taiwanese manufacturer of machining centers, is also feeling the heat from Daewoo. The Korean firm recently beat She Hong out in an NT$70 million (US$2.12 million at NT$33:US$1) international bid for the sale of six machine tools to a state-run enterprise in mainland China. Yeh Hsin-hua, She Hong's general manager, says that Daewoo offered a price 10% lower than his own.

One domestic manufacturer in the line noted that Taiwan's machine-tool makers are relatively small in size, and that they need to strive to strengthen their scale of operations—and their competitiveness—through mergers and acquisitions. None of the local producers has annual sales of more than NT$5 billion (US$151 million).

Country	Index	2001	2002	2003
Taiwan	Export Value	1,363	1,453	1,679
	Production Value	1,635	1,775	2,120
South Korea	Export Value	411	416	673
	Production Value	1,363	1,567	2,059

Unit: US$ million