Teco Aims at No. 1 Position In Global Motor Market

Taiwan's Teco Electric & Machinery Co. recently announced the signing of an agreement with SiTong Electric Machinery in mainland China's Jiangxi Province to use the latter's electric-motor plant as a beachhead for development of the market in western China.

Teco also announced that it would pour an additional NT$400 million (US$11.8 million at NT$33.8:US$1) into an expansion project at its existing heavy-duty motor plant in Wuxi, Jiangsu Province, and another NT$600 million (US$17.8 million) into the construction of a new plant nearby for the production of light-duty motors.

Lien Chao-chih, CEO of the company's heavy electrical machinery business, says that the expansion project will be completed and the new plant will begin mass production next year, pushing the annual value of Teco's motor production in China to NT$10 billion (US$296 million). If all goes well the company's global motor-production value will top NT$25 billion (US$740 million) next year, consolidating its position as No. 1 in the Greater China area and challenging the world's second-largest supplier, Siemens of Germany.

Lien claims that his company currently accounts for 5.5% of global industrial-motor production, making it third in the world after ABB of Sweden (with a 10% market share) and Siemens (7%). To boost its global market share quickly, Teco is looking for merger targets worldwide. It has chosen mainland China as its global production base, and has been developing a division-of-labor manufacturing network there with the aim of challenging ABB for the world No. 1 position within three years.

Teco established a light-motor plant in Suzhou, Jiangsu Province in 2000, and the Wuxi heavy-motor plant mentioned above in 2002. Lien says that he will work with SiTong in establishing a joint-venture plant in the Nanchang State High-tech Industry Development Zone in Jiangxi Province. SiTong's production lines are expected to be moved into the new plant, which will have an annual capacity of 1,000 heavy motors and 20 sets of hydropower generation modules, by August next year.

Teco will invest two-thirds of the total capital required for the new US$9 million plant, giving it control of the operation.

Global Ranking of Electric Motor Manufacturers (2003)

Rank	Company	Global Share
1	ABB (Sweden)	10%
2	Siemens (Germany)	7%
3	Teco (Taiwan)	5.5%
4	Emerson (U.S.)	4%
5	GE (U.S.)	Around 4%

Growing Globally

Following a series of expansions in the United States, Malaysia, and mainland China in the past few years, Teco's deployment in China will be brought to a temporary rest. The next step, the company reports, will be a series of factory projects in Northeast Asia and Europe.

A senior Teco official says that the global-deployment projects have three main objectives: penetration of local markets (bringing Teco-brand products to the industrially advanced markets of the U.S., Europe, and Japan as well as to developing markets in Latin America and South Asia), utilization of advantageous resources to create stronger competitiveness (making use of China's low production costs and preferential tax treatment, for example), and development of promising markets where import barriers exist (mainland China, Vietnam, etc.).

The company follows a three-stage strategy in its global deployment, the official explains: first, establishment of sales points in promising markets to boost revenue and allow further evaluation of those markets; second, establishment of manufacturing bases to grasp competitive advantages and to create niche businesses; and third, integration of production and marketing in the target markets.

In China, the official notes, most of the company's recent investment projects have been concentrated in Wuxi because of the relatively low land and labor costs there, especially when compared with neighboring Shanghai and Suzhou, as well as proximity to materials supplies.

With the temporary slackening of expansion in China, Teco has been in intensive talks with potential partners in India, Vietnam, Japan, the U.S., Eastern Europe, and Latin America. It would not be surprising, in fact, if the company should announce four or five overseas investment projects all at the same time next year, making it a true multinational enterprise with operations in Europe, Asia, and the Americas. (QL, June 2004)

Table 2:

Teco's Global Deployment Strategy
Foothold	Purpose	Strategy	Prospects
U.S Heavy-Duty Motor Plant	Technical upgrading and more comprehensive product lines	Acquiring Westinghouse's motor plant
Malaysia Small/MediumMotor Plant	Lower production costs and preferential investment terms	Investment
China (Suzhou) Light-duty Motor Plant	Lower production costs and preferential investment terms	Investment
China (Wuxi) Heavy-duty Motor Plant	Lower production costs and preferential investment terms	Joint venture with China Steel (Taiwan) and Nippon Steel (Japan)
Mexico Motor Plant	Lower production costs and achieve preferential tariffs	Strategic Alliance with IEM	Expects to merge with IEM and set up new plants in South America
India Motor Plant	Breaking import-tariff barriers	Strategic Alliance with ELGI	Plans to set up plant in India
Vietnam Venture	Tapping local market and breaking import-tariff barriers		Plans to set up plant in Vietnam
Eastern China Compressor Plant	Tapping the huge air-conditioner compressor market	Fully-owned facility	Grab more business in the 20 million units/year market