Taiwanese companies from notebook computer makers to e-scooter manufacturers are accelerating diversification to Southeast Asia as China’s economy sputters and customers urge them to add new manufacturing sites outside of China amid the escalating US-China technology war.
Low consumer demand in China was a key factor behind its 11-month streak of contraction in export orders since last September, coupled with a slowing global economy and prolonged supply chain inventory correction cycle. China is Taiwan’s second-largest export destination after the US.
With the world economy picking up pace in this year’s second half, Taiwan’s export orders still registered an annual contraction of 19.6 percent to US$316.3 billion for the January-July period. That indicates that local exporters did not directly benefit from the global economic recovery due to China’s sputtering economy and a shake-up in supply chains as the US seeks to replace Chinese goods.
In the first seven months, Taiwanese companies saw orders from China including Hong Kong plummet 27.6 percent year-over-year to US$66.41 billion as Chinese consumers have cut back spending amid shrinking household incomes and rising debt, according to statitics from Taiwan’s Ministry of Economic Affairs.
The order decline from China outpaced all major export destinations of local manufacturers. US orders dropped at an annual pace of 17.2 percent to US$99.34 billion. European and Japanese orders sank 23.5 percent and 4.4 percent annually to US$56.98 billion and US$8.74 billion.
Local companies with significant Chinese market exposure felt the pinch. MediaTek Inc saw revenue plunge 33.53 percent annually in the first seven months of this year.
Orders from ASEAN member countries performed better, with orders sliding at the smallest rate of 2 percent during this year’s January-July period to US$44.29 billion. In July, orders from ASEAN bounced back 33.7 percent from last year, making it the first market to show a recovery.
Local electronics makers are facing growing pressure from customers to move their capacity to countries like Vietnam, Thailand or India. Some companies are preparing to set up sales offices in North America.
Hon Hai Precision Industry Co, a major iPhone assembler, said last month that it is expanding its investment in India. It told investors that it plans to produce key components used in electric vehicles and consumer electronics, possibly iPhones, in Karnataka, Tamil Nadu and Telangana.
Quanta Computer Inc, which makes MacBooks for Apple Inc, is building its second factory in Southeast Asia, in Vietnam, for NT$657.6 million, following its first factory in Thailand. The Vietnamese one is likely to be the largest notebook computer manufacturing site Quanta manages outside of China. Quanta in April set up a Vietnamese subsidiary, QHM Computer Co, with initial capital of US$50 million according to Quanta’s filing with the Taiwan Stock Exchange.
Kwang Yang Motor Co is following local technology companies in making inroads into Southeast Asia. Kwang Yang last month announced a joint venture with PTT Public Co to take its e-scooters and battery-swapping services to Thailand. It is also looking to expand into Vietnam and Indonesia.
Kwang Yang’s local rival Gogoro Inc last month said it has formed a partnership with Swiggy, India’s leading on-demand convenience delivery platform, to provide e-scooters and battery swapping services. The company said it planned to expand its footprint to the Philippines by the end of this year.
Now that the ASEAN market is set to become a new growth engine for Taiwan’s exports, the government should assist local companies in exploring new frontiers such as Africa or Latin America to further diversify their markets to support future growth.
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