Taiwan looks beyond microchips to embrace innovation

From the incoming president on down, Taiwan’s political elite has been trying hard to project an image of “business as usual.” Faced with angry accusations of aiming to steer for formal independence from the Chinese mainland, the political leadership in Taipei has pledged its commitment to maintain stable cross-straits relations. Likewise, business leaders have been reassuring their partners that their involvement in China will not suffer from the mounting political tensions, nor from Chinese efforts to catch up with Taiwan’s edge in technology.

Taiwanese companies, meanwhile, have been going upmarket, leveraging their research and development (R&D) capabilities, noted Kenny Mok, managing director of DHL Global Forwarding Taiwan. “China may be moving upstream, but given the competitive edge of Taiwan, the Taiwanese companies would still have a stronger advantage and are likely to remain as the source of high-end technology products,” he explained. “But as the technology matures, the production of these products will move to other manufacturing countries for mass production.”

The new government wants to shift the economy from an “efficiency-driven model to an innovation-driven one.” At the same time, Taiwanese firms look for opportunities elsewhere (such as Hon Hai Precision Industry’s takeover of Sharp) or in other sectors altogether. Mok notes that production of solar cells and panels has shown strong growth, and so has the pharmaceutical sector.

EVA Air certainly sees opportunities in the latter, having introduced a cold chain service targeting pharmaceuticals, as well as high-end food and high-tech semiconductor components. Its cold chain network now covers 18 cities around the globe, according to a representative of the airline.

At the beginning of this year, EVA retired one of its converted 747-400DBSFs, which marked the first step in its freighter fleet transformation, announced last summer, when management placed an order for five 777-200Fs. At this point, the carrier has three 747-400Fs and four more BDSFs, which are expected to be retired when the 777s enter service, said the EVA representative.

Mok hailed the 777 ambitions. “This is a welcome sign and signals confidence in the cargo industry,” he said.

EVA is also boosting its bellyhold capacity. Last November it placed an order for twenty-four 787-10s and two 777-300ERs, adding to an earlier order for thirteen 777-300ERs. Management has signaled its intention to deploy these planes on medium- and long-haul routes to Southeast Asia, Oceania and North America.

EVA’s cargo capacity in Europe has been diminishing. Last year, it scrapped its last remaining European freighter route (to Frankfurt). However, the carrier has made a determined push to step up its presence in the trans-Pacific arena this year. The airline is set to launch service to Chicago in the fall and will increase frequency on routes to Houston and New York. Altogether, its trans-Pacific schedule will rise to 77 weekly frequencies from the current 65.

Its freighters fly 18 times a week across the Pacific, serving five North American gateways. Here, management is looking to flexibility rather than a capacity build-up. “We will adjust our freighter flights to accommodate market conditions by continuing to optimize our cargo aircraft fleet and modify routes to produce maximum profits,” commented the EVA representative. He added that eastbound volumes dropped since the start of the year and have remained unstable.

Technology has been the lifeblood of the Taiwanese economy. According to IDC Taiwan, the local arm of market intelligence provider International Data Corp., Taiwan accounted for more than 90 percent of global shipments of computer servers and server motherboards last year. Electronics makes up 40 percent of the island’s exports and 15 percent of its GDP.

Much of the assembly work is carried out in mainland China. Beijing has left no doubt that it wants its industry to move upstream, challenging the position of Taiwanese firms. However, it will take some time before they get there, and Beijing’s targets keep moving.

Despite a decline in electronics exports, Mok said he remains upbeat, chiefly regarding Asia. “While we have seen a global slowdown in the demand for electronic products, the high-tech sector will remain a key industry for Taiwan as the country continues to export raw materials and electronic components – with a large proportion within Asia – for production and assembly,” he said. “As such, the airfreight flows have been stable in Taiwan as intra-Asia shipments remain the bulk of the movement.”

He said he sees more concern for Taiwan’s airborne exports to the region from modal competition, emphasizing DHL Global Forwarding’s own multimodal network for North Asia, which includes a marine link between Taiwan and the mainland.

“This connection links the Taichung port to Shanghai, with a rail link to Warsaw via Suzhou, which also serves as a base for over 10,000 Taiwan-funded export-oriented enterprises,” he said. “As a cost-effective shipping alternative, our multimodal service offering has generated a lot of interest among customers and businesses in Taiwan, and we are confident that demand for the service will continue to grow tremendously.”