Lessons from Taiwan
How to Keep Factories Open When Companies Move On
On November 3rd, 2011 Pillars convened a roundtable with UM-Flint School of Management (SOM) students who had travelled with Associate Professor of Accounting Jacob Peng, Ph.D. in the spring of 2011 to his native country Taiwan. For the students, every waking minute of this study abroad opportunity was packed with new experiences and new learning.
For the purposes of our discussion, we focused in on one of the themes that emerged as they toured various industrial facilities on the island nation: How the Taiwanese repurpose productive manufacturing capacity after a company moves out. This is an issue that has particular significance here in Flint, where many once-productive facilities have sat idle for years.
It was difficult to get all the students who went on the trip back together in the same room at the early hour the roundtable had to be scheduled. But Sean O’Morrow was able to join me and Dr. Peng, who participated via Skype from Taiwan.
Bob Mabbitt: Okay. I’m Bob Mabbitt. I am the senior brand analyst in UM-Flint’s Office of University Relations and serving as editor for Pillars, UM-Flint’s online magazine. This is a roundtable discussion about what the School of Management students experienced on their trip last spring to Taiwan. Care to introduce yourself?
Sean O’Morrow: I’m Sean O’Morrow, a senior in International Business and I went on the Taiwan trip with Dr. Peng in Spring 2011.
Jacob Peng, Ph.D.: This is Jacob Peng, Associate Professor of Accounting from the School of Management and I was the lead faculty of the 2011 Study Abroad Taiwan program. In May 2011, I took 13 SOM students to visit Taiwan for an 18-day extensive study of international businesses in Taiwan. I want to thank Bob and the people at University Relations for this opportunity to share what we have learned. Thank you.
Bob: Thank you.
Dr. Peng: I know our focus today is about the more manufacturing-oriented companies we visited when we were in Taiwan. In total we visited eight different companies, some of them are international firms such as the accounting firm KPMG. But some of them are quite unique and can only be found in Taiwan. I will start with with Giant Bicycles.
Giant is a manufacturing company headquartered in Taiwan that manufactures high-end bicycles and related products. Their bicycles are sold worldwide and I believe their market share is number one in China and Taiwan, and may be number one in Europe as well.
The second company I want to mention is Jade Yachts Manufacturing. Jade Yachts is a company that manufactures high-end, very expensive, luxurious yachts. You know, million-dollar boats. And they are also headquartered in Taiwan and have an interesting story.
The third company I want to talk about is the Meining Workshop. Compared to Giant and Jade, it is a very small company. It’s actually not even a company, more like a community-based organization whose mission is to preserve the culture of doll-making. It used be part of Mattel, the American company who manufactured Barbie dolls in Taiwan in the 1960s and 70s.
The last organization I want to mention is the science park we visited. The Central Taiwan Science Park (CTSP) is a semi-official, government organization whose job is to create an investment environment to attract investors from all over the world to set up their factories in Taiwan.
So those are the four organization I think we should focus on and learn from in our discussion.
Dr. Peng: Sean, do you have anything to add upfront?
Sean: Giant was one of my favorites, just the way their mindset was quality over quantity — and that their view of bicycles was more about a lifestyle than a product.
Meining Workshop, the former Mattel shop, struck me as relevant to a project a group of us, along with Dr. Michael Witt, are working on about bringing jobs to underprivileged or at-risk youths in Flint. Instead of being reliant on other people, we’re trying to get them to think about how to create jobs for themselves. So when I saw what the Meining Workshop was doing I automatically thought of Flint. You know, GM moves out so how do you bring jobs back in? Mattel moves out, how do you bring jobs back in? That’s how we’re trying to apply this right now to Flint.
Bob: Right on. So what were the primary factors that prompted people in Taiwan to have to reconsider how they utilized productive capacity? What were the reasons original operations left or changed?
Dr. Peng: Okay. I can use two of the sites I mentioned to say something about this question: Giant Bicycle and Jade Yachts. Giant Bicycle started as a local manufacturer of very low-end bicycles. At that time, labor costs were cheap so they were able to do mass production like China does right now. At that time, Giant was able to do mass production but the quality was low. Decision-makers at Giant were not satisfied with low-quality products and wanted to update their technology and learn how to build the best bikes in the world. So they went to Europe. At first, nobody wanted to buy a foreign bicycle. No foreign bicycle manufacturers wanted to buy anything from Giant because their quality simply did not meet their requirements. But the people at Giant, they didn’t give up. The CEO at that time stayed in the factory all the time, slept in the factory, and worked with the engineers to improve the quality. Finally, one of the biggest bicycle manufacturers at that time, Schwinn, gave Giant a chance. They allowed Giant to manufacturer bicycles for them, and as the quality continued to improve, the knowledge about how to make high-end products spread.
But Giant was not satisfied with just manufacturing. They wanted to have their own brand. They had the technology needed to build world-class quality bicycles, so they created a brand called Giant. However, they didn’t want to compete with Schwinn, who helped them succeed, so they started out in Europe. In the European market they became number one. In time, they moved back to the American market, but they still wanted to avoid direct competition with Schwinn. That is why Giant continued to focus on this higher-end bicycle market.
So the Giant story is quite interesting in that at the same time they have their own brand in one market, they also manufacture bikes for another company in another market. So I think that’s one way of using capacity to compete in the global market.
The second company, Jade Yachts, started out as a fishing boat manufacturer. Fishing boats are cheap. Fishing boats don’t require, you know, 42-inch plasma TVs and all that fancy stuff. A fishing boat is a fishing boat. In time, the government says we have enough fishing boats, so nobody can manufacture them anymore. That kinda closed the market. So they turned to something else. They turned to military vehicles. They turned to Coast Guard ships, and the government began doubling jobs. In the end, they said “we want to do yachts.”
Really, they realized the profit margin for those kind of vehicles, fishing boats, is low. Plus the market was small because Taiwan is a small country. They had to go out and compete in the world market. So they turned their attention to luxury yachts. They started working with Italian yacht manufacturers.
Jade, like Giant, started out as a small manufacturer for another company. In Jade’s case, an Italian yacht company. Like Giant, they grow and grow. They still collaborate and still cooperate with their partner, at the same time they also now compete with their partner in the world market. But somehow both Jade Yacht and Giant were able to separate, or create new, markets to avoid competition in a certain sense and find a strategy where both partners can win. It’s a win-win situation for both companies.
Bob: As a hypothetical, Buick City in this community. I’m wondering what they might have done or changed to keep something productive happening there?
Sean: I don’t even know if that’s a mindset we could even do here. I mean I really don’t know. With the union mindset, it seems like they don’t care as long as they get theirs. So I don’t think that could even work here.
Bob: Well, I’ve heard the argument made by members of that union that, you know, these companies could change their mindset from being strictly in the automotive industry, to the transportation industry and beyond. To the design and production of green infrastructure for high-speed electric rail, with wind and solar powering them. They could be manufactured in all these shuttered auto plants. They’d say it’s the myopic thinking of management that’s prevented that from happening.
Sean: That could be. I’m just not sure how that’d work exactly. Dr. Peng, do you have any ideas on that?
Dr. Peng: I think one thing we learned from these companies is their speed of innovation. You know, if their road doesn’t lead to the ideal destination, they find something else. So if in fishing boats, they are not satisfied with company’s growth, they turn to military vehicles. If military vehicles cannot satisfy their need, they turn to luxury yachts. Same thing for Giant bicycles. If you cannot compete with $100-dollar bikes, how about $2,000-dollar bikes? So they create a different market. How can they do that? They value innovations. I think that’s what we have seen when we visited these factories in this country.
Bob: So would you say that the unifying idea or set of principles that allow companies in Taiwan to succeed is this embrace of innovation? Of stepping out from what they are used to and recognizing that they can do something else?
Dr. Peng: Right. But we have to realize too, you know, not every company was successful in this regard. The companies we visited, they were the successful ones. At the same time, we saw other companies that failed in this process. These companies face challenges as well because Taiwan is a small market. This reality forces them to go out to seek markets elsewhere. Europe in the beginning, followed by China when it opened up. I think that’s also the reality these companies faced. This reality kind of forced them to be innovative, forced them to go out and compete, to become competitive. But also, as we saw from Giant Manufacturing, it shared its expertise and new knowledge with its competitors in Taiwan. If they learn something new, they kind of form an alliance in the industries and they share experiences, they exchange information. So individual companies may be small, but when they get together, they will be a powerful force in the market. So they share their experiences, they learn from each other, and then they go out to compete.
Bob: That’s an interesting idea, of collaborating versus cut-throat competition. Even in a similar industry, everybody can succeed if they work together and take a longer view in some instances.
Sean: I don’t know if it was because I was thinking this, so I saw it, but Taiwan seemed to be more of a collective society to me. I guess the reason I say that is because we went to that Confucian temple and it seemed like that was an underlying principle. When we went to the public pool and the hot springs, we put our stuff in lockers. We were the only people that put our stuff in lockers, because I don’t know, that’s just our mindset, you know? They didn’t do it. So that’s what I’m saying. It seemed like a collective mindset, and maybe that’s why those ideas work over there. Because they’re actually looking out for other people. Whereas here, we do, but not as much. Do you think that’s true, Dr. Peng?
Dr. Peng: I think there’s a mindset that, like Japanese culture, the individual compared to the group, maybe the group is more important. That might explain some of the things you saw and experienced in Taiwan. And indeed, that traditional cultural value is something still respected in Taiwanese society.
Bob: You mentioned the Central Taiwan Science Park, a government initiative designed to help spur investment. What are the pros and cons of that type of an initiative and what does that look like in the U.S.?
Dr. Peng: There are pros and cons to this approach, but many Asian countries took this approach. The most successful one was in Korea. The Korean government uses whatever they can to help their biggest companies, like Samsung, like Hyundai. They are all major players in the world market — but the government conceded a lot. Taiwan wanted to do the same thing. So for something like the Central Taiwan Science Park, the government finds the land. Then they will build the infrastructure. Sometimes they even build the factory. Then they invite the companies they want to settle in the park.
So these companies can use the land, or even the factory sometimes, free or at a very low cost. The government wanted to do this in order to attract strategic industries and increase jobs. If you bring in a major player in an industry, there are many, many companies in the whole supply chain that will come. So they tried to build these clusters so that they can go out and compete in the world market.
For example, in the Central Taiwan Science Park we visited the cluster was in glass, high-end glass for use in LCD and plasma TVs, fiber optics, those type of industries. There are some criticisms that it’s not very fair to other industries. For example, traditional industries did not have those tax incentives. They cannot enjoy the free or very low cost land and infrastructure. So there is some criticism in the country as well that maybe it’s not fair to other industries. Nevertheless, it’s proven to be a successful strategy. One example is IT technologies, IT manufacturers in Taiwan. There are many big and important players, like Acer, like HTC. They are all important players in the world’s IT industries. They can be successful today because they took advantage of the government-sponsored tax incentives.
Bob: Could an idea like that—or does an idea like that—work in the U.S.?
Sean: It could be that the government wants to choose the industries that are going to go, not just the companies, but like you said, Dr. Peng, the industries. The market might not be going in that direction, but the government is trying to incentivize it to where it might. Like wind technology might be the best, but if the market’s not ready for it… maybe the market will be ready for it when the government is.
Dr. Peng: And sometimes the government will pick the wrong industries. It is also happening in Taiwan because it is a democratic society, right? So whenever there’s an election, the government says, “We’re going to build a Science Park,” but after election, all this money, no one will want to go there because the conditions to have those industries come is seen as unfavorable. So sometimes the market still works the best, so there’s a trade-off here. Should we trust the government to do everything or should we trust the market? There are successful stories, there are some stories that are not so successful. In Asian countries you’re going to see this.
Bob: One of the reasons that has been cited as why companies move manufacturing to other places are cheaper labor costs and more lax regulation as far as environmental and working conditions. If that’s true, what might trade agreements or other more unified, standardized labor and environmental policies have on the need to move in the first place?
Dr. Peng: Well, I am not an international economist. The U.S. sometimes criticizes other countries for not being open to their market. I think to some degree it’s true. Many countries try to protect their own industries. I think the most recent example is the free trade agreement between Korea and the U.S. Many people were not happy with that agreement because some of the industries would be forced to open to American companies or American competitors. That is true. But I think in the long-term it should work best for people in those countries. I think the government’s job here is to figure out how to help people in disadvantage. Maybe help them get the training they need. Help them get a new expertise, train them to move to the new industries. I think that’s what we saw and what the government tries to do in Taiwan, also in Korea and other Asian countries.
Bob: Any thoughts on that, Sean?
Sean: No, that sounds good.
Bob: OK. Well, based on what you’ve seen in Taiwan and what we’ve talked about here, is there any advice that you might give to U.S. companies, citizens, or decision makers regarding effective use of productive capacity over the long-term? Are there things that we could do to keep plants from shutting down, to repurpose them?
Dr. Peng: I won’t say it’s advice. I would just say this is what we have learned in Taiwan. That’s innovation, or the spirit for innovation, and that helps bring many companies in disadvantageous situations to the next level. I’m not sure if that’s advice, but that’s what we have learned. And whether that can be applied in this country, I don’t know. We need to go out and see what other people do in other parts of the world. That’s why I feel this kind of program is helpful for our students, to prepare them for the global market.
Sean: My experience was just the more collective mindset. I think Dr. Peng kinda hit on it. What might be good for the company might not be good for the people. I mean I know that they are trying to please stockholders, but on the other hand if you don’t have anybody to buy the product, what’s the use? Innovation with social responsibility. I know that sounds cliche, but if you can figure that out, that might be the target.
Bob: Right on. Well, that’s the end of my questions. Any other thoughts on the trip or anything else that we talked about or didn’t talk about that you might want to?
Dr. Peng: Talking about social responsibilities, in that small town where Mattel had their factory before, when Mattel left I didn’t see people there curse Mattel or angry with Mattel. What I saw from our visit was they thank Mattel for bringing the good experiences and they thank Mattel for bringing jobs to support their families. When they left, I think they say goodbye and good luck. Mattel must have done something there to take care of their employees, and when they shut down their plant employees felt grateful. Mattel must have done something unique there.
Sean: I totally forgot about that. We’re trying to compare that city with Flint. You know how when GM pulled out and there was a bitter taste. When Mattel left, there was gratefulness.
Bob: That’s interesting. So Sean, would you go back to Taiwan?
Sean: Yeah. I’ve been talking to some people over there in Taiwan, but it seems I’m gonna have to take one year of language to work in any function over there.
Dr. Peng: Well, learning a language is always an investment in yourself. Speaking another language is always helpful. I know there are people who study Chinese in Taiwan while they teach English. That’s something that many American students choose to do.
Sean: Yeah. I’d like to do that, but the guy I was talking to said I need some sort of teaching certificate.
Dr. Peng: Oh, if you want to teach in a formal school you need to have that. But there are many other opportunities that don’t require formal certificates.
Sean: Well, if you have any of those opportunities you know of, you know where to send them.
Dr. Peng: I’ll do some research.
Sean: Alright. Thank you.
Bob: Well, alright guys. If there’s nothing else, I guess that wraps us up. Thank you. That was fun.
Sean: Thank you.
Dr. Peng: Thank you very much.
Check out these blogs by Sean O’Morrow, Pat Harrold (who provided the photos above), and other School of Management students who went on last spring’s trip to Taiwan:
Pat Harrold: 7,535+ Miles Club
Jeylen Etefia: Adventures in Taiwan
Dion Boose: Co@st to Co@st
Ed Joss: Planes, Trains, and Automobiles
Dianne Martin: Taiwan Blog
Joshua Morningstar: Taiwan Study Abroad
Sean O’Morrow: Here and There
Gannon O’Reilly: Taiwan Study Abroad Trip
Arieanna Potter: My Amazing Trip
MORE ON THIS ISSUE: How Detroit, Michigan and Lodz, Poland are addressing the realities of industrial transformation is the subject of a new documentary entitled After The Factory, premiering at the Detroit Institute of Arts this February.
TIDBIT: The background image on this page is a Japanese map of Taiwan circa 1781.