T H E L E A D E R S H I P C O M PA N Y ®

T H E L E A D E R S H I P C O M PA N Y ®

CHANGING
GEARS
MANUFACTURERS TAKE
A FRESH LOOK AT TAIWAN
by Chris Bates, Partner-in-charge, Taiwan
Changing gears
Manufacturers take a fresh look at Taiwan
Global manufacturers have long exploited
China’s low-wage environment. But
salary inflation, pollution in the coastal
manufacturing hubs, and intellectual
property issues, are prompting a search
for alternatives.
Some multinationals are moving away from the coast
to lower-cost, second and third tier city factories further
inland, while others are moving to Vietnam, Cambodia
or Mynamar to take advantage of cheaper skilled labor
– or Mexico, for its proximity to the North American
marketplace.
With China’s domestic demand for manufactured goods
growing at 10% a year, most multinationals are there to
stay. Plants are established, its infrastructure works well,
and the country still has the world’s best supply chains
of components. But as Airbus chief executive Fabrice
Brégier says, “For skilled workers, China is no longer a low-
cost country.”
Rising prosperity and changing dynamics inside China are
having two major consequences:
• Restless workforce
In “hot market” for talent, the best workers are
changing jobs every 18 months to two years to get an
uptick in pay. They also want to live in better (less-
polluted) conditions.
• IP leakage
Senior executives and smart factory-floor leaders are
taking valuable intellectual property with them when
they walk out the door, to the advantage of other local
and global competitors.
2 Changing gears: Manufacturers take a fresh look at Taiwan
Yet there is a location that combines close cultural,
linguistic, historic and commercial ties with China and
is building on an established reputation for stability
and innovation - Taiwan.
Many of Taiwan’s skilled executives who moved to the
mainland when the manufacturing boom began, are
returning. Their startup and mentoring job is done,
they are now mid-career, and back in Taiwan seeking
opportunities to apply their talents. 
Closer trade ties with China are helping to fertilize the
investment landscape, in the form of the Economic
Co-operation Framework Agreement (ECFA) signed
with Beijing three years ago (2010). The agreement
has doubled the quota for mainland visitors, but more
importantly, allows trade to be conducted in yuan, and
permits Chinese banks to own up to 20% of some financial
institutions. The next round of talks will focus on trade in
manufactured products.
Taiwan has long seen itself as a catalyst, rather than a
copyist, and an innovator when it comes to specialist
manufacturing. And even as Asia and the west are
experiencing economic volatility on the back of China’s
industrial slowdown, Taiwan is reporting a leap in medical
equipment sales, and the technology sector is booming as
the world goes mobile.
While growth across the broad economy is projected at
2.4% for 2013, down from an earlier 3.59% forecast, two
key sectors are showcasing the importance of Taiwanese
innovation:
• Medical devices
The sector will grow more than 7% in 2013, driven
primarily by demand for contact lenses and blood
glucose monitors for diabetes management.
• Mobile computing
Technology exports rose 6.2% year-on-year in May,
thanks to steady demand for tablets, smartphones and
other mobile devices.
Jeff Winterkorn, Vice President of Asian Operations figure 1
for the Chicago-headquartered bicycle component
manufacturer SRAM Corporation, says he knows of Global Talent Index 2015
several global manufacturers which are considering
moving out of the mainland due to higher labor Asian nations in the top 60, compared with the
costs and other business issues. United States and Mexico, with their 2015 score
“It’s not so bad for those who are just assembling out of 100, and score change from 2011 to 2015
things and chasing cheap labor wherever they
can find it, but anyone in more sophisticated
manufacturing should consider Taiwan over other
RANK COUNTRY SCORE CHANGE
alternatives,” he told us in an interview.
1 United States 74.5  0
“If an American or European manufacturer were to
ask me where they should set up to serve either the 6 Singapore 61.9  -1

global or the growing China market, I would say 10 Hong Kong 60.8  -2
Taiwan, because the workforce is skilled and stable, 19 Taiwan 54.3  1
they’re not going to go down the road for an extra
21 South Korea 51.6  1
nickel, and Taiwan is 15 years ahead of China in terms
of transparency and IP protection.” 24 Japan 48.0  3

31 China 46.3  2
Diana Chang, Taipei-based HR Director for the
French multinational Schneider Electric, agrees. 35 India 42.2  1.7

“We have moved some of our R&D facilities back to 36 Mexico 42.2  3

Taiwan because of the high salaries on the mainland 39 Malaysia 41.1  -3

and the difficulty in attracting people with loyalty,”
44 Philippines 39.8  0
she says.
45 Thailand 39.0  1
The depth of Taiwan’s experience in high-quality
53 Vietnam 32.7  -1
manufacturing at a time of rising costs on the
mainland is leading many multinationals to consider 54 Pakistan 30.8  2

a not-so-radical alternative for their next round of 56 Indonesia 30.2  2

their China investment – not further inland, but 140
miles off the coast.
SOURCE
The Heidrick & Struggles Global Talent Index Report:
The Outlook from 2011 to 2015, published by the
Economist Intelligence Unit

www.globaltalentindex.com

Heidrick & Struggles 3

Why Taiwan?
There are seven key reasons multinationals
are taking another look at Taiwan
Reason 1
Leadership talent
Experienced leadership is the key requirement for global
manufacturers seeking new growth engines, and Taiwan
is clearly ready for the next phases of the technology
revolution.
SRAM Corporation’s Jeff Winterkorn says the
entrepreneurial spirit of the workforce comes from good
universities, the practice of sending graduates into the
workforce for a year before they graduate, and because of
recent business history.
“We have seen an entire generation grow from
manufacturing to innovation, sending their top people
overseas for further education and business experience,
and developing the sort of entrepreneurial spirit that is
aligned with the American ideas of starting new things
and developing great expertise in specialist fields.”
In a global survey commissioned by Heidrick & Struggles
to assess the ability of countries to grow their talent base
by 2015, Taiwan is among the top 20, coming in at 19th,
well ahead of China, back in 31 place (fig 1).
st
The ranking was determined by factors including
demographics, compulsory education, university
education, quality of the labor force, the talent
environment, openness and proclivity to attract talent.
It was Taiwan’s highly educated workforce which rapidly
took the island to a leadership position globally, as
visionary leadership and world-class universities helped
to turn an agricultural society into a semiconductor and
computer manufacturing powerhouse. Entrepreneurs
started up sophisticated R&D centers and fabrication
plants on the island, built factories on the mainland, and
organized supply chains.
4 Changing gears: Manufacturers take a fresh look at Taiwan
While many multinational companies are struggling to
find innovative leaders, Taiwan has them in abundance.
For example, HTC built the first Google phone, and
Asus Computer’s line of Android tablets has catapulted
the company into third place in the global tablet
market, behind Apple and Samsung. Taiwan’s US$17bn
semiconductor juggernaut, TSMC, built and dominates
the foundry ecosystem enjoyed by the world today.
Reason 2
Established design and
manufacturing ecosystem
Multinational companies seeking to ramp up rapidly to
take advantage of the growing China marketplace are
shopping for locations where skilled labor is in plentiful
supply, and they are finding it in Taiwan. The island offers
a precision design and manufacturing ecosystem, and a
well-organized supply chain of materials, sub-assemblies,
tooling, and design houses. Such a support structure is still
being built in alternative developing countries.
Companies which earlier left Taiwan for China are
also returning, in part because of rising wages on the
mainland, but also to tap into the pool of engineering
talent available. For example, ITEQ Corporation, which
makes materials electronics companies use to build circuit
boards, is launching a multimillion-dollar of its plant in
Taiwan. The factory, which is due to begin production by
the end of 2014, will be its first new plant on the island
since 1998. (ITEQ began moving work to Guangdong in
southern China in 2002).
Bicycle-maker Giant Manufacturing, which began
investing in China 20 years ago, is also building a new
headquarters and research and development center in
the western city of Taichung. Others tapping Taiwan’s pool
of engineering talent as China’s labor supply tightens
include camera-lens maker Largan Precision, contact-lens
manufacturer Ginko International, and tire producer Kenda
Rubber Industrial.
Zealand Banking Group , but should be, “considering
Taiwan as the first destination.”
The government estimates returning companies will bring
back more than 28,000 jobs over three years.

Another executive interviewed by Heidrick & Struggles

Reason 3 says that experienced Taiwanese engineers are now

Labor costs cheaper than their mainland counterparts. “I attended a

seminar recently where a large consultancy firm shared
salary figures, and found that R&D executives in China
Taiwan cannot compete with China for high labor-content
are paid more than those in Taiwan, but for middle and
manufacturing, but has a distinct advantage when it
lower levels the salaries are about the same as China, or
comes to “high IP” manufacturing. Skilled engineering
sometimes even more competitive.”
and high production standards also ensure fewer returns,
which offsets slightly higher factory man-hours, tooling Rising wages are not expected to hurt Taiwan’s
and molding and per-unit costs. competitiveness anytime soon.  A recent government
report indicates that the average real wage is now
Winterkorn says: “What you might gain with cheap labor,
the same as the level of 16 years ago and there is an
you pay for in quality.”
oversupply of fresh graduates entering the workforce.
Top executive salaries are about the same as China, while In this regard, Taiwan’s talent supply credentials are
at the middle level, salaries are actually lower than on impressive:
the mainland.
• More than 160 universities with 1,355,290 students.
As Taiwan becomes comparatively more attractive as a
• Five universities ranked among the world’s top 1% in
manufacturing location, and foreign direct investment
17 of 21 specialized fields of study (National Taiwan
increases, companies will need to find management
University, National Tsing Hua University, National
teams – country managers, chief financial officers, chief
Cheng Kung University, National Chiao Tung University
technology officers, and human resources directors, to
and National Chung Hsing University, according to
lead these initiatives. They are learning that the cost of
Essential Science Indicators 2011).
such skilled labor and management in China’s tier one
cities is either approaching or exceeding that of similar • Nearly 2% of gross domestic product (GDP) poured
talent available in Taiwan. into higher education – 1.93%, compared with 1.5%
in the Organization of Economic Cooperation and
This means that for about the same cost as operating in
Development (OECD) nations.
Shanghai, an enterprise can be up and running in Taiwan.

Startups are finding that wages which were depressed

when manufacturing jobs streamed out of Taiwan into Reason 4
China in the 1990s, have not fully recovered. The basic
Better IP protection
talent pool is of good quality, and highly motivated.
Software engineers are providing a real value-add in
In today’s information-based economies, intellectual
an era when hardware production is ubiquitous and
property, or IP, has become a focus for industrialized
software is the value-add. Rising wages are not expected
nations the world over.
to hurt Taiwan’s competitiveness anytime soon. A recent
government report indicates that the average real wage is According to the United States Trade Representative
now the same as the level of 16 years ago and there is an (USTR), Taiwan has strengthened both its IP laws,
oversupply of fresh graduates entering the workforce. and enforcement of the laws, and “demonstrated a
commitment to becoming a haven for innovation and
“Many manufacturers are still looking for low-cost
creativity.”
production bases to expand in,” says Raymond Yeung,
Hong Kong-based senior economist at Australia & New

Heidrick & Struggles 5

In 2007, Taiwan set up a new court and prosecutor’s
office to handle intellectual property rights (IPR) cases.
As Taiwanese industries have themselves matured and
became more innovative, they have benefited from
better domestic IP protections. Over the past decade,
an increasing number of Taiwanese companies have
taken western rivals to court to defend their intellectual
property rights.
Foreign chambers of commerce in Taiwan say that IP cases
are being handled more quickly and settlement amounts
have increased.
Intellectual property is also a key to increasing the free
flow of commercial activity with China, with Beijing and
Taipei signing the Cross-Strait Agreement on Intellectual
Property Rights Protection and Cooperation.
Schneider Electric’s Diana Chang says protection
of intellectual property is excellent in Taiwan: “For
example, we provide some services to TMSC (the global
semiconductor manufacturer) and when our engineers
enter their plant they must leave computers and mobile
phones behind. Businesses here maintain very high
security standards.”
Another executive who declined to be identified, but who
ran factories in both Taiwan and the mainland told us he
actively sought alternatives to operating in China, but that
many of the alternatives were worse. Companies consider
moving to alternative nations as costs rise in China,
but they are entering environments which are rife with
corruption: “It would be stupid to shut our eyes and ears
to what we know is taking place. I’m not just assembling
things or chasing the lowest cost, so I am just glad I don’t
have to operate in those countries.”
Reason 5
Regulatory transparency
Taiwan has progressively put in place laws to safeguard
the interests of all business stakeholders, including health,
safety and consumer rights, to bring the country in line
with international standards.
6 Changing gears: Manufacturers take a fresh look at Taiwan
The island was ranked 16th among 183 global economies
in the World Bank’s Doing Business 2013 report, with
Singapore the leader, Hong Kong second, South Korea
eighth and Malaysia twelfth. China is ranked 91st, behind
Jamaica and just ahead of the Solomon Islands. Taiwan
also overcame earlier building regulation issues by
moving from 87th place to 9th place in the “dealing with
construction permits” category.
Freedom to conduct business is well protected under the
regulatory environment. Simplification of registration
procedures has continued in recent years. Bankruptcy
proceedings are straightforward. With no minimum capital
required, it takes only three procedures to start a company.
Monetary stability has been well-maintained and greater
alignment with China is reducing cross-nation transaction
costs and facilitating the free flow of both capital and
business professionals alike.
Reason 6
Safer, cleaner environment
The clean, fresh air of Taipei is a startling contrast with
the pollution which shrouds China’s industrialized
cities. Tucked between the mountains and the coast,
the Taiwanese capital is surrounded by green scenery
clearly visible from tall buildings. Noise pollution is also
noticeably lower.
The local workforce enjoys ready access to both mountain
and beach, attractions which also make the island a
popular tourist destination. The government is constantly
expanding the network of bicycle paths. Cultural
institutions are long-established and varied
Motor vehicles are now governed by the Air Pollution
Control Act of 2012, which formally recognized carbon
dioxide as an air pollutant – an important first step before
CO2 reduction standards are implemented for new
vehicles. The government has announced its intention to
reduce Taiwan’s carbon emission levels to 2005 levels by
2020 and to 2000 levels by 2025.
Reason 7
Free trade and
Conclusion
the China treaty
The signing of the Economic Cooperation Framework As the costs of operating in China’s coastal
Agreement (ECFA) with Beijing in 2010 was based on
cities continues to rise, and environmental
an agreement with the World Trade Organisation, and
considerably eased the rules for Chinese investors in the concerns start to present real issues,
manufacturing sector. companies are looking for alternative
Around 500 categories of goods from each country can
destinations.
now enter the respective nations tariff-free.
These factors, coupled with an increasing demand for
An example of how it works from the Taiwan side is the
manufacturing innovation, make Taiwan a viable option
sudden increase in prosperity for the Victor Taichung
– particularly for products with a high IP quotient, such
Machinery Works, whose sales to China rose by 25% in the
as precision manufacturing, semiconductor design
year following the signing of the agreement, as import
and production, IT products, medical supplies and R&D
tariffs for its large metal lathes were cut from 9% to zero.
facilities.
The company’s machine tools, which form the backbone
The attractiveness of this alternative location is
of industrial production around the world, include many
increasing as:
offshore components, including microcontrollers from
Japan. “The tariff reduction has helped us to compete on a • Skilled labor and management costs in China’s Tier 1
level playing field with Korean competitors in the Chinese cities approaches or exceeds that of Taiwan.
market,” says Victor Taichung president Bert Huang.
• Cross-strait shipping and travel becomes more
As a result of the agreement, business ties across the convenient.
Taiwan Straits are at their best level in 60 years, as
• Taiwan increases IP protection.
evidenced by China’s top securities regulator meeting
his counterpart in Taipei in an unprecedented visit earlier • Taiwan encourages more foreign direct investment.
this year. • Taiwan maintains a well-educated and
Trade liberalization is also being facilitated through pilot motivated workforce.
“free economic zones,” or FEZs set up around the major Finally, the strong economic links now being forged
ports. It is expected that these zones will collaborate between China and Taiwan through the ECFA accords
with their counterparts in China to enable joint global are providing an irresistible incentive for multinational
marketing efforts, and will attract increasing foreign direct manufacturers seeking easier access to the largest market
investment. on earth. Newcomers to the China market will find Taiwan
The payoff has come quickly. Deals by Japanese an ideal place from which to launch into the marketplace
businesses increasing by more than 60% for the first four and build connections. n
months of this year, compared with 2012, following the
signing of an investment pact last year. Taipei has also
opened economic cooperation talks with Singapore.

The free trade zones, coupled with Taiwan’s proximity to

the major ports in Asia, are a significant advantage for
manufacturers.

Heidrick & Struggles 7

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T H E L E A D E R S H I P C O M PA N Y ®

Heidrick & Struggles is the premier provider of senior-level

Executive Search, Culture Shaping and Leadership Consulting
services. For 60 years, we have focused on quality service and
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clients and individuals worldwide.

www.heidrick.com

Christopher Bates
Christopher Bates is Partner-in-Charge of our Taiwan office.
He focuses on providing search expertise to technology and
industrial clients. Chris is a career Asian business specialist,
fluent in Mandarin.

+886 2 2181 3709

cbates@heidrick.com

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