Cross-field cooperation strengthens Taiwan machine tools industry

According to the Taiwan Association of Machinery Industry (TAMI), the East Asian island has the world’s no. 1 concentration of machine tools industry, the world’s no. 2 per capita production value of the machine tools industry, the world’s no. 3 per capita consumption of machine tools and the world’s no. 4 machine tools export. In addition, the Taiwanese machine tools industry has suffered the least out-migration of any sector and is currently employing about 40,000 people.

However, its steady growth has been impacted by the US-China trade war and, more recently, by the COVID-19 pandemic. In 2020, Taiwan’s machine tools exports plunged 10% from a year earlier to 25 billion USD. The slowdown resulted from worldwide lockdowns, which led to a shrinkage in global demand for machine tools. The lockdowns also prevented business transactions by impacting the supply chain of critical components, which in turn hampered production. Fortunately, the future looks brighter. The Industrial Technology Research Institute (ITRI) predicts the Taiwanese machine tools industry to make a rebound with an annual 8% growth in 2021. 

Although Taiwan’s machinery industry has not yet reached its pre-pandemic peak, the worldwide situation should settle in the coming year, and the global economic recovery offers many opportunities. To strengthen its competitive position, Taiwan favours cross-field cooperation between the machinery industry, academic researchers and the information and communications technology industry (ICT). This collaboration is key to the further development of the smart machinery and manufacturing segment, which will significantly contribute to the realisation of Taiwan’s vision of a 2 trillion NTD output by 2025.

The Development of Taiwan’s Machinery Industry 

Compared to the Western manufacturing industry with over 200 years of history since its inception in the 18th century, Taiwan’s machinery industry is a relatively young one that only emerged after the Second World War. Notwithstanding its short history, its remarkable performance has attracted worldwide attention. Taiwan’s machinery industry developed around a satellite factory system, mainly composed of small and medium-sized enterprises (SMEs) forming clusters all around the island. This industrial structure and business model with SME as the main body, combined with an excellent domestic supply system and industrial clusters, have enabled Taiwan to construct a high-quality machinery industry. As a response to tough international competition, Taiwanese authorities launched an innovation policy to develop the industry’s high technology capacities. This policy paid off when Taiwan’s machinery industry eventually broke the one trillion NTD output value mark in 2017.

In 2019, a key component and equipment manufacturers in Taiwan began cross-field collaborations to integrate knowledge and technical capabilities of different industry segments and research institutions. Together with the ICT industry, Taiwan’s machinery manufacturers aim to provide complete solutions and business models that help their customers create value and develop production solutions. Taiwan’s machinery industry intends to fulfil all these requirements in times of flexible production needs and highly customised trends. By expanding its smart machinery capabilities, Taiwan’s machinery industry aims to increase its current output value, 857 billion NTD in 2020, to reach its target of 2 trillion NTD by 2025. 

Taiwan’s Machine Tools Industry Clusters

Around 90% of Taiwan’s machine tools industry is composed of small and medium-sized enterprises. These SMEs have established themselves in clusters that link the different industry segments. This network structure creates flexible and rapid supply chains, reducing transaction costs and guaranteeing short delivery times. There are over 1,800 machine tools and accessory manufacturers in Taiwan, which employ more than 40,000 people. This accounts for 20% of the overall Taiwanese machinery industry. The Taiwanese machine tools industry invests yearly 85 million USD in R&D and 3 million USD in technology purchases. 

About 90% of Taiwan’s machine tools and accessory industry is located in central Taiwan. In the so-called Golden Valley, production lines work quietly with hi-tech precision machines operating entirely automatically – for days and nights on end. This area is home to a continuously growing Taiwanese machine tools manufacturer using smart factories amid a worldwide push towards industrial automation. The tight connection from accessory production to machine tools assembly offers the best solution for global equipment end-users, allowing central Taiwan to become a unique global machine tools industry cluster. Meanwhile, central Taiwan is also the largest community of automation and machinery users in the manufacturing sector. Complete machine tools and accessory community and a rich experience in metal processing and manufacturing provide the competitive edge for Taiwan’s machine tools industry to fulfil global demands.

A Bright Future 

At the heart of the ICT-machinery industry’s collaboration lies the “5+2 Industrial Innovation Program” policy, which, among others, aims to develop the smart machinery segment. This industrial policy encourages new players to invest in this promising sector. Through its leading position in semiconductors, circuit boards and other high-tech products, Taiwan offers its machinery sector direct access to the newest technologies without relying on international manufacturers. TAMI recommends that machinery companies consider working closely with local electronic equipment manufacturers to train their employees and implement new technologies. If the Taiwanese machinery industry takes advantage of this situation and increases its willingness to adopt locally-made equipment, it will have a strong comparative advantage.

The rising popularity of electric vehicles has helped the machine tools industry to maintain certain normalcy during these challenging times. Machine tools needed to make vehicle parts have continued to be produced and makeup 50% of the overall market production. As the need for different components changes from traditional vehicles to electric-powered ones, many classic parts, such as engines and gearboxes, will see lower demand. Instead, gear reducers, lightweight bodies and related components will become more popular. This offers a unique opportunity for Taiwanese companies to anticipate a growing demand. Integrating robotics, IoT and cloud computing will help improve the operating efficiency of machine tools. The usage of artificial intelligence will most likely be the primary contributing key to move ahead of the competition. At the same time, augmented reality will help to improve the quality of customer service. 

All in all, Taiwan’s machine tools industry is steadily founded. Combined with the transition to smart manufacturing and the interconnection of upstream and downstream resources, the Taiwanese machine tools industry occupies an important position in the global industrial chain.