TCI/MOC Asian Chapter Summer Conference 2022: Janet Tan 'Production Service in Supply Chain: A business model incubated in Taiwan'
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EVENT: TCI Network Asia Conference 2022. ORGANIZERS: TCI Network, Microeconomics of Compettitiveness (MOC) from Harvard Business School, and Industrial Technology Research Institute (ITRI ). TOPIC: Production Service in Supply Chain: A business model incubated in Taiwan. KEY SPEAKER: Janet Tan, San Jose State University, California, USA. DATE: 1st July 2022 CHAPTER: Asia
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TCI/MOC Asian Chapter Summer Conference 2022: Janet Tan 'Production Service in Supply Chain: A business model incubated in Taiwan'
- 1. Production Service in Supply Chain โ A Business Model Incubated by Taiwanโs Entrepreneurs Janet Tan 7/1/2022
- 2. Cluster Definition โข The cluster definition was derived by โgrouping 778 6-digit NAICS industries in manufacturing and services in 2009โ (Melgado et al., 2014) โข This definition post a problem, the NAICS definition separates the production and services in a segregated the way. โข How is โProduction Serviceโ clusters differentiated? โข What is โProduction Serviceโ? โข What role does Production Service play in a supply-chain?
- 4. Production Services vs Branding โข Production Services have been sprouting after the rise of Asian production economy in the 70s. โข K-Mart contracted Taiwanโs fashion production is an early start of the production services, in the โthe Asian Miracleโ of export-led growth from the 60s (Hamilton et al., 2007, Introduction). โข Both Taiwan and S. Koreaโs economies have developed from the same period, but โข Taiwan differs from S. Korea that Taiwan focus on production services, and S. Korea focus on branding approach. E.g TSMC vs Samgsung
- 5. Definitions โข Branding (Jevons, 2005) โ many definitions โข Supply-Chain โ division of labor and expertise โข Production Service โ enabling Blue Ocean strategy for customers to compete
- 6. Taiwan โ Started Electronic Production Service Business Model in Supply-Chain in the 60s โข Taiwan started its Export-led economy (Production Service) in its 60s. โข Kmart sourced it clothing products from Taiwan. โข Started ITRI (technology research center) focusing on Electronics and Hi-tech market. โข In the late 60s, scholars migrated to US and Europe to acquire knowledge and gain experience. โข Foxconn (Hon Hai) started in 1974 producing precision machinery for businesses to produce electronic components to earn export income. โข In the 80s, Taiwan earned โthe Computer Kingdomโ reputation and COMPUTEX TAIPEI (started in 1981) is still being hosted every year. โข Semiconductor cluster was incubated in the HsingChu science park. TSMC was born along with several other companies. โข In the 90s, flux of scholars returned and were recruited in academic and commercial sectors.
- 7. Success and Economic Contributions of the Production Service Business Model โข 15 years growth (CAGR) โข Over 93% of Manufacturing Business are in Production Service (non- branded), and 84% of products manufactured are exported. โข 2 strong cluster for both employment and revenue: Information Technology and Analytical Instruments (IT) and Distribution and Electronic Commerce โข 56% of IT revenue is from Semiconductor (4.26% of Taiwan Total)
- 8. -50.00% -40.00% -30.00% -20.00% -10.00% 0.00% 10.00% 20.00% 30.00% 0 100000 200000 300000 400000 500000 600000 700000 800000 900000 Employment Growth (2006-2016) Employment (2016) Employment CAGR (2006-2016) Linear (Employment CAGR (2006-2016)) -50.00% -40.00% -30.00% -20.00% -10.00% 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 0 2E+09 4E+09 6E+09 8E+09 1E+10 1.2E+10 1.4E+10 1.6E+10 Revenue Growth (2006-2016) Revenue (2016) Revenue CAGR (2006-2016) Linear (Revenue CAGR (2006-2016))
- 9. Apparel, 0.34% Automotive,0.92% Biopharmaceuticals,0.18% Business Services, 1.67% CommunicationsEquipment and Services, 0.92% ConstructionProducts and Services, 2.55% Distribution and Electronic Commerce, 2.06% Downstream Chemical Products,0.60% Downstream Metal Products, 0.59% Education and KnowledgeCreation, 0.29% EnvironmentalServices, 0.19% Financial Services, 2.14% Fishing and Fishing Products, 0.04% Food Processingand Manufacturing, 1.25% Footwear, 0.08% Furniture, 0.15% Hospitality and Tourism, 0.48% Information Technology and Analytical Instruments, 7.54% Insurance Services, 6.40% Jewelry and Precious Metals, 0.07% Leather and Related Products,0.02% Lighting and ElectricalEquipment,0.74% LivestockProcessing,0.15% Marketing, Design, and Publishing,0.67% Medical Devices, 0.13% Metalworking Technology,0.94% Nonmetal Mining, 0.04% Oil and Gas Production and Transportation,0.00% Paper and Packaging, 0.38% Performing Arts, 0.06% Plastics,1.90% Printing Services, 0.22% Production Technologyand Heavy Machinery, 1.62% Recreationaland Small Electric Goods, 0.81% Textile Manufacturing,0.77% Trailers, Motor Homes, and Appliances, 0.54% Transportationand Logistics,1.40% Upstream Chemical Products, 3.90% Upstream Metal Manufacturing,2.59% Video Productionand Distribution, 0.09% Vulcanizedand Fired Materials, 0.55% Water Transportation,0.71% Wood Products, 0.09% -5.00% 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% -50.00% -40.00% -30.00% -20.00% -10.00% 0.00% 10.00% 20.00% 30.00% Revenue Shares Revenue CAGR (2006-2016) Revenue Composition (2006-1016) 4.26% of total revenue is from Semiconductor, and 56% of IT revenue is from Semiconductor 4% of total revenue is Production Service Cluster. Electronic parts ,components, computers, and optical parts. 38% of IT. And others
- 10. The Most Important Clusters is IT: โข Information Technology and Analytical Instruments โ Semiconductor Foundry (TSMC) and Electronic Manufacturing (Foxconn) are both in this cluster. โข Manufacture of Electronic Parts and Components and Manufacture of Computers, Electronic and Optical Products produce 38% of manufacturing revenue โข 84% of Semiconductor revenue is production service to customers who needs a customized ASIC chip, and 80% of those are exported. โข 4% of total revenue is Semiconductor product that are branded by Taiwan which is half of the IT cluster.
- 11. IT is important for Taiwan, and Semiconductor is the core value for Taiwanโs Production Service Business model โข Semiconductor industry produces 10% of total manufacturing revenue out of 9% of manufacturing labor pool. โข According to 2016 Taiwan Census Data, 93.18% of Semiconductor Manufacturing is non-branding products and 80.40% of the non- branding products are exported. Only 1.35% of Semiconductor companies are self-branding.
- 16. Semiconductor Foundry Service Model
- 17. Comparison on Electronics and Semiconductor Production Services 2022 TSMC Foxconn Revenue 491.08 B (TWD) 23.55 B (TWD) Net Income 202.73 B 845.14 M Net Profit Margin 41.28% 3.59% Stock Price 87.26 (USD) 54.6 (USD)
- 18. Diamond Analysis Firm Strategy, Structure, and Rivalry Demand Conditions Related and Supporting Industries Factor Conditions Gateway of Pacific Ocean, Hardworking culture, low wages, safe healthcare, highly educated population, Weakness: not good at marketing and English deficiency. Transportation & Logistics (ocean freight), e.g. Evergreen, Strong Precision Machinery & Equipment Production Machinery and Production Technology with high demand by the export-led economy. Trades demanded by Japan, Europe, and America. Foundry business provides semiconductor production services for all ASIC chip developer to compete in their market spaces. Foundry services as a supplier and help their customers to compete with the Blue Ocean strategy. R&D in foundry production technologies creating high barriers for competitors to compete. Government Policy: Created Technology Parks and Research Institution (ITRI) with tax incentives and built infrastructure in the 70s for Economic Development, especially for high-tech.
- 19. Taiwanโs national competitiveness โ S & W โข Taiwan has established the Production Service Business Model that is a winning strategy and suitable for the local social and economic conditions. โข Language limitation โW โข 98% SMEs โ S & W โข Low salary level โ S & W โข Knowledgeable human resources -S โข Hardworking - S โข Obedient โ S โข High workmanship -S โข Innovative -S โข Democracy & Free Economy -S โข Government policies and the building of infrastructure in the 70s โ S
- 20. Opportunities and Threats โข Opportunities โข The rise of electronic and computer industry โข Globalization โข Fast development of Transportation and Logistics Industry โข Threats โข East Asian Tiger's competitions โข Rise of China โข Regional Competition โ ASEAN, Korea, Japan
- 21. Strengths: Knowledgeable human resources Hardworking High workmanship Innovative 98% SMEs Democracy Seasoned & highly educated policy makers Weakness: Language limitation Sales/marketing Opportunities: The rise of electronic and computer industry Globalization Fast development of Transportation and Logistics Industry Threats: East Asian Tiger's competition Rise of China Regional Competition โ ASEAN, Korea, Japan Taiwanโs National Competitiveness โTSMCโs strategy is to build competitiveness based on Taiwanโs strengths the global opportunities.โ by Morris Chang (TSMC founder)
- 22. Taiwanโs Success โข Foxconn โ service branding โข TSMC โ service branding โข Giants โ product branding (very small percentage, part of 2% total brands) โข Many hidden champions in the local villages, mostly production service companies โข Production service has been a proven strategy for Taiwanโs economic contribution to the world.
- 23. Challenges for Cluster Mapping To Analyze the Production Service Business Model โข Production Machinery, Electronic Components, and Semiconductor industries are qualified in the NAISCโs code as the manufacturing industry, not the service industry โข Since Cluster Mapping is using the NAISC code to categorized Information and Manufacturing clusters. The Production Service clusters are blended in the manufacturing clusters. โข Redefinitions are needed for Production Service, and it is an essential part of supply-chain business models.
- 24. Q & A โข Thank you!