Mid-sized structures Taiwan: Rather Lose Money than Trust

If Asians want to understand the essence of German success, their frequent request is, you may want to explain them something about the “German mid-sized business”. What is the secret of long-standing market leadership? For that, they only need to take a look at Taiwan to observe successful, middle class structures.

Both of us could go into production of tool machines tomorrow and not have to produce a single part ourselves”, is the business model of many firms summarised in one sentence and also the trait of an entire industry. Be it the head of the machinery industry association, C. C. Wang, or directors and owners of Taiwanese enterprises – the argument of the shortcuts and various possibilities of medium-sized industry is cited in many conversations.

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The success of the Taiwanese industry is more significant when one considers that the competitiveness of the island industry has to manage without it own automobile industry or other large domestic clients as compared to other countries. And thus, small and medium sized companies have trained themselves to be adaptable and flexible. Taiwanese decision-makers seem to be convinced: That is the core of our success.

Production under foreign flag

It is a core brand, which is also embraced by Rock Liao. The above quotation is from the boss of Quaser Machine Tools in the Youshih industrial park in Taichung. He is running his company today as per this business model, under the motto “We cut faster”. It all started out small in the early 1990s. Two years after setting up, Liao describes the first milestone, the OEM production on behalf of a large American manufacturer, obviously without own in-house production. After the first five-axis machines from the house of Quaser, even European suppliers became interested in machines produced in Taiwan under foreign flags. Today, the owners of Quaser are operating in two modes: A third and fourth largest OEM client and machine sales under its own brand name resulted in Europe, with two-thirds share, becoming the largest market for its tool machines. As the Asian market share increases, the sales have sunk in America. Since 2009, the home market in Asia has been contributing with one-fourth of the entire business.

When Liao is asked to explain the success, he puts his hands one on top of the other and smiles. There’s a twinkle in his eye as he repeats the standard argument in a somewhat different form: “We have here an exceptional supply chain, manufacturers of measurement technology, axes, oil coolers, etc. There are a large number of suppliers here”; but he also says that “Design and mounting process make the difference. We strive for a high level of accuracy. As an example of how we achieve this, you can think of the handscraping process. That is new, but it needs a lot of manpower and diligence”. (please refer to: Handscraping Process: Process the surfaces of moving parts to optimise the sliding process). Over and above that, he continues, specific core components have been manufactured in-house in the meantime. Also, the quality of the machines produced and, thus, the success, require the detect during assembly and additional measurement steps after the first test. He adds, almost apologetically: “Since Europe is our most important market, we also use many European components. That is the reason why we are more expensive”.

The quality requirements are in the hands of the customer

According to Liao, the challenge is not just achieving the quality and precision for the first machine tests. The art is rather in achieving a precision that endures longer: “If the assembly is bad, the precision lasts only six months. That makes real-time measurement in connection with a compensation that much more important”.

In the end, however, he lays the quality requirements in the hands of the clients: In a lecture in front of 35 tool machine clients from Turkey, Liao lays particular stress on the new (quality-) features of his machine series, like the use of expensive coolant circuits. Ultimately, however, he presents his potential future customers a choice. They themselves must choose the design of the core component axis: “Taiwanese manufacturers are recommended for lower speeds”. For higher speeds, he has entered into a cooperation with the Japanese Matsuura, whose axes are however more expensive.

“For vertical machines, the offer of 30 to 120 revolutions is sufficient, and for horizontal machines - 60 to 240 revolutions”, advertises Liao in front of the visitors. But, he has no illusions about the motive of most of the Turkish guests: “Most of them are here to save on cost, and some of them are probably looking for a good compromise of economy and reliability”. When he asked as to where he would like to lead the operation in the future, the smile becomes a bit more radiant and the answer sounds evasive: “We want to grow; but it must all come together. At the moment we can produce 700 machines per year”. Not all companies in the industrial cluster along the Dadu level can produce such numbers. But then you also cannot make it to the top 10.

Some swim against the current

In the Central Taiwan cluster, which has earned the somewhat pathetic sobriquet of the Golden Valley from the local people, more than 1000 machine manufacturers and over 10,000 suppliers are settled in an area of 60km length and 14km breadth – with more than 300,000 employees. The highest production value per unit of area in the world is concentrated here and the highest density of tool machine manufacturers. One of them that swims against the current and has thus managed to enter the top ten of the tool machine rankings, is an owner-controlled company: Yeong Chin Machinery Industries, in short YCM, is the number one in Taiwan in the machining centres sector, by their own account. The company produces about 1600 machines annually and achieves a turnover of over 100 million euros, with about 700 employees.

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