Machine Tools Take Center Stage at Manufacturing Technology Show
The Bureau of Foreign Trade (BOFT) announced the launch of a new integrated marketing project for the machine tools industry at the “Taiwan Machine Tools Future Innovation Conference,” hosted by the MT Duo 2014 Taipei Manufacturing Technology Show, which ran from May8-11 at the Nangang Expo Center. The biennial MT Duo showcases the machinery manufacturing industry, and runs on alternate years withTIMTOS, which focuses specifically on the machine tools manufacturing industry.
Entitled the “Integrated Marketing Communications Project for the Taiwan Machine Tool Industry,” the new project is aimed at supporting an industry that has recently gained more attention from investors and government officials alike as both groups look for ways to jumpstart Taiwan’s lackluster economic growth.The machine tools manufacturing industry is much smaller than Taiwan’s leading industries in ICT and petrochemicals, but tiny, more nimble machine tool makers havedemonstrated their capacity to generate higher margins than commodity manufacturers. Comprised almost entirely of SMEs located in a 60 square kilometer section of Taichung said to be the world’s most intense machine tools manufacturing cluster, the industry employs over 300,000 workers and has earned a reputation for cross-industry collaboration that allows for customized production at lower costs. And despite many firms’ lacking R&D budgets in an industry that increasingly rewards innovation, Taiwan manufacturers have nevertheless managed to maintain product quality and competitiveness.
But the industry is not seen to have developed similar prowess in marketing.
“95% of Taiwan’s (machine tools makers) don’t know anything about marketing,” says Matt Yen, marketing manager for Far East Machinery Co. (FEMCO), one of Taiwan’s leading machine tools maker and a speaker at the conference.
BOFT’s project is intended to address this shortfall. According to the BOFT, the integrated marketing communications project aims to “bolster the image of Taiwan as major global supplier of machine tools” through promotional activities such as product demonstrations at trade shows, press conferences and technology forums. BOFT also promises that the marketing project will help companies penetrate foreign markets by providing local makers with extensive market research findings. A new logo was generated, spelling out the word “Taiwan” from various machine appendages, and a promotional video is said to be on the way that will effectively express the value of Taiwan’s machine tool industry to the world.
The industry generated exports worth US$3.5 billion in 2013, a 16% decline from 2012’s US$4.23 billion but still earning the island fourth place in the global machine tools exports trade, and the Taiwan Machine Tool and Accessory Builder’s Association (TMBA) is forecasting 15% growth in 2014. The top destinations for Taiwan’s machine tools exports are China, the United States and Thailand.
Taiwan’s machine tools makers generally sell their products under their own brand names, in contrast to many local manufacturers that produce within a contract manufacturer business model. As a result, machine tool makers earn higher margins, but the sheer number of similar players operating in similar markets – Taichung has over 700 makers of metal cutters alone—makes it much harder for brands to differentiate themselves and build brand value, according to FEMCO’s Yen. He added that while Taiwan’s industry has long been in the shadow of industry giants from Japan, it was now being eclipsed by South Korea as well.
How the new marketing communications project will address the issue of too many brands remains to be seen, but the government will not likely push for consolidation in the industry.
Machine tools are one of Taiwan’s oldest industries, with over 60 years on the island. Most of the companies are family owned, with fathers passing down their companies to their sons, and many companies are now into third and fourth generations of single-family ownership. Pushing them to consolidate will likely prove difficult, everyone agrees. “It’s the culture,” admits Yen. “Everyone wants to be the boss.”
To compensate, the Taiwan Corporate Synergy Bureau in 2006 brokered a deal within the machine tools industry to deepen collaboration between players, allowing them to act collectively as a virtual vertically integrated manufacturer. Dubbed M-Taiwan, the effort invited larger machine tools manufacturers including Victor Taichung Machinery Works Co. and Yeong Chin Machinery Industries Co. to participate in the program.
With over 1,000 employees, FEMCO is one of Taiwan’s biggest machine tools makers, and was invited to participate. But FEMCO balked at joining when it realized that membership would entail technology sharing, which Yen said was a key advantage held by the company and something it was unwilling to share. Although the machine tool industry is lauded for its focus on collaboration and close bonds among factory owners, insiders throughout MT Duo admitted that the industry is also intensely competitive and that collaboration often consists of little more than sourcing parts from a neighboring factory.
FEMCO’s reluctance to share IP points to another shortfall in the SME nature of the industry – a lack of budget to invest in R&D. FEMCO has an R&D team of over 40 that Yen says allows the company to stay abreast or even ahead of the latest technology. But most machine tools makers have much smaller R&D teams and rely on technology developed by larger partners, including multinationals and local players, as well as technology already widely available and technology generated by Taiwan’s public-private research centers. The Precision Machinery Research and Development Center (PMC) conducts R&D into machine tools in partnership with local firms, and rewards the partnership with patent licensing and product development. The much larger Industrial Technology Research Institute (ITRI) also does some work in machine tools.
The machine tools manufacturing industry was selected by the Industrial Development Bureau (IDB) under the Ministry of Economic Affairs (MOEA) for inclusion as a “service oriented manufacturing industry” in a flagship “Four Transformations of Three Industries” program.
The thrust of the program is for manufacturers to switch focus from simply selling a product to selling a manufacturing solution that can integrate various stages of the production line and include service.
However, doubts persist as to whether Taiwanese makers can reach this level of sophistication. According to Siemens’ Henrison Fan, product specialist in Siemens Taiwan’s Taichung office, Taiwanese firms don’t really understand automation in a 365-degree way, as Taiwan’s industry remains fairly low-tech in comparison with sophisticated industrial centers like Germany, Japan, and the United States, and all equipment is for export so there’s very little experience in monitoring use of the machines they sell. Some 78% of Taiwan’s machine tools are exported, higher than the world-leading exporters Germany, Japan and Italy but not as high as fifth place Switzerland at 86%.
“In terms of single machines, (Taiwan machine tool makers) are just a little bit behind,” Fan says. But in terms of integrated solutions, “they need more experience with advanced technological manufacturing.”