CEO Forum - Q3/2003

9. Over the last few years, we have seen manufacturing shift from Taiwan to China. How have the Chinese government and businesses received this new influx of manufacturing, and do you see it continuing to flourish in China? Do you see other emerging markets? If so where?

CEO #1: Since the Chinese government has implemented the policy of capitalized socialism, they are glad to see manufacturing shift from Taiwan to China.

CEO #2: Chinese government and businesses have been receiving this new influx of manufacturing very well, and we see it continuing to flourish.

CEO #3: … India.

CEO #4: … China will be the biggest market.

CEO #5: China's government will provide lots of favorable policies to cope with the growing influx of manufacturing facilities. And I do see it continuing to flourish in China. Another emerging market will be Eastern Europe, I believe.

CEO #6: If companies are not producing in China, they are operating with a 50% higher labor cost. Production in China is a given. It is a very complicated, yet simple arrangement between Taiwan and China in terms of business.

CEO #7: Manufacturing in China has been improving a lot in the last few years. China's government and the society are now mature enough for all the rapid changes. This is where opportunity is. Generally, more and more manufacturing will shift to China, and the key to success is management. The third world is another booming market, especially the Middle East after the war, East Europe, India and S. America.

CEO #8: I believe that China will dominate in the manufacturing sector for another generation, i.e. 20 years.

CEO #9: … the emerging markets, we found India and Russia to hold potential.

CEO #10: …we will move 60% of manufacturing to China, and 40% will remain in Taiwan. Sale's revenue in mainland China remains flat so far.

CEO #11: In terms of manufacturing, China is still the best place for investment.

CEO #12: The Chinese government has planned several science and technology fields for industries, since few years ago. Passing through these years, the supply-chain is complete there, and it's not easy to be substituted in short-term. The issue, SARS, of course will force the traders' hand to review global strategies and raise risk management, but it's only a survey after all. We don't see other emerging markets now.

All of the CEOs pretty much agreed that China was the place to be over the next several years, as the Chinese government has become much more accommodating to capitalistic industries. One CEO even went as far to mention that the majority of their manufacturing will shift to China. Another said, "If companies are not producing in China, they are operating with a 50% higher labor cost." No doubt, this 50% higher overhead cost for labor is definitely going to cut into net profits, now and in the future. We don't know the exact proportion of labor cost in Taiwan to China at this time, but if this is indeed the case, manufacturing in China will be very critical to the future growth and the health of a Taiwanese manufacturer, namely those making motherboards. As it is with most things, the timing in which the shift occurs will effect the company. With costs still low in China, manufacturers understand it is good to make the transition now. Maturity in China will bring along high labor costs among other things, and this will be stumbling block for any fail to see the benefits of moving with in the next 5 to 10 years.

It isn't clear how long China will remain the hub of the manufacturing sector, but it does look like it will be for quite sometime. Three places come up as possible future manufacturing areas that hold potential: Eastern Europe, India, and Russia. A significant shift in manufacturing down the road will definitely be dependent on the economic situation of the country in question, and other supply-chain factors, such as cost of labor.