Toshiba's Chinese plans put pressure on Taiwan firms

Toshiba's plan to manufacture notebook PCs in China will increase pressure on the government to let Taiwan's manufacturers follow suit, say industry observers. Foreign companies, such as Toshiba, order billions of dollars worth of notebook PCs from Taiwanese manufacturers every year. The Japanese company's new factory, near Shanghai, will take advantage of lower labor costs, and better access to the growing local market - both benefits that are denied to Taiwanese manufacturers by the island's own government.. Government restrictions on technology transfer and investment prevent Taiwan's notebook vendors from manufacturing in China. "I think increasingly the restrictions will be lifted, especially after the election next March" said Christine Lee, a notebook industry analyst at Merrill Lynch in Taipei. "We don't know if other foreign companies will also start manufacturing in China," commented Henry Wang of Acer, one of Taiwan's largest notebook makers, "it really depends on costs. Setting up a plant in China is expensive." He conceded that if initial ventures like Toshiba's were successful, others would follow. Analysts agreed with Wang that making notebooks in China may not be as simple as it seems. Taiwan, which makes almost half of the world's notebook PCs, has an established components supply chain. Key notebook components, such as LCD screens, are increasingly being made on the island. Christine Lee pointed out that initial production at Toshiba's Shanghai plant would be quite low, compared to Taiwanese manufacturers' output. The factory will produce about 110,000 notebooks next year, rising to 370,000 in 2004, according to Toshiba. Acer's planned output next year is 2.5 million, said Henry Wang. Toshiba, which has traditionally made its notebook PCs in house, has recently begun outsourcing some work to Compal of Taiwan. Compal executives did not return calls yesterday. According to Japanese press reports, Toshiba's Chinese factory will manufacture models from its full range of notebook computers, possible including products similar to those made by Compal. Set to begin operations next April, the Shanghai factory, situated in a high-technology park in the Pudong zone, is 90 percent owned by Toshiba or its subsidiaries. Taiwanese companies are making plans for the day when government restrictions are lifted. "If the government changes its policy, we may set up notebook production in China," predicted Henry Wang of Acer. One of Acer's competitors, Twinhead Corporation, has already built a notebook PC factory in mainland China. Currently it is making keyboards and other components, however a Twinhead executive said earlier this year that production lines could be switched to notebook production when regulations are changed. ®