I. Introduction
The machine tool industry of Taiwan has been exceling in terms of output and export figures, namely one of the largest machine tool producers and exporters in the world [2][4][6][7]. It started 1940s and went through rapid expansion during 1960-1970s [5] while makers began to sell their products to Southeast Asian and the low-end U.S. markets [3]. Since 1969, the total production of machine tools in Taiwan has grew more than 400-fold [2].
Some of the early pioneers including Yang Iron (the first numerically controlled (NC) lathe in 1974) and Yoeng-chin (the first NC milling machine in 1979) [5]. The quest for NC machines resulted in the remarkable increase in the share of NC machines in the total value of production from 7% in 1983 to 28% in 1990 [5].
The initial development relied on intimating imported products, allowing new comers to join the market with little technology breakthrough [4]. As observed most of the MT firms at beginning were by shared investment of a small group of founding partners, consisting usually of fewer than five people [5]. However, the mutual learning of new technology under Taiwanese societal context and its subsequent unique subcontracting supplier-buyer relationships [2] have resulted in a complete production system in Taiwan [6].
Today, there are about 1,200 companies in Taiwan in machine tools or related components [4], 88% of which are mid- to small-scale manufacturing factories with capitalization under NT$ 60 million and fewer than 100 employees [6]. In terms of plants concentration, Taiwan’s machine tool industry is 76% made up of cutting machine tool plants and is concentrated in Taichung area [4][5], with a degree of concentration of up to 55% [6]. Look into the product dimension, Taiwan has an output ratio of 66:34 between cutting machine tools (numerically controlled lathes command the highest price) and forming machine tools [6].
II. Mutual learning of new technology
The proximity of cluster around Taichung city has enable top management to meet regularly to increase the supplier’s understanding of the selected strategies and create confidence in the information concerning quality and technical aspects [7].
It is also an advantage for MT firms to visit local users who might have purchased foreign advanced machine tools for sophisticated processing. MT firms can access those users’ knowledge and experience of using imported products by taking advantage of their relationships with the machine owners to get a “inside look” [2].
Moreover, local users assist MT firms in machine testing.
“The workers of their user firms would be more experienced in operating machine tools than the MT firms’ own engineers and therefore could more effectively detect the flaws of new machines. At the same time, in these local users’ metalworking shops, the functionality and reliability of a new machine could be tested in situations that cannot be simulated in MT firms’ in-house testing. As these Taiwanese local metal working shops are known for operating their machines in harsh conditions, such as working around the clock and using machines to perform various processing procedures, MT firms can expect their new models to receive the strictest testing in their users’ workshops, helping to optimize the final products.” Chen, L. C. (2009)
III. Subcontracting supplier-buyer relationships
The industrial structure composes of central factories and suppliers. Central factories focus on research and development, manufacturing, and sales of machines, but its components are generally all obtained by cooperating suppliers [4]. As evidence shows,
approximately 62% of the total operating cost for a plant arises from its suppliers [7].
“The involvement of the supplier in design activities involves design simplification and product modularization, component standardization, the choice of material, production cycles and processes. Supplier development activities consist of site visits and training or education, which provide advisory assistance concerning equipment,
operating methods and quality systems to increase the supplier’s awareness and help the supplier improve its capabilities.” Yeh, C. C., & Chen, C. F. (2012)
The common practice observed by literature contains JIT purchasing, long-term relationships, and the two-way sharing of information [7]. Long-term relationships with suppliers that are geographically closed to the plants assure that they meet the time requirements of the customers and realize JIT procurement, specifically frequent and reliable deliveries which synchronized with the plant’s production schedule [7].
IV. Opportunity
Although mutual learning and long-term relationships have allowed Taiwanese MT firms to success, in terms of technology or product development, there has been almost non-existent [2].
“Despite the fact that Taiwan’s machine tools output ranks sixth in the world, Taiwan still has an import dependence of 50–60% for machine tools, 80% of which are cutting machine tools […] The reason for importing such machine tools are their superior quality.” Yeh, C. C., & Chang, P. L. (2003)
Foreseeing the commercialization of 3D printing, it is vital for business owners to find a strategic position for their survival.
“the machine tool industry which generally lacks for research and development capabilities.” Lai, Y. L., & Lin, F. J. (2012)
Although some initiative of university – industry cooperation for R&D in the recent years was mentioned in literature [1], no further results prove its effectiveness.
V. Reference
[1] Arnold, H. (2001). The recent history of the machine tool industry and the effects of technological change. Münchner Betriebswirtschaftliche Beiträge, 14.
[2] Chen, L. C. (2009). Learning through informal local and global linkages: The case of Taiwan’s machine tool industry. Research policy, 38(3), 527-535.
[3] Hattori, T., & SATŌ, Y. (1997). A comparative study of development mechanisms in Korea and Taiwan: Introductory Analysis. The Developing Economies, 35(4), 341-357.
[4] Lai, Y. L., & Lin, F. J. (2012). The effects of knowledge management and technology innovation on new product development performance an empirical study of Taiwanese machine tools industry. Procedia-Social and Behavioral Sciences, 40, 157-164.
[5] Sonobe, T., Kawakami, M., & Otsuka, K. (2003). Changing roles of innovation and imitation in industrial development: The case of the machine tool industry in Taiwan. Economic Development and Cultural Change, 52(1), 103-128.
[6] Yeh, C. C., & Chang, P. L. (2003). The Taiwan system of innovation in the tool machine industry: a case study. Journal of Engineering and Technology Management, 20(4), 367-380.
[7] Yeh, C. C., & Chen, C. F. (2012). An empirical study of buyer-supplier relationships in the Taiwanese machine tool industry. South African Journal of Business Management, 43(1), 69-75.