Abstract

In the 1970s, Taiwan entered the PC industry, starting with motherboard production. Over the following twenty years, Taiwanese players steadily established a complete industry cluster on the island, culminating with the recent success of IC design houses VIA, SIS, and ALI. As worldwide PC growth rate plateaued, Taiwanese motherboard, notebook PC, peripherals, and PDA makers looked to diversify their businesses, investing in mobile phones.

Taiwanese players initially got their foot in the door by assembling handsets, then moved on to major components, and more recently GaAs PAs, from design to fabrication, packaging, and testing. Currently, they are developing RF IC modules, which will complete the mobile phone industry cluster in Taiwan, apart from baseband solutions, which are still dominated by worldwide leading suppliers. The establishment of this entire industry cluster has come about with astounding speed.

One issue facing the Taiwanese mobile phone industry is a lack of wireless R&D professionals. Many players have already set up design centers in the Korea, Japan, and the United States to address this state of affairs.

Another challenge for Taiwanese players is China. Due to the restrictions imposed by the Chinese government, Taiwanese mobile phone businesses have been establishing joint ventures in China. While these joint ventures give Taiwanese makers access to China`s cheaper production costs and tremendous potential market, they also help Chinese players to improve their operations more quickly. The result is that Chinese makers will be able to compete with Taiwanese makers sooner rather than later, in terms of manufacturing.

Taiwanese makers supply Chinese companies with CDK/SKD handset kits because final assembly costs in China are lower; this strategy also allows them to avoid import tariffs. This cooperative relationship enables Taiwanese firms to concentrate on the development of state-of-the-art products. As mobile handsets are increasingly used for data transmission, Taiwanese notebook PC makers who already have experience with this technology as well as miniaturization, such as Compal, Inventec, and Quanta, will have an advantage. In 2002, and subsequent years, Taiwanese mobile phone makers will put more effort into upgrading their technological capability in designing the latest generation of mobile handsets to collect higher value out of their ODM business.

Following admission to the WTO, the Chinese government will still regulate commercial activities and investment through non-tax measures, such as importation approval (Pi-Wen), which was used in conjunction with a high import duty in the 1990s to restrict PC imports. Although import tariffs will be lower, the overall impact on the Chinese mobile handset industry will not be that significant. Until the Chinese government removes all crutches propping up local players, foreign vendors and Chinese companies will not be competing on a level playing field, but this will not happen until 2003 or 2004.

Chinese vendors will not threaten international vendors during the short term. Mobile phones are still a status symbol in China, with a premium placed on brand name, so international vendors still have a distinct advantage. When users` perception of mobile phones becomes more similar to that of consumer electronics, the market share of Chinese players will increase. At the present time, the main challenge for Chinese makers is how to catch up in the areas of industrial design and marketing expertise.