For the past nine years, Taiwan’s machinery industry has tried to break the trillion- dollar mark in terms of annual output, but so far this challenge has proven insurmountable. This year might be different. Why?
At the just-concluded 26thTaipei International Machine Tool Show (TIMTOS), Alex Ko, chairman of the Taiwan Association of Machinery Industry (TAMI), said that the island’s machinery failed yet again last year to become a trillion-dollar industry, for the ninth year in row. But he also said that breaking the NT$1 trillion mark seems more possible than ever thanks to growing demand for high-end smart machines and commercial aerospace products.
Taiwan’s Internet 4.0
In February, President Tsai Ing-wen personally went to Taichung to unveil the new Smart Machinery Promotion Office, which aims to turn the central Taiwanese city into a smart machinery manufacturing hub. The gesture by Tsai was a symbol of the government’s support for the ongoing transformation in the machinery industry.
In recent years, the island’s machinery sector has been struggling to catch up to the high-end machinery manufactured by German and Japanese competitors, even as China, with its low-priced products, was breathing down its neck.
Illustrating this conundrum is Apple’s iPhone. The machinery industry has developed a love-hate relationship with the popular smartphone because it symbolizes both success and failure. As Habor Hsu, chairman of Habor Precise Inc., points out, demand for machine tools soared after 2008 due to the iPhone, which required a large amount of machine tools for processing. Riding the iPhone wave, Taiwanese machinery manufacturers experienced an unprecedented boom.
But this quantity-driven upswing turned out to be a double-edged sword. Because Apple subsequently changed the iPhone design, and the Chinese smartphone makers began to grab market share, replacing low-end Taiwanese machinery with machine tools made in China. During peak times, manufacturers used to order 10,000 or 20,000 machines from Taiwan with one order, whereas now Taiwan does not even get orders for a single machine. “Since we went for quantity, we neglected upgrading and R&D,” says Hsu.
The competitive threat from China is forcing Taiwanese manufacturers to shift toward intelligent machines. Bert Huang, chairman of Victor Taichung Machinery Works Co. Ltd., remarks that China is now also capable of making low-priced, modularized machines, which means that Taiwanese companies will be squeezed out by their Chinese rivals unless they transition to higher-end products. Therefore, Taiwan’s machinery makers are working hard to integrate automation, workholders such as jigs and fixtures, as well as robotic arms into complete solutions. Instead of selling separate machines, they hope to sell entire production lines or turnkey plants.
The exhibits at this year’s TIMTOS showed that manufacturers are moving from single machines toward Industry 4.0 concept offerings such as entire production lines combining machining centers, sensors, robotic arms, remote monitoring, cloud computing technology and big data.
When stepping into the production facilities of CNC machine tool maker Fatek Quality CNC Machine Tools, in Minxiong, Chiayi County, one is greeted by man-high robotic arms that swiftly move aluminum alloy wheels to three nearby machine tools for further processing. Fatek is a subsidiary of Far East Machinery Co. (FEMCO).
During processing, the three machining centers automatically transmit machine parameters and wheel inspection data to the cloud so that production line managers can monitor the process real-time on their handsets.
Through real-time monitoring and quality control, Su Po-cheng, a manager at Fatek’s new product development department, can detect whether a machine is operating at optimal levels. Moreover, if a problem arises during processing, it is no longer necessary to wait until all products on the line are finished before checks can be run.
“China is rapidly catching up when it comes to selling standalone machines. Taiwanese manufacturers are all working hard to export entire plants. On top of that, companies in the iPhone supply chain also no longer buy standalone machines; they want to buy fully integrated production lines, and it's best if all machines come from your company. That’s a trend,” notes Tsai Meng-shiun, professor at the Department of Mechanical Engineering of National Chung Cheng University.
The Aerospace Dream
The second stimulus in the pursuit of the one-trillion-dollar revenue target is collaboration between the machine tool industry and the commercial aerospace sector.
In January, the Aerospace Industrial Development Corporation (AIDC) signed a memorandum of understanding with 14 machine tool manufacturers on the joint development of machine tools for the aerospace industry. The machine tool makers are tasked with proposing an improvement plan so that their machines can meet aerospace industry specifications.
The AIDC, for its part, is responsible for testing and providing suggestions as to how the machines could be modified. The AIDC will build 66 advanced jet trainers for Taiwan’s air force. While this rather small-scale project is unlikely to markedly boost revenue for the machinery industry, it could serve as a platform for manufacturers to improve quality and attract new business opportunities.
Such collaboration between machine tool makers and the aerospace industry is not just empty talk; there is already a successful example. At its Gangshan plant, the AIDC produces engine cases for Rolls-Royce and GE aircraft engines. About 80 percent of the plant’s machine park was procured from Tongtai Machine and Tool Co. Ltd. in Kaohsiung. The AIDC and Tongtai have spent 10 years on their collaboration, successfully turning the production of aircraft engine cases, which was previously firmly in the hands of European and American machine tool makers, into a domestic industry.
AIDC Vice President Bird Du points out that, no matter whether machine tools are imported or made in Taiwan, they must continuously be modified to fit certain production processes. Imported machines are expensive, and modifications are time-consuming. If domestic companies can cooperate closely with the AIDC in R&D, it will be possible to save time and bring down costs in a win-win situation for all parties involved.
Tongtai spokeswoman Yen Lu points out that the promising results AIDC has seen with the use of Tongtai machinery prove that machine tools made in Taiwan are just as good as foreign products.
Victor Taichung’s Huang believes that the coming years will be decisive for Taiwan's machine tool sector as it attempts to narrow the German and Japanese industries' lead. “If we can make that leap, we will be on a completely new level,” he predicts.
Huang is convinced that the days when quantity meant victory are over. If Taiwanese manufacturers want to survive, they “must go for quality, customization, auxiliary equipment and turn-key," he says. The entire industry can be expected to keep moving up the value chain, fueling hopes that output will finally break the one-trillion-dollar mark.