High quality, low price: Taiwan’s recipe for machine tool success

TAIPEI, Taiwan—Sometimes perception is a hard thing to shake.

It’s often easier to assume something to be true than to find out for yourself.

Welcome to Taiwan, and the biggest problem facing its machine tool industry.

If you assumed the country’s industry is chock-full of low-cost, low-quality machines you’re probably not alone.

You’re also at least half wrong.

Located about 180 kilometres off the coast of mainland China, the tiny island nation of Taiwan—officially known as the Republic of China, or Chinese Taipei in trade circles—is home to about 23 million people and factories as far as the eye can see.

How far the eye can see is, of course, variable.

As one of the most densely populated and heavily industrialized countries on earth, it’s safe to say pollution is a problem.

With plants pumping out everything from semiconductors to cement in what seems to be every available space from Taipei to Tainan, a literal cloud seems to hang over the island at all times.

Cut through the smog, however, and you will find a vibrant and valiant group of machine tool makers set to take the world by storm and change the global perspective on what ‘made in Taiwan’ is all about.

Perception problem

Ask any one of Taiwan’s machine tool builders, and they will likely tell you they are not surprised there’s a global perception deficit when it comes to what the nation’s industry has to offer.

The country’s reputation as a high-quantity manufacturer of standardized products precedes it and seems to transcend all industries.

From matchbooks to machine tools, Taiwan seems to rank somewhere near China and India when it comes to how its goods are viewed by the West.

Whereas Japan and Germany have reputations for precision and quality, Taiwan is consistently cast as a maker of all things crude and cheap.

A trip to any of the country’s machine tool builders would surely change that perception in a hurry.

From floors you could eat off of to work stations organized like surgery rooms, the industry is built on the Japanese principles of just-in-time manufacturing.

The only variation from one company to the next is who can come up with a more creative or effective way to organize work flow.

Each build is marked by destination country and customer; all tools and materials have their respective homes; and all facilities are barrier-free to ensure work is completed easily and effectively.

On a recent tour through a host of Taiwanese firms there was a sense of transparency not typical for these kinds of visits—and for good reason: They’ve got nothing to hide.

In fact, they have a whole lot to brag about.

Constructive cooperation

For Taiwan’s machine tool industry, collaboration is key.

Living in the shadows of mainland China has a way of breeding that culture of cooperation.

Made mostly of small and medium-sized firms, the industry lacks the individual clout to compete with the world’s largest companies one-on-one, relying instead on a collaborative approach that sees rivals become friends in a bid for survival.

That cooperation has allowed the industry to not only survive but thrive, forging a path to becoming the sixth-largest machine tool manufacturing country and the fourth-largest machine tool exporting country in the world on the back of high quality and low price.

And, of course, collaboration.

As industry watcher Giant Chang puts it, in the marketplace Taiwanese firms are competitors, but on home soil they are partners, working for the greater good of the industry as a whole.

It’s a unique formula, and one that doesn’t work for every country—or even every industry—but it works for the Taiwanese machine tool industry and its customers, driving innovation while keeping prices low.

Perhaps the best example of collaboration at work in the Taiwanese industry is through the so-called M-team, a group of 34 machine tool builders and suppliers that uses its collective size to negotiate deals with suppliers and garner global attention usually reserved for more reputable firms.

Established in 2006, the M-team doesn’t only benefit builders and suppliers, but end-users, too, as the group approach to business helps drive down prices while improving quality across the board.

Aside from the improved quality and cost synonymous with all members of the M-team, customization seems to play an integral role from one company to the next.

Gifu Enterprise Co., Ltd., a Taichung-based firm specializing in automatic tool changers, estimates that more than 80 per cent of its orders are custom-built for clients.

It’s a step not many companies are willing to take, but a necessary one for companies clamouring for attention in a national industry made up of more than 1,000 firms.

Sizing up the competition

For some of Taiwan’s larger machine tool firms, M-team membership isn’t necessary, as they can use their respective size to command the same cost control over suppliers.

Those suppliers, its important to note, are the same ones that supply parts and systems to M-team members, another spin-off of the close quarters and cooperative approach unique to Taiwan.

The biggest machine tool builders of the bunch in Taiwan—namely the Tongtai Group, made up of five firms, and the Goodway Machine Tools Group, a trio of machine builders led by industry veteran Edward Yang—leverage their respective sizes just as well as the collective M-team, but benefit from one-on-one negotiating power and cost control that stays in a single boardroom.

And they all seem to focus just as hard as their smaller colleagues on quality.

YCM produces its own castings at an in-house foundry to ensure quality. PHOTO Dan Ilika

Whereas a small firm like Quaser Machine Tools Inc. has taken to manufacturing its own spindles to ensure top quality throughout its entire lineup of products, Taichung-based Yeong Chin Machinery Industries Co., Ltd. (YCM), a do-it-all, CNC-making powerhouse, takes it to the next level, even producing its own castings in a bid to control every last aspect of quality.

YCM chairman and chief executive Bryan Chen estimates his company makes 70 per cent of the components used in its machines in-house—including spindles and castings—to minimize the potential for poor quality.

The company has even developed its own operating software that runs on third-party controllers in an attempt to ensure customers get YCM-level quality from top to bottom.

Chen calls it customer-driven research and development—his firm only focuses on what customers want and need, and does it all on the same campus.

“We like to see each process controlled,” Chen said on a tour around his company’s ever-expanding facility. “It’s a very complete supply chain around here.”

Honor Sekei Co., Ltd., of which the Tongtai Group owns 50 per cent of, has also taken to manufacturing its own spindles to bolster quality, and for the family-run operation the numbers don’t lie: only three spindles of the 500 or so it has produced over the last two years have been sent back for defect-related issues.

It’s a commitment to quality across the board you’d be hard-pressed to find anywhere else in the world, and one that makes Taiwan a bang-for-your-buck sleeper among other, more high-profile machine tool producing countries.

Stuck in the middle

Taiwan’s machine tool industry finds itself somewhere in the middle of the pack, it seems.

There’s no mistaking the matter-of-fact approach these businesses take to the global market.

They know they can’t compete with machine tool builders from Germany or Japan on reputation; where they see an opening, however, is with a uniquely Taiwanese combination of quality and price.

And that combination is hard to argue with.

Many of these companies pride themselves on the fact they have learned from the best before building their own machines, utilizing Japanese and German solutions and technology in a low-cost package not available from those countries.

In fact, a number of Taiwan’s machine tool builders, including Quaser, which president Rock Liao estimates produces about 20 per cent of its machines under contract for Japanese, German and American firms, actually manufacture branded machines under contract for some of the world’s biggest and most highly regarded machine tool builders.

Living in the shadows China is a tough spot to be in, but for many Taiwanese firms it’s a relative sweet spot to work from as they continue to hone the craft of delivering high quality and low cost products to a rebounding global market.

For Taiwan, there’s a perception deficit the world over of what the island nation has to offer.

Left in the hands of the country’s machine tool builders, however, and it won’t be long until the global view of ‘made in Taiwan’ changes for good.