CAD business in Taiwan, Japan, Korea

Disclaimer: This document was created in 2000; the data is provided 'as-is' with no warranty implied or otherwise.

i. General Economy

Taiwan is a small island off the coast of mainland China. Its land area is approximately equal to the combined area of Delaware and Maryland and it's population is a dense 22 million. Taiwan may be one of the smallest industrial nations in the world but its economy is in overdrive, averaging 7.0% per annum increase in GDP throughout the past three years (1997/8/9) and a 1999 trade surplus of US $10bn.

Taiwan's industry tends toward high-tech and precision manufacturing: it dominates the global computer peripherals and precision machinery markets. It is the only Asian country to have had continued growth through the "Asian flu" financial turmoil of the past three years and the government's continued investment in high-tech, and relaxation of business regulations, is likely to ensure Taiwan's continued success.

The major unknown in Taiwan's future is the continuing cross-strait dispute between Taiwan and the People's Republic of China. That issue is outside of the scope of this analysis except to note that a positive resolution would position Taiwan as an excellent alternative (to Hong Kong) gateway to the Chinese market.

ii. Manufacturing Market

Manufacturing accounts for 40% of Taiwan's national output. The major industries are electronics, computers, plastic injection molding, precision machinery (including mold and die), automotive components, textiles and shipbuilding. Most of the world's computer cases, motherboards, peripherals and notebooks are made and assembled in Taiwan. Already #1 in each of those markets the percentage of global market share continues to rise annually. Companies like AsusTek, Acer and Hon Hai Precision Engineering have ridden the global PC boom to become #1 in motherboards, OEM computers and PC connectors respectively: numerous other Taiwanese companies are in the global top 5 of their industry. A stated objective of the Taiwanese government is to build a similarly successful aerospace industry.

Taiwan has more than 30,000 manufacturing companies according to the China External Trade Development Council "CETRA". Some are major companies, such as Acer, Mag and Tatung, but over 80% are SMEs with capitalization less than US $350,000 and fewer than 100 employees. Taiwan has more than 3,100 mold and die manufacturers; 99% of which are SMEs with less than 100 employees, which support the domestic manufacturing base and a huge export market.

Key point: SMEs (small and medium sized enterprises) are a distinguishing factor of Taiwan's market dynamics, resulting in a very adaptive, fast moving and aggressive manufacturing environment.

iii. Internet Market

Taiwan has a relatively advanced Internet infrastructure. The small geographic area of the island nation makes land-based connection via cable, fiber optic and digital subscriber line very cost effective. Taiwan has more than 900 ISPs and at the end of 1999, 4.5 million (16%) of the population was online with more than 55% making multiple daily accesses. Taiwan's government has a very active program of Internet infrastructure development guided by the National Information Infrastructure "NII" think-tank (*2004 note - NII was renamed Industrial Technology Intelligence Services).

US based Network Wizards estimates the number of connected Taiwanese hosts (a measure of supply side dynamics) to be #7 worldwide and #3 (behind Japan and Australia) in Asia. In the second half of 1999 the number of Taiwanese host computers increased by 30% and the rate is accelerating. Most Taiwanese Internet usage is presently by analog modem (≤56kbps) with cable broadband increasing. The adoption of broadband technology will accelerate dramatically through the next two years as three new fixed network telecoms go online at the end of 2000. Coupled with a new nationwide fiber-optic network average bandwidth is promised to increase to 1.5Mbps during 2001 and 10Mbps by 2003 (*2004 note - as of today, May 16, 2004 the Taiwan's HiNet ISP is listing maximum ADSL as 1.5Mbps, very slow compared to Japan's now ubiquitous 12Mbps - 40Mbps ADSL and 100Mbps fiber-optic!).

Browsing Taiwan's Web sites indicates that the manufacturing industry is very aware of the global access value of the Internet. Taiwan's trading nation status is reflected in a large number of online B2B exchanges generally focused on buyer-seller and inventory transactions. Whilst there are also many industry association "community" sites that provide virtual hosting of member Web "pages", individual manufacturers do not have especially well developed Web presences. Most manufacturers who do have a direct Web presence seem to have content and look-and-feel 2 - 3 years out-of-date: maybe there was an Internet-rush in 1997-8. In general the impression is that B2B content is presently lagging behind infrastructure.

Key point: Recognizing the importance of Internet based supply chain management "SCM" technology to the Taiwanese economy, the NII is promoting a five year "Industrial Automation and Electronic Business - iAeB" program thru' December 2004. The program goal is to create 200 supply chains spanning 50,000 companies and to provide financial support to 2,000 companies to enable the acquisition of relevant technology. Manufacturing is one of the industries targeted by the iAeB program.

iv. CAD CAM Software Market

Taiwan's domestic software industry is strong in CG (Ulead and CyberLink for example are both Taiwanese) but very weak in 3D CAD software. Most software developed in Taiwan tends to be commodity level software for bundled sales with the PC graphics cards, scanners, sound cards etc. produced by Taiwanese manufacturers. With few exceptions most CAD CAM software is imported from Europe and the US. There are a number of small (5 - 10 person) local CAD CAM developers most of whom seem to focus on customization of imported CAD CAM software.

Taiwanese manufacturers are clearly in competition to reduce art-to-part time and most manufacturers with a Web presence highlight their "advanced" (but by US and European standards generally dated) CAD CAM facilities.

Key point: Taiwan is the #2 Asian market for CAD CAM software (after Japan) yet browsing the Taiwanese Internet indicates surprisingly few CAD CAM vendors with aggressive direct presence in the market. There is a significant unexploited potential for low-cost CAD CAM solutions in the Taiwanese market.

v.ASP Market

Taiwan's first ASP entered the market in October 1999, six months later in March 2000, 57 companies had announced their intention to enter the Taiwanese ASP market. NII studies conclude that Taiwan's SMEs are very cost-sensitive when introducing new information technology. Due to the unusually large number of SMEs the general market for ASPs in Taiwan is expected to be strong, in the NII's own words "white hot".

Key point: The four factors (large number of SMEs, relative absence of aggressive CAD CAM direct sales forces, cost-sensitivity and rapidly evolving broadband ASP infrastructure) in combination create ideal conditions for a CAD CAM ASP solution to succeed in Taiwan.

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