From Nikes to iPhones, a new story of Taiwanese manufacturers in China

• By David Frazier / Contributing Reporter

After World War II, Taiwan began to climb the economic ladder, moving from the “banana kingdom” to the “shoe kingdom”. American shoe brand Nike led the way, moving much of its manufacturing to Taiwan from Japan in the early 1980s. But Taiwanese factories soon came to do more than just assemble Air Jordans.

For Nike and many other international brands, Taiwanese have come to manage the entire supply chain and production process, including dozens of contract factories. And later, when labor became expensive in Taiwan, the Taiwanese retained their niche as contract manufacturers by moving their factories to newly opened China, where they became known as taishang (台商), “Taiwanese businessmen”.

A recent book, The Tiger Leading the Dragon: How Taiwan Propelled China’s Economic Rise, by American scholar Shelley Rigger, offers a concise history of business across the Taiwan Strait, beginning with the bold assertion that “without taishang, economy of the PRC as we know it would not exist today.

‘MADE IN TAIWAN’

The story begins in the 1980s, when the “Made in Taiwan” brand became a global icon. Joint-stock companies like Pou Chen Group (寶成國際集團) and Feng Tay (豐泰企業) have produced for Nike and virtually every major athletic shoe brand; the Futai Group (福太洋傘) became the world’s largest umbrella manufacturer, in partnership with Totes; China General Plastics Corporation (華夏塑膠) manufactured half of the world’s supply of Barbie dolls for Mattel; Pretty Fashion Inc (the company is registered in Taiwan under an English name) produced a quarter of the wedding dresses sold in Europe.

The Pou Chen Group no longer makes many shoes in Taiwan, but it remains the world’s largest sports shoe producer, making 300 million shoes a year for Nike, Asics, Reebok, Adidas, UnderArmour and Puma, according to the author and the PCG. Website. Founded in Taiwan in 1969, the company has moved its manufacturing over time from Taiwan in the 1980s to China in the 1990s and then to South and Southeast Asia in recent decades.

The particular genius of Taiwanese manufacturers, Rigger tells us, was to add value in a very strange place – in the middle of the supply chain. By innovating on key components and production methods – and more importantly by filing a large number of patents on these inventions – they were able to become indispensable partners for (mainly) Western brands and at the same time drive out the workforce. inexpensive work across other developing Asian markets. Their ability to handle everything from supply chain management to research and development for better manufacturing processes cemented their value in the global economy, then and now.

Today, the most famous subcontractors in the world are still Taiwanese. Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) produces half of the world’s computer chips and has been called “the most important company in the world”. Foxconn is famous for manufacturing iPhone and other Apple products.

Both are also prime examples of midstream supply chain dominance, with technologies and supply networks so formidable that their closest competitors would need years of development to catch up.

Both also have significant operations in China. Foxconn is China’s largest employer with more than a million workers, while TSMC is more cautiously engaged, operating just two of China’s 12 chip foundries and keeping its cutting-edge technology in Taiwan.

In 1987, the Taiwanese government allowed its citizens to visit China for the first time since 1949. It began a process of political engagement, moving from basics like direct mail and telephone service in the 1990s to direct flights and investment mechanisms in the 2000s.

Just as those doors began to open, taishangs, losing the ability to compete on price in Taiwan, flocked to China in the early 1990s.

Interestingly, most taishang were ethnic Taiwanese and not “mainlanders”, or waishengren, a cohort that had come to Taiwan with Chiang Kai-shek (蔣介石) in 1949. Although waishengren generally had relations personal in China, in Taiwan, they would become entrenched in government bureaucracies. Ethnic Taiwanese were in many ways second-class citizens without access to the government’s “iron rice bowl.” So they turned to business instead.

During the 1990s, whole clusters of Taiwanese factories moved to China, sometimes almost overnight. It was a “second spring” for Taiwanese industry and gave rise to new “little Taiwans”, or factory towns, all over China, especially in Dongguan (near Guangzhou), Kunshan (near Shanghai) and Xiamen (just opposite Kinmen). The migration was so great that the local government in Kunshan, for example, established an administrative office set up solely to deal with Taiwanese businesses.

At first, the taishang mainly did business with each other. They hired Taiwanese managers, avoided joint ventures with Chinese companies and kept local Chinese at bay, protecting their methods and technologies.

It wasn’t until the mid-2000s that local Chinese factories made their way into previously Taiwanese-dominated supply chains. Rigger argues that taishang, which accounted for 83% of China’s foreign direct investment in 2000, nevertheless taught China – which entered the global economy in the early 1980s with inefficient and naïve state-owned enterprises at the international scale – tips for doing business with the world. It’s one of many key points in the book that seems generally correct but could be fleshed out more convincingly.

CULTURAL UNIQUENESS OF ‘TAISHANG’

Another such point is the cultural “uniqueness” of taishang, which Rigger describes early on as a “black-handed boss” (i.e. they get their hands dirty) tradition of a nation of small and medium enterprises, where no one would work for anyone. if not if they could help her (even now there is about one company for every eight Taiwanese adults).

She later backtracks somewhat, describing 1990s taishang as simply “harvesting low-hanging fruit” entering a pristine economy that was up for grabs. Yet later, the 2010 taishang didn’t seem so unique anymore: Chinese contractors with better local guanxi (關係 “connections”) began beating them at their own game. The student had surpassed the master.

Considering the rise of China, it might be safer to say that just as the world’s largest market was preparing to industrialize and go global, it was the Taiwanese who had the closest linguistic, cultural, historical and blood ties with China. Moreover, the policy opened the doors at a time when Taiwan’s economic boom was beginning to fade and taishangs were desperate to “cut costs”. Simply put, Taiwanese businessmen were in the right place at the right time.

The Tiger Leading the Dragon deserves credit for piecing together an interesting history of trade and cultural relations across the strait. But it’s not a deep dive, rarely going beyond generalist journalism and too often speaking in general terms. In the second half of the book, discussions of historical context are frustrating and redundant.

END OF THE GOLD RUSH IN CHINA

Still, the book comes at a good time, because for Taiwan and most of the world, the gold rush in China is over. In 2005, China launched a five-year plan to win back its economy from foreign investors, and 2025 was set as a goal for China to develop leading enterprises in semiconductors and other advanced technologies. Chinese leader Xi Jinping (習近平) further aims to diminish foreign cultural and media influence, even if it is Taiwanese.

The Taiwanese government has, during this same period, tightened limits on cross-strait flows, including outbound technologies and inbound investments.

Yet Taiwanese continue to do business with and in China in a very important way. Rigger concludes by saying that “the era of lightning-fast integration and mutual benefit is over.” The daredevil integration is certainly over. But given the complexity of the relationship, mutual benefit remains an open question.

If you’d rather listen to the read, Rigger gave a great preview of the book on the China-focused podcast, Sinica (www.supchina.com) in its October 14, 2021 edition.