How Taiwanese Industrialists Embraced the Global Economy
Emerging Frontiers in the Global Economy
Published by: Stanford University Press
320 pages, 152.00 x 229.00 mm
- ISBN: 9781503604278
- Published: December 2017
Beginning in the 1950s, Taiwan rapidly industrialized, becoming a tributary to an increasingly "borderless" East Asian economy. And though President Trump has called for the end of "American carnage"—the loss of U.S. manufacturing jobs—domestic retailers and merchandisers still willingly ship production overseas, primarily to Taiwan. In this book, Gary G. Hamilton and Cheng-shu Kao show how Taiwanese businesspeople have played a tremendous, unsung role in their nation's continuing ascent.
From prominent names like Pou Chen and Hon Hai to the owners of small and midsize firms, Taiwan's contract manufacturers have become the world's most sophisticated suppliers of consumer products the world over. Drawing on over 30 years of research and more than 800 interviews, Hamilton and Kao tell these industrialists' stories.
The picture that emerges is one of agile neo-capitalists, caught in the flux of a rapidly changing landscape, who tirelessly endeavor to profit on it. Making Money reveals its subjects to be at once producers of economic globalization and its byproducts. While the future of Taiwanese business is uncertain, the durability of demand-led capitalism is not.
This chapter introduces the main topics of the book: the loss of manufacturing jobs in the United States; the retail revolution that led to a boom in shopping centers and a spread in chain store retailers; the beginnings of contract manufacturing in Asia and the centrality of Taiwanese industrialists in the new global economy. After a critique of conventional explanations for Asian industrialization, two vignettes about Taiwanese businesspeople convey important aspects of ways that the Taiwanese made money during this period. These narratives lead into a discussion of the sociological foundations of making money, which is the essence of capitalism in the modern era.
This chapter introduces the Taiwanese economy after World War II. The watershed year for the beginning of capitalist development is 1965, the year that the war in Vietnam accelerated to become the major factor in East Asian development. The key points in the chapter are the following: (1) The Kuomintang (KMT) government initially regarded Taiwan as an interregnum before the KMT Party and its followers would return to China, and thus did not plan for Taiwan's industrialization, (2) the KMT's encouragement of import substitution and exports was a strategy to obtain foreign exchange, (3) the foundation of Taiwan's sudden economic growth after 1965 was the growth of small and medium-sized firms in Taiwan's rural society.
From 1955 to 1985, the boom in US shopping center construction led to the spread of chains of discount and specialty retailers, who focused on the shifting identities in the United States. The logistical nightmares faced by these retailers soon led to the adoption of new technologies to manage inventories, such as containerized shipping. Computerized inventories soon followed with the adoption of universal product codes (UPC), barcodes, scanners, and product standardization. The ongoing war in Vietnam encouraged carriers to pick up goods in Asia as a way to fill containers returning from delivering supplies to US troops in Vietnam, and these return cargos kicked off the development of widespread orders from Asian manufacturers.
This chapter explains how intermediate demand from big buyers shaped the process of industrialization in Taiwan—demand-led industrialization. This process started as Japanese trading companies began to nurture Taiwanese businesspeople as suppliers for the products ordered by American retailers and merchandisers. Buyers representing American retailers and merchandisers soon established offices in Taiwan and began to work with Taiwanese trading companies and with Taiwanese manufacturers to develop products that they would sell in the United States. Taiwanese manufacturers developed their expertise in contract manufacturing by imitating and innovating on existing products that were ordered. This process is illustrated with business owner narratives from four industries: manufacturers of baseballs, hydraulic jacks, bicycles, and footwear. The chapter concludes with a summary of how contract manufacturing works from the viewpoint of Taiwanese industrialists.
This chapter explains how small and medium-sized firms form seamlessly organized production networks to make products ordered by American and European firms. The main concept explored here is the round-table etiquette that Taiwanese businesspeople have used as an organizational model for their production networks. The chapter begins with an account of a weiya banquet, which illustrates the logic of the round table in Chinese society. The distinction between family and family firm is explored by describing how the idea of a laoban led to a "familization" of Chinese economic organizations. Laoban typically organize their firms around a core group of the laoban's personal staff, a bandi. Laoban in turn cooperate with other laoban to put together production networks for each product order. These flexible production networks are organized on the basis of round-table etiquette with a host and guest logic.
This chapter shows that, 1985, state-owned firms, large Taiwanese business groups, and small and medium-sized firms became progressively integrated through market transactions in Taiwan's economy. Businesses organized into keiretsu in Japan and chaebol in South Korea; these were vertically integrated production systems that specialized in manufacturing capital intensive mass-produced goods, such as automobiles. By contrast, Taiwan's small and medium-sized firms specialized in producing small batches of relatively inexpensive goods on order from big buyers. The chapter demonstrates Taiwan's lack of economic integration among sectors before 1965, and the rapid integration of the various sectors after that date. This economic integration was clearly in response to intermediate demand. Taiwanese business groups grew rich by supplying downstream firms with the supplies they needed to produce the ordered goods.
The Plaza Accord was an agreement between the core capitalist countries that lowered the value of the US dollar against other major currencies. In the 1980s, optimism in Taiwan came from a rapidly rising per capita income and an increasing standard of living. In 1985, the Plaza Accord led to a 40% increase in the value of Japanese and Taiwanese currencies in relation to the US dollar. The adjustment produced a short-term boom in wealth, then a longer term collapse in stock and property values. The adjustment caused a hollowing out and a restructuring of the Japanese, South Korean, and Taiwanese economies. As a condition of their contracts, many retailers and merchandisers required their leading Taiwanese suppliers to relocate to less expensive sites. Japanese manufacturers mostly moved to Southeast Asia and to the United States. Taiwanese suppliers moved to China.
This chapter analyzes high technology industries in Taiwan from 1965 to 2000. Unlike most goods made for big buyers, high-tech products were first made in Taiwan by American and Japanese firms that came to Taiwan after the world's first export processing zone was established in Kaohsiung in 1965. The proliferation of Taiwanese high-tech manufacturers quickly allowed such big buyers as Dell Computers to create a demand-led production system. Dell's success moved the entire industry to adopt contract manufacturing as the primary method for making computers. As the computer industry was developing, an industry to produce semiconductors also emerged in Taiwan, with the encouragement and support of the Taiwanese government. The most important development in this industry was the creation of the world's first semiconductor foundry, Taiwan Semiconductor Manufacturing Company, an OEM company making chips on demand.
This chapter starts with a description of the conditions in the 1990s that encouraged Taiwanese industrialist to move their assembly sites to China. Although Taiwanese manufacturers had transferred some of their manufacturing to China even before the 1998 Tiananmen Square massacre, they paused after the massacre and subsequent political unrest. But within a few years, firm after firm, in industry after industry, made the trek to China. Then, around the time of the Asian financial crisis, clusters of firms in the supply chains manufacturing computers and mobile phones also made the move to the Mainland. This chapter examines two industries that made their first move to China in the twenty years after 1992: footwear and bicycles. This chapter and the next look at the evolving organization of these industries in China, as well as their links to Taiwan, in the twenty-five years after Deng Xiaoping's southern tour.
This chapter examines China's leading exports—computers and smartphones—which form the core of what is, arguably, China's most important industry, consumer electronics. Taiwanese manufacturers became important players in this industry in the late 1980s and early 1990s, and grew to be a dominant force in the late 1990s, just as they were moving their assembly factories to China. They continued to consolidate their commanding position in the industry in the first decade of the twenty-first century with an array of products assembled in China both for export and for China's domestic economy.
This chapter returns to Taiwan, to the organizational center of Taiwanese industrialists who have extended their capitalist ethos beyond Taiwan and beyond China in search of the right conditions where their businesses will thrive. The search is elusive, as is their hold on contract manufacturing. In the second decade of the 21st century, we are entering, once again, into a new, even more intense phase of demand-led capitalism, a phase that is mediated more by online retailers, such as Amazon and Alibaba, than by big-box retailers. Made possible by the spread of smartphones, computers, and cloud-based information systems, the new phase will have ramifications for contract manufacturing, but exactly what those ramifications are, it is too early to say. But as of 2016, contract manufacturing is still Taiwan's primary economic activity. This chapter surveys the current conditions of Taiwanese industrialists in Taiwan, China, Vietnam, and beyond.
This concluding statement speculates about the future of demand-led capitalism. Some prominent economists believe the United States and possibly the world economy are heading into a period of stagnation. This section assesses this claim, qualifying it for the second half of the 20th century, but agreeing with the forecast for the coming decades. There are several serious issues confronting capitalism in the near future. What new products will drive capitalist expansion? Will anti-globalization movements stall the development of new markets and new products? Will economic nationalism pull national economies back into previous patterns? The Epilogue concludes with the suggestion that internet retailing will intensify demand-led capitalism, even as it stymies national economic development.
"Hamilton and Kao are the only scholars who could tell such a comprehensive and in-depth story about Taiwan's export-oriented manufacturing sector from its 1960s origins to the present. They situate this seemingly small story in the context of Chinese business and culture, East Asian development, and the global political economy—illustrating why it is a big deal. A masterful contribution." ~Ho-Fung Hung, Johns Hopkins University, author of The China Boom
"This book shows a lifetime of engagement with the fascinating story of Taiwan's remarkable growth. Hamilton and Kao explore the symbiotic relationship between changes in U.S. retail and manufacturing developments in Asia. But the real story is in their vivid interviews with entrepreneurs, the real makers of the Taiwanese miracle." ~Stephan Haggard, University of California, San Diego, author of Pathways from the Periphery
"With Taiwan's role in the global economy mainly confined to contract manufacturing and component production—rather than selling brand-name products—the island's importance has gone nearly undetected. Even more invisible has been the role of Taiwan-based companies in China's "manufacturing miracle." This in-depth and authoritative study elevates Taiwan to its rightful position and, in doing so, reveals much about how the global economy actually works. Required reading!" ~Timothy J. Sturgeon, Massachusetts Institute of Technology
"Making Money strikes a rare balance between big ideas and rich case studies, brimming with detail. Hamilton and Kao skillfully argue for a new understanding of the East Asian miracle against the backdrop of the move toward a network-based, demand-responsive global economy. Taiwan sits at the epicenter of this shift. As this book shows, its contract manufacturing prowess provided the micro foundations for China's rise—and Taiwanese production networks are among the factors that will shape the Asian future." ~Gary Gereffi, Duke University
"For all those watching China's growth, this book deserves careful reading. We've seen it before—in Japan, South Korea, and in Taiwan, the country that Hamilton and Kao analyze. How is it that such a small country has played an outsized role in globalization over the past half-century? What role does Taiwan play in China's growth? The authors provide answers that will interest economists, political scientists, and sociologists alike." ~Robert C. Feenstra, University of California, Davis
"This book is essential reading for anyone interested in the tremendous changes in post–World War II capitalism, the way that American consumers and Asian producers have become inextricably linked. The authors make a compelling case that this transformation leads back to rationalization—on a global scale—in the name of the firm and its profits." ~Yun-han Chu, Academia Sinica and President, Chiang Ching-kuo Foundation
"One crucial element of Taiwan's economic success, which began in the 1960s—and equally of its economic slowdown, which started in the 1990s—was the agility of its small and medium-sized "contract manufacturers," firms that produce consumer products for U.S. brands such as Apple and Timberland but have no brand names of their own. By studying the Taiwanese entrepreneurs who built these firms, Hamilton and Kao shed light on the relationship between globalization and the Asian economic miracle." ~Andrew J. Nathan, Foreign Affairs
"Making Money: How Taiwanese Industrialists Embraced the Global Economy is the one truly crucial must-read book for anyone who wants to understand globalization, contemporary capitalism, or how the East Asian economy works today....Hamilton and Kao have put a lifetime of experience into this book, and it shows." ~Salvatore Babones, Asian Review of Books
"[Hamilton and Kao] have written a highly accessible and readable narrative that covers a half-century of economic history central to understanding Taiwan, businesses and entrepreneurs, and global capitalism. The breadth and depth of their study, covering almost all sectors of Taiwan's consumer exports over a course of 30 years, is nearly unprecedented. In sum, this study constitutes an incredibly in-depth, significant, and consequential contribution to scholarship on the Taiwanese economy, and should be necessary reading for readers seeking to understand modern Taiwan." ~James Lin, International Journal of Taiwan Studies