Monday, September 3, 2012

Hon Hai/Sharp Joint Venture: An Inspiration

Hon Hai/Sharp Joint Venture: An Inspiration
China Times editorial (Taipei, Taiwan, ROC)
A Translation
September 3, 2012

Summary: Terry Gou, chairman of Hon Hai Precision Industry Co., aka Foxconn, was absent during a press conference in Japan. The Hon Hai/Sharp joint venture has undergone some sudden changes. Chairman Guo spoke from Taiwan. He said the joint venture is still being negotiated. It is not dead. We sincerely hope it will succeed, and become a landmark for industry cooperation between Taiwan and Japan.

Full Text below:

Terry Gou, chairman of Hon Hai Precision Industry Co., aka Foxconn, was absent during a press conference in Japan. The Hon Hai/Sharp joint venture has undergone some sudden changes. Chairman Guo spoke from Taiwan. He said the joint venture is still being negotiated. It is not dead. We sincerely hope it will succeed, and become a landmark for industry cooperation between Taiwan and Japan.

Sharp is an important panel manufacturer in Japan. The company name is derived from "Ever Sharp Pencil," the mechanical retractable pencil invented by company founder Tokuji Hayakawa. Hayakawa's ambition was to "make products that others want to imitate." In addition to the mechanical pencil, the company was the first to sell radios in Japan. It is famous in Japan for its high definition TVs.

Much time has passed. Sharp has become a "old line company." In the flat panel industry the company occupies at least two important niches. One is the AMOLED technology for active matrix organic light-emitting diode. The other is 10th-generation panel plants. The Hon Hai/Sharp joint venture will share production facilities and these two technologies. The resulting products will help the two companies become key manufacturing partners of the Apple mobile phone series, and the soon to be launched Apple iTV.

AMOLED screens are power-saving and thin. They have high color saturation, wide viewing angles, and high contrast. This makes them suitable for use in portable electronic equipment. Tenth generation flat panel plants use 2.9 meter by 3.1 meter supersized glass substrates. These are cut into large-size TV panels. Costs are more competitive than older generation panel plants.

Hon Hai is important to Sharp. Sharp may dominate the technology niche. But it has lost market share to South Korea. An alliance with Hon Hai means becoming part of Hon Hai's electronic goods supply chain. Its revenue could improve. Sharp and most Japanese manufacturers are caught in a bitter struggle with South Korea's Samsung, LG, and Hyundai. The exchange rate is an important factor. Since the Plaza Accord of 1985, the Japanese Yen has appreciated from 239 Yen per USD to 78 Yen per USD. During the same period the Korean Won has depreciated from 870 Won per USD to 1100 Won per USD.

A successful Hon Hai/Sharp joint venture would be ideal. It would be the only good news out of Taiwan's electronics industry over the past six months. Taiwan's electronics manufacturing industry faces its biggest predicament since the financial tsunami. Mobile phone exports last year increased by 40%. The first five months of this year saw a 36% decrease compared to the same period last year. Four DRAM factories lost over 38.5 billion NT during the first half of this year, a 30% increase in losses over the same period last year.

Every business has its own problems and challenges. But Japan, followed by Taiwan and South Korea, have each been leaders of the East Asian economic miracle. The vitality of the private sector was one factor. Another important factor was that all three economies had a development-oriented government. The government set economic growth as a goal. It established industrial policy and used taxes to develop and financed all sorts of means to realize that goal. The entire country was rooted in the concept of collective action. Officials and the public cooperated. They advanced toward the goal of economic growth. This was the source of the expression "Japan, Incorporated."

During the 1980s, Ronald Reagan and Margaret Thatcher ruled, one after the other. The international winds began to change. The government leadership model began to decline in Taiwan, Japan, and South Korea. This told governments they must respect the market economy. There should be no industrial policy, there should only be a competitive environment. Once the basic infrastructure was established, the rest should be left up to the market.

Such change has the biggest impact on Taiwan and Japan. It also had an impact on South Korea. But South Korea underwent industry consolidation following the Asian financial crisis. Only a few very large companies remain in the market. These companies are extremely wealthy. They are more or less able to fulfill the role the government once did in industrial development. Taiwan businessmen find the going much harder. Their companies are much smaller in scale than the Korean companies. They are also engaged in price competition with each other.

We suggest that the competent authorities change their economic thinking and economic strategy. They should not resume their highly interventionist past policy. But neither should they sit like a fly on the wall. They should actively cooperate with important leaders of export industries. They should work with them to enhance future competitiveness, to plan and strategize. The government has the Industrial Innovation Bill, the ITR, the Institute for Information Industry and Foreign Trade Association, and excellent research resources within the universities. Why not jointly develop key technologies with Taiwan companies? Why not file patents, develop markets, and play a more active role in multinational industrial cooperation such as the Hon Hai/Sharp joint venture?

Lest we forget, the British exercised a high degree of protectionism at the beginning of the Industrial Revolution. So did the United States during its rise, including the post-war economic takeoff, when it developed its infant industries. When these advanced nations began to lead the world, they advocated free trade and respect for market mechanisms, consistent with their national interests. But these are not necessarily consistent with the national interests of the Republic of China. We hope that government decision-makers break free from their ideological shackles. We hope they take the initiative to reverse the predicament of industry. We hope they actively cooperate with Taiwan and Japanese companies, and lead Taiwan's economy to new peaks.













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