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Barclays warns of competitive future for homegrown technology hardware

TAIPEI -- British bank Barclays PLC has warned that Taiwan's technology hardware industry will find it more difficult to compete with Chinese suppliers and brand companies if the Taiwan government fails to provide favorable policies.

China has, until recently, provided a low-cost manufacturing base for Taiwan's technology hardware companies, but this is no longer the case as rising wages and Chinese yuan appreciation makes it less cost effective for Taiwanese companies to manufacture products in China, according to Barclays.

In fact, Chinese domestic companies are taking away market share in China from Taiwanese companies, while some Chinese companies have become qualified as suppliers to major electronics brands such as Apple Inc., said Kirk Yang, Barclays' head of technology hardware research for Asia, not including Japan.

“We have concerns for Taiwan's tech hardware industry over the longer term,” Yang wrote in a note to clients dated June 25.

“Unless significant changes occur, such as consolidation or government intervention, Taiwan ODMs (original design manufacturers) are unlikely to remain competitive, as they no longer solely enjoy low labor cost advantages in China as more domestic competitors emerge and wages rise,” he said .

Yang explained that China has the world's largest domestic market for tech products, such as PCs and smartphones, and most of the local market share consists of Chinese brands, not those from the United States or Taiwan.

Besides their home-field advantage, Chinese manufacturers are now capable of making high-quality, instead of low-priced products, to gain market share, while China's government has supported its domestic brands by banning sales of non-Chinese products in such areas as servers and telecom equipment, Yang added.

The next question, he said, is when will Chinese brands expand their influence and increase their market share overseas?

Several Chinese companies, such as Lenovo, Huawei, ZTE and Hi-Sense, have already been successful overseas, given their strong combinations of technology, products, intellectual property and low prices, the analyst noted . Looking at recent events in Taiwan, such as political gridlock and student protests, it appears difficult for the government to pass laws creating favorable policies to support the technology industry, such as free economic pilot zones or free trade agreements, Yang said.

“In the absence of innovative measures — like the Hsinchu Science Park project in 1980 or industry consolidation to stop price wars and improve economies of scale — it is hard for us to be positive long-term about Taiwan's tech hardware industry,” he warned.

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