The glitzy shopping area around Banqiao Railway Station boasts an impressive skyline with office towers and a huge shopping mall. Inspur, China’s leading server maker, has surreptitiously moved a team into this prime area, occupying two entire floors in the landmark Far Eastern Mega Tower, which at 50 floors is New Taipei City’s tallest building.

What is Inspur up to? Why Taiwan?

Although Washington and Beijing decided to restart trade talks after the G-20 summit in Tokyo, most industry analysts believe that chances remain slim for a comprehensive agreement anytime soon.

DRAMeXchange, a division of TrendForce, earlier this month pointed out that, despite the restart of trade negotiations between the U.S. and China, servers and related products made in China will still be slapped with a 25 percent tariff when they are exported to the United States. “Thus server ODMs are still adding production lines in Taiwan as scheduled to avoid risks,” the report said.

North American Internet service providers (ISP) such as Amazon and Microsoft are demanding that their ODM partners move Level 6 (barebone) server production lines to Taiwan. Quanta Computer, Inventec, the Hon Hai/Foxconn Group (Ingrasys Technology Inc.) and Wistron (Wiwynn) are all gradually expanding production in Taiwan. (Read: Taiwan, Unexpected Beneficiary of US-China Trade War)

Chinese Enterprises use Foothold in Taiwan to Expand U.S. Business

It is quite ironic that not only are large European and American manufacturers take refuging in Taiwan amid the fomenting trade war between China and the United States, but that a Chinese industry bellwether like Inspur is taking the same route.

“They are establishing a presence in Taiwan because they want to expand their U.S. business,” remarks a Taiwanese engineer who works at Inspur in New Taipei City.

Inspur is China’s largest server brand. Their K1 high-end Unix servers, which were developed in-house, are used by the Chinese government, the Chinese postal service and the finance sector. Chinese media even claim Inspur’s servers allow China “to realize the partial replacement of high-end IBM servers.”

On top of that, China’s Internet titans – search engine Baidu, e-commerce behemoth Alibaba and mobile communications leader Tencent – collectively known as BAT - must fulfill an Inspur “quota” for their in-house data centers and Internet servers. As a result, Inspur has become the top supplier of Baidu, Alibaba and security software maker Qihoo. About 60 percent of Alibaba servers come from Inspur. For Baidu, that figure stands at an even higher 80 percent.

At the shareholder meeting of Wistron affiliate Wiwynn in June, President and CEO Emily Hong explained that China’s BAT trio account for a global market share of around 13 percent that cannot be ignored. However, Hong said that Chinese cloud computing customers have told her that 60 percent of their procurement must be reserved for local Chinese suppliers; only the remaining 40 percent may be sourced abroad.

Protectionist policies combined with the fast development of China’s cloud computing industry enabled Inspur not only to become the largest server maker and vendor at home in China, but also the world’s third largest server brand behind Dell EMC and HPE in 2018, having moved up two ranks within just one year.

“Inspur rose thanks to cheap prices,” says TrendForce Senior Analyst Mark Liu. He compares the rise and position of Inspur in China to that of Lenovo in the notebook sector and BOE in the display industry.

“Inspur basically stands for ‘Server’,” notes Liu.

                       

Poaching Taiwanese Engineers with 20% Higher Salaries

A supervisor in a Taiwanese server manufacturing company says outsiders usually wonder why Inspur is able to take orders at such low prices and thin margins. But in the industry it is understood that this is possible since the Chinese government subsidizes domestic brands.

“Inspur derives 90 percent of its revenue from domestic demand, whereas the remaining 10 percent is generated in the North American market,” the industry insider points out.

With a 90 percent domestic revenue share, Inspur has hit the ceiling, so it is beginning to look at expanding into markets overseas. In April of 2017, Inspur quietly moved its base for international market expansion and product development to Taiwan. The following year, the company began an aggressive recruitment drive that raised eyebrows in the industry.

“They are poaching people big time in Taiwan,” a supervisor with a Taiwanese server ODM tells us. 

The salaries that Inspur offers in Taiwan are 10 to 20 percent higher than the industry standard.

“We’ve poached a lot of people from Quanta and Wistron. Recently we have also hired Hon Hai staff,” says a senior Inspur manager from Taiwan who formerly worked for Quanta. He has no qualms admitting that Quanta has become a preferred target for Inspur’s recruitment drive since the Taiwanese electronics maker has a large server division. 

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Meanwhile, Inspur has increased its presence in Taiwan from around a dozen employees at the founding stage to some 200 Taiwanese employees in June of this year. Its offices occupy two entire floors in the Mega Tower. Inspur is the second major Chinese tech firm to place R&D and marketing teams in Taiwan, following in the footsteps of Huawei, which already moved the R&D operations of its general distributor for Taiwan, Xunwei Technologies, to the Tai Yuen Hi-Tech Industrial Park in Hsinchu years ago.

Inspur hopes to make Taiwan its springboard for the U.S. market.

“The Taiwan office can take orders from the United States and Europe,” explains the senior Inspur manager, who frequently flies to the U.S. to meet with old clients such as Yahoo and LinkedIn. Inspur also counts Apple data centers among its customers, the manager reveals.

U.S. Business Trips Easier with Taiwanese Passport

The staff at Inspur’s Taipei office includes a considerable number of R&D engineers on top of sales personnel.  

“Inspur does the samples they have developed in Taiwan as well as the pilot run,” says Liu, the analyst. Many of the engineers that Inspur poached from Taiwanese server ODMs are designing BIOS (basic input/output system) chips for motherboards.

There is also a very practical reason behind Inspur’s decision to establish a foothold and raid engineering talent in Taiwan: getting around travel restrictions for Chinese nationals.

“Taiwanese managers can easily make business trips to the United States. They can go whenever someone tells them to go, but Chinese managers need to get a visa for the United States first, which is just a pain,” the Taiwanese Inspur manager admits.

Due to the brewing trade friction between China and the United States, obtaining a U.S. visa has even become harder for managers with a Chinese passport over the past year. Their Taiwanese colleagues, however, can travel quite easily.  

Aside from using Taiwanese staff to cultivate the U.S. market, Inspur is also partially switching orders for products that are destined for U.S. customers to Taiwanese ODMs, exporting them as Chinese products “made in Taiwan” to avoid U.S. tariffs. 

“Level 3 and Level 6 servers are manufactured in China and then shipped to Taiwan, where they are converted into Level 10 (fully assembled and tested) servers for shipment abroad,” explains the Inspur manager.

According to industry sources, Wistron, Mitac and Inventec are all running ODM production lines for Inspur. Among these, Mitac, whose ODM ratio stands at 70 to 80 percent, is assembling Inspur servers at its Hsinchu plant.

Amid the trade standoff between the United States and China, Taiwan, with its competitive high-tech industries, has not only become a “safe haven” for Taiwanese and foreign companies that are exiting China but also for China’s own domestic brands.

Now that network equipment and servers from China have been listed as sensitive products and chances for a quick resolution of the trade row seem slim, Chinese tech brands hope to make inroads into the U.S. market via Taiwan. It remains to be seen whether these plans will pan out.   

Translated by Susanne Ganz
Edited by TC Lin, Sharon Tseng