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Sumitomo Electric, Asahi Glass

Making Taiwan Their Springboard to China


Making Taiwan Their Springboard to China


Sumitomo has picked Taiwan as its first overseas production base. And Japan’s largest glass maker AGC is setting up a new furnace for flat panel glass substrates in Taiwan instead of China. What are the advantages informing their strategies?



Making Taiwan Their Springboard to China

By Jerry Lai
From CommonWealth Magazine (vol. 467 )

Voices reverberate inside the hollow factory building of Taiwan Sumiden Steel Wire Co. Ltd. in Bade, Taoyuan County. The newly founded company, a subsidiary of the Sumitomo Group, has not even been furnished yet. The floor is strewn with cables and electric wires still protrude from the walls as power sockets have yet to be installed.

Shigeki Hada, who formally became the new company’s general manager on March 14, is animatedly discussing the work progress with several engineers.

Sumitomo: Moving Closer to the Customer

At the beginning of April the factory premises will no longer look like a makeshift site when equipment and furniture gradually arrive. The plant is scheduled to begin production in May and to produce at full capacity by August.

In the past the Sumitomo Group has participated in a number of joint ventures in Taiwan, but this time it is founding a wholly owned subsidiary on the island. Last summer, the Group’s Sumitomo Electric Industries, a major Japanese producer of cable, materials and equipment for the semiconductor and optoelectronic industry, decided on its first-ever overseas expansion. Hada strongly advocated setting up a factory in Taiwan, on the grounds that Taiwan’s photovoltaic industry is developing rapidly. Every year Taiwan’s wafer makers consume about 10,000 tons of high-precision steel wire, used to cut wafers, and demand is still rising. But in Taiwan not a single wire maker is able to produce such specialized wire.

Hada listed the advantages of Taiwan to win over top management at company headquarters: He argued that shipping steel wire to customers in Taiwan would involve high transportation costs and customs duties. If a factory was established in Taiwan, the product would be closer to the customer. Servicing customers would be easier and personnel costs would also be lower than in Japan, Hada told his superiors.

After coming to Taiwan, Hada was in for another pleasant surprise: Taiwan’s surprisingly low utility rates. "If one kilowatt-hour of electricity costs NT$1 in Japan, it costs NT$0.6 in China, but just NT$0.2 in Taiwan," Hada notes. Moreover, Japan distinguishes between drinking water and industrial water, which is less purified and non-potable. Yet running water in Taiwan is much cleaner and cheaper than industrial water in Japan, Hada points out.

Taiwan is Hada’s fourth overseas posting, following stints in China, Malaysia and the United States. Taiwan has been his hardest job to date. Since last August when the mother company decided to set up a subsidiary in Taiwan, Hada has been running a one-man-show, starting from scratch without even an office to work from.

With the help of the Taiwanese government, Hada found an abandoned factory site of about 6,600 square meters in Bade. The premises offer enough space for an initial monthly production of 60 tons of steel wire as well as future capacity expansions.

The Japanese mother company and the Taiwanese subsidiary have jointly made an initial investment of 2 billion yen. Once production capacity has become stable in the autumn, they will increase their investment further.

The company is now intensifying recruiting, hoping to hire about 30 employees. Salaries are some 10 percent higher than the local industry standard and come with added benefits such as housing, commuting and schooling allowances.

Asahi Glass: Cracking the China Market from Taiwan

Further south in Yunlin County, the 243-hectare Douliou Industrial Park is only half occupied and still surrounded by an empty wilderness.

From a distance, the six chimneys of AGC Display Glass Taiwan – a subsidiary of Japan’s Asahi Glass Company (AGC) – are truly eye-catching. Painted with cherry and plum blossoms, they symbolize cooperation between Japan and Taiwan.

AGC is the largest supplier of display glass in Taiwan, with a market share of almost 50 percent, surpassing even world market leader Corning of the United States.

The six smokestacks represent AGC’s six furnaces for raw glass production in Taiwan. AGC has split its display production between the two sides of the Taiwan Strait. In China AGC does not have glass fabrication furnaces, but only processes glass substrates.

When manufacturing flat panel displays, a front glass plate and a rear plate of 0.5mm to 0.7mm thickness each are joined together. The two glass substrates account for around 7 percent of a display’s cost. The glass plates must be even in thickness, which is more difficult to achieve the larger their size.

Glass fabrication involves two major processes. First comes the production of raw glass plates in high-temperature furnaces. Then the glass plates are trimmed to size and polished according to the specifications of display makers.

At present, panel technology has advanced to so-called generation 10 substrates, which are 3.2 m long and 2.9 m wide, or even larger generation 11 plates with a length of 3.4 m and a width of 3.2 m. The safe transportation of such huge glass panels is, of course, a major challenge.

That’s why glass makers will usually move the glass processing to where the display makers are located.

AGC picked Yunlin in central Taiwan to be able to conveniently supply two major Taiwanese flat panel display makers, AU Optronics (AUO) in the north and Chi Mei Optoelectronics (CMO) in the south.

Following the rise of China's flat panel display industry, AGC decided to also establish a factory in Kunshan in coastal Zhejiang Province. Construction of the plant, which will focus on glass panel polishing, will start in the fall.

So far AGC has glass fabrication furnaces, which require a comparably higher investment, only in Japan, South Korea and Taiwan. The company is still studying whether to invest in a glass fabrication plant in China.

Woody T. J. Duh, director-general of the Industrial Development Bureau, believes that if raw glass substrates were included in the Economic Cooperation Framework Agreement (ECFA) between Taiwan and China, then the glass plates could be shipped to China, taking advantage of cheaper sea transport and preferential tariffs. If this were the case, the entire industry could remain in Taiwan.

However, Hiroyuki Ishikawa, chairman of AGC Display Glass Taiwan, factors in not just shipping costs and tariffs, but also stable electricity supply. Power outages will not cause much damage to the polishing process – in the worst case work comes to a standstill. But if furnace temperatures fall due to unstable power supply, the quality of the glass substrates will be severely affected. Presently, Ishikawa does not yet dare to trust the stability of power supply in China.

AGC launched production in Taiwan ten years ago and has thrived alongside Taiwan’s booming flat panel industry. Over the past five years AGC has invested almost NT$60 billion in Taiwan, creating hundreds of jobs in rural, underdeveloped Yunlin County. Most of the glass maker’s 1,600 employees are local residents.

Translated form the Chinese by Susanne Ganz