Disconnected ICT Supply Chains

New Power Plays Unfolding

Year 2020 is set to be a turning point for the ICT industry
COVID-19 is a test of confidence and tenacity
How will the ICT industry reboot after the once-in-a-lifetime pandemic?

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The whole world was looking forward to booming opportunities to come in 2020 and beyond, driven by 5G and automotive electronics developments. However, things took an unexpected turn. COVID-19 that broke out around Lunar New Year has now decimated the world economy, and is promising to mark a turning point for the global supply chain. Before 2000, Taiwan, South Korea and Japan were the bellwethers for the global ICT industry. After 2000, China took over to become the world's factory. What will happen after 2020? Who will rise up and take center stage?

China has completely transformed since 2003. Compared to 2003, domestic consumption in its GDP now registers an increase by US$4 trillion, a sum which is nearly 5% of the global GDP. Its tourism expenditures climbed from US$15.4 billion in 2003 to US$276.5 billion in 2019.

China's weakening market is set to reduce consumer spending worldwide and trigger the bullwhip effect in supply chains. With China being the world's factory, the whole world is eager to gain an insight into supply chain conditions.

A massive number of information about the industry ecosystem has been streaming in during the COVID-19 pandemic, creating chaos and uncertainties. However, we are still able to systematically analyze supply chain changes and make proper assessment on industry trends by comparing different types of data and inferring from high season and low season market conditions. This book is intended to help worldwide readers gain an insight into Asian supply chain changes.

The book is divided into two parts. Part One consists of two chapters. Chapter One provides analysis on China's supply chain and market demand with a focus on the electronics industry during the COVID-19 pandemic. Chapter Two explores key strategies of global high-tech firms for 2020. By drawing a comparison between the two, we hope to shed light on how things were supposed to unfold 2020 through 2025 before the pandemic changed everything. Chapter Three in Part Two looks into possible changes the supply chain in East Asia will undergo in the post-pandemic world.

We think the year 2020 will mark a pivot point for the global supply chain. Firms will pay more attention to local demand. Emerging countries will participate in industry competition in the 5G era. They will become competitors or partners that should not be underestimated in the new era. The COVID-19 outbreak will accelerate supply chain revolution. With a focus on the semiconductor and display panel industries, Chapter Four delves into how China's key industries will engage in coopetition with their international counterparts and shift their production bases after the pandemic passes.

The final chapter offers predictions on the changes in the division of work among Asia's electronics industry centered on China over the next decade or two. I am depicting three possible scenarios for a post-pandemic China: embracing peaceful evolution; concentrating resources on a select few; and making reckless moves. I hope such depictions/predictions can help readers envision what Asia's supply chain will transform into and how China will cope with global changes after the pandemic passes and production ecosystems are reconnected into a new and diversified form.

Foreword
By Liu Young-Way
Preface
By Colley Hwang
Introduction
By Mao Chi-kuo
Part One
A Looming Storm
  • Chapter One
    What's on My Mind
    • I. Why China matters

    • II. A few aspects of China's electronics industry

  • Chapter Two
    2020: A Turning Point
    • I. When all industry indicators fail

    • II. Disastrous supply-demand imbalance

Part Two
A Raging Storm
  • Chapter Three
    Between the Lines
    • I. Friend or foe?

    • II. IoT opportunities?

    • III. The future is here

  • Chapter Four
    Asian Supply Chain Transformation
    • I. What tech giants are up to

    • II. Dilemma of semiconductor sector

    • III. New look of display panel sector

    • IV. Production relocation

  • Chapter Five
    Post-pandemic
    • I. Three possible future scenarios

    • II. Integration and disintegration

    • III. Conclusion: A lesson from history

Preface
Take it easy: Times are changing and opportunities are coming

Soon after I graduated from college in 1980, I was on a troopship that had been in service for half a century, setting sail from Taiwan per se to Beigan, one of the islands of Matsu (a Taiwan-held county lying just off the coast of China), as the northeast monsoon winds began to blow. I was stationed in Qinbi Village, Beigan, right across from Minjiang Kou. In my 18 months of military duty, I often gazed at the rising sun shining on China, which was then already undergoing reform and opening up. Little did I know that China would take the world by storm four decades later.

In June 2019, I visited Foxconn founder Terry Gou's home on a few occasions for discussions over the arrangements for a forum where we would be joined by SoftBank chairman Masayoshi Son and former Flextronics chairman Michael Marks. We exchanged thoughts about industrial topics including the US-China trade conflict, China's National Integrated Circuit Industry Investment Fund (aka Big Fund) and global supply chains.

Gou asserted: "There is no G20 now but only G2." This is because the majority of the world's resources are controlled by the US and China.

When I looked up the world's top-10 high-tech firms in terms of market value in early 2020, I found eight of them are based either in the US or China. The two exceptions are Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung. Three quarters of the world's 430 unicorns are American or Chinese firms. In the IoT era, how should countries other than G2, such as Taiwan, cope with the situation as the two superpowers with massive markets and forward-looking technologies take control of global resources?

As China's vice premier Liu He was traveling back and forth across the Pacific Ocean for trade talks with the US, wherein he endeavored to find some room for maneuver amid the US-China brawl, China's president Xi Jinping launched a nationwide campaign against the then called Wuhan virus (now COVID-19) on January 20, 2020. The coronavirus – which does not just affect people in certain countries or of certain races – quickly spread to neighboring regions in East Asia and later to major OECD countries in Europe and America. The impact on the global economy has also extended from the supply side to the demand side.

Now we realize the world is experiencing an unprecedented supply chain disruption. DIGITIMES had dozens of its reporters, researchers and international desk gather information widely on the global supply chain. In the first month after China launched its nationwide efforts against the COVID-19 outbreak, Digitimes published 20 news articles per day on average about the global electronics industry both in print and online via its Chinese- and English-language websites. The crisis also presented a good chance for us to grasp a deep understanding on the global electronics and automotive supply chains. Most Taiwanese entrepreneurs in the electronics business returned home for Lunar New Year during the outbreak. Travel restrictions prompted them to remain in Taiwan, so they could offer the Taiwan public first-hand information on industry dynamics amid the COVID-19 turmoil.

With a large amount of gathered data, we began to assess the extent of the pandemic's impacts. Will smartphone and PC shipments drop in 2020? Will China be able to continue its investment plans for semiconductor and display panel industries? What changes will happen to 5G investments and applications which are supposed to serve as the foundation for future industrial developments? In assessing the situation, we began to envision how China, having sustained a serious blow, will respond to the world after the COVID-19 pandemic.

Whatever happens, Taiwan will not be able to sit on the sidelines. Taiwan, Japan and Korea, all part of the East Asia island chain, are again bargaining chips between China and the US, following the Cold War between the Soviet Union and the US. Any change in the delicate situation might flip Taiwan's fate and/or make the Korean Peninsula a part of China. We are at a critical turning point in history. When I was sorting out data to write this book, I had some sleepless nights worrying about military conflicts and wondering if our 70 years of peace might soon come to an end. Despite the threat of war, we are – ironically – lucky to be able to witness the world changing.

In 1985, I was a blank slate, just starting a career as a rookie analyst focusing on Korea at the Market Intelligence & Consulting Institute of the Institute for Information Industry. In 1990, when Deng Xiaoping held high the principle that "development is the unyielding rule," I came to Beijing to attend a cross-Taiwan Strait high-tech forum, where I gave a presentation in the first session of the event. Over the following three decades, I met former ministers Peiyan Zeng and Xudong Wang as well as China's political leaders in Beijing – Wang Qishan and Liu Qi. I also interacted with top executives of tier-1 Chinese firms, including Lenovo's Yang Yuanqing, BOE's Wang Dongsheng, Huawei's Yu Chengdong and Digital China's Guo Wei. The encounters with them are still fresh in my memory but Taiwanese enterprises have changed from market leaders to followers that passively meet demand from Chinese and foreign customers. Instead of lamenting the good old days, perhaps we should give it our best shot and seize this historic moment.

China's Global Times told Taiwan in an editorial to "take it easy" amid the changing times. Being part of the first island chain on the frontline of the US-China conflict and playing an irreplaceable role in the electronics and semiconductor supply chains, Taiwan cannot and will not sit on the sidelines. I have witnessed every stage of the industry growth in my 35-year career. Now overseeing the operations of a news outlet dedicated to covering the ICT industry and a related a consulting firm, I cannot and will not be a bystander of the changing times, either.

Drawing on my decades of industry research experiences, I offer a fresh point of view on the current situation in this book. I extend my gratitude to former ROC premier Mao Chi-kuo for writing a 5,000-word introduction to the book from a national leader's perspective. My special thanks go to Foxconn Group's new chairman Liu Young-Way for finding time in his busy schedule to write a foreword for the book. Like me, they are concerned over the COVID-19 impacts and the changes it will bring to the world. Last but not least, I am grateful to DIGTIMES employees including Ethan Su, Gina Lai, Rodney Chan, Jo Liu, Ranee Hsiao, Chia Huang, George Huang and Shuhui Chen. Without their help, I would not have been able to publish three books – Borrowing East Wind, Asian Edge and Disconnected ICT Supply Chains – in two years. Together we make a footnote to the historic moment.

Mao Chi-kuoFormer ROC premier

COVID-19 has made it hard for people to return to their previous ways of living. This is a matter of life and death. Colley Hwang never disappoints his readers. His latest work, Disconnected Supply Chains: New Power Plays Unfolding, is a timely response to the latest developments. This book depicts three possible scenarios of China's policy directions in the post-pandemic era.

Liu Young-WayFoxconn Group chairman

Colley Hwang's Disconnected Supply Chains pinpoints all the challenges and crises the world faces, offering directions for the IT industry. The book crisscrosses IT industry developments and Asia-Pacific supply chain competitions, providing a systematic look at what actions the global IT industry and supply chain must take in response. This book is a must-read for every CEO in the IT industry.

Colley Hwang

Colley Hwang is an ICT industry analyst with 35 years of experience under his belt. As founder and president of DIGITIMES, Hwang has witnessed over the years changes of the ICT world – from the PC era to the age of mobile communication and IoT. He has written several insightful books about the trends and developments of the ICT industry, including the highly-acclaimed Asian Edge: On the Frontline of the ICT World published in 2019.

Hwang, who had led Taiwan's Market Intelligence & Consulting Institute (MIC) before founding DIGITIMES, has been a popular speaker among Taiwan's universities and companies seeking to better understand the ICT world. He has given lectures and speeches at many top ICT firms including Microsoft, TSMC, Foxconn, AUO, UMC, Acer, Lenovo, Samsung, Huawei, BOE, Applied Materials, Synopsys, Rohm and Epson.

Hwang has served as adviser to Taiwan's Ministry of Economic Affairs, the Taipei City government, the Yilan County government, and the Sinocon Industrial Standards Foundation. He has also served on the boards of directors at several enterprises and organizations including WPG Holdings and TAITRA. He is currently a member of the board of directors of Monte Jade Science & Technology Association of Taiwan.

DIGITIMES publishes timely and comprehensive news reports about the world's IT industry. It also offers consulting and research services. Its English and Chinese websites are an authoritative sources of information about the supply chains in Taiwan and Asia-Pacific. As a multi-service platform, DIGITIMES has tens of thousands of paid members and organizes more than 130 off-line professional seminars a year.

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