In the last four years, wages at Ford's 70%-owned Taiwan factory have increased 64%, vastly improving the living standards of the 2,000 workers here. Yet the cost of production at this plant has dropped dramatically in the same period, thanks to a 139% increase in productivity.
For John R. Fenner, president of Ford Lio Ho Motor Co., that is the answer to those who believe that Taiwan is about to lose its competitive advantage now that its $3,000 per-capita gross national product has propelled it out of the ranks of the Pacific Rim's low-wage countries.
In fact, Ford is so confident of Taiwan's competitiveness that, while it won't say so publicly, it is about to test this island nation's ability to produce cars for Canada and the United States.
Cars from Taiwan--a nation with an unfortunate reputation for producing cheap goods, sometimes of questionable quality?
Fenner has an answer for that, too. Ford conducts an annual audit of all of its plants around the world, and Ford Lio Ho now ranks No. 1. Measured in terms of reduced factory rejects, quality has improved 795% in four years.
Things are changing fast in Taiwan, and the country's experience says a good deal about how many of the region's emerging economies, especially South Korea, are coping with their new prosperity, rising wage rates and growing international competition.
"Taiwan has the potential to be a supplier of low-cost subcompacts to the world. What is going on here now is an attempt to prove it," said John G. Parker, Ford Lio Ho's director of technical operations.
Ford, which has been a partner with Lio Ho, a large car dealer, since 1972, is investing $40 million to double capacity to 90,000 from 45,000 motor vehicles while introducing robots and higher technology. By next year, the firm plans to begin exports of about 30,000 passenger cars.
Although all of Detroit's Big Three auto firms, including Ford, have committed themselves to buying Japanese-designed cars and have established or sought production bases for procurement of subcompacts in South Korea, only Ford has taken a firm step in that direction in Taiwan.
Nissan, the Japanese auto maker, is investing in a company here, which is expected to become the second company to produce cars for export.
Fenner, who served with Ford earlier in Tokyo, said he has copied from Mazda Motor Co., Ford's partner in Japan, its "quality-control circles," where workers participate in decision-making to improve operations.
Chinese workers here, Fenner said, are younger and better educated than workers at Ford's factories in the United States. They have responded enthusiastically, making possible the impressive productivity gains. The basic wage is now $1.50 an hour. On the basis of a 44-hour week, with a three-month wage bonus thrown in, that works out to $4,290 a year. Including fringe benefits, yearly pay amounts to $7,320, Fenner said.
That's only about a fourth of what an American auto worker gets--but it's about $1 an hour more than Korean workers are paid. South Korea's lower wages and its larger potential base market--a population of 40 million people, compared to 19 million here--have served to attract most of Detroit's attention in the race to establish new overseas sources of low-cost subcompacts to underprice the increasingly sophisticated, and more expensive, Japanese vehicles.
Invest in New Plants
Backing from huge conglomerates has enabled the two top South Korean auto firms to invest in new, modern, export-oriented plants with capacities of 300,000 and 200,000 cars a year, respectively, far beyond the modest--a "toe in the water," Fenner calls it--45,000-car expansion that Ford is carrying out here.
Fenner believes, however, that Taiwan can out-compete Korea on quality. Already, much of the gain in productivity has come from improvements in quality. And with the introduction of robots in the plant expansion, quality will rise even further, he said.
Robots, for example, are expected to raise the first-time acceptance rate on the paint line to 95%, the standard in Japan, from 90% now, he said. Even now, engines produced at the plant and exported to Australia get the same rating from Ford's quality auditors as do engines from Mazda.
Taiwan's economy appears to be less regimented than South Korea's, yet its workers continue to display the same kind of devotion to work and learning seen in South Korea even while enjoying more of the fruits of labor. (South Korea's per-capita GNP is only $2,000, or two-thirds of Taiwan's.)
Yih Kuan-long, a 32-year-old production line worker who hangs the doors on the cars, for example, takes home with bonuses about $4,000 a year for his wife and three children. With living costs low and by living with his father and two brothers, he can save for a house and a car.
In the meantime, he uses the most common mode of transport here, the motorcycle. Only 17% of Taiwan's families own a car--largely because of government tax policies that make ownership a luxury here. Ford's best-selling model, the Laser sedan, sells for $6,625--but, without taxes, would be available at $4,903. (On the other hand, a three-room apartment is readily available at $150 per month in the suburbs of Taipei.)
Drives a Car
Richard C. Huang, 32, a junior executive with an MBA who is a manager of quality control, said he is making $15,000 a year, drives a car he leases from the company and owns a $75,000 home. He and his wife have a 1-year-old daughter, and his mother also lives with them.
Despite the comfortable salary, the work ethic remains strong, Huang observed. "We have to work hard. Otherwise, we will never survive."
Earlier this year, the government implemented a labor standards law that requires employers, for the first time, to give their workers 14 days of vacation a year. It also mandates pensions, minimum wages and "other things you would expect in a Western society," Fenner said.
By comparison, even the largest firms in South Korea offer as little as three days of personal vacation a year, provided that one of them falls on a Sunday. Ford already had implemented more benefits than the new law requires and won't be hurt, Fenner said. But firms in some sectors of Taiwan's economy--textiles are a good example--will become less competitive as a result of it.
One such company is Tatung, a growing electronics firm with $700 million in sales last year. It is a major company in Taiwan although only a swaddling infant compared to either the electronics giants of Japan or the big electronics firms of South Korea. Tatung's strategy is to step up direct investment around the world.
"The world has changed. It has become more international, and we need to take advantage of that," Chairman Lin Tin-sheng said.
There's no question that costs are rising in Taiwan, where the influx of new employers is driving up wages, he added.
Tatung, with $200 million in exports last year, now is seeking the geographical advantage of being close to markets by investing overseas. In addition to its 13-year-old television and electric fan facility in Long Beach, it has just opened a television production operation in Atlanta.
There is ample room, however, for Taiwan businesses to achieve cost savings through introduction even of fairly rudimentary mechanization.
James R. Klein, an American who heads General Instrument's 100%-owned Taiwan subsidiary, points out that, while his employment has declined in recent years, he has continually expanded output. The company makes cable-TV converters, semiconductors, relays and components for computer terminal monitors.
Taiwan businessmen recognize that, in some respects, they are where Japan was after its first surge of exports during the late 1950s and early 1960s--they have a reputation for cheap but not necessarily good products. Unlike South Korea, where the economy is dominated by huge concerns and by government intervention in decision-making, Taiwan will have to mount its effort to change that reputation through its small businesses.
Ford Lio Ho, even as the second-largest auto producer here, is typical of Taiwan's enterprises. Producing only 45,000 cars--the whole country turned out only 155,685 motor vehicles last year--means operating its clean, neatly laid out production line at barely 20 cars an hour, roughly a third the pace of many major plants around the world.
Automation is minimal. While the Japanese often hang doors on car bodies largely by machine, Yih carries them one by one to the sedan body inching along the line and installs the two on his side entirely by hand. Another worker attaches doors on the other side.
They do it with considerable care, unpressured by the production pace. The Chinese are more independent and less team-spirited than the Japanese--offered vacation, for example, they will take it--but their interest in improving the operation--in fact, in learning anything--is intense.
"I'm continually astounded at the Chinese ability to absorb knowledge and at their interest in anything new," said operations chief Parker, who is British. He figures he's going to be terribly frustrated as a production manager when the time comes for him to transfer to another Ford operation and try to deal with the workers there.