July 6, 2006

The automotive electronics industry is a “deliciously” fast-growing field, as the Taipei-based American Chamber of Commerce puts in a recent survey of the industry.

At least, if you believe those at Strategy Analytics are to be believed, generated global revenues last year of over US$120 billion (by contrast, notebook PC revenue amounted to “only” US$61 billion, the report went on.

But the pipe dream could become reality for Taiwan. Automotive electronics will almost certainly take center stage as it is the industry's fastest growing field on the island as well. Firms in Taiwan are currently focusing their attention on the deployment of key components in order to enter the first tier of the American auto industry. Already end of 2005 a high ranking delegation composed of top executives of six major industrial associations and lead by a vice minister hit Detroit for a series of investment and cooperation conferences.

With Taiwan's competitiveness in the semiconductor and optoelectronics industrz as well as the vehicle components (LED, sensors, MCU) and driver information systems and component fields (middle and small-sized TFT-LCD panels,Telematics ) plus the already existing technological advantages in R&D and manufacturing for automotive parts, and whole car production, Taiwan's automotive electronics industry is almost assured of success in the global vehicle electronics and auto market, according to government and industry insiders.

All around the world, the automotive and IT industries are converging. This is potentially excellent news for Taiwan, whose IT sector is not just successful, but famously so, and whose auto parts industry is not small either, though its success has come mainly in the automotive aftermarket rather than in the more sophisticated and higher-margin OEM arena.

But the latter will teach Taiwan some lesson. In the automotive OEM field there are, as opposed to ICT, high barriers to entry. OEM supply chains there – and in that business, everything is OEM ) are heavily tiered, structured according to long, well-established relationships among customers, suppliers and subsuppliers. Autoparts manufacturers may make parts for only one customers – and may in turn depend on subcontractors that make parts for parts. Detroit may be a littler easier, but European and especially German car manufacturers will spend as mus as five years assessing a new supplier. Therefore, Taiwan's established position in the aftermarkets is of limited value to enter a well-worn tier system. And without that access, how can they gain know-how and expertise to upgrade their products ?

Outside of those strategies, Taiwan ICT and electronic firms will have to break into the global supply chain by focusing at first on a few lower-end products, building up relationship and trust, analysts in Taipei said.

As for the Taiwan government involvement in automotive electronics, the Ministry of Economic Affairs last year announced a plan to spend the equivalent of US$ 300 million over five years to help develop the industry.

So, when can we see the first results ? No sooner than in three years, insiders say, realizing the Taiwan way of approaching new challenges not systematically, but by trial-and-error.

The first visible/saleable results should be electronic accessories and gadgets for the aftermarket, displayed at ICT trade shows, like CeBIT Hannover.