CommonWealth Magazine – Taiwan Top 50 Business Groups: 20 Years Later, Who’s In and Who’s Out?
CommonWealth Magazine has released its first survey of Taiwan’s biggest business groups since 2000. The changing face of the Top 50 rankings over the past two decades mirrors Taiwan’s rapidly evolving economic landscape, with some man-made disasters thrown in.
CommonWealth Magazine released its first Taiwan Business Group Top 50 in 2000. This year’s new survey of the country’s 50 biggest conglomerates reveals how the past two decades have changed the face of Taiwan’s business titans.
Twenty years ago, Taiwan’s center of economic strength was already shifting from small- and medium-sized enterprises to big business groups, and the trend has only become more pronounced with time. Today, the combined revenue of the top 50 business groups exceeds Taiwan’s GDP.
Particularly evident in this 20-year comparison is the inevitability of change. Some of the business groups that were riding high in 2000 have expanded into the international arena, and are on equal footing with global leaders. Others have fallen out of the elite club, undone by succession issues that undermined their operations. What were the conditions and management issues that brought them down?
Between 2000 and 2020, the TSMC Group’s annual revenue rose from under NT$100 billion to NT$1.1 trillion, an annual compound growth rate of about 13 percent. Its market capitalization has soared to nearly NT$8 trillion, higher than that of long-time customer Intel and one of the 20 highest market caps in the world.
Food conglomerate Uni-President Enterprises is another group that has experienced a boom. Its revenue has soared above that of such heavyweights as the U.S.-based Kellogg Company, Japan’s Nissin Food Group, and China’s Mengniu Dairy Company, catapulting it into the top 20 in the global food & beverage industry.
Not to be left out are Taiwan-based companies Hon Hai Precision Industry, Pegatron Corporation and Wistron Corporation, which dominate the global electronics contracting sector, long one of Taiwan’s strongest suits.
Among the groups that fell out of the top 50 are the Rebar Group, Tuntex Group, Tatung Group, and Chinfon Group along with Hualon Corporation and Pacific Electric Wire & Cable (PEWC). What happened to these companies that were once at the top of the world and led by people who were very well-connected in both the business and political worlds?
CommonWealth has carefully analyzed the changes experienced by Taiwan’s biggest business groups over the past 20 years through the prisms of the biggest risers and fallers.
Following the Big Boys, but Profits Down
Among the Top 50 Business Groups, half are in the information and communications technology (ICT) sector, the main pillar of the country’s economy.
“That’s because they are following giants,” observed PwC Taiwan Chairman and CEO Joseph Chou.
The ICT sector has seen a massive surge in the past two decades, driven especially by Apple’s supply chain. From contract chipmaker TSMC to electronics manufacturing services providers Hon Hai, Pegatron, Compal Electronics and Quanta Computer, they have all broken the NT$1 trillion sales barrier.
But while these electronics giants generate massive sales numbers, their after-tax profits are relatively low. Compal Electronics, with more than NT$1 trillion in revenue, and Wistron, with revenue of more than NT$900 billion, have net profit margins of less than 1 percent. IC foundry United Microelectronics (UMC) led the Top 50 in profits 20 years ago, earning more than rival TSMC, but its after-tax profit is now only about half of what it was in 2000.
Massive business growth but thinning profits – this has been the fate of Taiwan’s electronics contractors over the past two decades. Amid the turmoil of industrial upgrading and relocation, these manufacturing giants decided to sacrifice margins in exchange for size to reduce the number of competitors in the field and limit market uncertainty. But the strategy has had consequences for growth.
“Because growth rates are so low, they can no longer rely on industry trends to pursue organic growth,” PwC’s Chou said, explaining why the future of the ICT sector will depend on mergers and acquisitions.
The industry has already been moving in that direction. IC testing and packager Advanced Semiconductor Engineering merged with rival Siliconware Precision Industries (finalized in 2018), Hon Hai acquired Sharp of Japan in 2016, and Taiwan-based WPG Holdings, a distributor of semiconductor components ranked 20th on the Top 50 list, has expanded the same way.
Two Taiwanese ICT companies that have built their own brands – Acer and AsusTek – remained in the Top 50, but their revenue is down from their peaks in 2010 and 2007, respectively.
Their ups and downs symbolize how Taiwan successfully capitalized on the trend toward personal computer and notebook branding but lagged behind when the market switched gears to smartphone software service brands.
Wen Chao-tung, a professor in National Chengchi University’s Graduate Institute of Technology, Innovation & Intellectual Property Management, has taken note of the gradual shift in the electronics landscape from hardware to software. But he said that if Taiwan can sustain its manufacturing management prowess, the market value of these companies will become apparent over time, enabling them to acquire brands and make their mark internationally.
From Volume to Quality to R&D in the Future
The Formosa Plastics Group dominated Taiwan in 2000 but is now the only old-economy manufacturer left among the 10 top-ranked biggest groups in the Top 50. The secret weapon that has kept it at the top (second in the 2020 Top 50) is its sixth naphtha cracker complex in Mailiao in Yunlin County.
In August of 2000, the sixth naphtha cracker complex began producing gasoline and diesel fuel, realizing Formosa Plastic Group founder Wang Yung-ching’s dream of “moving upstream in the petrochemical industry, entering a business monopolized by a state-run enterprise, and using good management to win.”
The Formosa Plastics Group produces everything from oil products to plastic materials at the Mailiao complex, helping minimize costs and maximize benefits.
“The sixth naphtha cracker plant doesn’t make plastic bags but rather hydrofluoric acid used in the production of circuit boards, wafers, and transistors needed in iPhones and TSMC’s manufacturing processes. This is directly related to the boom in Taiwan’s ICT sector,” said Chan Wen-nan, the director of the Marketing Intelligence & Consulting Institute.
Formosa Plastics seized on the growing strength of the ICT sector to emerge as one of the three biggest petrochemical groups in the world.
Yet it is also true that Formosa Plastics has stopped taking great strides forward in the past 10 years. In small, densely populated Taiwan, the massive scale of the sixth naphtha cracker complex has created a huge burden for local residents. In 2011, the complex experienced several occupational safety incidents, pushing resistance to its presence to a new high, and environmental impact assessments have slowed down expansion projects, resulting in a plateauing of revenues.
Formosa Plastics Group President Wang Wen-yuan has been busy planning a US$10 billion project in Louisiana, while new investment in Taiwan has shrunk to nothing. Faced with these many challenges, the group could not hold off Hon Hai from vaulting past it into the top spot in the Top 50.
That does not mean Taiwan’s petrochemical industry is incapable of growth, as demonstrated by the Chang Chun Group. Twenty years ago, Chang Chun ranked 44th among Taiwan’s Top 50 Business Groups; this year, it vaulted to 28th, a rise fueled by strong R&D capabilities.
In 2018, one of Taiwan’s most prestigious technology awards – the Pan Wen Yuan Prize – was awarded to Chang Chun Group President Lin Shu-hong, making him the first petrochemical sector leader to receive a major award in the semiconductor and technology sectors.
Compared with Wang Yung-ching, who stressed economics of scale, Lin has prioritized the development of leading and unique technologies. His conglomerate supplies key materials for everything from Apple’s mobile phones to the batteries for Tesla’s electric vehicles, enabling copper foil from Miaoli County to find its way into the U.S. market.
Chang Chun has never shown explosive growth, relying instead on R&D and technology to survive and thrive, and it is the only group among the Top 50 to have never listed its shares publicly. Its emphasis on R&D and its low-volume, high-price sales approach could very well become the model for Taiwan’s petrochemical industry in the future.