UPDATE: 12/18 to add comments from Forrester principal analyst Charlie Dai

McKinsey & Co. on Friday officially unveiled a program to put Taiwan at the center of its efforts to help the region transition to a new model of digital business.

Speaking at the launch of the McKinsey North Asia Industrial Internet of Things (IoT) Hub in Taipei, McKinsey Taiwan Managing Partner and American Chamber of Commerce in Taipei Chairman Albert Chang (章錦華) said multinational companies are facing a “make or break moment” in the race to embrace digital.

“We believe companies can attain a 30 percent productivity advantage by undertaking a digital transformation,” Chang said, adding that only a third of companies will successfully achieve the shift.

Chang reiterated a warning McKinsey sounded to Taiwanese executives last year that they must “digitize or die,” stressing that companies that fail to implement digital capabilities across their entire operations will soon find themselves struggling to survive. “If you are not first, you cannot compete,” he said.

McKinsey is partnering with more than 100 tech firms to help clients digitize their product design, procurement, and supply chain management, as well as manufacturing and back-end operations.

“We are partnering with a combination of large technology partners, as well as a long list of software companies and cutting edge start-ups for specific industrial IoT applications,” said McKinsey Greater China Director of Communications Glenn Leibowitz.

Those companies include North American supply chain software solution providers, AI-driven procurement analytics firms, as well as European smart manufacturers. Taiwanese companies are expected to play a role in providing IoT sensors and chip technology.

On the client side, McKinsey Senior Partner Jean-Frederic Kuentz said the consultancy was already working with several of Taiwan’s electronics and PC and component makers, and would seek to “deepen the relationship,” adding that the team has recently visited auto companies, component makers and ODMs in China, and large-scale manufactures in South Korea.

Widespread implementation of 5G telecoms networks in developed markets is expected to help drive global spend on IoT to US$1.2 trillion by 2022, attaining a CAGR of 13.6 percent between 2017-2022, according to market intelligence firm IDC. North Asia accounts for more than half of the advanced technology companies that McKinsey is targeting worldwide, with Taiwan hosting 18 percent, compared with 29 percent in China and just over a third in Japan, according to data from Capital IQ.


Credit: David Green

The launch of the IoT hub included a suite of booths demonstrating how the shift to digital impacts a typical business.

Asked why McKinsey had chosen Taiwan for the hub, staff picked out the ready availability of experienced talent and the attractiveness of its living environment for employees – “it’s the only place where the taxi drivers are nicer than the passengers,” Chang quipped.

The company has so far relocated eight senior partners to its Taipei office, part of a shift that has seen its staff count here more than double in the past 18 months. Hiring is ongoing.

AmCham Taipei President William Foreman said that the decision to locate the hub in Taiwan is a significant boon that will provide young, talented people with a much-needed opportunity to work in an innovation-driven environment. “The hub will strengthen Taiwan’s position as a base for innovation in a key area such as IoT,” Foreman told The News Lens. “In the past year, we’ve already seen companies like Google and Microsoft establish R&D centers for AI on the island. This is exactly what Taiwan needs – more major tech companies expanding operations here.”

Iris Pang, ING’s economist for Greater China, said the hub's launch comes at an opportune time for Taiwan’s economy given the troubling impact of Apple’s decision to pull orders from Taiwanese suppliers in November. “Taiwan itself is a semiconductor hub and it is very logical to establish the hub there – it will facilitate the development of IoT in Taiwan,” she said, adding that Taiwan also has an advantage in producing auxiliary IoT equipment.

Charlie Dai, principal analyst at research firm Forrester, said Taiwan's companies are in the early stages of IoT transformation, and must define their strategy and roadmap with a holistic view from company level, but to start small and justify investment fast. "In addition to government incentives, Taiwan also has a high-tech history with legal protections, less environmental problems and a wealth of IT knowledge in manufacturing and hardware, which are hot areas for IoT adoption. In addition, as many manufacturing companies also have subsidiaries and factories in China, McKinsey can also have a broader coverage for smart manufacturing" Dai said in an email.

Taiwan’s government is pushing the development of Industry 4.0 under President Tsai Ing-wen (蔡英文)’s 5+2 industrial innovation plan, and aims to secure 5 percent of the global market value for IoT-related components and products by 2020, according to government websites.

“We will support all the necessary partnerships with McKinsey,” Science and Technology Minister Chen Liang-gee (陳良基) said at the event. “Taiwan is a small country that needs a focused strategy to face big challenges, so last year we established 22 centers of excellence in universities, four of which are in IoT.”

Those centers will provide a pool of talent that McKinsey will seek to nurture through the opening of an IoT university focused on enhancing digital talent capability within the organizations it works with. “The university is focused on training clients’ executives and staff on how their day-to-day life will change in their company post IIoT transformation,” Leibowitz said in an email. “We use a combination of classroom training, virtual tool training, for example mobile app-based leadership skills training and virtual model factory technology, as well as on the job training.”

This piece was updated on Dec. 18 to add comments from Forrester principal analyst Charlie Dai. It was additionally updated on Apr. 9 to refine references to partner companies.

Read Next: McKinsey to Taiwan's Execs: Digitalize or Die

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