It had all seemed so easy in 2000. As the world celebrated the first year of the new Millennium, Taiwan's machinery industry toasted what was one of their most successful years ever in export trade.

The first nine months of the 21st Century saw Taiwan register a significant 18.2 percent increase on 1999 in outgoing machinery with total exports reaching a whopping NT$314 billion (US$9.146 billion).

And while it was a great year for the sector as a whole, some companies had more reason than others to break open the champagne. The mold and dye sector grew by a target-busting 22 percent while the textile machinery industry outperformed everyone by posting a year-on increase of almost a third, with its value reaching NT$17.6 billion (US$512 million).

The success was doubly sweet. The year 2000's gains came on the back of some relatively fallow times for manufacturers as Asian economies coped with the fallout of the 1997/8 financial crises and demand for capital equipment plunged.

But pulling themselves up by their bootstraps is what Taiwanese companies do best and by 1999 the country was exporting NT$266 billion (US$8.26 billion) worth of machinery products. Growth areas included mold and die machinery, then the fastest growing of all machinery sectors due to the large demand from communications and electronic case makers. Another winner was light alloy machine centers for metals used in the production of personal digital assistants (PDAs), cellular phones, and notebook PCs. Industry experts praised the Taiwan paradigm of cooperation and competition as the reason for the industry's turnaround in fortune.

Taiwan had developed what was known as the 'cluster effect', a centralization of small- and medium-sized firms that helped produce a variety of products due to the close proximity of both suppliers and competitors. In fact, around 50 percent of Taiwan machinery is made in the central county of Taichung.

The 'cluster effect' propelled the machine industry from their gains in 1999 to the achievements of the first three quarters of 2000.

But then it all started to go wrong.

A slight global downturn was exacerbated by events on September 11th and when the U.S. economy dived for cover, the rest of the world followed.

There were not many places where this was more keenly felt than in Taiwan. The U.S. is traditionally Taiwan's largest overall export market and in the machinery industry it accounts for approximately one fifth of all exports.

So when the U.S. market fell away - taking other large buyers of Taiwan machine manufacturing such as Hong Kong and Japan with it - the bubble that had slowly been expanding since the latter part of 1998, suddenly burst.

"In the last six months of last year, the situation was very bad for the machinery industry," says C.C. Wang, president of the Taiwan Association of Machinery Industry (TAMI). "September 11th hit the export market very hard."

The figures back Wang's claim. Consider: According to statistics from TAMI, despite a strong first half of the year during which 2000's gains were built upon, the machinery industry had regressed 6 percent by the end of the year.

Particularly badly hit in this new economic climate were the woodworking machinery manufactures, which, after making gains of 16 percent in 2000, found their total exports of 2001 slashed by one quarter - a loss of more than NT$6 billion (US$175 million).

Also on the receiving end of the slowdown's sucker punch were textile machine makers. After their successful 2000, events in the U.S. led clothing manufacturers to cut back on expansion plans that in turn saw textile machinery exports drop by almost 15 percent.

Other losers included the mold and dye sector (down 12 percent) and the leather and shoe making machine area (down 18 percent) although Taiwan's smaller machinery industries, such as the food and packaging machine makers and the paper and products machinery sector (who together only make up 3.8 percent of the machine industry's total exports) still found room for improvement.

The breakdown of countries that receive Taiwan's machinery goods also tells a story. In 2000, the U.S. accounted for NT$65 billion (US$ 1.9 billion) worth of exports. In 2001, this fell by 12 percent to NT$57 billion (US$1.66 billion).

So, as 2001 clicked into 2002, the industry found itself in a very different position than 12 months previously.

However, with half of the year now gone and the world economy getting back on its feet again, industry watchdogs, including TAMI, are feeling more upbeat, thanks to figures that show a marked improvement.

"The figures we have for the first three months of this year are looking a lot better," says Wang. "They show an increase on the same time last year so overall it looks as if this year will turn out to be a lot better."

"And at the moment, the entire industry is reporting strong figures. All the sectors are saying business is very good, especially compared to last year."

Firms can take heart from Wangˇ¦s optimism. TAMI has been keeping its finger on the pulse of the machinery sector since its inception in 1945 when it appeared as the Taiwan Association of Iron Industry before settling for its current name in 1948.

Today it consists of more than 2,300 businesspeople in the industry who work alongside the government to organize and promote Taiwan machinery. If things are looking brighter then these people will be some of the first to know.

But donˇ¦t just take their word for it. Those on the ground floor are echoing TAMIˇ¦s reassuring sentiments.

ˇ§Business is good at the moment,ˇ¨ says Eric Fu, sales manager for Pai Lung Machinery Mill Co., Ltd, which has been producing and developing circular knitting machines since 1977.

ˇ§Business is good partly because of our good name in Taiwan, partly because we have good prices and good quality and also because the economy is going up.ˇ¨

Pai Lung relies heavily on exports. With 95 percent of their current output sold abroad, any change in the global market place will affect the company, which is why last year was not easy for the company based in the Juei-Fang Industrial Park in Taipei.

ˇ§Last year we only received 800 to 900 orders in the entire 12 months. In the first half of this year, though, we have received nearly 600 orders from around the world.ˇ¨

However, despite the current good mood, Fu realizes the company needs the US economy up and running at full steam for the improvement to continue.

ˇ§The United States accounts for 33 percent of the global economy,ˇ¨ he says, ˇ§so if their recovery keeps going then this year will be very good.ˇ¨

Itˇ¦s the same message over at machine tool makers Kao Fong Machinery Co., Ltd. in Taichung.

ˇ§For the last quarter, the U.S. market has been no good,ˇ¨ says department manager Jessica Mern.

ˇ§The reason the U.S. market has decreased is because of September 11th and Americaˇ¦s market has still not recovered from that. We really need the market to pick up over there.ˇ¨

So far this year the company has been helped along by increasing demand from mainland China and Asia for their core product of vertical and horizontal machining centers. Mern says that the order books for March, April and May were full, something that will be helped by the imminent opening of a new factory in Shanghai and plans in the pipeline to open more.

Kao Fong are also looking to open up the Indian market, though efforts so far have not been as successful as their forays into the mainland.

ˇ§In India the market is very difficult,ˇ¨ says Mern. ˇ§We think we should have a market over there but it is very difficult to get into because of price.

ˇ§Our price there is quite high, so it is very difficult to compete with other factories. There is some very hard price cutting going on.ˇ¨

Increased investment is something that TAMI is beginning to witness. With an increase in market optimism, companies can now look further forward into the future.

ˇ§Companies this year are really trying to shorten the length of time it takes from customers ordering new machinery to when it is delivered,ˇ¨ says C.C. Wang. ˇ§In other manufacturing markets such as the U.S. and Europe this period is often more than six months.

ˇ§In Taiwan, however, firms can deliver within two months of ordering,ˇ¨ he added, stressing that if companies can reduce this further then they will become even more competitive in the market place.

Back at the Juei-Fang Industrial Park, Pai Lung is putting its money back into research and development. As well as plans to launch a new machine in mid-July, the company is also hoping to attract international attention with another unveiling in 2003.

ˇ§Our company is putting a lot more money into research and development. For example, next year at an industry trade show in England we will be revealing some very exciting new products. We are really looking forward to the future.ˇ¨

However, there are signs on the horizon that suggest the future may bring with it some problems. A recent article in the Washington Post highlighted concerns that the current upsurge in orders from China may only be temporary with trade experts warning that China is merely beefing up its own export capacity with a view to producing more of its own equipment at home.

ˇ§As China emerges as the worldˇ¦s lowest cost production base, itˇ¦s putting pressure on exporters everywhere,ˇ¨ Morgan Stanley economist Andy Xie was quoted as saying. ˇ§The rest of Asia is going to have to adjust.ˇ¨

C.C. Wang of TAMI also holds some concerns for the year ahead, saying the environment is still ˇ§uncertainˇ¨. But for the time being, in the machinery factories of Taiwan, people are happy to be out of the long, dark tunnel of 2001.

ˇ§At Kao Fong we are working at full capacity right now,ˇ¨ says Jessica Mern. ˇ§We donˇ¦t have a 100 percent full order book for July and August but everyone at the factory is working very hard with a smile on their face.ˇ¨

This report is provided courtesy of the Taiwan Product News Bureau, a service offered by CETRA, the China External Trade Development Council, in conjunction with Interface Global Taiwan.