"Relax," he advises. "Only big enterprises with a high degree of automation have to worry. Why should we smaller businesses worry about it? This is all something cooked up by a small number of foreign firms who like to make a big show, so they are talking as if the sky is falling. I think they just want to sell more machinery!" he says with disgust. Management crisis
In theory at least, firms with a lower degree of automation are indeed less likely to experience a serious shock from Y2K. But SMEs have limited resources, and thus a correspondingly lower ability to withstand shocks. Says Chiang Shu-shang: "How many machines will go down in a given medium-sized factory? Until testing and inventory have been done, no one can say for sure."
Take for example a ready-to-wear clothing factory. Y2K problems have been detected in many of the machines used in such factories. But how many factory operators know that these machines have hidden dangers? If they wait until a machine crashes before they rush off frantically to buy a new one, will they have enough cash on hand to get through? Will their customers be willing to wait?
Many SME bosses admit knowing little about Y2K, but say it isn't their job anyway: "Since the problem is with the computers, let the information systems people take care of it." Unfortunately this overlooks the important problem of manufacturing process control.
The vice manager of the information department in a listed petrochemicals firm moans: "We information department people know computers all right, but we don't know production!" Although he is in charge of the Y2K problem at his company, he has no staff, and no authority.
"It's nothing but an empty title!" says this vice manager. He repeatedly emphasizes: "I don't understand a thing about the process control in our production department, I'm completely out of the loop!" If testing is really to be done, then the production line will have to be shut down. How can a relatively unimportant vice manager of information systems get the production department, with its hundreds of employees, to cooperate and stop work?
In contrast to this panicked information manager, the production manager at the same company is completely at ease. But the reason is comic: "There shouldn't be any effect on our production process, because our information department people have been looking out for this problem for a long time. They've been following up on it, and I haven't heard of any problems. . . ."
Another information department director, this time at a machinery company, states that their information systems have already been completely taken care of, and although he is not familiar with the production operations at the factory, he is "confident" that there won't be any problems: "Our machines are only concerned about temperature and humidity, and don't have anything to do with the date!" He insists that there's absolutely no need for testing. "If nothing is wrong, what's the point of going and plugging in the date? Even if when the time comes, the date is wrong in the machines, what difference will it make? Anyway we don't stamp the date on our products!"
In fact, there's only one real way to tell whether the chips in the instruments are connected to the date, and that is to read the program codes. Otherwise there's no way to tell just by the appearance.
Bosses, get involved!
Having seen the difficult position that the information personnel in many companies are in, Wu Tseng-feng of Hewlett-Packard emphasizes that Y2K "is not simply a computer technical glitch, but involves the entire management structure of the firm." Only if the top-ranking officials coordinate things can full capability be brought to bear in the war against Y2K.
This is precisely the secret of success at China American Petroleum, a "model student" in the Y2K game.
CAP has done extremely comprehensive testing, from an audit (identifying all the equipment which could in some way be affected) and initial adjustments to systematic tests on each machine (individually and then in sets) to a full-scale "flow test" under normal operational conditions. Bill Lin explains: "We had to coordinate these tests with the production department, using the annual repair period of each of the five factories in turn, in order to avoid disrupting normal output."
Particular attention was focused on the "flow test" at the first factory, because this was the first time it had been done anywhere in the world. The whole factory was down for 15 days, which was a day or two more than had been anticipated. This was only possible because there was careful evaluation and full support from high-level management.
Management foresight has been the moving force behind aggressive strategies to cope with Y2K in other companies as well.
David Lin was formerly Y2K coordinator for Yulon Motors. Now the general manager at a different firm, he notes that Yulon began tackling Y2K as early as a 1997. Moreover, unlike many firms which have simply passively waited for problems to crop up, Yulon seized the opportunity to fully upgrade its computer systems. "Of the 22 computer systems in the company, 21 have been completely overhauled, while the last has been repaired," says Lin. Already 14 of the revised systems are online, and work is being rushed ahead on the other eight.
Survival
Besides the technical and management angles, one can also look at the Y2K problem from the point of view of enterprise survival.
"The company can close its doors and kill all the Y2K bugs inside. But if the environment is a mess, you can't survive even if you are taking the proper steps," says Austin Lin.
For example, Y2K could affect the reliability of water, power, transportation, communications, and customs services. Upstream there are raw materials providers, satellite factories, and subcontractors. Downstream are customers, sales networks, and distribution systems. Can each and every link in the chain safely cross over into the year 2000? If they can't, what will be the impact on business? These are all variables that need to be considered.
"Sales is the foundation of a company. If the channels are clogged, products can't be sold no matter how good they are," says David Lin. Yulon took this threat seriously right from the start. They provided free Y2K training to more than 130 sales outlets across the island, plus gratis software upgrades, and then kibitzed over the shoulders of their outlets to make sure that each one was acting to cope with Y2K.
Yulon could be this strict because its retailers specialize only in its product. But they felt powerless faced with their 100-plus large and small subcontractors, producing such things as paint, seat covers, and screws.
As David Lin explains, "There are 13 auto manufacturers in Taiwan, and subcontractors don't just work for Yulon alone." Each factory wanted the subcontractors to do something different to adjust to Y2K, and with so many chefs spoiling the broth, the subcontractors didn't know where to begin. Fortunately, just after the Chinese New Year, the Industrial Development Bureau (IDB) brokered an agreement within the Transportation Vehicle Manufacturers Association, with five major manufacturers each agreeing to "adopt" specific subcontractors and guide them through Y2K. Yulon was assigned 61 subcontractors. Though time is short and there is much to do, at least things are better than when everyone was paralyzed.
Lin says that since every firm was only looking out for itself, it was very helpful that the IDB, which manages industrial policy, stepped in. In fact, since last year the IDB, working with other institutions which have close ties to business-such as the Industrial Technology Research Institute, the Institute for Information Industry, and the Corporate Synergy Development Center-together have created an atmosphere of cooperation in industry. Many firms which are handling Y2K very successfully, such as the notebook computer manufacturer Inventec, have been setting up Y2K "intelligence branches" or websites and making their own experiences available to others.
Full mobilization
The IDB has also been working through industrial associations to build up horizontal linkages between firms, especially SMEs.
"Firms in the same line mostly use the same equipment. If every firm were to make available the results of tests it has done on specific brands and models of machinery, then SMEs wouldn't have to muddle through blindly on their own. This would be tremendously helpful," says Chiang Shu-shang.
Austin Lin stresses that Taiwan's firms are very interdependent. He concludes: "Businesses can fight all they want about anything under the sun-except for Y2K. They have to cooperate to solve this problem."
Looking, then, at the overall production chain, "the weakest link is Taiwanese-owned firms overseas," according to China Productivity Center chairman Hsu Chieh-kwei.
For one thing, overseas Taiwan firms are concentrated in areas that the Gartner Group considers "high-risk"-mainland China and Southeast Asia. Water and power supplies could be even more dubious after Y2K kicks in. Also, those areas are relatively closed to outside information. Most overseas Taiwan firms in Asia are traditional labor-intensive assembly operations, with only a moderate degree of automation and much outdated equipment. It will be difficult for them to get past 2000 unharmed. If Taiwan firms in the PRC are hard hit, what will become of Taiwan's annual US$20 billion surplus with the mainland? What will the impact be on companies in Taiwan proper? Nobody can say for sure.
Crisis or opportunity?
From a global perspective, says Hsu Chieh-kwei, "Beginning in the second half of this year, foreign buyers will begin withdrawing orders from high risk areas and high risk firms, and switch to safer suppliers." Y2K could spark a complete reshuffle in the comparative advantage game.
"Taiwan is doing OK, and can aspire to be doing better than anyone else in Asia," says Austin Lin. Taiwan has adopted the correct strategy, with the government first focusing on core infrastructure, then large firms, and finally going to full mobilization involving various types of organizations and firms of all sizes.
Recently APEC held a summit in Manila which deemed Taiwan's manufacturing sector to be relatively unprepared. But Austin Lin, having followed the research reports coming out of the US, feels that Taiwan is not putting up a poor showing. Though time is short, there is good reason not to be pessimistic about the situation, considering that Taiwan SMEs have a long-standing and solid relationship with government agencies and that SMEs have a relatively low degree of automation.
In contrast, "though Hong Kong and Singapore are doing very well with Y2K, the hinterlands on which they heavily rely-mainland China and Malaysia-are facing serious problems," avers Lin. Taiwan has the comparative advantage, so it can seize this opportunity to pick up more international orders.
Is Y2K a threat or an opportunity? The next half year will be decisive. Can Taiwan's businesses face the challenge with confidence?