Taiwan's companies make the world's electronics. Now they want to make weapons

TAINAN, Taiwan — The technology behind the plastic injection mold machines that hum in a factory in this town in southern Taiwan were once used to make Buddhist temple decorations. A generation later, the company, Hwa Meei Optical, now makes recreational eyewear, such as ski goggles and sunglasses.

But it has ambitions to outfit soldiers.

"Every generation at Hwa Meei improves. Now we will have to see what the third generation will do," says Lin Shunfu, a company vice president.

He is now shifting the company into the defense sector to manufacture and sell shatterproof, bullet-resistant eyewear for the military.

As China's military might grows, the Asia Pacific region is in an arms race to both deter and prepare for war. Taiwan is no exception. It's a self-governing island that China claims as its own territory, to be conquered by force if necessary. Taiwan has extended its mandatory military conscription period for men from four months to a year and is intensifying its own military drills. In July, the White House announced it would send Taiwan $345 million worth of weapons, taken directly from the U.S.' own stockpile for the first time, as well as other defense services, such as training.

Now Taiwanese private companies are also pivoting into the defense sector and making weapons, and U.S. defense contractors are exploring ways to manufacture and design noncore components of their weapons systems in Taiwan.

To do so, they will need to work within the Taiwanese military's rigid approach to reform and a historical preference to rely on government research institutes for equipment upgrades.

However, under pressure to match China's accelerating military capacity, Taiwan's military is looking for creative ways to boost its defense abilities in a short period of time, and it has been loosening once-strict procurement rules to allow private companies to develop dual-use technologies for its military — giving companies like Hwa Meei a chance.

"Every year Taiwan spends billions of dollars to buy American defense equipment. It is almost [like] we are paying the U.S. protection money. But if U.S. companies could support local businesses, some of the benefit would return to Taiwan and ensure we help each other," Lin says.

3,000 drones by next year

Twice in the past year, China's military has conducted military exercises simulating a full blockade of Taiwan. In a real conflict, such a blockade would make it impossible for the U.S., Japan or nearby countries to ship in any weapons or reinforcements not already stockpiled on the island.

That has led Taiwan's manufacturers to ask: Why not build up defense supply chains at home?

"Every country aims to be technologically self-reliant and should be building up its own supply chains, so when the need arises, we can quickly rise to meet our own national security needs," says Lo Cheng-Fang, the founder of Geosat, a Taiwanese drone company that once made uncrewed vehicles used to spray pesticides on agricultural fields or deliver packages.

Now, Lo, who also goes by Max, has fully transitioned the company to making dual-use drones that can also be mounted with guns, drop bombs or surveil enemy sites. Taiwan's military is partnering with private companies including Geosat to build 3,000 military-use drones by next year.

"What the Ukraine war has taught Taiwan is that small and medium-sized drones can be used in large quantities and that commercially available drones can be rapidly modified for the battlefield as well," says Lo.

The U.S. vows to help defend Taiwan

The U.S. signed a treaty requiring it to help Taiwan defend itself against China, and it sells at least hundreds of millions of dollars of weapons and defense systems like F-16 fighter jets to Taiwan each year.

But there are significant delays in delivering the weapons. The U.S. is depleting its own inventory as it ships arms to help Ukraine. Moreover, the Pentagon's bureaucratic processes have delayed weapons shipments to Taiwan by years in some cases.

This has created an opening for companies in Taiwan, which argue they have the technical know-how to produce some of the components that go into the weapons systems and equipment its military buys elsewhere, primarily from the U.S.

Taiwan is not alone in leveraging the private sector to jack up its military technology.

The defense forces of many countries, including that of the U.S., fund civilian research that has potential military applications. China has accelerated its own dual-use strategy, dubbed "military-civil fusion" by policymakers, by pouring billions a year into civilian companies who can alter existing products for military use on a short time scale.

Momentum is building to localize at least some weapons production in Taiwan. In May, 25 U.S. defense contractors visited Taiwan, meeting with government officials and local companies and looking for ways to make new systems together in Taiwan, or at least make their different defense systems function better with each other.

Not as fast as Taiwan would like

However, progress is slow, frustrating nimble Taiwanese firms that are used to moving fast in competitive markets like China and India. By contrast, U.S. defense contracts can take years to be approved, whether by corporations or federal agencies like the Commerce Department. That can leave private companies in the lurch when trying to recoup financial outlays in manufacturing and research.

American defense companies have also pushed back against moving too much of their operations to Taiwan. They receive high fees when selling complex weapons systems, such as a fighter jet or military helicopter, because they are also paid to service and maintain those systems throughout their lifetime of use. Allowing Taiwanese companies to disassemble and replace components within these systems is a security risk, the contractors argue, and siphons away some of their revenue streams.

Tussling over intellectual property to maintain systems is not new. Boeing is currently in a dispute with the U.S. Navy, which wants to perform its own maintenance on 12 Boeing Super Hornet jets it purchased.

Moreover, American export controls prevent many key technologies and manufacturing equipment from leaving the U.S. or from being made elsewhere.

"There will be items that are incredibly important to Taiwan, that I want to make happen in Taiwan, that will never happen in Taiwan. They will never be allowed by the U.S. government, or at least in the time frame that I am working in this industry," Robert Moss, an executive with U.S. firm Teledyne FLIR, which makes cameras and sensors, said at a defense forum in Taipei this past May.

U.S. officials and defense contractors are also concerned about infiltration by the Chinese government in Taiwan. They worry about bringing some of their technology and setting up more extensive supply chains in Taiwan because they could be stolen by Chinese spies, according to two U.S. commerce officials who were not authorized to speak to media.

Lo, Geosat's founder, says Taiwan is working to address any security vulnerabilities, and it is best-positioned to create what he calls "red-free" or "China-free" defense supply chains that friendly countries, such as Australia and Japan, could leverage for their own military logistics.

"We had a short period to substitute out every Chinese-made part in our supply chain. We did it, mostly by sourcing from the European Union," Lo says. Replacing the battery inside Geosat's drones was the hardest, he says, and eliminating suppliers from China initially tripled his production costs.

Taiwanese companies argue, making arms and defense equipment is a natural step. The island's economy boomed in the 1970s as it became a manufacturing hotspot for cheap plastic and electronic components. Now it is the world's foremost semiconductor manufacturing base.

"We won't give you bad quality products. This is something every Taiwan production line and Taiwanese worker believes in," says Po Sheng Lai, the founder of Shern Yeong Precise Optical, a company in the northern Taiwanese city of Yilan that makes high-end glass and optical components or scanners, cameras and medical diagnostic devices.

Now, it is pivoting to defense as well, making gun scopes and specialty lenses that go into Taiwan's anti-aircraft rocket launchers, including one shouldered aloft by Taiwan's president, Tsai Ing-wen, in June 2022. "I discovered defense and military products are a very good business," says Lai.

Making parts for shoulder-launched missiles is very different from what his company Sheng Yong started out making. Right now, they are one of the world's biggest makers of endoscopy and colonoscopy camera lenses.

But Lai knows Taiwan needs to keep up with changing times, and even the remotest possibility of conflict with China means Taiwan needs to be prepared.

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