Taiwan Businesses Create a Second Spring:
Winchance and Cloud Take the Lead
China Times editorial (Taipei, Taiwan, ROC)
December 21, 2012
Summary: Anecdotal evidence suggests that Taiwan businesses do only OEM contract work. They do not build brands with high-value-added content. It suggests that Taiwan's competitiveness is far inferior to South Korea's R&D in science and technology, and its soft power in its cultural and creative industries. It has even led Stan Shih to express regrets that he once advocated the concept of a "technology island."
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Anecdotal evidence suggests that Taiwan businesses do only OEM contract work. They do not build brands with high-value-added content. It suggests that Taiwan's competitiveness is far inferior to South Korea's R&D in science and technology, and its soft power in its cultural and creative industries. It has even led Stan Shih to express regrets that he once advocated the concept of a "technology island." These problems are rooted in transformation strategy. Do Taiwan businesses have the proper transformation strategy? When one examines the role of Taiwan businesses in Taiwan's economic development, we should not point fingers. We should not simply conclude that "Every generation is worse than the last." We should realize that "Every generation is different from the last," and interpret developments in that light.
Taiwan businesses have undeniably been labor-intensive, export oriented, and ODM oriented. But half a century has come and gone. These three business models have been under simultaneous attack -- from Mainland enterprises and the Four Asian Tigers, especially Korean enterprises. Add to this the market downturn in Europe, the United States, and Japan, as well as challenges from leading innovators such as Samsung and Apple. The result has been a steady decline. The pressure to transform and upgrade has may breaking out in a cold sweat. The transformation of Taiwan businesses can no longer be delayed. It has a direct impact on Taiwan's economic strength.
As we all know, Taiwan businesses have long been nomads searching for markets. As Wang Yung-ching noted, wherever growth opportunities appear, that is where we invest. This approach led Taiwan businesses out of Taiwan and into Southeast Asia and the Mainland three times. They established businesses and created the Southeast Asian and cross-Strait economic miracles. Taiwan businesses shared the fruits of economic growth with these regions.
But the BRIC economies have since made their meteoric rise. Emerging countries have begun competing for export markets. Taiwan businesses were resolute and willing to endure hardship. But the Mainland has increased salary levels 15 to 20% each year for the past five years. It has widened its economic transformation policy. Taiwan businesses no longer hold a competitive advantage. Their former specialization in OEM and ODM manufacturing has been rapidly eclipsed by local Mainland businesses and by pirates.
The media has reported that half of all Taiwan businesses will close down over the next five years. These reports may be exaggerated and sensationalistic. But they confirm that Taiwan businesses are in crisis. The ancient sages said that crises are also opportunities. Therefore, the worst of times is also the best of times. For example, Korean companies emerged unscathed from the 1997 economic crisis. Among them, Samsung and LG underwent transformation. Taiwan must learn from them.
Therefore, we suggest the following as points of reference.
First of all, people should encourage Taiwan businesses instead of reprimanding them. All businesses are having a hard time. Taiwan businesses are fighting for their lives. The government should offer words of encouragement. It should take concrete steps. It should ask ITRI to upgrade technology. It should ask TAITRA to expand markets. It should ask banks to provide financing. It should offer Taiwan businesses comprehensive services. It should ask NGOs to issue more awards. It should ask the media to report successful transformations of Taiwan businesses in order to encourage them and to affirm their efforts.
Secondly, the government should provide different forms of guidance and assistance to different types of Taiwan businesses. For example, the MOEA and the FSC should establish a task force. It should actively seek out businesses likely to return to Taiwan and encourage them to do so. The SEF and the Chinese National Federation of Industries (CNFI) can actively seek out core industries likely to return to Taiwan and advise them. The Productivity Center and the consultancy industry can strengthen franchises seeking to expand into the Mainland market. Some sunset industries cannot be transformed. A professional services group should be established to help these industries close down while conserving their resources. They can then return to Taiwan and continue to contribute their skills and experience.
Thirdly, Taiwan businesses should expand their strategic alliances. They should share their body heat in order to survive the economic winter. This is especially true for leading industries. They have satellite systems and midstream and downstream supply chains. They can share capital, production, marketing, R&D, and human resources. They can break down barriers, reach out, and support each other until the economy recovers. They can use existing alliances to invest in each other. They can make their businesses more competitive. Active assistance from the government, financial institutions, and technical guidance units, would make them even more effective.
In addition to the above, Taiwan businesses are fully capable of making innovative breakthroughs. This is especially true for the service sector. Taiwan businesses are accustomed to manufacturing. They must learn how to operate franchises, service industries, manufacturing services, pre-sales, after-sales, logistics, and design services. All of these have greater potential than traditional expenditures and budget cuts. Taiwan businesses must undestand the soft power of the cultural and creative industries, as well as cloud computing services. This will enable Taiwan businesses to experience a second spring.
Finally, Taiwan businesses should cultivate professional management teams, as soon as possible. After all, Taiwan businesses have ventured overseas three times. It is time to pass the baton. Taiwan businesses should cultivate successors. They must help successors establish innovative and professional management teams. This is essential to successful succession. Close cooperation between founders, successors, and management teams, will ensure sustainable development and a brighter future for Taiwan businesses.