Kai-fu Lee Addresses TISA and the Need for Large Markets
China Times editorial (Taipei, Taiwan, Republic of China)
November 1, 2013
Summary: Tech sector celebrity Kai-fu Lee is about to undergo chemotherapy. He compared his to the illness that has overtaken Taiwan's high-tech industries. He issued a warning about Taiwan's sick economy, Taiwan's economy must expand outward. In order to do so, it must expand into the Mainland market. Taiwan must recognize reality. It must seize every opportunity to expand outward. Only then can it breath new life into its nearly suffocated economy.
Full text below:
Tech sector celebrity Kai-fu Lee is about to undergo chemotherapy. He compared his to the illness that has overtaken Taiwan's high-tech industries. He issued a warning about Taiwan's sick economy, We wish him a speedy recovery. The high-tech industry is indeed sick. Taiwan's economy is indeed sick. But does the public understand where the problem lies? Does it know whether the sickness is being given proper treatment? Does it know whether the right medicine has been prescribed? We are deeply concerned.
Kai-fu Lee believes that "Taiwan entrepreneurs who hope to found Internet and software empires, must seek large markets." Only large markets will enable one to create large companies. Large markets can be found in the United States, Mainland China, or Southeast Asia, But not on the Taiwan, which is simply too small. "Small markets cannot create large companies." Lee said that when the United States talks about Microsoft, Google, Yahoo, facebook, and Twitter, Taiwan harps on TSMC, Hon Hai or MediaTek. These old line companies are solid companies. But when it comes to innovation, market scale, market listing, international connectedness, and international participation, they have much room for improvement.
Kai-fu Lee was born and raised on Taiwan. He emigrated to the U.S. during high school. He was educated in American universities and attended American graduate schools. He was an executive at Apple, Microsoft, Google and other important companies. He worked at length on Mainland China. He has commented on current affairs and become an influential blogger. His breadth of vision has enabled him to zero in on Taiwan's plight. He has prescribed seven cures for what ails Taiwan. These provide an antidote to what ails Taiwan's business environment. But entrepreneurial problems are not the most urgent ones. First of all, one must have a grand strategy. Only that will enable Taiwan to expand outward. Only that will ensure a healthy business environment. Only that will enable Mr. Lee's cure to take effect. Consider the most serious problem bedeviling Taiwan -- its economy is being suffocated. That is why it cannot expand outward.
We are proud of our high-tech industries because they were able to expand outward. They were able to compete on the international stage. They were able to market their products all over the world. But Taiwan missed the software and cell phone revolutions. We took the expedient route. We blindly pursued cost savings. We created economic efficiency. But in recent years, the U.S. financial crisis and European debt crisis have greatly reduced their purchasing power. Taiwan based desktop computer and laptop manufacturers' profits are now flat. Mobile phone market share has been nibbled away. We are not a player in the new wearable watch phones and glasses phones market. Taiwan has no new large scale investments. Foreign businesses look at the Taiwan market and see paper thin profit margins and uninspired products. They can't wait to pull out. let alone make new investments. Taiwan is now at the bottom of the list of Asian countries in foreign direct investment (FDI).
Taiwan's business model must change. High-tech industries must take on all market sectors, not just the easy ones. Products and services must link up. Can it be done? IBM (International Business Machines) was originally a company that sold machines. It successfully transitioned to a company that sells services. As we can see, high-tech industries alone are not enough to rescue Taiwan's economy. High-tech industries on Taiwan create limited employment opportunities. Taiwan's service sector accounts for 68% of its total output. It provides a large number of jobs. This is consistent with modern economic trends. Therefore Taiwan's service industries must take on this challenge. To thrive they must expand outward.
This is why TISA is so important to Taiwan. In a software and mobile computing era, culture and services are key. E-commerce, information services, games, and the cultural and creative industries are all affected. Taiwan has a limited market -- only 23 million people. For the service sector, this market is even smaller. Only large markets can produce large companies. The Mainland already has two Internet companies worth over 100 billion -- Tencent and Alibaba. Taiwan's Yam and PC Home have not been able to expand outward. Taiwan needs to understand that TISA is a golden opportunity to enter the Mainland market. The Mainland market is vastly larger than the Taiwan market. For Taiwan's service industry this is a huge opportunity. TISA affects these industries. Other industries, including finance, environmental protection, logistics and transportion will also benefit.
Obviously TISA is beneficial to Taiwan. Yet many still oppose it. There are a number of reasons why. They include the Ma administration's poor communication skills, and the fact that it completed negotiations without notifying the legislature. The private sector raised questions. The Speaker and the Legislative Yuan refused to support it. Their attitude became imprinted in the hearts and minds of the public. Relentless sniping by opponents may have been ridiculous. But by then allaying public concerns had already become a Herculean effort. Hence today's predicament.
Taiwan must stop and think. If TISA were renegotiated today, does anyone really believe the terms would be better than they are already? The government assures us there are no national security issues, and that TISA is not a CCP "Trojan horse." Unless one doubts this, how is TISA not a windfall for Taiwan? If we pick TISA apart, if we hedge our bets, half accepting and half rejecting it, we will become an international laughing stock. Further delay will be Taiwan's loss. South Korea and the Mainland will soon sign an FTA. South Korean products will receive preferential tariff treatment in the Mainland market, as will services. Can Taiwan really afford to fritter away this opportunity?
Taiwan's economy must expand outward. In order to do so, it must expand into the Mainland market. Taiwan must recognize reality. It must seize every opportunity to expand outward. Only then can it breath new life into its nearly suffocated economy.