Tai­wan should play to its strengths in global econ­omy

The China Post - - COMMENTARY -

Tai­wan shares closed down 376.58 points, or 4.83 per­cent, at 7,410.34 Mon­day on turnover of NT$144.89 bil­lion (US$4.4 bil­lion). The weighted in­dex plunged 583 points, or 7.5 per­cent, at one point dur­ing trad­ing. It was the largest sin­gle-day drop in history.

The un­der­per­for­mance was not unique to Tai­wan. The Shang­hai Com­pos­ite In­dex slumped 8.5 per­cent to close at 3,209.91 points yesterday, its big­gest one-day loss since Feb. 27, 2007.

Mean­while, Hong Kong’s stock in­dex fell more than 4 per­cent in the first few min­utes of trade, and the Aus­tralian mar­ket dived 3 per­cent.

Econ­o­mists at­tribute the global stock crash to China’s eco­nomic slow­down and the Chi­nese yuan’s de­val­u­a­tion. It is in­dica­tive of the mid­dle king­dom’s grow­ing in­flu­ence on the world mar­kets.

Asia and emerg­ing economies have borne the brunt of the im­pact, es­pe­cially Brazil, Chile, Ar­gentina, South Africa and some South­east Asian coun­tries that rely heav­ily on raw ma­te­rial ex­ports for eco­nomic growth.

Tai­wan was hit the hard­est due to its close eco­nomic ties with main­land China. As China has been try­ing to beef up lo­cal sup­ply chains, its ad­verse im­pact is al­ready be­ing felt by Tai­wan’s ex­porters. The Tai­wan Stock Ex­change has plunged more than 20 per­cent since its peak in April.

Ac­cord­ing to a Cen­tral Bank re­port, Tai­wan’s dis­play panel, LED, petro­chem­i­cal, cell phone, ma­chin­ery, and elec­tron­ics parts and com­po­nents sec­tors will have to deal with fierce com­pe­ti­tion from China. How­ever, only the semi­con­duc­tor and in­te­grated cir­cuit de­sign in­dus­tries pos­sess ad­vanced tech­nolo­gies.

Cen­tral Bank Gover­nor Perng Fai-nan ( ) has said in three to five years, China’s sup­ply chains will be­come more of a threat than op­por­tu­nity for Tai­wanese com­pa­nies.

The bad news is that the busi­ness model of “tak­ing or­ders in Tai­wan and man­u­fac­tur­ing in China” may switch to “tak­ing or­ders and man­u­fac­tur­ing both in China.”

Against this un­cer­tainty, now is the opportune time to re-ex­am­ine the op­ti­mal long-term de­vel­op­ment strat­egy for do­mes­tic in­dus­tries.

In re­al­ity, China has al­ready strength­ened its sup­ply chains to el­bow Tai­wanese busi­nesses out of the mar­ket. Tra­di­tional Tai­wanese in­dus­tries in­clud­ing textile, bi­cy­cle and shoe­mak­ing have all made in­roads into the Chi­nese mar­ket. How­ever, the low-tech na­ture of these busi­nesses has­tened com­pe­ti­tion from Chi­nese firms.

Faced with the com­pe­ti­tion, some Tai­wanese com­pa­nies re­turned home, while oth­ers pur­sued vig­or­ous busi­ness trans­for­ma­tions, de­vel­op­ing ex­clu­sive tech­ni­cal know-how and striv­ing to es­tab­lish brand rep­u­ta­tion. For in­stance, the textile in­dus­try has de­signed spe­cial cloth­ing for sports and leisure pur­poses.

This busi­ness model dif­fer­en­ti­ates from China’s low-cost and mass pro­duc­tion model. As a rel­a­tively small coun­try with fewer re­sources, Tai­wan should play to its strengths in­clud­ing a good tal­ent pool.

Lo­cal in­dus­tries should strive to com­pete on qual­ity and not quan­tity; de­velop core tech­nolo­gies that play a crit­i­cal role in sup­ply chains; and fo­cus busi­ness oper­a­tions within Tai­wan so that all the cit­i­zens may share the fruit of eco­nomic pros­per­ity.

Tai­wan’s bell­wether com­pa­nies con­sist of some con­tract man­u­fac­tur­ers that pride them­selves on be­ing “ef­fi­cient” in­clud­ing Hon Hai Pre­ci­sion In­dus­try ( ) and Tai­wan Semi­con­duc­tor Man­u­fac­tur­ing Co. (

).

How­ever, in the new age when tech­nolo­gies such as In­dus­try 4.0, In­ter­net of Things, big data and cloud tech­nol­ogy are ar­riv­ing upon us, what will cre­ate higher eco­nomic value and is there­fore more needed, is in­no­va­tion and the cre­ation of prod­ucts and ser­vices that the world needs.

In­stead of be­ing a du­ti­ful man­u­fac­turer in the global sup­ply chain, Tai­wan also needs name brands that can drive the econ­omy. There are al­ready many cre­ative minds with in­no­va­tive ideas flow­ing on cam­puses and many en­tre­pre­neur in­cu­ba­tion cen­ters on the is­land. Tai­wan should play to its strengths.

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