Taiwan should play to its strengths in global economy
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.