Taiwan’s multinational corporations with operations in China could step up the localization of their supply chains by cutting imports of parts and raw materials from Taiwan, in a bid to capitalize on China’s urbanization and transformation into a market economy, an academic said yesterday.
“In order to exploit the Chinese market, Taiwanese multinationals may delink their cross-strait supply chains, because the benefits of cheap production are diminishing, while environmental protection requirements are increasing,” said Liu Meng-chun (劉孟俊), director of the center for economic forecasting at Chung-hua Institute for Economic Research (中華經濟研究院).
Liu said Taiwanese multinationals will increasingly respond by localizing their supply chains, including research and development facilities and talent.
Liu made his comments during a speech to the European -Chamber of Commerce Taipei, which voiced concerns about the trend in light of poor intellectual property protection in China.
The trade group suggested Taiwanese firms keep research and development at home, and step up spending on innovation to meet rising competition from competitors in South Korea and other countries.
Liu said Taiwanese firms would keep critical research and development in Taiwan to better protect their intellectual property rights. However, most small, family-owned domestic firms are conservative with research money, he said.
The government should make more effort to ease the brain drain and facilitate talent inflow, Liu said. The government also needs to better evaluate the effectiveness of its subsidies to various research and development programs, he added.
“Currently, officials tend to place too much emphasis on -wanting to see quick results,” Liu said.
Most Taiwanese firms focus on cost-efficient manufacturing, which limits their overseas expansion mainly to China, Liu said. Companies should be more entrepreneurial and invest directly in the US and Europe to improve profitability, he said.
“Global economic challenges present an opportunity to rethink growth strategies,” Liu said. “Taiwan should not be content with maintaining its status as the world’s contract manufacturing service provider.”
Samsung Group and LG Electronics Co, South Korea’s top two multinationals, set a good example on the world stage in terms of innovation and upgrading, he said.
Taiwanese counterparts should try to catch up through acquiring firms in Silicon Valley in the US.
For the foreseeable future, local firms will face sharper competition from emerging markets for technology product orders outsourced by advanced economies, Liu said.