Sun, Jul 22, 2007 - Page 8 News List

A blueprint for sounder economic policies

By Tsai Ching-ting 蔡進丁

It is very risky to use casual cause and effect reasoning to answer economics questions or explain the achievements of corporate management. For example, there are several possible reasons for the success of South Korea's Samsung. Perhaps it is because industries are booming as the economy is in a period of revival following the East Asian financial crisis, or it could be because Samsung has been helped by government policies.

Samsung's resurgence can also be attributed to non-economic factors, such as the growing confidence of South Koreans. To base economic analysis on only one factor -- such as whether or not a company invests in China -- is obviously flawed logic.

Similarly, the answer to whether or not South Korea's economy is performing better than Taiwan's depends on one's perspective. A report from the World Bank last year showed that from 1980 to 1984, Taiwan ranked 32nd in the world in terms of GDP average, while South Korea came 23rd.

In the period from 2001 to 2005, Taiwan ranked 18th while South Korea was 11th. The country that made the most progress, Singapore, went up 20 places and was first in East Asia. Taiwan rose 14 places up to second, and South Korea came in third by advancing 12 places.

In the Economist Intelligence Unit's 2005 quality of life index, Taiwan ranks 21st, while South Korea is 30th.

It doesn't make sense to use the successes and failures of other countries as the only basis to prove one argument or another. The reason is very simple: Taiwan and South Korea's situations are different and they have different national security issues and industry structures. Taiwan cannot just imitate South Korea and get the same result.

As for investment in China, there are very different motivations and rates of success.

Should the government completely open up all corporate investment in China? A more sensible course of action would be to make a decision based on various industrial and commercial models.

Taiwan's industries and factories can be divided into the following five models.

The first model is brand-name global companies. Their core competitive strengths are their brand names, technology, management, resources and economies of scale.

The second model is large-scale and versatile original equipment manufacturers (OEM) and original design manufacturers (ODM). Their core competitive strengths are design, manufacturing, global shipping and management and economies of scale or scope.

The third model is small niche OEM and ODM companies. Their core competitive strengths are their specialization, focus, costs and quality. Representative factories are golf club manufacturer Fu Sheng Industrial Corp and athletic shoes manufacturer Pou Chen Corp.

The fourth model is companies primarily producing for the domestic market. Their core competitive strengths are their understanding of local culture and their ability to avoid competition from foreign businesses.

The fifth model is innovative niche companies. Their core competitive strengths are their niches, brands, outsourcing and world-class quality at reasonable prices.

This fifth model is best suited for Taiwanese industrial conditions and future development.

We need a broad outlook when dealing with industrial economics.

The government should draw up different policies for each of the different business models.

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