Given the global economic crisis, the future will be a time of industrial restructuring and changing economic landscapes. President Ma Ying-jeou (馬英九), Vice President Vincent Siew (蕭萬長), Premier Liu Chao-shiuan (劉兆玄), Legislative Speaker Wang Jin-pyng (王金平) and Chinese Nationalist Party Chairman Wu Poh-hsiung (吳伯雄) have suggested that the Cabinet come up with a set of clear plans for Taiwan’s economy within three months. In order to revive the economy, aside from short-term policies aimed at expanding domestic demand, in the long-term, we have to rethink how Taiwan’s economy is connected with the rest of the world.
First, we should change the way Taiwanese businesses interact with the rest of the world and move away from contract manufacturing toward brand creation. Taiwan concentrated on contract manufacturing in the past, a mode of operation that linked it with major international brand manufacturers and helped local businesses take charge of one link in their supply chains.
The advantage of this mode was that it enabled companies to focus on manufacturing and allowed them to use Taiwan’s ample labor supply and carry out effective management, thus making the best use of Taiwan’s cost advantages. The disadvantage was that Taiwan lacked a strong technological base, which meant that businesses often had to rely on foreign technology and equipment to carry out limited innovative research and development to add value to their products.
Under such a setup, profit is generally low and when the larger brand companies experience a decrease in demand, contract manufacturers are directly influenced. This is the main reason behind Taiwan’s recent economic problems, which have been caused primarily by a huge drop in exports.
By moving toward brand development, Taiwan’s economy would be able to break free of the restrictions of a “thin” market. Aside from improving technology, a vital part of such a move would be to change the way we think, especially learning how to stop copying and starting to innovate, moving away from contract manufacturing to marketing and from an economic entity that is being integrated to one that performs the integrating.
This would also entail changing the type of business relations from the business-to-business (B2B) relations between contract manufacturers and larger companies to business-to-consumer (B2C) relations. It would require looking for ways to increase the product value instead of looking for ways to cut costs. These are all important aspects that we should pay attention to.
One main reason Taiwan’s economy has been so badly shaken by the global economic crisis is that its products are mainly information technology based and lack diversity. We should follow global development trends and actively develop products and industry for a new era.
In the past, when we reached the peak of development in the information technology industry, we were constantly searching for other industries that could spur economic growth. The results of such attempts, however, were limited. We should search for opportunities to develop new industries such as those based on culture and creativity as well as alternative energy sources and biological technology to diversify Taiwan’s industries.
Finally, we should promote alliances with other countries and decrease the number of trade barriers to maintain export competitiveness. Taiwan must focus on signing regional trade agreements. Once regional markets are opened up by these agreements, Taiwan can expand its export capacity. This is the most proactive way of dealing with the problems we currently face.
Of course, our focus in this should be China, which is our major export market and the country we have the largest trade surplus with. As of late, there has been much debate in Taiwan about whether or not we should sign a comprehensive economic cooperation agreement (CECA) with China. These discussions have also given rise to ideological debate.
There have been plenty of examples throughout history of smaller countries being swallowed up by their larger neighbors. However, there have also been many examples of smaller nations that have been able to create high levels of economic growth by adjusting their policies.
For example, the Netherlands is a major operational center for many European companies and Ireland has become a major technological center in Europe. Finland, with its renowned Nokia brand, has also managed to put itself on the economic map. Other examples of small places with successful economies are Hong Kong and Singapore, an important hub for global intermediary trade.
In the face of the unprecedented difficulties and potential opportunities we are facing, Taiwan’s ruling and opposition parties must play an active role in finding a new path for Taiwan’s development.
Liu Da-nien is a research fellow at the Chung-Hua Institution for Economic Research.
TRANSLATED BY DREW CAMERON
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