Corporate executives will only stop seeking government aid under two circumstances: either their companies have been successful on their own or they have lost faith in the government and incompetent bureaucrats.
Unfortunately, Taiwan falls into the second category. In the presence of Vice President Vincent Siew (蕭萬長), Taiwan Semiconductor Manufacturing Co (TSMC) chairman and chief executive Morris Chang (張忠謀) gave a rather forthright speech on Friday: “The semiconductor industry does not need much help from the government. We will do OK as long as we do not shoot ourselves in the foot and the government does not stand in our way.”
To safeguard its leading position in the semiconductor industry, the chipmaker has heavily invested in developing cutting-edge technologies and building advanced factories throughout the company’s 25-year history. TSMC plans to spend NT$35 billion on research and development this year, despite global economic uncertainties.
TSMC knows that technology is the best weapon to fend off intensifying competition. It knows it can depend on nothing else and no one else. The company has to wrestle with much bigger rivals, such as Intel and Samsung Electronics, who have entered the contract chipmaking business in recent years.
On the technological front, the danger of falling behind Intel and Samsung is something TSMC can control. What it cannot control is the foreign exchange rate: Only central banks have a hand in controlling a nation’s monetary policy. On the foreign exchange front, however, Samsung has an advantage over TSMC and its local competitors, including display makers Chimei Innolux and AU Optronics, because the South Korean government has been protecting its companies by curbing the rise of the Korean won against the US dollar.
“Just look at how the [local and Korean] currencies performed over the past year and it is clear that the [South] Korean government has done more to protect its companies than our government,” Chang said. “We hope the government will adopt a more transparent foreign exchange policy.”
He said a strong NT dollar and volatility in the foreign exchange rate represents a double blow to TSMC because it hurts the company’s revenues and profitability. This year alone, TSMC could make NT$26 billion less in net profits because of the erosion of profits by the strong NT dollar, he said.
The central bank yesterday said the NT dollar had been much more stable than the Korean won over the past three years as the local currency only saw a volatility rate of 4.15 percent compared with 14.51 percent for its Korean counterpart. However, what the central bank failed to recognize is that what has hurt exporters is an abrupt appreciation of the NT dollar, not the long-term stability of the currency.
Chang is not the only corporate executive criticizing the government’s inability to protect local companies. In June, Terry Gou (郭台銘), chairman of the world’s biggest contract electronics manufacturer Hon Hai Precision Industry, criticized the government’s inability to protect the interests of local firms when doing business with China.
The Industrial Technology Research Institute (ITRI) is set to invest NT$50 million to set up an intellectual property (IP) company later this month to help local firms deal with growing patent infringement lawsuits.
Although the amount is small, an ITRI official said that he approached the National Development Fund for possible financial assistance, but all he got was empty words. Such a disappointment leads us to conclude that it would be more efficient for the IP bank to raise funds from the private sector.
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