Taiwan needs an upgrade to enhance its industrial sector and fend off growing competition, particularly from China, as well as safeguard its strength in manufacturing. Such a move is even considered a remedy for the long-standing stagnation in labor wages, as better efficiency may mean higher profit margins, which would create more leeway for enterprises to raise salaries.
Taiwan depends on manufacturing for economic growth and an upgrade is becoming urgent as more countries join the ranks of developed nations such as Germany in making the manufacturing sector more efficient using the Internet of Things (IoT).
However, an industrial upgrade does not mean that Taiwan can only profit by creating more brands, as suggested by some academics and industry leaders.
During a forum on Wednesday, Peng Ming-hui (彭明輝), a professor at National Tsing Hua University, blamed local enterprises’ lack of courage to create their own brands for the nation’s slow progress in overhauling the local manufacturing sector.
Peng said MediaTek Inc took the safe approach by making chips for other companies, and is unwilling to take risks and develop its own-brand products.
It is a waste of talent, he said.
This mindset, shared by many local companies, has put Taiwan in a dire situation and the nation is losing talent to rivals, he added.
The issue of improving the local manufacturing sector cannot be reduced to a simple choice between being a brand operator or a contract manufacturer as Peng said. It is an outdated illusion that selling branded products will guarantee a higher profit margin, while providing contract manufacturing services is an inferior business. The decline of household-name brands Nokia, Motorola and BlackBerry prove this. By making a miscalculation in product strategy, or being too slow to adapt to a market trend, those mobile phone brands lost their old-time glory in the ever-dynamic electronics industry.
Running a brand is expensive. Samsung Electronics reportedly spent US$14 billion on advertising, more than Iceland’s GDP, in 2013. Marketing splurges do not always bring bang-for-buck. Taiwan’s HTC Corp in 2013 signed a US$12 million contract with Iron Man actor Robert Downey Jr to drum up demand for its products. Apparently consumers just did not buy it. HTC said the two-year contract will end this year and it was not seeking a renewal.
Sluggish demand has taken its toll on HTC’s operation, as it announced early this month that it might lose as much as NT$9.94 a share in the current quarter. HTC underestimates strong demand for entry-level smartphones, while overestimating its capabilities to make phones good enough to compete with Apple Inc and Samsung, some analysts said.
Figures talk. Contract chipmaker Taiwan Semiconductor Manufacturing Co (TSMC) last year made 35.5 percent in net profit and 49.7 percent in gross margin by making advanced chips for a wide range of customers including Apple and Qualcomm Inc, while handset chipmaker MediaTek’s gross margin also stood at a sturdy 48.8 percent last year as a result of it shipping a large precentage of its processors to Chinese mobile phone brands including Lenovo Group and Xiaomi Corp. As long as they can make good profits, TSMC and MediaTek offer employees higher salary packages than their local manufacturers and they create more jobs every year.
It is not necessary that local companies have to create brands to make better profits. Creating more jobs and boosting wages should be the responsibility of the government, not local enterprises. To grow the nation’s GDP and to increase incomes, the government should formulate suitable industrial polices. In Germany, the US and China, industrial upgrade programs are initiated by the government and grow into concrete measures subject to different sub-industries, or companies. The government should make the first move.
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