Tue, Nov 01, 2016 - Page 8 News List

Two-pronged ‘southbound’ strategy

By Sung Wen-lung 宋文龍

Ever since President Tsai Ing-wen (蔡英文) and her administration took office, they have had to deal with a multitude of problems. A global economy in disarray, highly uncertain and confrontational regional politics, falling levels of domestic investment, a bottleneck in the transformation of the manufacturing industry, difficulty expanding into international markets and a continued overreliance on China as an export market.

Tsai’s government has been searching for a new way out for the economy. The “new southbound policy” — to pivot export trade toward South and Southeast Asia — and its “five innovative industries policy” to promote creative industries have both been keenly anticipated.

At a recent meeting at the Ministry of Economic Affairs, Premier Lin Chuan (林全) announced that the government would open a series of service centers, one for each of the 18 countries covered by the “new southbound policy,” and instructed the Financial Supervisory Commission to set up a “southbound center” financing platform for Taiwanese businesses in need of capital injections.

Lin also said that governments at all levels would have to divide responsibilities in a specialized manner as the Cabinet sets out a plan for how state machinery would be used to implement the policies, establish key performance indicators and do promotional work.

Although the government has talked up the promotion of four important areas requiring development — economic and trade cooperation, pooling of resources, personnel exchanges and linking up the regions — personnel exchanges seems to be the only feasible one of these four plans.

Taiwan Semiconductor Manufacturing Co chairman Morris Chang (張忠謀) has said that although the government’s “five innovative industries policy” is commendable, “it must not overlook industries — such as the semiconductor industry — that have been promoted by previous administrations.”

If the government focuses purely on the promotion of “new industries,” even if they are successful, they would still be unable to compensate for a decline in traditionally strong industries, Chang said.

In other words, given the hole in the government’s policy, it would be extremely dangerous if it were to give consideration only to new industries without maintaining the development of existing ones.

Innovation is important, but innovative industries can be broadly broken down into two types: disruptive innovation and incremental innovation. The former, despite being a global success story in recent years, is time-consuming and requires high levels of investment, while the success rate is low.

On the other hand, with incremental innovation, although advancement is slight, the accumulated advances build up into significant progress over time. This helps to create a space between the incremental innovator and its competitors, which over time allows the innovator to build up a competitive advantage.

When mulling the “new southbound policy” and the “five innovative industries policy,” perhaps thoughts should be focused on how to best furnish Taiwanese businesses with a competitive advantage, based on the principle of incremental innovation and complemented by disruptive innovation and the integration of new and old industries. This should be the basis for a specific and focused southbound policy.

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