Hon Hai Precision Industry Co chairman and chief executive Terry Gou (郭台銘) told reporters on the sideline of the APEC meeting in Bali on Monday that the world’s biggest electronics service provider is facing labor shortage in China as young people prefer jobs in service sector over tedious factory work.
In response, Hon Hai has begun gradually shifting its focus to a service-oriented business, he said. Hon Hai aims to reduce the revenue contribution from manufacturing from 90 percent to at least 60 percent, he said.
Such a shift from manufacturing to the service sector is a growing trend, affecting not only Hon Hai, or other companies in China, but those in Taiwan as well.
As manufacturing loses steam and its attractiveness for young Taiwanese, the nation needs to accelerate the building of its service sector as another pillar to drive economic growth.
Exports, mostly electronics products, make up 70 percent of Taiwan’s GDP, meaning the manufacturing sector has long played a make-or-break factor for the economy.
It is less of a challenge for the government to help out the service sector through policymaking, while it is almost impossible for it to boost overseas demand for goods made by Taiwanese firms.
Given the overwhelming reliance on exports, Taiwan is now facing another reduction in its GDP growth forecast for this year as it is struggling to emerge from a downward spiral, because exports have fallen again into the negative territory.
Taiwan is on the verge of slashing GDP projection to below 2 percent for this year, which means it will not even hit the 2.31 percent growth forecast made by the Directorate-General of Budget, Accounting and Statistics (DGBAS) just two months ago.
Exports have been up and down since early this year. After four straight months of growth, exports plunged 7 percent to US$25.25 billion last month, from US$27.16 billion in the same period last year, according Ministry of Finance statistics.
In the quarter ending Sept. 30, exports slipped 0.8 percent to US$76.19 billion from US$76.8 billion a year ago, missing the 4.86 percent annual expansion forecast by DGBAS.
The ministry blamed last month’s fall in exports on weak demand for LCD panels from China as Beijing scrapped a subsidy program designed to encourage purchases of energy-saving electronics, primarily LCD TVs. In addition, demand for locally made machine tools has been dragging for more than a year as demand from China dropped.
In addition, demand from the US and ASEAN countries dropped 10 percent year-on-year, the ministry said.
To reduce the ripple effect from global economic weakness on Taiwan’s exports, the Ministry of Economic Affairs has said the service sector will be the nation’s next growth engine. It has called on domestic manufactures to add value-added services to their products and urged healthcare companies and financial institutions, as well as other companies in the service sector, to boost investment for future growth.
However, that call sounds empty as the government’s campaign so far has only included seminars and consulting services. No substantial support measures or tax incentives have been announced.
Corporate executives complain that a limited recruitment pool and financial restrictions are curbing expansion of the service sector. As most Taiwanese companies are small and medium-sized, some business representatives have urged the government to relax rules on introducing skilled professionals and engineers from abroad to help enhance competitiveness.
There has been no positive response from the government so far.
Since the government itself has admitted there is an urgency to making structural changes both in the economy and the service trade sector, it should be taking more aggressive steps to push for such a change.