EDITORIAL: Domestic market key for economy

Mon, Sep 14, 2015 - Page 8

The latest foreign trade figures showed the domestic economy’s growth momentum remained weak last month because of challenging external demand conditions. With demand falling for almost all major product categories, the value of total exports plunged 14.8 percent year-on-year to US$23.93 billion, the seventh consecutive annual decline.

Weakness in exports, especially a slowdown in overseas shipments of electronic and optical products, has had policymakers worried about the competitiveness of Taiwanese information technology and communication service providers, as well as the rapid rise of China’s electronic component suppliers.

This is, of course, just another excuse for the government to find fault with the contract manufacturing business model in electronics-related fields so that it can demand that domestic manufacturers adjust to a new economic environment.

In retrospect, the situation is a result of the government’s China policy over the past two to three decades, which encouraged a west-bound exodus by Taiwanese electronics contract manufacturers, while lacking insight into long-term investment in research, innovation and industrial upgrades for sustainable development, a lesson domestic textile manufacturers have learned the hard way.

Contrary to popular belief that information technology is the nation’s primary foreign exchange contributor, textiles have been No. 1 for decades, even though the scale of the domestic textile industry appears to be small.

Indeed, many Taiwanese manufacturers in textile-related businesses relocated en masse to China in the 1990s to take advantage of cheaper labor.

However, some came back to Taiwan a decade later having suffered from fierce price competition in China, and rather than focusing on keeping costs low, they decided to turn to eco-friendly, fashionable and functional fabrics used by global sportswear brands and major clothing retailers.

Therefore, at a time when Taiwanese electronics component makers are facing a growing threat from Beijing-backed component suppliers, local textile makers have moved up the value chain through development of high-end functional fabrics, which feature better elasticity and strength, along with value-added functions, such as temperature control, compression and moisture wicking. Taiwanese manufacturers are now major suppliers of high-end sportswear and functional textile products to global brands such as Adidas, Gap, Lululemon Athletica, Nike and Under Armour.

Investors have rewarded companies that have taken painful steps to upgrade their business models. On the local bourse, the electronics sub-index has dropped 13.34 percent this year, but the textiles sub-index has gained 10.67 percent over the same period, led by Makalot Industrial’s 62.13 percent rise, Toung Loong Textile Manufacturing’s 60.02 percent increase and Eclat Textile’s 50.93 percent advance. Some might argue that this is the choice of Taiwanese companies.

However, the strategy of Taiwanese textile firms to invest in Taiwan, cultivate a complete supply chain and focus on developing functional fabrics and textiles that offer people a better wearing experience has not only differentiated their products, but also prevented them from engaging in price competition with rivals.

Although labor costs and research investment are more expensive in Taiwan, they are worthwhile for domestic manufacturers and for the nation as a whole, as long as local businesses and government officials pay due attention to the threat of economic espionage by China. That is what companies in the textile sector have taught us, as have Taiwan Semiconductor Manufacturing and Largan Precision in the technology sector.