Taiwan's economy is based on vertically-integrated small and medium enterprises. These enterprises are usually located near each other and are linked in a symbiotic network. Work processes are both integrated and dispersed among companies in these networks. There are almost no enterprises in Taiwan that encompass upstream, midstream and downstream production processes.
Another characteristic of Taiwanese industry is that it evolved from mainly labor-intensive industries that developed during the 1960s and 1970s. Those capital intensive industries that sprung up, such as automobile plants or steel plants, did not, and will not be able to play a commanding role. A wave of global mergers is taking place in these capital-intensive industries, as seen by the German firm Daimler-Benz AG's purchase of the US car company Chrysler. This trend may benefit Taiwan, as the automobile and steel industries depend on large-scale production to reach economies of scale. Companies that are not able to become global industry leaders must face the possibility of being bought out or going bankrupt. This is the reason that so many South Korean firms are currently in such difficult straits.
Neither South Korea nor Taiwan has much of a chance of becoming a world leader in large-scale capital-intensive industries. Instead, firms will have to make themselves indispensable to the global supply chain of these industries. Thus, Taiwan should continue to develop as a producer of automotive spare parts, which will enable Taiwanese enterprises to survive.
Reducing prices and producing ever-larger volumes is an important industrial development strategy (for cars and DRAMs), but small batch production -- relying on product variation and frequent design changes -- is another important industrial strategy that can also increase added value and competitiveness. With rapid technological advances, the popularization of computers, and the increased personalization of products, companies are now able to solve the problems of information overload in areas of development, distribution, and customer service that previously plagued small-batch, customized production. It is likely that small-batch production will be the main industrial development in the next century.
The industrial structure based on small businesses in Taiwan has also stunted labor union growth. Union strength is therefore concentrated in state-run enterprises, and even this strength will be sapped when these enterprises are privatized and industries previously monopolized by the state are deregulated. Although this trend is not limited to Taiwan, it will be particularly noticeable because of the industrial reorganization that will take place here over the next few years.
Two important questions for Taiwan's labor market are how to increase both education levels and the quality of the labor force. Questions of protecting the rights of blue-collar workers, as well as traditional labor issues such as wages and working hours, will become less pressing. Instead, it will become more important to increase the knowledge level and value-added of each worker and place each worker in the environment most suited to his development.
With union strength weakening and space for traditional disputes disappearing, employers will be increasingly able to calculate the value-added of each worker through highly efficient management methods. Thus, workers must improve their individual abilities in order to protect their right to work. This should be the new focus of labor policy. A more cooperative industrial relationship can be built once the knowledge and ability of workers increases. Moreover, the existence of high-quality workers would -- according to Say's Law of Markets (supply tends to create its own demand) -- also creates demand for the development of high value-added industries. Capital, labor, and all of society would then benefit.
San Gee is a professor at the Graduate Institute of Industrial Economics at National Central University.
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