President Tsai Ing-wen (蔡英文) and several officials last week had a meal at a MOS Burger outlet in recognition of the company’s pledge to raise employees’ salaries. The government clearly hoped the visit would encourage other businesses to follow suit.
However, if the government wants to raise salaries, it should start by focusing on industrial policy and direction. Manufacturers will only give raises once their profitability increases.
How, then, should the government increase the profitability of the nation’s manufacturers?
First, it needs to build a “flagship company strategy” to tap into investment and global markets. Taiwanese have always set self-imposed limits on their businesses, abandoning any ambition to become a flagship firm in their global industry and limit themselves to being component manufacturers and suppliers.
A component supplier cannot make much profit, which is why if salaries of Taiwanese workers are to increase, the government needs to act like a locomotive, driving forward a 20-year global flagship strategy promoting downstream investment and aligning local firms with global markets. Only by doing so will Taiwanese industry be able to share the larger profits available in the innovative and creative industries.
Global industry is changing: Intelligence ingenuity will reap the biggest rewards in the future. Taiwanese industry must therefore connect to the wider global economy.
The knowledge industry, intelligence and English-language abilities are the basic building blocks of a successful industrial strategy, and the government has the power to make improvements in all these areas.
Second, there is a distinct lack of a culture of working in concert in Taiwan’s business world. When South Korean companies expand overseas, the success of the larger firms benefits smaller ones, and medium-sized enterprises work together to their mutual benefit. This does not happen in Taiwan’s manufacturing sector.
Whether overseas or at home, if a manufacturer manages to turn a decent profit, a second and third company enters the market, and the first thing they do is to start slashing prices.
If they start from an original position of having a 25 percent profit margin, rounds of price cutting leaves them with negligible returns.
How, in these circumstances, can Taiwanese companies give their workers wage increases? There is absolutely nothing wrong with the quality of products manufactured by Taiwanese companies, so why can they not work together to ensure higher gains for themselves and their workforces?
Are Taiwanese really to look up to companies that operate at such low profit margins — or elect the head of such a company as president of Taiwan?
Third, companies outside the Chinese market will not be able to be profitable within that market, given the low returns and characteristics of that market.
If these companies want to increase their workers’ wages, products with a high margin of return and the market to support them are basic requirements, and these two features are something that do not appear in the Chinese market.
For overseas companies, entering that market, with the conditions it offers, is essentially a fool’s errand.
If it is not the low profits, wherein they cannot get reasonable returns for their efforts, it is the difficulty of getting such money as they do earn in China: They will never see it, they will never be able to get their hands on it, so, again, it is just not worth their effort.
The sooner this is realized, the sooner something can be done about it, and the more chance Taiwan has of improving the situation.
Mike Chang is an accountant.
Translation by Edward Jones and Paul Cooper
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