Taiwan Advantages and Opportunities
Presented to
Taiwan Business Alliance Conference
October 19-22, 2003
Taipei
Paul S. P. Hsu
Senior Partner
Lee and Li, Attorneys-at-Law
Professor of Law
National Taiwan University
Taiwan Advantages and Opportunities
Paul S. P. Hsu
Senior Partner, Lee and Li, Attorneys-at-Law
Professor of Law, National Taiwan University
Presented to
Taiwan Business Alliance Conference
October 19-22, 2003
Taipei
In the past decades, Taiwan has traditionally focused on manufacturing activities and
gained worldwide recognition for its competitive advantage in efficient and low cost
production. Today, such advantages have shifted to other Asian countries that provide
those advantages enjoyed by Taiwan during the 1960's to 1980's. To cope with the
challenges ahead, the government has put forth various programs to encourage
investment in R&D, acquisition of new technologies, and the upgrading of human
resources. Furthermore, emphasis is equally placed on the service industry and the
agricultural sector. However, to prevent Taiwan from being bypassed in the wake of
industrial globalization, especially when mainland China has become one of the most
notable "manufacturing centers," Taiwan, for the sake of transforming risks into
opportunities, must be well aware of its advantages and niches to move Taiwan forward.
I. Taiwan Advantages
i. Abundant experience in the development of manufacturing sector as
evidenced by the first economic miracle (1960's-1980's)
During the past four decades, Taiwan has undergone rapid economic
development. The 1960's was a period of export-oriented manufacturing
industries. We witnessed the rapid development of contract manufacturing and
then the development of petrochemicals, information technology, and other
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capital and technology intensive industries in the 1970's and 1980's. Taiwan has
cultivated herself to have a solid foundation of manufacturing industries to
promote the growth and to meet the demands of globalization. Taiwan has
transformed herself to be a major manufacturing and trading partner to western
countries.
ii. Strong Enterpreneurship
One of the characteristics of Taiwan's business sector is the daring
entrepreneurship. A good indication of the strength of entrepreneurship is the
growth in start-up companies. Start-up companies and small and medium
enterprises have greatly contributed to Taiwan's economy.
iii. Taiwan business network - how Taiwan businesses play the role of
integrator of regional and global resources to become an important player
in the global supply chain
Taiwan has been accumulating unique expertise and capabilities in doing
business worldwide. Taiwan business sector, distinguished by its
manufacturing technology and management know-how, is now an integral part
of the supply chain of many global products and is also beginning to serve as an
integrator of global resources by expanding its operations worldwide, especially
in most Asian countries, including mainland China. Taiwan business sector
owns expertise such as swift orders placement, flexible management,
component sourcing capability and other core competence that make Taiwan
sharply responsive to the global market.
After mainland China opened her gate to the world two decades years ago, one
can clearly see the unique supply chain being developed among companies in
the U.S.A., Taiwan and mainland China.
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Taiwan
Manufacturing Network
Integrator
U.S.A. Hong Kong Mainland China
R&D center Manufacturing
Brand Management Power House
Marketing Activities
The following statistic may further explain the relationship illustrated above:
In 2002, according to the U.S. statistics, China had the largest trade surplus with
the U.S., at around US$103 billion. Her exports to the U.S. reached around
US$125.1 billion and imports, US$22.1 billion. However, according to the
mainland China statistics, her trade surplus against the U.S. was around
US$42.7 billion, with exports to the U.S. amounted to US$69.9 billion and
imports around US$27.2 billion. At the same time, China enjoyed a trade
surplus of US$47.8 billion against Hong Kong in 2002. Moreover, last year,
Taiwan's trade surplus against mainland China reached US$21.5 billion. Given
the huge differences between the statistics on the value of exports to the U.S.,
one may well wonder what role the cross-strait division of labor plays in it.
iv. Taiwan businesses' unique role in the vast China market
In addition to the role of supply chain, the advantages in terms of geography,
cultural background and language give Taiwan businesses sector a niche to play
the role as an integrator of global business activities in the Greater China region.
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It is clear that Taiwan's industry enjoys certain advantages in areas of
management, operation, technology and marketing while mainland China, on
the other hand, offers low-cost labor and resources and a vast domestic market.
These advantages plus the common cultural background give Taiwan business
sector a great advantage to play the role as an integrator of activities in the
supply chain of global products.
v. Abundant resources in financial market
To Taiwan capital is not a problem, we have overseas reserve in the amount of
US$190 billion (official). As of June 2003, Taiwan had 202 Venture Capital
(VC) companies, with a total paid-in capital of US$4.74 billion. From 1996 to
2002, they have invested in 7560 projects with a total investment of US$4.27
billion.
Certainly, government is making efforts in facilitating access to efficient capital
markets. The recent abolition of QFII system is one of the indicators of the
government's efforts in eliminating investment obstacles to attract foreign
investment into Taiwan's capital market. At the same time, the government is
also conducting researches on the establishment of industrial holding companies
and financing companies. We expect the government to expedite its financial
reform to facilitate Taiwan to become a global funding center.
vi. Management and business experience for doing business in Asia
Taiwan has sufficient talents in establishing and managing manufacturing
operations in different geographic locations with diverse cultural backgrounds to
meet the demands of globalization activities. By accumulating experience
from doing business worldwide, especially in Southeast Asia, Taiwan business
sector has established certain foundation of skills. Taiwan business sector
knows how to train workers in different cultural environments and how to
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ensure prompt delivery of goods as well as quality control. They also know
how to deal with buyers and markets and how to maintain worldwide
distribution network. They have R&D capability as well as system integration
capability.
II. Opportunity for strategic alliance
i. Partnering with Taiwan's industries/business to enter the vast Asian market
Taiwan's excellent relations with foreign manufacturing and service industries
provide a good opportunity for cooperation with foreign investors and for access
to the Asian market. Since Taiwan and mainland China have both joined the
WTO, Taiwan industries/business have become more eager to explore new
business opportunities in mainland China, either on their own or through joint
venture with other international investors.
ii. Partnering with Taiwan industry for role in the global supply chain
management
As a result of the huge investment worldwide, Taiwan industries/business have
built up remarkable networks around the world for manufacturing, distribution,
marketing and logistic support. Businesses from other countries can tap into
such networks through their strategic alliance with Taiwanese partners.
iii. Partnering with Taiwan business to develop a whole range of high
value-added knowledge-based service industry in the Asian Market
For the service industry, in addition to the financial reform that we mentioned
previously, the government has come up with other measures to facilitate the
introduction of new ideas and technologies to improve the quality of the service
sector. Meanwhile, the government is also actively promoting the
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development of logistics and distribution business, human resource training,
healthcare, communications and media, R&D and technology, information
technology, cultural innovations, construction and manufacture engineering,
environmental protection, product design as well as tourism.
I believe that tremendous new business opportunities will become available,
especially in a new environment created by Taiwan's WTO accession. In the
case of Taiwan's agricultural sector, the government will assist farmers in
upgrading their operation, improving the distribution system of agricultural
products, and increasing the added value by integrating environmental
protection, recreation and tourism with agriculture. Furthermore, Taiwan's
agricultural technologies need to be commercialized by means of packaging
such technologies for license to other areas where the cost of production is
lower and more competitive.
III. Structure Issues
Structure issues examine how to stimulate sustainable economic growth in a country
through building a sound legal, economic, political and social framework. It involves
facilitating an environment that supports thriving entrepreneurship for economies to grow
themselves and witness increased standards of living. Structure issues are also
characterized by developing a highly educated, innovative, and creative populace that can
apply those traits to businesses and continued economic growth.
Taiwan has experienced how economic development and openness contributed to
political change. Taiwan's example proves that democracy and capitalism can
successfully engage in Asian culture. We proposed the APEC Best Practice Guidelines
for Entrepreneurship and Start-up Companies and the APEC Best Practice Guidelines for
Enhancing Women's Entrepreneurship and Start-up Companies and were endorsed by the
Ministers at the APEC Ministerial Meeting in 2001 and 2002 respectively. In 2003, we
continued to propose the Best Practice Guidelines for Enhancing the Financing Chain for
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SMEs at Different Growing Stages at the 15th APEC Ministerial Meeting. The Guidelines
were endorsed by the Ministers again and serve as a model for future development of all
Asian economies.
This is a fine example of how structure issues can be incorporated into international
policy. Taiwan industries/business can absolutely assist their foreign partners to access
the Asian market.
Today, we are delighted to see the government considering re-building Taiwan's legal
framework to eliminate legal barriers and enhance administrative efficiency through the
process of negative listing.
Conclusion:
The 21st century is a century of strategic alliance. Taiwan has traditionally focused on
manufacturing activities and gained worldwide recognition for her competitive advantage
of efficient production. However, with the increasing competition from a number of
developing countries led by mainland China, Taiwan should rethink the policies in
assisting domestic industries in their restructuring and upgrading so as to maintain her
niche and competitiveness.
Some people think "Globalization" will undermine the importance of national economic
policy and will threaten their local business. Economic policy in the age of
globalization is by no means irrelevant. "Localization", in my view, is upgrading our
traditional industries and know-how through our international partners and enabling them
to accommodate the local environment. In the past, manufacturing power determined
competitiveness; but now knowledge determines competitiveness. The challenge would
always exist.
From a practical viewpoint, what is critical for Taiwan's future is to ensure that
businesses will conduct their core operation and retain the key value in the global supply
chain management in Taiwan and what is crucial for Taiwan business to remain dynamic.
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I would like to suggest that the government must:
- liberalize capital market;
- encourage enterpreneurship and establish Taiwan's brand names;
- develop high quality educational systems that lead to social advancement;
- attract high-end human resources;
- facilitate an environment where corporate governance and a healthy business culture
are observed;
- create a fair and reasonable environment for competition; as well as
- create optimal conditions for the creation of wealth and ensure the proper and fair
distribution of wealth.
Only a sound legal, economic, and social structure environment would attract any
industries worldwide to establish their business operation in Taiwan.
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