A Small Asian Economy Rolls With the Punches

August 18, 2015 Updated: August 18, 2015

NEW YORK—With just a little over 20 million people, the island nation of Taiwan, just off the coast of China, can often seem like a tugboat being jostled between aircraft carriers. This is as true politically as it is economically.

Cherng-Chuan Su, the director of the Taiwan Trade Office, a semi-governmental organization based in New York, has been watching this process, and trying to help, for the last 20 years. His new position, (taken up last year), sees him lead Taiwanese trade delegations to the United States, where he introduces them to potential local importers.

Taiwan does big trade with the United States: last year it was America’s 10th largest trading partner by total volume, doing $67.4 billion bilaterally. Computers and electronics, where Taiwanese components are known for their quality, were the largest category.

For years, Taiwanese businesses were able to differentiate themselves from China in electronics manufacturing (a leading industry in Taiwan) because of their quality, and commanding height on the value chain: important components needed for the manufacture of computers, motherboards, hard drives, and cameras would be produced in Taiwan, then shipped to China for assembly, where labor costs were cheap.

“Taiwanese invested a huge amount into China at the beginning, moving a lot of capital goods there too,” Su said, speaking in his Taiwanese-accented Mandarin in a recent interview at his offices at One Penn Plaza. “They [Taiwanese] brought the electronic components, capital, and equipment.”

But, of course, Chinese engineers, workers, and managers that were trained in Taiwanese-owned factories in China over the years then became their competitors. Taiwan kept one step ahead with its technology, but the gap has eroded year by year.

Cherng-Chuan Su, the director of the Taiwan Trade Office, a semi-governmental organization based in New York, in his office at One Penn Plaza in Midtown Manhattan on Aug. 3, 2015. (Benjamin Chasteen/Epoch Times)
Cherng-Chuan Su, the director of the Taiwan Trade Office, a semi-governmental organization based in New York, in his office at One Penn Plaza in Midtown Manhattan on Aug. 3, 2015. (Benjamin Chasteen/Epoch Times)

Now, Chinese companies are in fierce competition, poaching top employees with lavish pay packages, and doing whatever they can to get their hands on the technologies developed by Taiwanese firms.

It helps that Chinese national policy now dictates that by 2025 nearly all technology used in China should be produced in China. This has impelled Chinese tech companies to climb the value chain, in the process eating Taiwan’s lunch.

Beijing unveiled its technology plan in July. It aims at having Chinese companies master the technologies that Taiwanese firms have traditionally succeeded at, in particular in integrated circuits (design, manufacture, and testing), the production of wafers for semiconductors, lenses, and more.

Competitive Advantage

“Taiwan needs to control crucial components,” Su said. “China is always pursuing them, but Taiwan protects them carefully.” Being one step ahead in the innovation cycle is how Taiwan’s electronics sector has survived so long.

He gave the example of Taiwan Semiconductor Manufacturing, a massive firm that makes integrated circuits—the backbone of any electronic device—for countless companies. “Their model is: ‘Give me your designs and I’ll make it for you.'”

This role—that of the broker—is another crucial form of business for the Taiwanese entrepreneur: bringing together supply chains, coordinating massive manufacturing and business processes.

Foxconn, run by Taiwanese billionaire Terry Gou, and based on the mainland with campuses the size of cities, is a perfect example. The company is Apple’s main assembler of iPhones.

Taiwanese companies also cooperate deeply with companies like Nike, managing supply chains in Taiwan, India, and around Asia.

“Taiwanese have put in a lot of effort into this coordination or brokerage role,” Su said. “It’s a responsibility system. You have to finish the task or you don’t leave.”

This differs from the United States, he said, where “I found that once it’s 5 p.m., everyone’s gone. In Taiwan, no one goes home.”

In aggregate, it means that manufacturing costs are distributed across workers, who just put in more hours and take on more responsibility.

“This is a kind of competitive advantage,” Su said. “But I always feel that it also means that us Taiwanese work so hard.”

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