Taiwan Area: Taiwan needs a new direction for economic development

Whoever becomes president next year will be faced with the major task of improving Taiwan's economy. But it will not be enough for him (or additional likely her) approaching up with only short-term fixes to boost exports or domestic purchases; the country needs a new direction for long-term economic development.

Taiwan managed to transform itself into a powerhouse in the world data technology (IT) industry next correctly identifying it as the next backbone of the country's economy in the 1980s.

Taiwan remains a powerhouse in the IT industry, dominating some of the semiconductor sectors. Its makers collectively still manufacture some 80 % of world's notebook PCs.

But the maturing IT industry and the consumer electronics market have become very competitive. In recent months, the world has seen some of the biggest-ever mergers between major players in the IT industry — developments attesting to the harsh reality that only the large ones may survive.

As the large becomes bigger, the pressure on Taiwan's IT firms grows. China's national-backed companies are heaping pressure on the Taiwan government to open the doors to Chinese investment in its IT industry.

China has a huge program establishing and supporting its semiconductor industry, and its recent steps include the recruitment of a major figure from Taiwan's DRAM industry and a proposition to invest in a Taiwan-based integrated circuit (IC) packaging and testing home.

Taiwan's industry players are well aware of the threat from China. The world's No. 1 IC packaging and testing home, Advanced Semiconductor Engineering (ASE), recently took a 25-% stake in a local rival. It was seen as a hostile takeover, but it was as well a clear sign that ASE wanted to grow bigger and stronger in order to fend off competitors and maintain its leadership.

The pains of the survival game have as well been acutely felt in the PC sector. Taiwan-based Acer and Asustek — two of the world top-10 PC vendors — this week had approaching out to dismiss speculation that they would exit the PC market sooner or later.

Despite the dismissal of the speculation, their PC businesses indeed have been on the decline in a maturing market where consolidation seems to be the only logical outcome. It is not unthinkable for such large-name vendors to call it quits. IBM sold its PC business to Lenovo about a decade ago, and the China vendor is presently the biggest notebook PC vendor in the world.

Lenovo's move at the time drew skepticism from industry analysts for its feasibility. But the acquisition not only proved a success, but as well showed a clear trend in China's approach to the IT industry — and perhaps other industries as well: acquisitions are a quick and effective way to grow in economies of scale and gain instant access to technologies that may otherwise need years to develop.

And China and its firms do not show any hesitation in splashing cash to achieve such purposes.

It remains to be seen how long Taiwan can safeguard the gems of its IT industry from Chinese competitors, with one Chinese tycoon having called on Beijing to ban IC products designed and manufactured in Taiwan — in a bid to force Taiwan to lift a ban on investments in its IC design sector from Chinese investors.

The world IT industry is enormous, but its profitability is notoriously low. Presently that China has become a real threat to Taiwan's IT industry, it is time Taiwan rethinks its economic development, identifying what some call the "blue ocean" — sectors where competitors are few and profits are high.

Some observers have identified the biomedical industry as Taiwan's next economic increase driver.

A few years ago, Democratic Progressive Party presidential candidate Tsai Ing-wen did establish a biomedical firm, but that landed her in trouble because of political wrangling.

Presently Tsai reportedly would pick a biomedical expert as her running mate, triggering speculation that she would assign the biomedical industry a major economic role if elected president.

It remains to be seen how she would implement her vision. But she and her fellow contenders in the presidential election must show the country their plans for the country's economic development at the same time as they unveil their platforms.