Implications for Taiwan

China

China brings mixed emotion in Taiwan. On one hand, it provides a market that many Taiwan enterprises have penetrated deeply, if not always profitably. On the other hand, China is clearly taking over the role of hi-tech manufacturing that used to define many of the major Taiwan technology firms.

And, whatever side of the China fence one may sit on, in Taiwan, it is clear that you do not compete against what China is good at - low cost production.

A way out

With China taking over Taiwan's traditional role as a low cost producer, one only needs to look at the recent past on how other economies have dealt with similar challenges. Japanese firms in the 70-80's and Korean firms in the 90's have made the transition from making cheap goods to high quality good that comes with brand premium.

Few in Taiwan disagree with the need to upgrade, a persistent question, however, is how does one do this. My argument is that tools like Real options analysis provides a structured method to analyze new opportunities - not as a manufacturing project with its NPV, but as a way to engage in multi-node innovation. The use of open source strategy and business models utilizing the multi-sided platform concepts could allow new ways to monetizing ideas that are currently restricted in the traditional value-chain. Finally, Taiwan has developed its own set of deep competencies over the years, e.g. semiconductors like TSMC and hi-tech design/packaging like iPhone; these are ways in which Taiwan can engage effectively with global center of excellence such as Silicon Valley.

Nothing is a given. But, the demise of Taiwan technology sector is, to paraphrase the Mark Twain saying, greatly exaggerated.