Tag Archives: South Korea

Swiss institution recommends strengthening Taiwan’s competitiveness

At a time of slow global economic recovery, Taiwan is well placed in the worldwide competitive index, ranked 11th out of 60 economies, according to the World Competitiveness Scoreboard 2013. Released by the International Institute for Management Development (IMD) located in Lausanne, Switzerland, the 25th perspective on world competitiveness has the island listed as one of the “winners”. The island has moved up the rankings since 1997 when IMD first produced a unified ranking of advanced and emerging economies. China and South Korea also ranked highly, but behind Taiwan.

Better performing than South Korea

Stephane Garelli, head of IMD’s World Competitiveness Center, told Commonwealth monthly that the frequent winners in the World Competitiveness Scoreboard, such as Switzerland, Sweden and Germany, share common characteristics. They focus on manufacturing industries, export trade, and small and medium sized businesses. Garelli adds, “All these are the strengths of Taiwan too.”

South Korea, one of Taiwan’s main regional competitors, has not done well in the last five years, coming in 22nd in the World Competitiveness Rankings. Garelli noted that the South Korean economy depends entirely on big conglomerates, while Taiwan has many small and medium sized businesses which are more energetic and diversified.

Commonwealth reported that in the last five years, Taiwan has experienced an annual average commodity price increase of 1.38 percent while that for South Korea was 3.32 percent. Besides, Taiwan’s GDP, based on the rate of purchasing power parity (PPP), was US$37,252 in 2012, US$7,000 more than that of South Korea.

In the questionnaire indexes of labor/management relations and employee dedications, ranked Taiwan 14th and eighth respectively while those for South Korea were way behind at 56th and 42nd.

In other words, despite South Korea’s promising export performance, it is facing a rising rental market and commodity prices, and poor labor/management relations.

Taiwan’s weakness analyzed

According to Commonwealth’s analysis, in the four categories of competitiveness rankings, Taiwan dropped the most in business efficiency. With poor product innovation and little increase in added value, showing that Taiwan is certainly at a disadvantage.

Taiwan is advised by Garelli to develop more medium-sized businesses, like core German businesses with about 100 employees, focusing on technology and exports. If they can achieve the best in each field, they would do well in terms of competitiveness, he said.

Secondly, he suggests that the island should diversify its products and export markets. High-tech products account for 46.4 percent of Taiwan’s exports, the highest in the world. Besides that, Garelli suggests that Taiwan should also develop its biotechnology and healthcare.

He added, Taiwan’s exports focus on the US, European and Chinese markets. With the subprime mortgage crisis and European bond crisis, in addition to the slow growing Chinese market, Taiwan’s exports are bound to be impacted.

Alan Eusden, chairman of the American Chamber of Commerce in Taipei, also suggests that the Taiwan government ought to improve the process for foreign investment on the island, including an easier application process. “There is more for Taiwan to do to attract foreign investment, compared with other Asian countries,” he said.

The Commercial Times pointed out that the fundamental reason for Taiwan’s weak economy is a result of insufficient investment. Here, investment does not refer to the stock market or the housing market, but real capital formation of fixed assets.

As for the ratio of private investment in GNP, Taiwan has dropped to 14.9 percent in 2012 from 15.4 percent in 2011, lower than the 17-18 percent during the years of the global financial tsunami, and far less than the average 24 percent level of South Korea. Although South Korea’s economic growth was poorer than that experienced by Taiwan in the first quarter of this year, South Korean private investment was still higher, which means South Korea is not worried about a short term recession.

The Taiwanese government has always paid more heed to private investment in the manufacturing industry, but less so to the service industry, which is severely underfunded. Taiwanese investment in restaurants and hotels accounts for 12.9 percent of GDP (2008), 11.1 percent (2009), 12.5 percent (2010) and 11.7 percent (2011). As an industry with priority development from the government, it is not sufficient. How can more foreign tourists be attracted to Taiwan?

The service industry accounted for almost 70 percent of Taiwan’s GDP, creating almost 60 percent of the job opportunities. Proportionally speaking, Taiwan’s government is not providing enough attention and resources to the service industry.

Setting up Asia’s NASDAQ

The Economic Daily News said in an editorial that Taiwan’s current domestic investment is not just lower than that of foreign competitors, but even lower than in previous years. This is the key element of Taiwan’s slow economic growth.

The paper noted that Taiwan’s real capital formation of fixed assets and private investment in the last five years is lower than that for 2007, and net investment measured last year was only 60 percent of that in 2007. In recent years, the government and the financial industry spared little effort to provide funding to domestic production investment while mostly working on expanding the financial business and profits only. Scarce attention was put on the financial industry’s main mission to support domestic investment. The government’s policies of setting up an international financial center and Asia-Pacific-capital-raising plan are all to serve foreign investors, not to improve domestic investment.

Taiwan is rich in capital because its savings rate and export trade account for seven percent of its GDP. Taiwanese scholars proposed to take advantage of the local capital to set up a NASDAQ in Asia to provide baited capital to attract foreign high-tech companies to carry out manufacturing and R&D in Taiwan before going public there. The government and financial industry should also come up with similar active methods to use the rich Taiwanese capital to invest domestically so as to promote economic growth.

South Korea’s advantages overblown in Taiwan’s media

Taiwan’s media likes to compare the development of South Korea with that of Taiwan, but Chung Sang-ki, representative of the Korean Mission in Taipei, said that Taiwanese people might lose faith in their country if the local media continues to always carry a negative image that Taiwanese are inferior to South Koreans.

Taiwanese media tends to compare the performance of South Korea and Taiwan in areas like wage level, economic development, and the entertainment industry. Along with the comparison comes all kinds of criticism, often highlighting what is found lacking in Taiwan.

In an interview with Taiwan’s CNA News World magazine, Representative Chung said that as a country with high expectations, the Taiwanese people could take the merits of these criticisms in order to stimulate the government to do better. But he warns that if the media always dwells on the negatives, it will leave local people with the wrong impression that they are inferior. This will probably affect how people think and result in a gradual loss of confidence in the country.

He said that in comparison with other countries, Taiwanese media likes to focus on one specific country while South Korean media are more distributed in its focus. For example, Taiwan often compares itself with South Korea exclusively in areas of economics, performance and the entertainment industry, highlighting the strong competition between the two sides, while South Koreans are more likely to make comparisons with a range of countries across a range of fields.

According to CNA News World, Chung spoke highly of Taiwan’s national healthcare system, freedom of speech, education, human rights, and people’s happiness index. He believes that Taiwanese people should be proud of themselves for enjoying advantages in all these areas.

The United Daily News reported that Kim Joon-sik, an exchange student from  Seoul National University who is studying at National Taiwan University (NTU), published an article in the NTU Consciousness newspaper, triggering heated discussions.

Taiwanese almost never mention the negative sides of South Korea, according to Kim. He believes that it is apparent that South Koreans are not happy after they achieve competitiveness. Their mentality is that “they survive for the sake and existence of the nation.” They feel they make huge sacrifices, and they are exploited by large Korean enterprises and oppressed by the nation. However, Taiwanese, on the contrary, believe that their own interests are the most important.

Kim said, “South Korea is a highly repressive society. Each individual is oppressed by his organization. You are even pressured by your families, your schools, and teachers.” However in Taiwan, everything can be questioned. Everyone has the freedom to challenge the authority. This skepticism can bring up a society full of diversification, while in South Korea, “You have to play your role, and the society is completely militarized.”

Kim noted that although the South Korean government does not exert direct control over the media, the media never criticizes South Korean President Lee Myung-bak, nor dares to criticize Samsung (a South Korean multinational
conglomerate company). “If you do, you get no commercial advertising. In Taiwan, if you do not get ads from Hon Hai (Taiwan’s mega OEM) you can get them from other companies. But in South Korea, if you don’t get ads from Samsung, you will get no business advertising at all, because there are no small or medium businesses in South Korea.”

Taiwanese people seem eager to follow South Koreans’ examples in every way, but one day “when you successfully transform into the South Korean model, you will not feel happy,” Kim stressed.

Taiwan and South Korea, competitors or cooperative partners?

The process of negotiating free trade agreements (FTA) between China, Japan and South Korea is currently underway despite territorial disputes between the three countries. Global Views monthly reported that if everything goes according to plan,  leaders of the three countries might announce the initial FTA talks at the upcoming ASEAN Summit in Phnom Penh, Cambodia on November 20.

According to a study by the Chung-Hua Institution of Economic Research, commissioned by the Economics Ministry, once the FTAs between China, Japan and South Korea are signed, Taiwan’s economy will be greatly impacted. Taiwan’s imports and exports are expected to drop by 3 to 4 percent, cutting the total value by about US$15.9 billion.

Taiwan and South Korea are tightly competitive since they are both export-oriented economies and target the same export markets, which are China, Hong Kong, Japan and the United States. Tung Chen-yuan, a professor at National Chengchi University in Taipei, points out that Taiwan faces intense rivalry from South Korea because approximately 70 percent of the two countries’ exports overlap, according to the Taiwan Review.

Despite being fierce competitors, they also maintain strong trade ties, a fact that is frequently overlooked. Bilateral trade between the two economies is very high, reaching US$32.9 billion last year. South Korea is currently Taiwan’s fifth-largest trade partner, while Taiwan is South Korea’s ninth largest.

Semiconductor parts and ICT components are the two biggest trade categories between the two, which indicates that manufacturing in Taiwan and South Korea can also be complementary, especially in the ICT sector. “For example, Korean parts can be found in the cell phones produced by Taiwan’s HTC, and Taiwanese components can be found in the notebooks made by Korea’s Samsung Electronics,” Park Eun-woo, trade commissioner of the South Korea’s Trade-investment Promotion Agency (KOTRA) in Taipei said in the interview with Taiwan Review.

There is great potential for further cooperation between the industries in the two countries, according to Cynthia Kiang, deputy director-general of the Bureau of Foreign Trade under Taiwan’s Ministry of Economic Affairs (MOEA). One of the options, she believes, is for emerging Taiwanese companies to seek opportunities to provide components to South Korea’s multinational corporations, such as having Taiwan’s auto parts manufacturers supply aftermarket products and accessories for cars made by the Hyundai Motor Co., South Korea’s largest automaker.

Another way for Taiwan and South Korea to cooperate would be to join forces in the vast China market, noted Lu Hsin-chang, a professor at National Taiwan University, and particularly in sectors long dominated by Western companies. For instance, so far there have not been any large Asian retailers that can rival Western chains in China, he said, but by working together, Taiwan and South Korea would stand a much better chance of launching a large retail presence there. While South Korea could capitalize on its high production capacity to handle the manufacturing part of the business, Taiwan could use its familiarity with Chinese culture and language to develop more distribution channels, Lu explained.

Lu cautions, however, that Taiwan’s biggest impediment to further cooperation with South Korea could be the feeling of bitterness that many Taiwanese enterprises still harbor toward their Korean rivals. That opposition is generally believed to have resulted from Taiwan and South Korea’s intense competition in global trade, particularly the acrimonious relationship between flat-panel display makers, which has led to a rash of patent lawsuits and countersuits between rival firms in recent years.

If there is one thing Taiwan can learn from South Korea’s impressive economic growth, it is the importance Korean manufacturers have placed on developing brands, Kiang says. Although it takes years to build a brand, doing so is a worthwhile endeavor for Taiwan’s manufacturers, as companies generate much higher revenues by making and selling products under their own brand than from OEM items. “An international study indicated that the value of branded products is on average 57 times that of non-branded products,” she told Taiwan Review.

Lu agrees that Taiwan should expand its branding efforts beyond the ICT industry, but adds that regardless of the sector, domestic companies should establish a presence in every part of the supply chain and control the core technology of their products, just as South Korean firms have done. “For example, to tap the LCD TV market, Korean companies managed to develop all the necessary key parts for LCD displays,” he stressed.