Background Information - Taiwan

Taiwan is a sub-tropical island, roughly 180 miles long, located less than 100 miles from China’s Fujian province. Most of Taiwan’s people live on the western coastal plain as most of the island is covered by rugged mountains. Taiwan has had a rich and varied history and if we go back to 1895 when the Japanese gained control of the country the economy was mainly agriculturally orientated with sugarcane being the most significant export. After the 1930s the government began encouraging investment in non-agricultural industry in Taiwan. The war that followed caused a lot of destruction and an economic collapse. In 1945 the Chinese Nationalist government took control of the country which resulted in hyperinflation as soldiers and refugees flooded onto the island and thus increased the population by about twenty percent. In the 1950s Taiwan depended on American aid, and the agricultural economy was in ruins after the events in the 1940s. In the late 1950s the economy experienced high speed growth and industrialization. This growth happened quite quickly and has been dubbed the “Taiwan Miracle” but the changes that have occurred have been completely based on the hard work and determination of the people of Taiwan. From the 1980s until the mid 1990s there were still dramatic changes occurring with drastic economic, social, and political changes taking place. In the 1980s the government announced plans for liberalization and globalization of the economy and the privatization of government-run enterprises.

Interest rate controls were abolished and tariff rates were slashed, and the central

9 Country Overview, The Republic of Ireland, Catherine Lynch, Eoin O’Malley 10, November 2007

exchange rate was abandoned. To aid with the industrial development the government created the Hsinchu Science-based Industrial Park in 1981. In the years that followed a strategic scheme for industrial development was promoted and in the early 1990s the Statutes for the encouragement of investment were allowed to expire and the Statutes for industrial upgrading were adopted. The Taiwanese needed to compete on the world stage so they developed their labor-intensive industries to take advantage of the cheap labor costs and this caused many industries to upgrade their technical standards at a faster pace than maybe they originally foresaw. This acceleration of economic growth was also fueled by enticing many highly skilled overseas Chinese into returning to Taiwan by offering opportunities in the form of the Hsinchu Science-based Industrial Park. This saw their technological expertise being used to develop the electronics and information industries, and helped to change Taiwan’s industrial structure.¹⁰

2.2.1 Taiwan’s economic progression

This competitiveness and forward thinking is still very much apparent and Taiwan ranked 14^th out of 131 countries in the 2007 Global Competitiveness Report.

Taiwan ranked fifth among Asian countries. Taiwan can put most of its success down to the strength that comes from education and innovation. Some of the areas of concern however were in the sophistication of its financial market and other institutions.

Taiwan has been doing business with the US and Europe for many years. Taiwan is establishing themselves as a major player in world business but this success has come relatively quickly and so some other areas need the time to catch up. Attitude change is progressing and Taiwan’s economy is becoming more established with impressive progress being made in areas such as biotechnology, electronics and high-end production.

The economy in Taiwan is mainly export oriented. In January 1995, Taiwan approved the Asia-Pacific Regional Operations Center (APROC), which is a project that would transform the island into a center of business and investment in the Asia-Pacific region.

This is to promote the establishment of new local as well as foreign companies to

10 The Story of Taiwan-Economy, Composed by the Government Information Office in Taiwan,

Taiwan. Part of Taiwan’s appeal is that it is well placed for investors to base here with access to China and other Southeast Asian markets. For local entrepreneurs the problem of experience can prove a hindrance for many looking to start their own venture.

To continue to endear itself to world trade Taiwan has had to modernize much of its infrastructure. In 2002 a six-year challenge was started to try to achieve a competitive edge with a package of reform and investment concentrating on economic growth and environmental protection. The main areas of focus were on government, banking and finance. Investment is directed toward four broad goals of nurturing human resources, encouraging research, development and innovation, improving international logistics and creating a high- quality living environment. The fact that Taiwan’s financial institutions aren’t as mature as others offers an entrepreneurial opportunity for many companies. The ability of some entrepreneurs to get funding has been an issue in the past as financial institutions have been a little underdeveloped.

Taiwan needs to achieve the status of a financial hub and in order to do this they need to continue making improvements to its domestic regulatory system so it can enhance the quality of their listed stocks.

Taiwan boasts a very healthy venture capital culture and many entrepreneurial success stories. There is strong institutional support for entrepreneurship within Taiwan and policy to support it.

2.2.2 Taiwan’s Industry

In 2006, 36.6% of the workforce was employed in industry which included manufacturing, construction, electricity, gas, water supply, mining and quarrying contributing a total of 26.8% to Taiwan’s GDP. In the same year 86% of industrial output was accounted for by manufacturing. The main industry is no longer consumer goods and textiles, electronics and information technology have now taken over and account for about 35% of total production value. In terms of production value, the

chemical industry accounts for 28.6%, information and communications technologies industries accounted for 34%, metal and machinery 36.9% and consumer goods 9.9%.¹¹

Taiwan is very prominent in the area of information technology, and can boast to be the largest suppliers of notebook PCs, motherboards, and LCD monitors. The figure for global IT hardware exports in 2006 totaled US$88.6 billion. The products fall into eight major categories, notebook PCs, desktop PCs, motherboards, servers, digital still cameras, optical disk drives, color display tube monitors, and LCD monitors. The software industry totaled US$5.34 billion in 2006 a 6% increase from the previous year.

The software market can be divided into two main segments, software products and software services, the software products market increased by 10.7% and the services market increased by 5.5%. The semiconductor industry has been extremely successful for Taiwan. The industry has worked hard to distinguish itself from other countries by creating a complete supply chain with significant clustering, and top class capabilities in wafer manufacturing with an estimated production value of US$37.15 billion in 2006.

Another major industry for Taiwan is the optoelectronics industry, which includes areas such as optical information, optical displays, optical communications, and optoelectronic components. The output for 2006 was US$42.6 billion, which saw a 46% growth from the previous year. Flat panel displays is another major market in Taiwan with value created in 2006 of US$39.4 billion with almost 60% of the accounted for by exports.

Communications equipment, mobile and network services have accounted for a huge contribution to the economy. Communications services reached up to US$11.4 billion and the equipment production accounted for US$21 billion. The value of Taiwan’s textile industries has been on the decline with the output in 2006 being US$11.76 billion this represented 5.3% of total manufacturing output. At the same time the petrochemical industry produced a value of US$39.06 billion not including textile and plastic product businesses. The vehicle industry recorded a growth of 17.6% from 2005 to 2006, which accounts for a production value of about US$14.5 billion. More than half of the motorcycles produced on the island were sold in the local market the rest were exported

11 Major Industries in Taiwan, Composed by the Government Information Office in Taiwan,

to the US, China and Japan. The bicycle industry has suffered a loss due to lower production costs in developing countries but still managed to export 4.7 million at an average unit price US$192. The biotechnology and pharmaceuticals industries have made excellent progress and the firms are mostly focused in areas of genomics, pharmaceuticals, diagnostics, agricultural and environmental biotechnologies, biochips and bioinformatics. The total revenue in 2006 was around US$5.5 billion. While biotech-related industries attracted investment of US$646 million in 2006.¹²

12 Major Industries in Taiwan, Composed by the Government Information Office in Taiwan, http://www.taiwan.com.au/Polieco/Industry/Major/report01.html

2.3 Definition of Innovation