Tuesday, May 25, 2010

ECFA as a status quo economic policy.

I've been arguing that the Ma Administration's ECFA policy is a status quo policy; indeed, I've said before that the China move by Taiwan businessmen was essentially a way to maintain the economy in another place, and not move forward. A thought provoking piece out at INPR notes:
Simply stated, if Taiwan’s business model does not change, Taiwanese firms will continue to be reliant on low cost labor for survival. With the rise of wages in China, these firms would be compelled to move to other states in Asia with lower wages. Currently, Taiwan’s manufacturing wage is only half of Korea’s. The crux lies in Korea has already transformed from its previous contract manufacturing model to one centered on brand marketing.


In conclusion, the negotiation strategy on ECFA should premise on assisting Taiwanese firms to embark on the new business model which emphasizes branding and innovation instead of seeing it as a means to prolog the current contract manufacturing business. The government needs to pay more attention to the service industry and to the potential barriers and risks associated with Chinese marketing. “Early Harvest list” can be likened to a pain killer that relives the pressure of potential trade diversion caused by China’s FTA with ASEAN countries and therefore is not the focus of ECFA. Taiwan should firstly open up the Chinese market for its service industry and bolster its brand marketing efforts. Succeeding on this front, ECFA will be the catalyst in triggering a new wave of rapid and lasting economic growth for Taiwan.
You don't have to believe in the possibility of Taiwan having its own brands to see the current version of ECFA as a status quo policy.
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StefanMuc said...

Well Asus has really established itself as a consumer brand with the eeePC. (They had an excellent reputation as a mainboard manufacturer, already.)

That doesn't prevent them from moving production to China, however. Even if there is an excellent brand, a top product and a facility which can manufacture at competitive prices - there is nothing to stop the company owners from moving production abroad. Not because they are forced to do so because they can't compete otherwise, but simply because they can increase their profits in that way.

However in choosing a business location, wages are not the only factor - otherwise places like Zimbabwe would be thriving (to use a very extreme example). In theory a corporation should evaluate the total cost and ris of operation in order to identify the best location. (That corporations in general act rationally very often is doubtful, but that's another discussion.)

Maybe one way to address the problem of wage dumping is to provide better infrastructure. Stuff like:
* reliable electricity supply (that's already a problem when you operate in India, btw)
* the rule of law (low corruption, no political prosecutions)
* quick access to information infrastructure (fast installation, high data rates, no political hacking, no government snooping)
* reliable and efficient transportation
* attractive living spaces to attract top professionals
* good supply of skilled workers and professionals (good education system)

I think Taiwan does quite well in some of these areas, and could do with some improvement in others.

Anonymous said...

Um, what would be the rhetoric opposite to status quo policy?

Michael Fahey said...

Michael, I agree with this argument. ECFA is similar to Taiwan's foreign labor policies. The purpose of importing migrant workers is also to maintain the status quo of low labor costs so that business models do not need to change.

Marc said...

So what does that mean, then?

Goodyear SUV/truck tire factory is pulling out of Taoyuan after being here since 1969. They're looking for lower-wage labor in other countries.

Anonymous said...

Taiwanese businessmen should really get into something revolutionary... like, you know, blogging!

Or maybe they should leap frog that, and get right into pixie dust manufacturing.

Anonymous said...

Having a brand is way overrated.

They work well for certain consumer products or high end items. But there is plenty of money to made making parts that go inside things. In that case, a brand is useless as you know your customers, and they know you. Plus they know the quality issues and don't need a "signal" from a brand.

Secondly, if you have not noticed, brands are in trouble in many parts of the world as the retailers now have their own store brands. Since they have the volume, your brand may never be seen, unless you are truly creating amazing value, like Apple.

If price is important to your customer, and it usually is, no matter how awesome your brand is you could still lose customers on that alone. This means that you may still have to move production out of Taiwan even if you are strongly branded. Sony has to make stuff in China too.

Now, if some specific firms in specific markets think its a good idea - go for it. But I have been watching pundits endlessly say Taiwan needs global brands for years (especially the government - they love the idea.) I think its misplaced in many ways.