Economist on Taiwan/China IT supply chains

Economist's latest on Taiwan. Aside from the pro-China propaganda references on "becoming Chinese," it's an interesting look at what Taiwan's IT industry actually is, a nifty counterpart to the piece I posted a couple of days ago on Taiwan's labor costs and branding problems:

Computex includes stands where Acer and Asustek, another local computer-maker, display their latest wares. But it is not so much an IT exhibition as a mall for computer parts. Memory chips, motherboards, disk drives, fans, connectors, casings: each component has its own neighbourhood of booths. The heart of the Taiwanese IT industry is a network of hundreds of small specialised firms that make these things, overnight if need be.

This strength, however, is also Taiwan’s weakness. Most firms are junior partners in the world’s IT supply chains, making things others have developed. They are good at incremental innovation, mostly related to manufacturing (firms from only three other countries have filed more patents in America than Taiwanese ones over the past decade). But many of them are stuck in a “commodity trap”, cautions Dieter Ernst of the East-West Centre, a think-tank in Honolulu. Profit margins, he says, are razor-thin and do not allow adequate investment in R&D and branding. The Taiwanese industry is particularly weak where the most valuable intellectual property is created these days: in software, services and systems. As a result, Taiwan has a huge deficit in technological trade. Its firms are often sued by Western ones for patent infringements. In March, for instance, Apple filed a complaint against HTC.

What is more, under pressure from their customers, Taiwanese computer-makers have moved most of their production to cheaper countries, mainly China. Yet China is becoming a force in its own right in high-tech innovation and is itself fostering IT giants, such as the Semiconductor Manufacturing International Corporation (SMIC), another foundry.

The piece goes on to discuss how Taiwan is attempting to handle those issues, at least in IT, with ITRI taking the lead in fostering design, software, and services upgrades. But it does represent another look at how Taiwan's current business model is reaching its limits in many areas.
____________
Daily Links:

• Project 2049 on aerospace trends in Asia
• Frozen Garlic on Redistricting in Tainan
• Hear in Taiwan with Tsai Ing-wen
• Taiwan woman teaches mandarin to Americans by Skype
• CEPD says Taiwan economy may be overheating
• Hopeless pro-China tool Mainland Affairs Council hacks on proposed ECFA referendum.
• Global Voices: heavy metal and the death penalty
• Humans destroying the biosphere = new opportunities for engagement in East Asia.
  

_______________________
[Taiwan] Don't miss the comments below! And check out my blog and its sidebars for events, links to previous posts and picture posts, and scores of links to other Taiwan blogs and forums!