“Vision 2020” – AmCham Asks Experts to Peer 12 Years Into the Future - I

If overseas Taiwanese biotech scientists can be enticed back home as their IT counterparts were 20 years ago, the possibility of developing a highly competitive biotech industry is indeed promising. Taiwan could dominate in the discovery of the drugs, while U.S. partners co-develop them by carrying out the clinical trials, manufacturing, and distribution.

Service Sector: The Road to Greater Productivity and Higher Income

By Peter Sutton, Head of Taiwan Research, CLSA Asia Pacific Markets.

In Taiwan, the two largest service industry sub-sectors are government services and the internal services that companies provide to themselves. Making these areas more efficient will be the key to creating greater productivity and generating more high-income jobs over the coming decade.

Many Taiwanese manufacturing companies have head offices in Taiwan and factories in China. Although 90% of the employees are usually located at the factories, more than 90% of salaries and bonuses are paid to head-office employees performing such activities as design, marketing, logistics, secretarial, and general management. That means 90% of value-added is taking place at headquarters, and most of the spending of that income will also take place nearby.

Taiwan will be more prosperous if it can accumulate more such head- office activity while pricing out low-valued-added activity and jettisoning it to China. But a number of government policies have discouraged that. First are the policies on direct flights. If it takes most of a day instead of 90 minutes to fly to Shanghai, then people at the Taiwan head office can’t do a one-day business trip to attend a meeting or confer with colleagues. Executives who could be based at the head office must be based somewhere in China instead. They and their family’s spending power is lost to Taiwan.

In addition, the Taiwan government takes three weeks or longer to approve business visas for PRC nationals. And the authorities make it very difficult to transfer skilled PRC nationals to work at the head office in Taiwan. This too forces Taiwanese companies to maintain more head office functions in China than they would like. It also means that foreign companies can’t readily use Taiwan as a base for activities within the greater China region. Training and other services normally provided at the head office are also located in China instead.

Removing restrictions on air travel to China and easing the issuance of business visas to PRC passport-holders are the two changes to government policy that would do the most to return head-office activity to Taiwan.

Besides lack of easy access to China, foreign companies are also held back in Taiwan by problems with the government bureaucracy. One factor is the mindset among many civil servants that their role is to regulate the behavior of applicants for licenses, rather than provide them with good service. Taiwan also focuses excessively on outmoded mercantilist principles such as building up foreign-exchange reserves.

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