presentation on taiwan's economic development (1)
TRANSCRIPT
-
7/27/2019 Presentation on Taiwan's Economic Development (1)
1/33
From Hardware
Manufacturing toValue Creation
Smart Phones, Taiwan and KoreaPeter T. L. Shih
Director, Commercial DivisionTaipei Economic and Cultural Office in Boston
February 28, 2012INNOVATION, GLOBAL COMPETITIVENESS, AND NATIONALECONOMIC DEVELOPMENT
ADMINISTRATIVE SCIENCES DEPARTMENTMETROPOLITAN COLLEGE BOSTON UNIVERSITY
-
7/27/2019 Presentation on Taiwan's Economic Development (1)
2/33
2
Outlines
Revis i t the Value Chain and Sm ile Curve
Path of Taiwans economic development
A story of the smar t phones
Analys isTaiwans ICT industries and
value added
Innovat ion paradigm change and the wayforward
-
7/27/2019 Presentation on Taiwan's Economic Development (1)
3/33
-
7/27/2019 Presentation on Taiwan's Economic Development (1)
4/33
4
Smiling CurveA supply chain value analysisconcept proposed by Stan Shih, founder of Acer, Inc.
http://upload.wikimedia.org/wikipedia/commons/0/0e/Smiling_Curve.svg -
7/27/2019 Presentation on Taiwan's Economic Development (1)
5/33
5
Path of Taiwans Economic DevelopmentManufacture oriented Investment oriented Innovation Oriented
Labor intensive Capital Intensive TechnologyIntensive Knowledge Intensive
AgricultureLabor-intensivelightindustriesaimed atlivelihoodneed andimportsubstitution
ImproveagriculturaltechnologyLabor-intensiveindustriesaimed atexport
Large-scale
infrastructure projectsLabor-intensive tocapital-intensiveLay
foundationfor high-techindustries
Promotehigh-tech
industriesdevelopmentICTindustriesgraduallybecame
themainstream
Internationalizationandtechnology upgradeICT andotherelectronicindustrieswellmature
Theburgeonin
g of FTAsRegionalcompetition becomefierce R&D
and highvalueadded arefocus
1952 1960 1970 1980 1990 2000 2010
-
7/27/2019 Presentation on Taiwan's Economic Development (1)
6/33
6
The Story of The Smart Phones
Missed thesmartphone
market
Lost thesmartphone
market
Losing thebusiness
smartphonemarket
Changed the
smartphonemarket
Changing the
smartphonemarket(?)
Game changing capabilities or design innovations - differentiated theirproducts
Products that matched customer needs
Lost touch with customers - Failed to adapt to the changing world andhold onto their market leading business for too long!
stalled innovation the original differentiators no longer matters inthe new environment
The lessons learned?Why did they fail?
What made their success?
-
7/27/2019 Presentation on Taiwan's Economic Development (1)
7/33
7
Dominance
by App le
In terms o fprof i ts
and added
value !
-
7/27/2019 Presentation on Taiwan's Economic Development (1)
8/33
8
Dominance by Apple I n terms of
profi ts and added value !
-
7/27/2019 Presentation on Taiwan's Economic Development (1)
9/33
9
Design (R&D), Brand & Marketing: $228 (45.7%)Apple (U.S.A), AT&T, Verizon
Component & Parts : $260 (52.1%)
Microprocessors, LCD, etc: $114 (22.9%) Korea
Bluetooth, audio chips, etc: $15 (3.0%) U.S.A
Driver, IC, connectors, etc: $130 (26.1%) Taiwan
Assembly & Labor cost: $11 (2.2%) China
Retai l Price: $499 fo r 16GB model
-
7/27/2019 Presentation on Taiwan's Economic Development (1)
10/33
10
Implications for Taiwans ICT Industries:
Are OEMODM model sustainable?
58.5
4.7
0.50
1020
30
40
50
60
70
Apple LG
7
2
30
0
510
15
20
25
30
35
Apple LG
The success of Apple casts doubts on Taiwan ICTs business models and strategies
Apple keeps the high value-added activities (design, software, brand management& marketing) to itself while outsourcing manufacturing to others
Apples strategy of Brand + Manufacturing Outsourcing creates huge volumes ofrevenue and high profit margin for its value chain. However, the place that Taiwan sICT industries occupy in the chain may not be ideal
The profit margin or share from OEM/ODM for Apples are not necessarily higherthan OEM/ODM for HP or DELL
iPhone Profit Breakdown iPad Profit Breakdown
-
7/27/2019 Presentation on Taiwan's Economic Development (1)
11/33
11
Where should Taiwans ICT industries go?OEMODMOBMBranding High ValueServices
7930
9608
7431521
37 352238 292
17382463
489 607
0
2000
4000
6000
8000
10000
12000
2010 2014
IT Service Public Cloud Services Spending Moblie Application Store PC Smart phone Server
Small growth for PCsAlmost no growth for Servers, Continue rapidexpansion for Smart phones
IHS Screen Digest: 2010 Apple Apps revenue (~$1.8B) is less than 3% ofApples revenue of $65B, and less than 1% of its profit
Gartner: 2010 worldwide IT Service revenue is about $800B, it will be$961B by 2014
Unit: US$ 100 Million Source: Gartner, compiledby III, Taiwan
-
7/27/2019 Presentation on Taiwan's Economic Development (1)
12/33
12
Analysis of Taiwans ICT IndustriesStructure of
ProductOrigin of
DevelopmentTechnology/
Brand
Production/
Market
ICT
Products
Highlymodulized
Support frominstitutes for R&D
Outsourcing/overseas
manufacturing bymulti-nationalbrands(OEM/ODM)
High control ofproduct systembecause of multi-national brands
licensing/authorization
Only few localbrands (HTC,Acer, Asus, etc)
Most areoverseasproduced andsold for intl
marketsICs, LCDsand somemajorcomponentsare produceddomestically
ICTManufactur
ingEquipment
Medium tohighmodulization
Linkage to local-brand companies
needs is notobvious
Some areseeking up-grade
Lacktechnology for
manufacturingcriticalcomponents/parts
Only someequipment are
utilized bylocal ICTmanufacturers
Source: Chung Hua Institute of Economic Research, Ministry ofEconomic Affairs, Taiwan
-
7/27/2019 Presentation on Taiwan's Economic Development (1)
13/33
13
Percentage of Value Added by Taiwans
Manufacturing Sectors
0.00%5.00%
10.00%15.00%20.00%25.00%30.00%
20 0120 0
220 0
320 0
420 0
520 0
620 0
720 0
8
% of ValueAdded,Munufacturingsectors% of ValueAdded, ExportsofManufacturing
Base Year: 2001
Source: Directorate-General of Budget, Accounting and Statistics, and Council for EconomicPlanning and Development, Taiwan
-
7/27/2019 Presentation on Taiwan's Economic Development (1)
14/33
14
Percentage of Value Added by
Manufacturing Sectors Taiwan vs Korea
0.00%5.00%
10.00%15.00%20.00%25.00%30.00%
200020 0
120 0
220 0
320 0
420 0
520 0
620 0
720 0
8
% of ValueAdded,Taiwan'sManufactur ing% of ValueAdded, KoreanManufactur ingSectors
Base Year: 2001
Source: Directorate-General of Budget, Accounting and Statistics, Taiwan; OECD
-
7/27/2019 Presentation on Taiwan's Economic Development (1)
15/33
15
Percentage of Value Added by Electronic
and Optical Goods and EquipmentTaiwan vs Korea
0.00%5.00%
10.00%15.00%20.00%25.00%30.00%
20 00
20 01
20 02
20 03
20 04
20 05
20 06
20 07
20 08
TaiwanKorea
Source: Directorate-General of Budget, Accounting and Statistics, Taiwan; OECD
Base Year: 2001
-
7/27/2019 Presentation on Taiwan's Economic Development (1)
16/33
16
Percentage of Intermediate Goods of
Taiwans Total Export
0.00%10.00%20.00%30.00%40.00%50.00%60.00%70.00%80.00%
20 0120 0
220 0
320 0
420 0
520 0
620 0
720 0
820 0
9
IntermediateGoods,Category AIntermediateGoods,Category BTotalIntermediateGoods, A+B
Category A: intermediate goods need to be further processed for consumption or used as inputs in theproduction of final goodsCategory B: intermediate goods need not to be further processed for consumption or used as inputs in
the production of final goodsSource: Taiwans export and import statistics, compiled by CEPDs study
-
7/27/2019 Presentation on Taiwan's Economic Development (1)
17/33
17
Disadvan tages (? ) o f Over-rely on
Intermediate Goods
Lack of the abi l ity /techno logy for sys tem
integration and development o f
software/services
Lack o f contro l /understand ing o f the markets ,
trends and consumers preference
Without ow n b rand , di f f icu l t to
divers i fy /expand markets
Intend to be capital-intens ive, and h igh in
energy/resou rces cons umpt ion
Source: Chung Hua Institute of Economic Research, Ministry of EconomicAffairs, Taiwan
-
7/27/2019 Presentation on Taiwan's Economic Development (1)
18/33
18
Innovation Paradigm Change
ProductParadigm
Technology Productivity
Price +Features
Productniches
Choices
Go to market- E.g. Xerox vs
Microsoft
- # of patents vs # ofproducts
Marketing leadership
+ =
Solutions +Services,Business
Innovation &Globally Integrated
Flexibility andValues
Value net ecosystem
Transforminnovations intodelivered values
Value net leadership
+ =
Knowledge /Intellectual Property(operational models,insights, assets, etc.)
Value capture &delivery
BusinessValue
Paradigm
Focuses Differentiators Through
-
7/27/2019 Presentation on Taiwan's Economic Development (1)
19/33
19
SWOT Analysis of Taiwans IndustriesDivision of labor(upstream/downstream) andsupply chain are quitecompleteGoodtechnique/management/intl
marketingGood legal infrastructureand labor force
Export concentrations highon China and electronics
Value added are not highEfficiency of use ofenergy/resources need to beimprovedLack of cross-sectors/industries human
resources
S W
O T
-
7/27/2019 Presentation on Taiwan's Economic Development (1)
20/33
20
SWOT Analysis of Taiwans Industries
The signing of ECFA helpsattract FDI to TaiwanAsian emerging marketsprovide Taiwan excellentopportunity
Demographic trend andliving environment areconducive to new productdevelopment
Burgeoning FTAs/RTAs
may marginalize TaiwanIncreasing competitionfrom Korea technology,brand and marketpenetrationSome traditional industries
need to be upgraded ASAP
S
O
W
T
-
7/27/2019 Presentation on Taiwan's Economic Development (1)
21/33
21
The Way ForwardA strategic thinking
The overall strategy Technology Pull andMarket Pull
Technology Pul l
Transfer
of new
technology
co-
operat ion in
R&D,
brand/mark
etingmanageme
nt
Efficiency/capability in:OEM/ODMQuality mass productionin short timeTailor-made productionas well
Supply chain/globallogistics management
Building Strength
on Your Own
Strength!
-
7/27/2019 Presentation on Taiwan's Economic Development (1)
22/33
22
Market Pul l= Building Strength on OthersStrength! (e. g. China)
Population: 1.3 Billion !
A market of huge potent ial /sou rce ofrevenue/profi ts
A grou nd to test/f ine-tune you rtechnology/products/servicesA plat form to b ui ld your own brandProvide you econom y of sc ale! (lower costs)Geographic vic in i ty and c ul tural connect ion
Economic Cooperation FrameworkAgreement (ECFA):Commodity and Service Trade
Liberal ization
Investment Faci l i tat ion and
Protect ion
Indus tr ial Co-operation (standards,
R&D)
-
7/27/2019 Presentation on Taiwan's Economic Development (1)
23/33
23
Governments Role In Fulfilling This
Strategy To lead and support large-scale, high-risk and innovative R&D
IndustrialTechnology
Research Institute(ITRI)
Founded in 1973
CommerceDevelopment
Research Institute(CDRI)
Founded in 2007
Institute forInformation
Industry(III)
Founded in 1979
Applied research in multiple Industrial technology fields Technology transfer and IP BusinessOpen lab and incubator
Industrial consultancyservices
R&D in network,multimedia,
Green ICT, ICTsecurity, etc.
Industry think tank Science and
technology law Incubation Technology transfer
and Patents
Research inmarketing,
consumerbehaviorand lifestyle
Promotinginnovativebusiness models
Business policy
recommendations
Flexible Display Technologyby ITRI
http://www.itri.org.tw/chi/news/detail.asp?RootNodeId=060&NodeId=061&NewsID=530 -
7/27/2019 Presentation on Taiwan's Economic Development (1)
24/33
24
Governments Role
To help and facilitate, if it is necessary, the
collaboration (M&A) among businesses
(DRAM, LCD panel)
To create an environment conducive to the
introduction of high quality human resources
(in particular R&D and global management
talents and skills, for example:http://hirecruit.nat.gov.tw/english/index.asp )
http://hirecruit.nat.gov.tw/english/index.asphttp://hirecruit.nat.gov.tw/english/index.asp -
7/27/2019 Presentation on Taiwan's Economic Development (1)
25/33
25
Governments Role
Help diversify the markets by introducing the right
products2005
Population
2015
Population
Growth
%
200 300 50%
600 700 17%
1,200 2,200 83%
4,00 3,800 -5%
Unit: million
TOP
MarketsTaiwancurrentlyfocuses on
New potentialmarkets:quality yet
inexpensive products
Poor and least-developedmarkets
US$20,000
US$5,000
US$1,500
Source: ITRI(IEK) and III(MIC)
BRICs(Brazil,Russia, India,
China, S.Africa,
Indonesia,Middle East,
etc.)
-
7/27/2019 Presentation on Taiwan's Economic Development (1)
26/33
26
Governments Role
Level the playing fields for Taiwans businesses
by concluding FTAs with key trading partners
(US, EU, Japan, ASEAN, etc.)
Promote and encourage the development of new
industries (to diversify in order not to over-rely on
ICT): medical care, biotech, green energy (solar,
wind power, electrical car, LED), tourism(incorporating medical care), cloud computing,
etc.
-
7/27/2019 Presentation on Taiwan's Economic Development (1)
27/33
27
Thank you!
Comments, Q&A
-
7/27/2019 Presentation on Taiwan's Economic Development (1)
28/33
28
Aide-memoire to P. 5: Path of TaiwansEconomic Development 1949 - 1960
Policy goals: stabilize the agricultural sector, increase agriculturaloutputs and import substitution
Agriculture: land reform rent reduction to 37.5% (1949), sale ofpublic land (1951) and land to the tillers (1953)
Import substitution:
1. Encourage labor-intensive industries, textiles, food processing,cement, glass, etc., to satisfy domestic demand
2. Impose import restriction measures to discourage import
3. Two-tiered exchange rate system disadvantaged to import4. Preferential loans to targeted industries, e. g. textiles
US official aide (1950-1965): staple foods and raw materials
-
7/27/2019 Presentation on Taiwan's Economic Development (1)
29/33
29
1960 1970 Policy goals: export-oriented expansion to accumulate capital and
technique for the next stage development
Act of Encouragement of Investment (1960 1990 with various
amendments at different stages): tax and duties deduction, tax
deductibles for investment, accelerated depreciation of equipment,government fund support or investment in targeted industries,
preferential loans, development of industrial parks, etc., with emphases
on local contents of manufactured products and export.
Exchange rate reform: uniform pegged exchange rate and
depreciation of NT dollars to encourage export. Establishment of Export Processing Zones (EPZs, first of which
established in 1966) preferential treatments and incentives for
investors inside the zones to export
-
7/27/2019 Presentation on Taiwan's Economic Development (1)
30/33
30
1970 1980
Policy goals: government investment and expenditure tocounter economic impact by the 1970s oil crisis and 2nd Import
Substitution
10 Major Construction Projects: 6 of transportation, 3 of heavyand petrochemical industries, and 1 of energy supply (nuclearpower plant). The results of these investment-led Projects areimmediate improvement of Taiwans infrastructure and
transformation to capital- or technology-intensive industries
2nd Import Substitution: encouraging petrochemical and steelmill industries to meet domestic demand of raw materials
-
7/27/2019 Presentation on Taiwan's Economic Development (1)
31/33
31
1980 1990Policy goals: industrial upgrade and economic transformation by
promoting development of targeted strategic industries
Strategic industries: high value-added, high technology-intensive, low inpollution level, low energy-intensive
R&D support by ITRI, III, etc. : 25% of non-military governmental R&Dexpenditures were by ITRI between 1983 to 1994, and more than 165spin-off start-ups
Semiconductor industry development:
1. Initiated by MOEA in 1974 with initial funding of US$ 12 millions, incooperation with RCA
2. 1980: establishment of Taiwans 1st semiconductor manufacturer,UMC
3. 1987: worlds 1st dedicated semiconductor foundry manufacturer,TSMC
Science Parks: 1st of which established in Hsinchu in 1980, with supportfrom the government development fund, state-run banks and venturecapitals for investors inside (the 2010 total revenue of Hsinchu SciencePark accounted for 10% of that of Taiwans manufacturing sectors)
Statute for Upgrading Industries enacted in 1989
-
7/27/2019 Presentation on Taiwan's Economic Development (1)
32/33
32
1990 2000Policy goals: deregulation and liberalization to prepare Taiwans
businesses for internalization and foreign competition
1987: deregulate foreign exchange market
1989: amend the Banking Law to release control of interest rates
and approve establishment of 15 new banks in 1991
1989: allow indirect import from China
1990: allow indirect Taiwanese investment in China
1990-2002: GATT/WTO accession to align Taiwans trade and
investment regimes with international norms and get equal
treatment in other WTO members marketsPrivatization of state-owned enterprises: still mill, shipyard,
petrochemicals, fertilizer, civil construction, etc.
-
7/27/2019 Presentation on Taiwan's Economic Development (1)
33/33
33
2000 present
May 2010: Act of Industrial Innovation retain taxincentives for R&D, human resource development,regional operation centre and intl logistic centre in
Taiwan
(For the rest, please refer to P. 21 to P. 26)