Price Warfare Harming Taiwan's IT Sector, Academic Says

Price Warfare Harming Taiwan's IT Sector, Academic Says
The world’s largest bicycle manufacturer, Giant makes bikes in Taiwan, China, and the Netherlands and last year had global sales worth US$1.8 billion. Photo Credit: Tobie Openshaw/Taiwan Business TOPICS
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A National Taiwan University academic criticizes 'outdated' government subsidies and the direction of the Taiwanese IT sector.

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The “route A” business path that many Taiwanese tech firms have been following is not a viable long-term model for Taiwan, an academic argues.

In an opinion piece for the Chinese-language edition of The News Lens, Hong Shi-hao (洪士灝), an associate professor of Computer Science and Information Engineering at National Taiwan University (NTU), projects that more of the same can only result in a shrinking industry.

“When a firm does not have enough capital, it can only operate as an original equipment manufacturer (OEM). With some luck it will make some money, but in a few years it must find the next profitable technology or equipment. Because these firms cannot build upon technology, their products require little skill; to be profitable, the firm then depends on cheap labor. Let’s call this business model route A,” Hong writes.

“Many firms in Taiwan claim they focus on developing technology, but in truth they are only OEMs buying existing technologies and equipment. This is classic route A," he writes. "There is no shortage of Taiwanese brands who follow route A, but their product quality is mediocre, forcing them to compete in the market with price alone.”

“If the industry continues to compete by cutting costs in existing industries or depending on government subsidies, market share for Taiwanese industries will only shrink,” Hong writes.

Hong then describes a “route B,” which he says is the route Taiwanese firms should follow.

In “route B,” firms target small markets requiring specialized products, such as the medical, aerospace, maritime, and military fields. “These fields take much effort from specialists so the bar to enter the market is high, but that means there are fewer competitors engaging in price wars.”

“After talking with many medium and small-size firms, I believe this is the route Taiwanese firms should follow. Taiwan should distinguish itself through specialized skills, as countries like Israel, the Netherlands, and Finland have done.”

Hong acknowledges the impossibility of forcing “capitalists” to invest in specialized industries. Instead, he calls for the government to stop subsidizing “route A” companies and revise its strategy to develop Taiwan’s IT sector.

“Many government bureaucrats are still stuck in glory from 30-year-old success stories, when they established the Industrial Technology Research Institute and Hsinchu Science Park. They do not realize the environment has changed in the last 30 years. How many of their recent subsidies programs have worked?”

First Editor: Edward White
Second Editor: J. Michael Cole