The Dangerous Arrogance of Taiwan's New Southbound Push

Credit: REUTERS/Tyrone Siu
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Taiwan's New Southbound Policy smacks of colonial arrogance and misallocates company resources. Taiwan must focus on profitable markets rather than convenient geographies.

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Since the election of President Tsai Ying-wen (蔡英文) and the resumption of Democratic Progressive Party government, every layer of the administration has again adopted the "Go South" policy. I have been a critic of The New Southbound Policy (hereafter referred to as "Go South") for many years and said so in countless interviews, as well as the article "5 Bold Steps for Taiwan's Future".

Since the publication of that article, Taiwan's government has made great progress. New laws which make it easier for qualified foreigners to live, work and start companies in Taiwan go hand in hand with reforms in the health sector. Same-sex marriage is almost a reality, and much support has been given to help the development of artificial intelligence, Internet of Things (IoT), industrial internet of things (IIoT) and Industry 4.0 solutions for Taiwan's machinery industry.

A lot has been accomplished, but much work lies ahead. While China lurches back four decades into authoritarian rule and grotesque Orwellian state control, Taiwan continues to be a shining beacon of freedom of expression, enlightened economic policies, and progressive attitudes.

In one regard though the administration has gone astray: the continuation of the "Go South" policy. As any economist will tell you, the policy is grossly misguided. I contend that it is not just that, it is outright dangerous. Let me elaborate on my criticism.

'Go South' is arrogant, even racist

The "Go South" idea is inherently arrogant, even racist. It smacks of colonialism and 'Chinese supremacy'. For centuries, Chinese merchants and businessmen have dominated the economies of Thailand, Vietnam, Indonesia, Malaysia, and Singapore. Their descendants do so to this day. By adopting "Go South" as an "economic policy", Taiwan risks being called out for continuing a trend of Chinese economic domination in those countries. It may be an economic program, but to the residents of the countries involved, it smacks of racism. I have spoken to many politicians and diplomats from Southeast Asian countries, and all of them consider Taiwan's "Go South" idea as anachronistic and arrogant.

'Go South' misleads companies and misallocates resources

As a consultant for Taiwanese companies, I am confronted with the ill-effects of the policy almost daily. CEOs focus on countries their products are not suited to; marketing departments realign their operations to markets with very low margins; product developers design products with little global competitiveness.

There is the pharmaceutical company which, following the government's "Go South" policy, interrupted a promising drug trial in the U.S. to focus on medicines with much lower margins for Indonesia. There is the drone manufacturer which put all their resources into making surveillance drones for palm oil plantations in Malaysia, instead of focussing on the competition from China's DJI. There is the maker of fabrics and bags who abandoned plans to hire international designers and become a global brand and instead is now selling in Southeast Asia at rock bottom prices.

Yes, there are opportunities in Southeast Asia, but they are far and few between. Yes, for some companies the region is the right market, but by elevating "Go South" to the statues of a government policy, the administration misleads entrepreneurs and risks a harmful misallocation of resources and talent. Companies should never focus on markets in a specific geographic region, but on the markets with the greatest potential. Companies should never focus on "easy" markets but on "profitable" ones. Companies should focus on the what and the how, not on the where.

In the machinery industry, in particular, Taiwan has some catching up to do. While some companies like Fairfriend Group are pulling ahead and becoming global leaders in Industry 4.0, others are misguidedly expanding into Indonesia or Malaysia, where their outdated products may enjoy another three to five years of meager profits. What they should be doing is investing in the future.

'Go South' means missing real market opportunities

Misallocating resources is bad enough, but the ideological focus on a geographical region is actually harming the development of the Taiwan economy. The drone company may have sold five drones to Malaysian palm oil producers, but it missed the order of 2000 drones by African governments and the World Health Organization to deliver drugs in remote regions. The backpack producers now selling moderately well on Singaporean e-commerce platforms missed an opportunity to become the top tier supplier to America's largest apparel chain. That audio equipment manufacturer opened a sales office in Indonesia, selling designs that haven't changed in 20 years, rather than investing in R&D and entering the US market. That lathe manufacturer got an order for 150 lathes in Vietnam, but it lost almost all it's customers in Europe by not investing in IIoT solutions.

Companies have limited resources. Hiring sales staff for South East Asia takes money away from marketing departments. Instead of learning modern concepts of inbound marketing, content marketing, and investing in marketing automation, companies waste money on grooming third-rate distributors and unqualified sales staff in markets that will evaporate 5 years from now.

"Go South" keeps wages low and companies stagnant

By focusing on countries less developed than Taiwan, companies don't just loose focus, they are also dragged down by these lagging economies. Labor in Vietnam, Burma, or Indonesia is cheaper than investing in automation and highly-skilled Taiwanese employees, of course, but this is a curse, not an advantage.

We are facing massive threats to our current models of production through automation, robots, and artificial intelligence. Taiwanese firms have the know-how, the inventiveness and resourcefulness to become global players in all these areas, but not if rather than investing in the future, they build antiquated factories in backward regions of the continent. Taiwanese agriculture, powered by renewable energy and lit by domestically produced LED lights, could be the most productive and price-competitive in the world. Instead, "Go South" exacerbates price pressure by investing in outdated and inefficient cultivation methods.

Born as a political reaction ("if you can't go north, i.e. China, then go south"), the "Go South" policy has become a political slogan that distorts markets, misleads companies, impedes the progress of Taiwan's R&D, especially among SMEs, while making the country look like an arrogant colonial power with racist attitudes towards its southern neighbors. The government doesn't intend any of these consequences.

Taiwan should not strive to be a dominant economic power in Southeast Asia. Instead, it should aim for a global role in the industries that matter: agrotech, biotech, biochemistry, machinery, IIoT, medtech, healthtech, renewable energies, battery technology, autonomous transport, robotics, and the like. As the recent battle of PCHome versus Shopee (from Singapore) in the ecommerce market shows, we need the best data scientists, AI engineers, and UX/UI programers in the world, not more steel mills and tanneries in Vietnam. We need robotics engineers and machine learning experts in Taiwan, not furniture sweatshops in Myanmar.

In the coming decade, fully automated robot factories will spring up in Europe, the U.S., Japan, China and India. Labor markets will be disrupted like never before in human history. A technological powerhouse like Taiwan cannot afford to be left behind.

Taiwan must be a leader of the 4th industrial revolution, not a laggard. Leadership lies in cooperation with the the best companies in that field, and those are to be found in Stuttgart, Munich, London, Boston, San Jose, and Osaka ... not in Hoh Chih Min City or Jakarta.

As I look around in Asia, Taiwan continues to inspire. It is by far the freest society, with the most generous and resilient people, and most vibrant economy. It is home to some of the most amazing companies in the world, which have dominated their respective markets for decades. That dominance comes from technological prowess, inventiveness, and entrepreneurial spirit, not from a focus on a geographical region.

Taiwan has always been a country that looks to the future. It must do so now more than ever.

Editor: David Green

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