Taiwan has been a country with great economic growth throughout the last decade; with its rich resources and tech giants, such as HTC and Taiwan Semiconductor Manufacturing Company (TSMC) it has the potential to go even further as the roaring economic tiger it evolved from. Taiwan's economic model of having strong manufacturing efficiency and low labor costs have made the country a paradise for Foreign Direct Investment (FDI). Its future looked even more prosperous when they expanded their trade to mainland China. Its economic partnership with the mainland has made it possible for Taiwan to be one of the main exporters of technology to China.
However, as China is transitioning economically from quantity to quality —through improvements in their domestic supply chain and innovative steps that ensure quality is being kept at a minimum rate and with a rapid increase in domestic electronic industries —the need for imports from countries such as Taiwan diminishes. At this rate the industries of China move closer of being in the top segment as exporters of hi-tech products onto the global market, they are relying less on Taiwan to do it for them, than they did in the past. As these changes takes place in China, the economic transition creates ripple effects for countries that lack diversified production, such as Taiwan.
Already, we see the effects China's growing material independence has on its neighboring island. The Taipei-based Chung-Hua Institution for Economic Research (CIER, m中經院) has downgraded its GDP growth forecast from 1.36, to 0.84 percent. A declining GDP growth is not the only detrimental challenge the country is up against. Exports fell twelve percent in January in comparison with the previous year and seven percent in February, in contrast to the previous year of February 2015.
When considering the facts, one may think of Taiwan’s trading position as rather turbulent for the time being. However, Taiwan has a fairly good standing point with the rest of the world when it comes to trade; its biggest trading partner is the EU, and it lists as number four over EU:s top trading partners, in this partnership Taiwan is mostly exporting chemicals and telecommunication equipment. It is providing a large rate of exports of sea transportation as well as business services to the EU. Sounds like the Taiwanese trading position is in cloud nine, right? Not quite; falling export rates are still a reality Taiwan must face, it is in the state’s best interest to sniff out a solution to this grand problem. As this nation faces declining GDP growth, as well as declining export growth, more factors point to the need of reforms in its economy if Taiwan is to ever become prosperous once again.
Politicians, as well as policy makers and investors, sees a potential reform as something positive; needless to say, it may be in the state’s best interest to take the step from being a low labor cost sufficient economy, to become something else — an increasing number of politicians and policymakers glance towards an innovation based economy, just like Silicon Valley has created a big innovation output for US exports Taiwan strives to achieve the same effect for its export growth. This realization has been in coercion with the government as well, and they are now pushing for the build up of a new innovation centre in Taiwan. The plan is to establish what would be a replication of a Taiwanese Silicon Valley, something that could boost innovation and increase its competitiveness on the global playing field.
A new Silicon Valley may sound like a solid idea and an endeavor the country should strive towards. But at the end of the day, it seems as though an effective innovation ecosystem is the answer to all economic growth issues these days. Those who are in favor of this argument may, infact, be right. However, one would be blunt to believe that it is a solid idea to take one model, and assume that a copy of that very same innovation eco system would work just as well in a remarkably different country. There are other alternatives that can help a state to transition into an innovation based economy. For example, the government itself in Taiwan has started to diversify its economy more by introducing new technology such as biometrics, which it’s about to begin producing. But, even if a diversified economy may be a somewhat easier goal to reach, policy makers still seem to prioritize a centre for innovation in the country — a Silicon Valley.
One slight problem that blooms up when a country is trying to push for reforms of grand scale, is that it all may just become a big mess. Mao’s Great Leap Forward for China was a reform of unprecedented, negative impact — that leap struck the country into a downward spiral of economical exhaustion and chaos for the citizens of the state. The global supply chain today is ever so complex, where one product may travel across tens of countries and be in the hands of hundreds of various suppliers. Implementing a replica of a complex model into an even more entangled complexity that which supply chains can represent, is also a challenge and an endeavor one should not trifle with. So the real big leap into the fog, of market complexity may be another option for Taiwan — an alternative that may also be more efficient.
Regional specialization can save both money and time; it could drive up innovation, if each station becomes the best in making what they do, the finished product will reach a higher quality status. This means bigger influence on the global market and one more incentive to innovate that product for which the regional production cycle has been enhanced through specialization on all areas of that product — which is something we can call regional specialization. If a country like Taiwan strives to achieve regional specialization it is easier to make sure that innovative steps are being taken, in order to establish a high quality standard on every part of the road in the various production stages, it might be a strategically more efficient way to spread out innovation instead of having it collected in one place. It is this global fragmentation in the production line that makes it hard to solve the economic growth problem. Therefore, as many other people argue, regional specialization is a good candidate against building up a domestic centre for innovation.
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