The island’s electronics firms are in need of an upgrade
... Of all the countries dependent on purchases by China, Taiwan has most to lose as the mainland’s electronics industry becomes more self-sufficient, says Angela Hsieh, an economist at Barclays, a bank. South Korea also depends on China, but its firms sell a wider variety of goods there, such as cars and cosmetics.
Becoming more innovative is easier for some than others. Hon Hai, which has its eye on Sharp’s research into advanced OLED display screens, is big enough to absorb the struggling Japanese firm, and to keep throwing money at developing its technology. Likewise, South Korean firms such as Samsung Electronics, which belong to giant conglomerates, can afford the R&D and marketing budgets needed to remain globally competitive. But many of Taiwan’s electronics firms are, thus far at least, small, anonymous links in other companies’ supply chains.
Starting to sell gadgets under their own brands might offer these firms far higher profit margins, allowing them to pull themselves up by their bootstraps. But past experience shows that it is hard to do this without going into competition with the more famous customers that they rely on. Some Taiwanese firms, including HTC and Asus, have produced branded products—such as phones and notebook computers—only to be deserted by the customers to whom they sell components.
Raymond Hsu, an analyst with Taiwan Ratings, an affiliate of Standard and Poor’s, thinks Hon Hai would only try to make money from Sharp’s brand if it could attach it to products that wouldn’t upset its existing customers. The Taiwanese firm may be more interested, in the short term, in being able to offer brand-owners like Apple a wider range of components, and thus to increase its bargaining-power with them. Mr Hsu says Apple would prefer not to buy OLED displays from Samsung, which is a rival producer of smartphones.
Taiwan’s president-elect, Tsai Ing-wen, has promised to reshape its economy by “shifting from an efficiency-driven model to an innovation-driven one.” Ms Tsai also wants to reduce reliance on China and promote greater technology ties with America and Japan. The question is how. Taiwanese firms have already been encouraged by the outgoing government to flirt with the likes of cloud computing, the “internet of things”, 3D printing, biotechnology and renewable energy. Some are showing potential, but there will be no quick fixes. Meanwhile, prospering rivals on the mainland enjoy the benefits of a vast home market, and a government with lots more money to throw around.