President Ma Ying-jeou (right), Michael Porter

Taipei, Oct. 24 (CNA) Taiwan cannot just rely on other countries' offers to cut tariffs, President Ma Ying-jeou said Friday, stressing that what the country must do now is adjust its industrial structure, and the adjustment must be done as soon as possible.

Taiwan must turn itself from an "efficiency-driven" economy into one that is "innovation-driven," Ma said while meeting with visiting American professor Michael Porter, the world's renowned authority on corporate strategy and business competition.

Addressing trade challenges Taiwan faces, Ma told Porter that the obstacles are from both inside and outside the country.

First of all, none of Taiwan's major trade partners maintain diplomatic links with the country; and despite their willingness to do business with Taiwan, they seem to hesitate on proposals to forge free trade or economic cooperation agreements, Ma said.

Currently, only 9.69 percent of Taiwan's exports are covered by free trade accords or similar agreements, far smaller than the 36 percent of its key competitor South Korea and Singapore's 70 percent. Compared with them, "Taiwan is in an 'extremely laggard' condition," Ma said.

In order for Taiwan to free itself from such a trade barrier, it must not ignore China, the president said. However, Taiwanese people have "a very deep mainland China complex," which means they are terrified they would be hurt by the mainland, said Ma.

In Taiwan, relations between Taiwan and China have often been marked by misunderstandings and have been twisted because some people in the country still embrace protectionism, Ma said. He called it a normal situation and admitted it can't be changed overnight.

For the barriers to be removed, what Taiwan needs is not tariff-cuts by its trade partners, but its transformation from an efficiency-driven economy to innovation-driven one, said Ma.

While maintaining its traditional industries, Taiwan must "solidify its pillar industries and cultivate emerging industries," said Ma. That means the manufacturing sector must improve its services, the services sector must become globalized and be equipped with technologies, and the traditional industries must have unique features, he said.

Taiwan has been working to promote such industrial upgrades and transformation.

"It's just we are not fast enough," Ma said.

At the talks with Ma, Porter suggested Taiwan should heed its relatively low wages and decreasing worker participation if it wants to remain competitive. He also advised Taiwan's government to encourage greater participation in the workforce by women and immigrants as the country's population ages.

Porter, a Bishop William Lawrence University Professor at Harvard Business School, is a six-time winner of the McKinsey Award for the best Harvard Business Review article of the year and the developer of the "Five Forces" framework that is used to analyze the level of competition within an industry and business strategy development.

The concepts of efficiency-driven and innovation-driven economies, as well as factor-driven economies, have been used by the World Economic Forum for its annual reports.

Factor-driven economies are countries where basic conditions such as low-cost labour and unprocessed natural resources are the dominant basis of competitive advantage and exports.

Efficiency-driven economies refer to countries whose competitiveness comes from producing more advanced products and services highly efficiently.

As for innovation-driven economies, they are used to describe countries with the ability to produce innovative products and services that are at the forefront of global technology trends. An innovation driven economy is characterised by distinctive producers, a high share of services in the economy, and a strong resiliency to external shocks.

(By Lin Shu-yuan and Elizabeth Hsu)
ENDITEM/cs