Taiwan's high-tech sector has gradually lost its competitiveness, but its technological and management capabilities are still strong enough to enable it to make a comeback.
Taiwan's exports for the first seven months of this year fell by 5.8 percent from a year earlier, dragged down primarily by a 23.3 percent plunge in information and communications technology exports on sluggish global demand.
In comparison, South Korea, an export-oriented economy that is strong in many of the same industries in which Taiwan excels, enjoyed modest export growth over the same period.
In terms of individual industries, the DRAM sector, which held a critical role in Taiwan's PC supply chain, has been battered by South Korean competition. Many Taiwanese DRAM companies have filed for bankruptcy or received bailout funds from the government, and their technologies are two generations behind those of their Korean rivals.
Meanwhile, Taiwan's LCD panel makers are also causes for concern. Flat panel makers Chimei Innolux Corp and AU Optronics had combined losses in the first half of this year of nearly NT$50 billion (US$1.67 billion).
Taiwan's high-tech sector faces three challenges: the end of "Wintel" (Windows plus Intel) era, the heightened competition from South Korea, and the increasing competitiveness of Chinese electronics manufacturers.
Taiwan's high-tech sector was built upon two old pillars of the information technology industry: Windows, the operating system for most personal computers, and Intel, the standard for how software interacts with the processor it runs on.
But since Apple Inc.'s launch of the iPad in 2010, which helped the IT industry leapfrog into a "post-PC" era, Taiwan's PC industry was unable to adopt quickly and fell into a slump.
Meanwhile, South Korea's heavy investment in research and development, branding and marketing over the past decade has yielded positive results. Taiwan's market share in the DRAM industry has shrunk to single digits, while South Korea's Samsung Electronics now holds nearly half of the worldwide market.
Samsung currently also has a 97 percent share of panels made with the new LCD Amoled display technology, and its smartphone sales have surpassed those of Apple Inc.
The rising competitiveness of Chinese electronics manufactures has also put pressure on Taiwanese IT makers. Major Chinese smartphone brands such as Huawei Technologies Co. and ZTE Corp. are gradually gaining ground and are eroding the market share of Taiwan smartphone maker HTC Corp.
At the same time, Chinese computer brand Lenovo has built a bigger market share than Taiwan PC makers Acer Inc. and Asustek Computer.
Taiwan's government needs to loosen regulations and controls on local industries, such as by allowing more freedom for mergers and acquisitions.
It should also invest more in research and development. Samsung alone spends more than NT$250 billion in R&D while Taiwan's annual R&D budget for the National Science Council, the highest policymaking body on science development, is just over NT$90 billion.
Despite all of these shortcomings and challenges, however, Taiwan's high-tech sector is still solid and is seamlessly integrated with a vast number of small and medium-sized enterprises in a strong supply chain. The sector is facing a crisis but if it steers itself in the right direction, it can make a comeback. (Editorial abstract -- Aug. 26, 2012)
(By Ann Chen)