Launching A New Growth Curve for Taiwanese Industry

1. Launching A New Growth Curve for Taiwanese Industry Chinese National Federation of Industries Chairman Preston W. Chen The Joint 14th Annual PBFEA and 2006 Annual FeAT Conference

2. Agenda • Development of Taiwanese industries • Global competition - Challenges faced by Taiwan • Strategies of “launching a new growth curve for Taiwanese industries” • Necessary governmental action to foster growth

3. 1. Development of Taiwanese Industries Product innovation and production-marketing process Stages of development 1950-1970 1970-1980 1980-early 1990 1999-2000 Since 2000 Innovation Design Material -izing Commerical -ization Product -ion Market -ing Processing & Export OEM ODM Global Operation Knowledge-based Economy & Innovation Industry innovation and development of Taiwanese industries

4. The production variation of four major types of manufacturing industries

5. 2. Global competition –Challenges faced by Taiwan 1.Uncertainty of external environment: • The wave of regional trade agreement will create trade and investment opportunities and benefits. Up to May of 2006, a total of 193 regional trade agreements has been reported to WTO. The uncertainty of the differences between multi-directional, regional and bi-directional trade policies forms a major challenge to the development of Taiwaneseindustries. 2.Industries across the strait have transferred from “mutual supplement” to “Competition”: • According to the survey conducted by CNFI, 73.8％ of the respondents indicated that the competitors in the local Chinese market are primarily “local Chinese enterprises”, 59.7% of them expressed that they are facing extremely harsh competition in local Chinese market. It shows that the local Chinese enterprises have the advantage of being local, and presenting extremely large pressure of competition to Taiwanese businesses.

6. Global competition –Challenges faced by Taiwan 3.Constraints of R&D investment and innovation ability: • Taiwanese enterprises mostly maintain at small-scale,in carrying out the R&D activities they often face the difficulties of “lack of talents”, “not easy to attain technologies”, “high churn rate of R&D staffs resulting to discontinuity of work”, and “lack of capital”, the development of industries is confined. 4.Human resource environment is yet to be improved: • The government is aggressively urging Taiwanese businesses to invest back to Taiwan, actually the success of the policy lies on the investment environment. Among the investment environment indicators, “human resources” is the most important one. Although the unemployment rate in Taiwan is raised, still many manufacturers indicate that technical personnel is not enough. Besides, the relaxation and flexibility of working labor conditions are the basic issues of improving investment environment.

7. 3. Strategies of “Launching a new growth curve for Taiwanese industries” • In the face of global competition, the key of continuous growth of each industry lies on the building of the unique strength of core business. • Each industry must aggressively explore the growth potential of technology and market as well as “blue strategy” • Each industry must review the “key factors of success” • Each industry must re-define the niche and strategy of its new core competitiveness

8. Strategies of “launching a new growth curve for Taiwanese industries” Re-define the new core competitiveness of each industry Introduction stage Growth stage Mature stage Decline stage

9. Cut-in point of the new core competitiveness of an industry

10. The measures of“launching a new growth curve for Taiwanese industries” Original market Strategy of scalable value: Reconsider the core value of products, expand the scalable service value Strategy of product re-positioning: Apply original technology in new market Strategy of technology efficiency advancing: Use new technology to create higher value for products Strategy of diversified innovation: Use new technology to create new market New Market Original TechnologyNew Technology

11. 4. Necessary governmental action to foster growth 1.Construct a stable integral environment: • To advance the national competitiveness, the government shall consider and emphasis the issues of creating and maintaining an environment that is suitable for the operation of industries, to allow domestic industries continuously create value and to allure foreign businesses to invest in Taiwan, and jointly create value with domestic enterprises. 2. Create high quality investment environment to attract international capital and technologies • To advance national competitiveness and to launch a new growth curve for Taiwanese industries, it is necessary not only to effectively use our own resources, but also to attract international capital and technology to Taiwan. thus, one of the keys of advancing the nation and the industries is how to advance Taiwan’s value of investment for other countries.

12. Necessary governmental action to foster growth 3.Maintain the consistency and continuity of industrial policies • Presently many significant investment projects, although being approved by the Executive Yuan at early days, still are returned to “Sustainable Economic Development Conference” for further discussion due to recent complaints or biased claims by some environmental groups. The projects are forced out by environmental groups at their wishes, the development of industries is being seriously impacted. • The government must maintain the consistency and continuity of industrial policies in order to help the operation of businesses.

13. Necessary governmental action to foster growth 4.Innovation and relaxation of government regulations and systems: • In the past we had a narrow view of believing that “economic development is the job of Ministry of Economic Affairs (MOEA)”. In fact, as we decisively declare to develop knowledge-based economy, the associated regulations are not just related to MOEA, most of them are closely related with central government agencies and local governments. Hence, we expect that the government can actually review current regulations and realize the impact of regulations and systems to the development of economy. It should provide a favorable environment for the operation of industries, only by doing so the “sustainable economic development” can be reached.

14. Necessary governmental action to foster growth 5. Build industrial innovation system and strengthen the cultivation of industrial knowledge-based talents • The creation and transfer of knowledge can sometimes provide more added-value than the production and delivery of tangible goods. We must replace the free flow of “goods” in the traditional manufacturing industry with the free flow of “innovative ideas” in the knowledge-based economy. • The government must relax current laws and regulations to allow foreign professionals to use Taiwan’s research infrastructure and to freely implement basic research including IT research, technology tests, and even the clinical medical study, in order to attract foreign professionals to leave the achievements in Taiwan for the commercialization, to advance the strength of our technology.

15. Necessary governmental action to foster growth 6.Adopt aggressive industrial policies, launch new growth curve for Taiwanese industries • The government is necessary to focus on each industry to conduct a complete analysis of industrial competitiveness and future market development trend. • The government must work with all industrial associations to periodically evaluate the technology positioning of each Taiwanese industry in the global competition, as well as future competitive threats, in order to capture momentarily changing industrial status. • The government must assist all industrial associations to plan mid and long-term (2010-2015）direction and strategy of industrial development, to launch new growth curve for Taiwanese industries. • New direction of development lies on the cross-industry joining, thus, the government must aggressively promote the convergence of technologies for both traditional and IT industries.

16. Necessary governmental action to foster growth 7.Promote cross-strait economic, trade and financial exchange • Speed up the direct transportation across the strait. • Relax the upper limit of 40% net value for Taiwanese businesses investing in Mainland China. • Study the amendment of“The statues of relationship between the people in Taiwan and Mainland China” and establish as early as possible the cross strait currency exchange mechanism. • Aggressively open the door for tourists from Mainland China to visit Taiwan and purchase real estate property. • Enter the memorandum of cross strait financial market collaboration, allow VC to Mainland China. • Effectively promote common standards across strait in order for businesses to expand the market. • Build the mutual certification system for products, academic degrees and professional licenses across strait.

17. Necessary governmental action to foster growth 8.Build cross strait peaceful and stable relationship to benefit industries • We expect both authorities can abandon the ideology of opposition and adopt better flexibility, under the condition of not to involve the sovereignty, to practically cut in the low political topics that do not touch the issue of opening the industrial market, in order to converge the consensus of jointly pursuing economic and industrial development for both sides. • Both sides shall cite the model of “2005 cross strait Chinese New Year Charter Fly”to practically handle the negotiation issues of direct flight and convenient transit of passenger/cargo, and furthermore, to create a more efficient environment for businesses, and to build cross strait systematic negotiation mechanisms and positive interactions, to allow Taiwanese industries to well-use Mainland China market in order to advance the global competitive position.

18. The end Thank You!