Analysis, Asia Pacific (APAC), China, Global Politics, Taiwan, US

When China Lectures Taiwan on Innovation, Something is Wrong

Throughout the 1970s and 1980s Taiwan’s economy industrialized rapidly, by the 1990s becoming a high-income mature economy with a purchasing power parity (PPP) comparable to many first world economies.

Taiwan was able to do this partially because it was in the right place at the right time, but also because it built innovative companies. Taiwanese companies, with the advantage of speaking the same language, were the first into China as it opened up to the world, building with the help of Hong Kong capital, now-famous ODM/OEM firms like Foxconn (TPE: 2354) in Shenzhen, China, and at home in Taiwan the modern PC components industry with giants such as Gigabyte (TPE: 2376), Asus (TPE: 2357) and TSMC (TPE: 2330). These companies are the epitome of innovation; their respective markets didn’t really exist in the years before they were founded.

So it’s troubling when an executive from a Chinese company says that Taiwan must be more innovative and import Chinese thinking if it wants to remain competitive. During a recent Cheetah Mobile — a Chinese mobile app company with a significant presence in Taiwan —  press event in Taipei one of the company’s executives mused on stage that while Taiwan was a very important player during the PC era it lost a lot of opportunities during the mobile era because of the failure of its companies to adapt.

The CEO of Cheetah Mobile made similar comments at an event in Taipei in January, admonishing young Taiwanese for their lack of entrepreneurial drive and innovation in the workplace.

“If you go to any cafe in Zhonggguancun in Beijing, or CBD in Shenzhen, you’ll immediately hear people discussing startups and investments and dreams. In a cafe in Taipei, you’ll rarely hear this,” he is quoted as saying on stage. “Taipei lacks this energy and investment environment. So even if Taiwanese youth have dreams, how can they be fearless? There needs to be a base for fearlessness.”

This is slightly ironic, since a large part of Taiwan’s economic advantage is based on defining itself against China: Taiwanese companies are innovative, contract law is generally respected and the legal system is predictable, there’s a large educated work force to draw from.

But it’s also not incorrect, as even ministers from Taiwan’s government admit that the country is losing its edge. During a November speech to the American Chamber of Commerce in Taipei, Taiwan’s Chang San-cheng, then the Minister of Science and Technology, called on young Taiwanese to become more innovative pointing out that the hyper-popular local message board PTT (analogous to Reddit in popularity) does not have a business model and relies on the support of a non-profit society.

Taiwan needs to revamp its industry to become more innovative and competitive. This begins at the top with changing the managerial culture to reward productivity, not working the longest, while figuring out how to give the bottom a fighting spirit to make it less complacent. At its best, Taiwan is more than capable of this. While the US Military Industrial Complex is prone to inefficiencies and delays, Taiwanese industry developed a domestic fighter aircraft for a reasonable cost that’s comparable to an F-16.

If Taiwan doesn’t regain its fighting competitive edge the results would be disastrous, pushing the island to economic irrelevance in fields it once dominated it. Let’s hope it doesn’t come down to this.