Helping Taiwan’s Small and Medium Enterprises

Old means of government assistance to small and medium businesses no longer work. Industry leaders recently proposed alternatives
Chris Wang

While many people tend to paint a bleak picture of how Taiwan’s small and medium enterprises (SME) will survive the current economic climate — the country marginalized from regional economic integration, talent drought, lack of innovation-driven economic momentum and so on — Taiwan’s SME owners remain relatively confident and are very well aware of the kind of assistance they need from the government.

Their answers are education and a comprehensive platform, where businesses, colleges and research institutions can share information and ideas and collaborate, SME owners in central Taiwan, a part of the country that is known for its industrial clusters — precision machinery and bicycles more particularly — told a recent forum on Taiwan’s SMEs and its economic upgrade, organized by the Democratic Progressive Party (DPP) in Greater Taichung.

In the past, the more likely answers would have been tax incentives and subsidies. But the business owners know that this kind of help will not improve their competitiveness in a free-trade world and would only further delay the necessary industrial upgrades.

SME as an economic backbone

Of all governmental and private discussions related to revitalizing a slow economy and overcoming the disadvantages of Taiwan’s exclusion from regional economic integration, SMEs have always been at the center of the discussion — with a good reason.

Unlike its East Asian neighbors Japan, China, and in particular South Korea, SMEs have always been the backbone of Taiwan’s economic structure.

According to statistics from the Ministry of Economic Affairs’ Small and Medium Enterprise Administration, there were 1,331,182 SMEs in Taiwan in 2013. They accounted for 97.64 percent of the total numbers of enterprises in the country and provided 78.3 percent of the total workforce of around 11 million.

This explains why the SMEs, of which 80 percent belong to the service sector, with the remaining 20 percent involved in the agricultural sector and industrial manufacturing, should never be ignored in the policymaking process, even if these smaller companies have not been the major contributor to Taiwan’s economic performance (SMEs only accounted for 14.5 percent of Taiwan’s exports and 28.4 percent of the nation’s sales volume).

It must also be noted that small and medium manufacturers may have been the dominant performers among SMEs, taking up almost half of their trade volume and 74.1 percent of the total SME export volume, according to the Ministry of Finance’s Fiscal Information Agency.

Education the key

Since helping SMEs would literally save the most jobs and reach out to the most people — and voters — what needs to be done?

Kao Jen-shan (高仁山), a researcher at Taiwan Institute of Economic Research (TIER), concluded that small and medium business owners face six difficulties: 1) talent drought and recruiting problems; 2) broken supply chains due to local businesses’ exodus to China; 3) shortage of entrepreneurship resources of all kinds; 4) high cost for intellectual property rights; 5) the SMEs’ difficulties (compared to larger companies) in joining programs supported by government policies; and 6) tariffs.

Public attention and discussions have been focused on the lack of R&D capacity and innovation-driven momentum, but most discussants in the forum argued that innovation and R&D were not much of an issue because the companies that declined to invest on research and innovation would fade eventually. As for those that do intend to remain competitive, they have always been keen on improving products or manufacturing procedures to beat their competitors.

Lai Po-ssu (賴博司), president of the Changhua Association of Small and Medium Enterprises, and other discussants pointed out that the wrong direction of education was a serious concern, as Taiwan’s vocational education system had been literally eliminated over the past 20 years, a period of education reform.

During those two decades, the number of four-year universities increased from 21 in 1991 to 162 in 2013, while the number of college students skyrocketed to 1.34 million, from 250,000 in 1991.

Those changes have severely damaged Taiwan’s once-proud vocational education system, which was patterned after Germany. Despite the fact that office positions oftentimes do not provide higher salaries, college graduates nowadays prefer office positions as white-collar workers to spending countless hours in mentoring programs as apprentices, working in manufacturing companies as mechanics or in factories where they “get their hands dirty.”

“That could be the most serious problem for us,” Lai said, adding that local SMEs usually fail to recruit enough workers even if they offer respectable compensation.

It seems that young people tend to “resent” and “look down upon” factory jobs or any employment related to the traditional industries, the SME owners observed.

Another problem is that the current higher education system has failed to produce graduates who fit the needs and requirements of the SME sector. There could be many reasons for this, among them poor curriculum design and poor understanding of current industrial trends and needs.

Both issues were not concerns in the past, when hundreds of two-year and four-year vocational schools produced qualified and highly skilled graduates, and so-called “society freshmen” were willing to toil day in and day out with the belief that they would achieve a better future, financially and figuratively.

Most of the participants at the forum were rather pessimistic about the likelihood that the education system would return to the old format, a drastic policy U-turn that could take years before it produces any results.

However, in the long run it would be the fundamental answer to reviving Taiwan’s manufacturing sector.

A collaborative platform

While education may be the long-term answer, there are still a few things that the government could do to provide an immediate boost to the industry. One of them is the creation of an information-sharing and collaborative platform.

The platform should be able to help SME owners and their R&D teams share innovative ideas and promote cooperation between SMEs, research institutions, and government agencies. In other words, it should be established to “play the team game,” said Taichung Industrial Park Association president Chang Kuang-yao (張光瑤).

The government might as well stop spending money on promoting innovation because nowadays any serious SME owner understands how important it is to be innovative and stay on top of the competition, Chang said, adding that the proposed mechanism would help local SMEs overcome capital limitations and other issues through collaboration.

Private collaborative efforts already exist. Led by Giant Bicycles, the cycling industry has established what is known as the “A-Team,” which regroups dozens of bicycle and components manufacturers. More than 40 local machinery and component makers have also set up the “M-Team,” an information-sharing platform and self-integrated industrial chain.

Contrary to what many analysts tend to believe, Taiwanese SMEs are not afraid of competition, and they are prepared to embrace fierce competition once Taiwan is further integrated into the global economy. But they need a little assistance here and there from the government to expand their markets, Taichung Tali Industrial Park Manufacturers’ Association president Hsu Chang-fa (許長發) said.

The owners said they all realized that the days when they could rely on government subsidies, restrictions, trade barriers and tariff protection against foreign competitors are long gone.

“There is no way cost-down could beat synergy,” said Lin Chia-chang (林家昌), who owns a marketing firm.

Other aspects

Reviving SMEs will not be easy. Local small businesses also face other challenges, such as China’s efforts to steal and buy technology from Taiwan, and the rigid government structure that has placed too many restrictions on what local governments can do.

Nevertheless, steps must be taken to help SMEs prosper, and that does not mean Taiwan should adopt an inward-looking mentality on its economic development by only focusing on the local economy.

In fact, developing a sound and solid local economy is a critical step in a long chain of efforts to sustain Taiwan’s goal of participating in the global economic system with greater confidence, DPP Chairperson Tsai Ing-wen (蔡英文) told the forum.


Chris Wang is a former journalist with the Central News Agency and the Taipei Times, and is currently deputy editor at 想想Thinking Taiwan.

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