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Taiwan vs South
Korea, round two
By Lu Hsin-chang ¿c«H©÷
From the 1950s to the 1980s, Taiwan and South Korea were on the front line of
the Cold War, and their urgent need for military equipment forced them to
develop their manufacturing industries. South Korea¡¦s government borrowed
heavily from abroad while Taiwan implemented a policy of land to the tiller,
which provided incentives for people to work.
With its policy of government borrowing to encourage investment, South Korea
faced consumption and import restrictions and other welfare crowding-out
effects. In Taiwan, farmers and workers moved around freely, which made it more
attractive for Chinese and other foreign investors to get involved with
businesses, which allowed Taiwan to make quick economic progress.
However, Taiwan¡¦s population is less than half of South Korea¡¦s. Because
Taiwan¡¦s domestic market is smaller, Taiwanese manufacturers depend on exports
to make a profit, and also rely on importing a lot of components to support
production. These factors sharpened competition in Taiwan, causing a lack of
business opportunities and vertical division of labor, making Taiwan¡¦s value
chain rather short. This has meant that when there is a downturn in the
international economic climate, Taiwan¡¦s domestic demand cannot support its
economy, making it difficult to avoid economic contraction. However, Taiwan
being dependent on foreign trade, has made Taiwanese businesses flexible and
able to respond and adapt to difficult situations.
Unfortunately, Taiwan¡¦s fragmented international relations often lead to
conflicts of national interests and disputes. This means that whenever action
needs to be taken to ensure industrial survival, policymakers find themselves
spread too thin because they have too many issues to deal with, and this makes
them overly careful and indecisive. The long-term effect of not having a
collectively consistent position within the international community and not
possessing sufficient bargaining chips is that Taiwan often ends up losing out.
In contrast, South Korean companies spare no effort in sending employees to
Africa, India and other places, working hard to develop the Chinese market and
winning contracts for engineering and construction projects, shipbuilding, iron,
steel and consumer electronics. South Koreans are united in their determination
to excel and make economic achievements.
Pressured by the Asian financial crisis in 1997-1998, South Korea opened up its
borders and allowed foreign investors to buy into local companies¡¦ stock and
take part in running them. From the 1990s onward, South Korea succeeded in
turning companies like Hyundai Motor, Goldstar ¡X which later merged with Lucky
to form the LG Group ¡X and Samsung Electronics, which started off as original
equipment manufactures and suppliers for foreign brands, into internationally
well-known brands in their own right. After more than a decade of effort, South
Korea has left its old, unsophisticated image far behind.
One thing Taiwan can be happy about is that, according to data published by the
US State Department, Taiwan¡¦s price-adjusted per capita GDP is still more than
20 percent higher than South Korea¡¦s. Taiwan¡¦s consumer purchasing power is
therefore quite robust. Another factor to take into account is the ever-
changing situation in North Korea. By comparison, the peace dividend between
Taiwan and China is an object of envy for South Korea.
In addition, South Korean companies have recently been the object of
international litigation and administrative investigations in many countries.
Steel, washing machines and smartphones that they sell in the Netherlands, the
US and in other places, are being put through legal proceedings. This wave of
litigation initiated by Western governments and business circles is gradually
closing in on its target, and South Korean businesses may end up paying a great
deal in compensation to claimants.
In spite of these troubles, there are still a lot of things Taiwan should do to
be ready for the next round of competition with South Korea.
First, Taiwan should improve its land use and the face of its countryside by
incentivizing small and medium-sized enterprises to transfer factories abroad.
This would also reduce industrial damage and improve the environment.
Second, Taiwan should sponsor medical and nursing personnel to work abroad. This
would enable Taiwan to engage in charitable diplomacy, while simultaneously
expanding Taiwan¡¦s market network for biochemical and pharmaceutical products
and medical equipment.
Third, Taiwan could establish itself as a leader in East Asian higher education
and use its academic institutes to attract foreign exchange students. Further
down the line, these overseas students could serve as the front line for
exporting Taiwanese products. Developing the higher education system could also
draw foreign talent to Taiwan to diversify and improve the workforce. Making
good use of Taiwan¡¦s higher education and training environment would promote the
mobility of talent in the Asia-Pacific region. Only by doing so can a beneficial
cycle be created for maintaining Taiwan¡¦s competitive edge.
Finally, to develop Taiwan¡¦s soft power, it will be necessary to keep promoting
existing overseas economic and trade relations and forge new ones. Taiwan must
promote its reputation in the international arena which, again, can be done
through the success of its businesses, export of health-care personnel,
expansion of its medical industry and the establishment of its education
institutions as an appealing destination for foreign talent. Only then can
Taiwan have a sufficient power base to engage in a second round of industrial
competition with South Korea.
Lu Hsin-chang is an associate professor in the Department of International
Business at National Taiwan University.
Translated by Julian Clegg
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