20120812 EDITORIAL: HTC should face struggles alone

EDITORIAL: HTC should face struggles alone

It is interesting to see how one company’s business can impact on a nation’s economic performance. The latest trade data, released last week, illustrated the real weight of smartphone maker HTC in Taiwan’s export-reliant economy. The data showed that Taiwan’s exports totaled US$24.85 billion last month, down 11.6 percent from a year earlier. In the first seven months of this year, accumulated exports dropped US$10.57 billion, or 5.8 percent, to US$171.6 billion from last year.

The government blamed the continual fall in exports on global economic uncertainties, which are affecting the world’s demand for Taiwanese-made goods, especially information technology (IT) and communications products. Based on the latest data, outbound shipments of these products, which include computers and mobile phones, posted a contraction of 34.5 percent — the largest contraction among the nation’s 10 major export sectors. In addition, declining sales of HTC products (which dropped NT$20.08 billion (US$670 million) last month on an annual basis) helped push down the sector’s figures for the month, the government said.

Overall, shipments of IT and communications products in the first seven months showed the biggest decline of 23.3 percent of all the 10 major export segments, down US$2.77 billion to US$9.09 billion from a year earlier. Perhaps coincidentally, HTC’s revenue during the January-July period totaled NT$183.85 billion, a decline of NT$89.82 billion from the same period last year — this more than covers the nation’s lost sales in this sector in the year to date.

Since Taiwan’s exports have fared far worse than the exports of its major trading partners so far this year, economists have suggested that the nation should transform its industrial structure and diversify exports beyond the IT, communications and electronics sectors. South Korea, for instance, has a more balanced approach to the development of its export profile, which encompasses semiconductors, petrochemicals, cars, ships and mobile phones.

There are also suggestions that the government should help HTC, but is this a good idea? Take Nokia and Motorola, once the world’s phone giants, as examples. Whether to bail out Nokia has been a national debate in Finland for some time, with some Finnish people deeply concerned that their national product of pride could face a foreign takeover. Last month, however, Finnish Prime Minister Jyrki Katainen told reporters that the state would not buy Nokia shares, saying the company’s problems such as declining global competitiveness are none of the government’s business. Meanwhile, the US government’s decision not to bail out Motorola has meant the US firm instead used its stockpile of patents as a bargaining chip to become a unit under Google with the hope they may have a turnaround in the future.

Given that it needs no emergency cash to settle debts, HTC is in a better situation than both Nokia and Motorola. The question here is: What role should the government play in helping the country’s biggest smartphone maker? The government must keep in mind that its role is to look after the interests of other important industries, so what it should do is improve the domestic business environment for local industries — tax, land and labor regulations, for example — rather than save individual companies.

HTC has for years shown the world how a Taiwanese company can move up the global corporate ladder and develop a brand. The company’s major setback this year is due to its late response to market fluxes; it needs to overcome these difficulties by offering more competitive products, investing more in research and development, increasing patent purchases and deepening its foothold in emerging markets.

The case of HTC should provide a lesson to other Taiwanese companies that challenges are always on the horizon. This episode should also remind the government that its efforts should be directed toward strengthening local industries, not individual companies’ short-term survival.