Major Industries in Taiwan

As introduced by the Yearbook of the Republic of China:

In 1986, industrial production accounted for nearly half of Taiwan's GDP. By the end of 1987, however, it had dropped to slightly over 40 percent of the GDP, and has continued in this downward trend ever since. In 2002, industry accounted for 31 percent of Taiwan's GDP.

Labor-intensive industries have gradually been replaced by capital and technology-intensive industries, such as the production of chemicals, petrochemicals, information technology, electrical equipment, and electronics. The percentage of the total work force employed in the industrial sector rose to a peak of 42.8 in 1987, and declined to 35.2 in 2002. Manufacturing output constituted over 92 percent of Taiwan's total industrial production. Electronics and information technology have evolved into the mainstay of industry, however, accounting for over 35 percent of industrial structure.

Information Technology Industry

Over the last 20 years, Taiwan's information technology industry has played a crucial role in the worldwide IT market. Taiwan has become the third largest manufacturer of hardware products for personal computers, and the world's fourth largest supplier of semiconductor components for the IT industry.

As the post-PC era approaches, and with the continuing proliferation of Internet use, the 21st century is becoming an era of information products focused on ease of use, ease of installation, and "anytime, anywhere" connectivity. Taiwan also leveraged all of its industrial resources and production management experience to cooperate closely with major international suppliers and effectively utilize government incentive measures to become the information technology R&D hub of the Asia-Pacific region. It is predicted that, by 2005, Taiwan will have assembled a complete supply chain of core information appliance (IA) technologies, from software and communications to key hardware components (including semiconductors and liquid crystal displays). By that time, output value will have grown from US$78.4 billion in 2002 to US$156.6 billion in 2005.

The structure of Taiwan's information technology industry is best described as a pyramid. A handful of companies at the top of the pyramid commit themselves to product innovation through costly and time-consuming R&D (see Chapter 11, Science and Technology), while small and medium-sized enterprises (SMEs) at the base of the pyramid produce the vast majority (85 percent) of the actual output. For decades, SMEs have been the backbone of Taiwan's economic development. Unlike many advanced nations, where conglomerates dominate the economy, Taiwan's manufacturing and foreign trade are built up and fortified by countless SMEs.

As in other manufacturing sectors, SMEs generally produce goods on an OEM/ODM (original equipment/design manufacturer) basis, and therefore spend a negligible percentage of their revenue on R&D. This has led to the inability of these companies to make in-depth assessments for investment, production, and marketing of new and innovative products. Moreover, heavy reliance on the importation of key components and advanced technology from the United States and Japan has tied Taiwan's information technology industry to the economic strengths of these two countries, thereby offsetting a good portion of Taiwan's trade surplus each year.

According to the 2002 statistics of the Small and Medium Enterprise Administration of the Ministry of Economic Affairs, over 97 percent of Taiwan's 1,130,525 registered enterprises are SMEs. Most SMEs (61.04 percent) are in the commercial sector, followed by manufacturing (12.1 percent). SMEs employ more than 7 million workers and account for nearly 80 percent of the total work force. The total sales value of Taiwan's SMEs for 2002 was US$218.5 billion, while export value was US$38.46 billion, accounting for 29.51 percent and 19.28 percent, respectively, of all enterprises' revenue. SMEs are characterized by their flexibility, diligence, thrift, and highly entrepreneurial spirit.

Textiles

In the past five decades, the textiles industry occupied an eminent place in exports, earning large amounts of foreign exchange for Taiwan. In the second half of the 1980s, however, several problems, such as labor shortages, increasing overhead costs, prohibitive land prices, and environmental protection, forced textile businesses to relocate part or all of their production to Southeast Asia and China in order to remain competitive. Textiles have thus been dubbed one of Taiwan's labor-intensive "traditional industries." Those textile companies that stayed in Taiwan were forced to initiate reforms. Small, family-run businesses have been transformed into medium-sized or large enterprises, with cost-effective measures and innovative management introduced to raise quality and productivity. Since Taiwan does not produce cotton, wool, silk, linen, or other natural raw materials, the domestic textile industry has developed man-made fabrics, which have proven to be an excellent alternative to natural products.

Today, Taiwan's man-made fibers have earned a prominent place in the world's textile industry. In 2002, Taiwan produced over three million tons of man-made fiber, which ranked it second in the world. Polyester accounted for 80 percent of the total output and placed Taiwan as the world's second largest producer of this fiber. That same year, Taiwan exported and imported over US$14.6 billion worth of textiles, including fiber, yarn, fabric, garments, and accessories. Hong Kong was the primary destination for Taiwan's textile exports, followed by the United States and ASEAN countries. The textile industry has been one of Taiwan's prime contributors in maintaining the island's favorable trade balance.

Petrochemicals

Taiwan's petrochemical industry consists primarily of 50 upper and middle-stream manufacturers located in Kaohsiung. In 2002, the industry had a production value of US$17.6 billion (excluding textile and plastics-related industries), of which 62.7 percent was sold in the domestic market. Taiwan's petrochemical production capacity, as measured by ethylene output, was able to satisfy about 94 percent of actual domestic demand in 2002.

The Formosa Plastics Corporation (FPC), the largest plastics conglomerate in Taiwan, applied for government approval to restart operations at its sixth naphtha cracking plant, which was launched several years ago in Mailiao, Yunlin County, and has been expanded since that time. The FPG began operations in the industrial zone at the end of 1998. The plant is expected to produce 3.1 million tons of ethylene annually, allowing Taiwan's ethylene to be self-sufficient once the sixth naphtha cracker expansion project is completed in 2006.