Archive for the ‘Economy’ Category

Explosion of Foxconn

Recently there was an explosion in Foxconn’s factory in China.  This happens right after the company tries to move its supply chains west inland in China to lower the labour cost.

Like I mentioned before, I do not like the company Foxconn that much and I don’t like their strategy of just keep chasing after the cheapest labour in China.  From the company point of view, I don’t think this is the right and sustainable strategy.  And looking at it from a Macro perspective, it does not add much economic benefit to Taiwan.  On the bigger scheme of things, the company and its capital basically got dragged by China’s policy further and further west (yea…the company really looks like China’s bitch) while its profit margin gets lower and lower.

I already mentioned a lot why I think these type of companies do not benefit Taiwan and can actually create problems for Taiwan…so I won’t repeat them here.  And now it seems the company’s relentless pursuit of cheap labour (instead of automation or other strategy direction) really back fires.  (6 suicide, and now explosion in its new factory…really a managerial disaster that few companies face).

Right now the company still makes money simply due to economy of scale, but I think in the long term there should be other Taiwanese companies that can substitute it.  I think we can also use Foxconn as a benchmark that Taiwan should cross over…in another word, when Taiwan has some companies that surpass companies such as Foxconn that have to rely on China, in terms of profitability and size, then you know Taiwan has successfully upgrades its economy.

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Some People Still Cannot Jump Out of the Box

It is quite interesting to observe that some academia or politicians still cannot jump out a box which China has set up during their policy thinking.  Take an example, the FTA with Singapore.  This is a small and older news, but from the development of FTA with Singapore we see how pan blue always based their policy on China centric thinking.

For example, no one seems to care about just what exactly are the benefits of signing a FTA deal with Singapore, and indeed, what exacly are the benefits and problems of signing a FTA with ASEAN.  Now it seems people only care about signing deals because it’s a “trust” issue with China and because Ma promised to sign FTAs after signing ECFA with China.  They seem to sign FTA for FTA’s sake.  Let’s really clarify:  FTA is just an economic agreement, it’s not some holy grail.  It’s not a the more the merrier type of deal. 

And certainly, signing FTA does not mean “peace.”  Look at China’s expansionism mindset after its signing of FTA with ASEAN.  Now all of sudden South China sea is China’s “core” interests when traditionally the area is occupied and governed by international communities around the area.  Same with Japan and China: after years of increasing trade and foreign investment into China, Japan’s coast guard got hit by a fishing boat and the fiasco starts.  Tension certainly does not decrease after years of trade, but China certainly has become more assertive and arrogant.  Now it looks more and more like China wants everything in the western Pacific.  This development certainly does not go well to all the other nations in the Asia-Pacific region.

Going back to the main topic.  I am not saying signing FTA with Singapore is a bad thing, but Taiwan needs to have a Taiwan centric thinking when signing this deal.  Otherwise, this type of deals will only be a tool of pro-China politicians and a waste of time and money, because they will not be negotiated with Taiwan’s interests in mind.

KMT Never Learns

http://www.southnews.com.tw/videos/00/2010/07/0726_07.htm

As shown in the video, KMT plans to let corporation build hotels on current wet land in 彰化.  The plan just looks extremely ridiculous.  Even if we just consider in economic term, the natural wet land is a good spot for bird watch and recreational purpose.   Why destroy such land to build hotels?

This reminds me of what happned in Sun-Moon Lake.  Originally, Sun-Moon Lake area looks much better than the it is now.  But a bunch of hotels etc are built right beside the lake.  This totally destroy the natural sight.  Sure, there are still tourists going there, but for the older people know.  The know that it used to be better.  With its current state, it’s no longer considered a first class tourism spot.

Now KMT seems to be at it once again.  They seem to be driven mad by the desire to build hotels…What for?  When you destroy the natural beauty of the land, what’s the point of the hotels?  Why kill the chicken to get the egg?  The reasoning is quite obvious.  KMT is extremely short-sighted and never has a good strategic plan of development.  They just want to build fast, even if the results are extremely lousy.  

貓空纜車 is a prime example.  If someone thinks that only Ma is stupid enough to build 貓空纜車, then they are too naive.  The fact is, it’s not just Ma, construction without proper planning and assessment are built into the gene of KMT.

(Now I think of it…KMT’s short-sightness is actually quite common in all areas, not just in construction and land usage.  Considering ECFA and other KMT policies…they all have this type of characteristic.)

No Need to be Affraid of 鴻海 Exiting

http://www.libertytimes.com.tw/2010/new/jul/24/today-o1.htm

The soup opera drama play out by Foxconn, government and those university professors are quite ridiculous IMO.  Here is my view on this matter. 

Certainly, Taiwan needs to provide a good environment for industry development, innovation and investment etc.  However, that does not include giving unfair favouritism, attention and positive imagery to Foxconn and 郭台銘 just because 郭 is one of the richest man in Taiwan.  In fact, doing so will worsen the economic environment.  Giving favor to Foxconn means suppressing Foxconn’s competitors.  For example, give Foxconn land at discount rate will make lower Foxconn’s operating cost and give pressure to its competitors, who most likely will not get the same favour because they are less well-known and smaller.  This will unavoidably destroy competitions and make Foxconn the monopoly or the dominant corporation.  This is certainly not fair to those smaller industries and is not good for Taiwan.

A good and friendly environment for industries and economic development includes fairness that create positive competition.  This is always something worth remembering.  Instead of focusing on Foxconn alone, Taiwan should focus on creating opportunities for all Taiwanese firms, especially those that just startup and those that can develop a deep root within Taiwan.

Worrisome News

From Market Watch.

This is worrisome news indeed.  I am not sure what the implication is yet.  But my guts tell me this is a bad news.

Chinese government practically owns all Chinese banks.  Does this mean Chinese government’s influence in Taiwan’s financial sector in the future?  This could be very bad.

Ah…Where is A-Bian When You Need One

http://www.libertytimes.com.tw/2010/new/jun/30/today-e14.htm

Stock falls…that is not surprising.  What is surprising for the pan-blue is perhaps why signing ECFA did not boost the stock.  The only stocks that went up are the airlines. While many factors affect the stock price of airlines, one has to wonder if ECFA boost their stocks.  But does Taiwan really wants more air traveling between Taiwan and China?  Right now there are far more Taiwanese flying to China than Chinese flying to Taiwan.  More air travel could mean devastation to the domestic service sector.  But Taiwan probably does not want more Chinese tourism neither, given that already with small number some Chinese tourists are wreaking havoc in Taiwan.  So what’s the benefit, for Taiwan, of airlines doing more business with China?  Probably none.

The pan blue media, unlike during the Chen administration era when they just blame every stock market fall on domestic policies or on Chen himself, start to blame it on Europe this time.  Errr…yea, Europe.  What the heck does Europe have to do with Taiwan I don’t really know.  I mean…come on, the financial crisis has been going on for 2 years there already.

And…who is that guy that said during election that TAIEX can reach 20,000 if Ma got elected, and later said it’s a JOKE?

I wonder if those so-called analyst missed the good old time.  It is quite an easy to explain everything with A-Bian after all.  Ah, where is President Chen when you need one…

Aftershock of Foxconn Incident – The Mixed Bag of Taiwanese Business Returning and Industry Upgrade

The Aftershock

There are still some aftershock of the Foxconn incident, but these aftershocks troubles me a bit because it shows many people in Taiwan still have this Chinese centric thinking that largely ignore Taiwan itself.

Some students and academia has jump in the attack of Foxconn.  One professor even call it “the Shame of Taiwan.”  While I myself start disliking Foxconn, its chairman and its management team in general way before this incident, to call it a shame and smear this “shame” upon Taiwan is unbelievably STUPID.  It is Foxconn, not Taiwan, that choose to build these 800,000 workers factories in China.  It is Foxconn, not Taiwan, that choose the way they run the factories.

Many people in Taiwan, including me, dislike their strategies, not because it causes problems in China, but because it causes unemployment/lower wages in Taiwan and large outflow of capital from Taiwan in pursuit of cheap labor and low profit margin.  In fact, Foxconn has helped out a great deal in boosting Chinese economy.  

These academia seems to miss all of these points and simplify it to be a “shame” and amplify it to be a “shame” of Taiwan.  To align themselves with the CCP and bash Foxconn and Taiwan now, one then cannot help but wonder about these academia’s intention.

The Mixed Bag

Now some Taiwanese business are thinking moving some production back to Taiwan or else where, since now that they have jacked up the wage in China, and Chinese labour might not hold the same attractiveness anymore once it lost its price appeal.  However, this news, if true, is good, bad and tragic to Taiwan at the same time.

The good part is that, perhaps after some Taiwanese business people realize that chasing cheap labour is not the way to go, they will re-invested into Taiwan and re-engage the route of production automation and re-pursuit higher quality products.  This might have a rejuvinating effect in Taiwan’s economies.  Factory will provide jobs.  Production automation will require engineering services.  Higher qulity products could bring more money and brand power into Taiwan. 

The bad part is, some of these Taiwanese business people, given the past record, will not go in that direction.  Instead, they will once again engage in cheap labour route.  That, in the short term, is not a big deal and might solve the unemployment rate problems as well.  However, when China, with its larger population base, once again has much lower wages, these Taiwanese business people will again jump into China’s embrace.  Therefore, in the mid and long term, whether this is a good thing remain to be seen.

The tragic part is, Taiwan now has to welcome those that have abandon it in the first place back (maybe not all Taiwanese business abandon Taiwan as some are forced to move due to supply chain).  Wouldn’t it seem that justice has been served more correctly if these business people lost their shirts in China and return to Taiwan penny-less? (well, actually that happens a lot but not to the large enough scale to cool the Chinese fever before)  But perhaps this is the reality.  And maybe these business will have a harder time to survive, now that many industries have advanced while these people pursuit their cheap labour….who knows.

And just how many will actually return is still unknown, we will have to wait and see.

PS.  Now I think of it…from the business perspective, perhps these people (maybe even those American and Japanese firms) realize now that if they have most of their business operation in China, they will become like sheep waiting to be killed and served by the Chinese government.  In another word, the Chinese government will have absolute power over them.  However, if they diversify, in this case, moving major operation back to Taiwan, then Chinese government holds much less power over them.

Industry Upgrade

In any case, it remain to be seen what will happen next.  However, I think it’s probably worth a while for the pan green to think of a way to avoid these dangerous over reliance on outsourcing production to China in the future.  I am not totally sure how…but there are obviously other way than pursuing cheaper labour or labour intensive production.  Automation, training, R&D, value chain, customization, service, marketing, brand….etc…all these might help in diversify Taiwan’s economic structure and in its stability and growth.

Also, DPP intends to pay closer attention to unemployment rate and the widening gap between rich and poor etc.  I think that is a good thing.  However, it is not easy.  Simply redistribute wealth does not seem to work well in a lot of European countries (economic stagnation in France and Germany, collapsing in Greeks, extremely high unemployment rate in Spain).  However, Taiwan seems to have policies that give unfair advantages to the rich / powerful and  large coroporation…perhaps those policies could be examined first,…I am not sure lol.

The Problems with MNCs and FDIs

http://www.libertytimes.com.tw/2010/new/apr/24/today-o5.htm
 
I have to say this is a good point.  It’s an important issue that people don’t pay attention to.  Here I just want to write down some thoughts regarding Foreign Direct Investment (FDI) created by multinational corporations (MNCs), that is not mentioned in the article.

Economic activities, trade and investment etc brings wealth and prosperity to a country.  That is the most fundamental concept envisioned by such person as Adam Smith.  However, this concept came out more than 200 years ago, and probably even Adam Smith did not foresee the advent of MNCs, although he did warn that merchants’ interest not always aligned with society/country’s interest.  This point is important and obvious, but people often forget about it.

FDI now a days are very common among nations.  Taiwan has a huge amount of FDI into China since 1989.  Other countries also have joint venture and FDI ect into China.  However, FDI has a lot of problems and drawbacks for the countries that invest abroad:

  1. It drains capitals (this I realized even before I took MBA)
  2. It creates unemployment and downward pressure against salaries (this is now a huge problem in Taiwan)
  3. The country will almost certainly loss revenue.  First of all, government can only tax the headquarter of MNEs, they cannot tax the subsidiaries overseas, only the host countries of subsidiaries can tax them.  Because otherwise you create double taxing problems.  So for example, China is taxing on all the profit generated by Taiwanese factories in China, while Taiwan government can only tax the headquarters in Taiwan.  This also create a second problem.  MNEs can easily avoid tax using different techniques to shift revenue from place of high tax to place of low tax.  This is certainly a problem in Taiwan, in which large MNEs pay extremely low tax that just does not make any sense.
  4. Technologies diffusion.  Technologies and know-how will get spreaded, therefore losing the technological edge of the country.  This might not be a problem in the past, during the time Japan and the US FDI Taiwan and Korea, when the receivers of this FDI  still need to rely on the FDI givers that still hold key components.  Furthermore, the amount of FDI is actually not that great comparing to the ones received by China, and a lot of technical development etc are done indigenously within Taiwan and Korea.  Furthermore, Korea and Taiwan are no threat to Japan and the US, while China is a threat to Taiwan.  So this problem is very significant.

In summary, the MNCs create a situation in which  there will be outflow of capitals, human resources and technologies.  In Taiwan’s case, it’s even worse, it flows to China, and I can see how ultimately this will lead to Taiwan’s destruction.  MNCs though of course will benefit from these activities, and their shareholders will be happy.  But once again, who have these shares in Taiwan’s MNCs?  The shares of companies concentrated in a few individuals or families.  People like Mr. Kuo for example, and judging by his action, he has done more harm than good to Taiwan. 

The fact that a few people hold the power over the whole economy of a country is always disturbing.  With Communism and Nazi, economic power are held by the government, and that have not turn out well.  Now the MNCs hold economic power.  With their economic power, they gradually gain political power, in the end create the similar result of a few holding power.  This seems to be happening in Taiwan.
 
In fact, now we have a funny situation in which Taiwan practically has to beg Taiwanese MNE to stay in Taiwan, while China is using all sort of incentive and BSs to lure more MNE investment.  It’s like Taiwan and China is competing to gain MNE business.  Of course, with Ma, it’s a different game, because he practically just surrender and encouraging more FDI into China.

Looking at it another way however, we can also see that the success and failure of MNCs such as Mr. Kuo’s Foxconn is actually quite inconsequential to Taiwan’s success, because it has invested so much outside of Taiwan, and most of its operations are in China.  What is left in Taiwan is more or less an empty shell.  To call it a Taiwanese company now might actually be a very inaccurate description.  In fact I can’t see any major effect for Taiwan’s economy even if Foxonn bankrupts and Mr. Kuo lost his shirts. 

On the other hand, Taiwan needs MNCs.  Because it’s an island with small domestic market.  It needs enterprises that can go beyond the border.  However, the type of MNCs it needs is probably not the kinds we commonly see in Taiwan now.  However, what kind of MNCs, how to avoid the side effects of MNCs, how to limit their powers, how to make their success also beneficial to Taiwan etc are big problems which I have no clue.  I will have to think more about it, but probably can’t figure it out anyway.

The “Why” of ECFA

This is a well written blog by ghost_twtw, explaining why some corporations desperately ask for ECFA: because they sucks (no innovation and improvement). lol.  Of course, it’s not as simple as I said, but at the same time the reasoning is quite obvious and the blog’s argument is very strong I think.  Worth a read.

Update: It is indeed interesting.  Although I don’t know the detail, now that I thought about it, it seems that those corporations that desperately ask for ECFA are usually the weakest and the most screw up in Taiwan.  (Car manufacturing is a prime example)  Even if ECFA will benefit them, which I highly doubt it will (just look at how many companies got screwed by Ma even though Ma signed all these treaties with China, Ex. Tourists deal.  I suspect the next that could get screwed is the banking sectors), my preference is still just to let them rot.  It’s not like they are actually contributing to Taiwan’s economic advancement, actually quite a lot of them receive government subsidies one way or the other. 

Taiwan had nurture those corporation for quite a long time now.  If they cannot stand on their own feet, let them fall, and the resources they used can be divert to others who is more capable.  There is no need to sign ECFA just for their sake.

If Something Looks Too Good to be True…

Here is another very interesting article, in which the author argues that the US beef and baseball scandals are just covers for ECFA.  I think this is indeed a possibility.  Using the greed of others to their advantages seem to be a usual trick of KMT and CCP.  Therefore, it would be wise to keep an eye on the ECFA as well.

Two interesting news coming out recently are related to game industries and China.  Interestingly the news come from different places but there are similarities: both are lured by China’s “big” market but lost big time in China.  I will write about them separately in the following:

Taiwanese Game Industries’ Waterloo in China

First news is from Taiwan.  It talks about although Chinese market looks attractive, entering it is actually a lot of trouble and quite risky.  Furthermore Chinese basically seems to “use” foreign companies to start things up and then just kick them out, which is basically the case for Softworld.  It interview several game industries veterans in Taiwan, including chairman of Softworld, on this matter so there are definitely some valid points and facts.  Last paragraph is particular interesting.  It talks about how much mony Softstar and 遊戲橘子also lost big monies in China.  (Softstar lost 3,320,000 NTD in 2005 and 1,000,000 NTD in 2006).  Company such as 華義 also lost considerable talets and knowledge to Chinese company 盛大 and 騰訊 in 2005.  In this case, it’s not just the training cost that is wasted, but the knowledge, trade secret and know how are all lost to the competitors.  Nice going, 華義.  Idiots.

No wonder I haven’t seen any good games coming out from those companies for a long time.  I was wondering WTF are they doing.  Now I understand.  I just hope Taiwan’s game industries can stay alive, and let someone else who is more capable than those morons to take over.  Because I like Taiwanese games, and I know there are a lot of talented software developers and artists in Taiwan.

Activision Blizzard’s WoW is no Longer Active in China

The second news is also very interesting.  This one is from the US of A.  The company, Activision Blizzard is one of the largest game publisher in the world, rivaling EA.  Their world-famous franchises include Starcraft, Warcraft, Diablo, Guitar Heroes and Call of Duty.  This is not a small chicken, yet even it got screwed by Chinese.  lol

Although I am not a World of Warcraft fans I sort of follow its progress into the East Asia because I paid attention to the game industries news in general.  Before Blizzard is acquired by Activision, the company starts to expand its Massive Multiplayer online game to the east asia market.  Actually, Blizzard was very cautious and tentative to their expansion.  It actually first setup the service in Taiwan in cooperation with a local Taiwanese company because it wants to see how the product do in a Mandarin speaking market.  In another word, they think because Taiwan and China speak the same language and have some cultural linkage, they can test the water with Taiwan.  The game is quite successful in Taiwan.  Unfortunately, as can be seen later, their assumptions turn out to be a mistake, or at least an over estimation.

The first major news, and one of the most bazaar news that indicate Activision Blizzard’s difficulty to operate WoW in China came out a few years ago.  Basically, Blizzard has to remove all the undead skeleton soldiers from the Chinese version of the game.  Why?  Because apparently, in China, you cannot show skeleton in any game.  Now that is just a very bazaar regulation.  In any case, Blizzard actually has to spend extra money to do this (no idea how much).

After that, however, it is no smooth sailing neither.  The game went into an online and offline cycle.  The detail reasons of the suspensions of their services etc is unknown to me.  However, it just seems that the Chinese government does not like the game to operate in China, and continuously make the life of Blizzard difficult.  And that brings us to this point, when Activision Blizzard finally decide to shut it down for good, but not without some major damage and lost investment in this long years of fiasco.

Update: Some more news on this.  Actually I made a mistake.  It’s not blizzard who is shutting it down but one of the Chinese agency.  But now the conflict between Chinese Ministry of Culture and the Chinese General Administration of Press and Publication (GAPP) intensify.  The fate of the game is still unknown.

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So yes…if something looks too good to be true, it probably is too good to be true.

To wrap this log up, this piece from Taipei Times has an interesting theory.  Again, the question of where is Taiwan going is always in the back of my mind.  Sure, I imagine most people wants Taiwan to continually prosper and improve, but how to do so depends whom you speak to.  My gut feelings tells me that the author of the article is correct.