Global Taiwan: Building Competitive Strengths in a New International Economy

Berglund Authority Level 3

by Jeffrey Barlow

Global Taiwan, edited by Suzanne Berger and Richard K. Lester, is a daunting work that nonetheless is well worth the effort required to read it. It is the first of a series of titles to be published by the MIT Industrial Performance Center. If subsequent publications are as strong as this one, academic libraries, executives of informational technology firms, and serious students of international business should preorder the series now. Moreover, anyone with a strong interest in Sino-American relations should also read it. While it is probably too much to expect that members of Congress might read it, we hope that at least one staff member in every congressional office seriously concerned with East Asian or U.S. economic policy will read it and report to the boss.

The above constitute strong claims, of course. They are appropriate because of the breadth and depth of the analysis provided. The work is a very effective survey of the development of the global high-tech economy in the last decade or more. The process of change in this industry is clearly explained, rooted always in transformations occurring in both Taiwan and Mainland China.

The authors present a world that is already upon us in which major categories of institutions usually regarded as key to understanding trade and production are no longer fully relevant. For example, firms are now less important than “value chains”. Goods are not produced in monolithic factories so much as in “modules”. [1] IBM is not a high tech firm but a business service firm. And China and Taiwan, whether described as “political entities” as Taiwan sometimes insists, or as one country as the mainland insists, are also hosting interrelated modules in a very complex series of production chains.[2] The dance of these modules seems almost molecular in its architecture, and often curiously unrelated to the political units in which they occur.

The work also continuously reminded us of our chief goal at the Berglund Center for Internet Studies, continually to convey an increased understanding of the impact of the Internet. In that regard, this work is a key contribution. The authors repeatedly describe the international economy as a direct outcome of the digitization of information, and the ease with which it is now conveyed over the Internet.

To give but one example: Formerly, firms consisted of vertically organized economic entities which tried to place all possible elements of a production process under their own control, and whenever possible in closely geographically associated units. Think, if you will, of the colossus represented by the American automobile industry with key units in Dearborn, Detroit, Oakland, or other places.

Those facilities were highly integrated for good reason. In part it was economies of scale, in part it was that even highly computerized production processes sometimes produced a need to hand-fit parts. Largely, however, it was an attempt to directly control all the elements of production, in the belief that this would maximize profits.

If the American automobile industry is the local example, there are plenty of others to be found internationally---both Japanese firms and Korean ones are sometimes viewed as the high point of that particular architecture of production.

The ability to move digital information quickly, however, enabled a new mode of production. Formerly monolithic firms now tried to shed all possible elements of production, while initially hanging on to key or core competencies. Inevitably, some firms shed everything but the production and routing of the information itself---IBM as example.

In the electronics industries, particularly in those associated with the production of computers, the big winner in these changes was Taiwan. For particular reasons dealing with the nature of the Taiwanese political and economic systems, Taiwan developed the production of integrated circuits—“chips”---designed by firms outside Taiwan to the highest and most profitable level ever seen to that time.

This has been both a blessing and a curse for Taiwan. The downside of modular production is that latecomers to the process find the barriers to entry relatively low, and by its nature, modular production can easily be switched by the ultimate corporate purchaser from one producer to another. There is consequently constant pressure on producers to cut costs.

As part of that cost-cutting process, Taiwan in recent decades in turn increasingly shifted modular elements of production to China, for reasons well described in Global Taiwan. The outcome has been a world in which the history of this particular industry causes many to worry that China is on the verge of becoming the world’s factory floor in a wide range of products. This would result, of course, in the continual outsourcing of jobs. The meta-concern though, is that one day China would simply cut to the bottom line and place many world industries (and particularly American ones) at the verge of bankruptcy where the American auto industry now teeters as a result of historically earlier Japanese changes in production processes.

The authors argue, however, that while something like this could occur, the process will not be analogous to earlier ones. The very nature of production and of the world economy has changed and there will not likely ever be a Chinese Toyota or Motorola, for reasons clearly laid out in Global Taiwan.

The authors argue as well that some elements of the Taiwanese production economy are safe. This is both because of Taiwanese inherent strengths, and of what may be inherent or at last long-term mainland weaknesses.

The strength of Global Taiwan comes both from its methodology and from the expertise of the contributors. The methodology consists of more than 600 firm-level interviews conducted over four years (beginning in 1999) with major firms involved in a number of industries in Taiwan and in the mainland of China. In addition, though the number is never stated, there were also many interviews conducted with government officials and corporate notables in both Taiwan and the Peoples’ Republic of China.

The contributors are both noted scholars and very promising new ones, primarily from the Department of Political Science at the Massachusetts Institute of Technology. While the work consists of eight chapters, any one of them could easily stand alone. At the same time, they could be read in various combinations to provide a very thorough in-depth understanding of various facets of the problems discussed. For example, a reader with a particular and highly informed understanding of the computer chip industry should read the two chapters to which Douglas Fuller and others contributed, and that by Dan Breznitz.

The concluding chapter by Edward S. Steinfield is a marvel of both economics and economy. It provides a wonderful overview of the relationships between several industries of both Taiwan and the mainland of China, as well as a survey of the recent development of the Chinese political system. It should, I think, be considered required reading for any serious study of recent China.

The book is not without weaknesses. While there is an overall unity to the book, it is enforced, I think, more by methodology and common topic than by a strong editorial voice. This is a very complex topic area and while all the authors base their analysis in similar assumptions, they do not always use a common vocabulary to describe them. And that analysis is often rather rarified. For example:

…what has moved to China en masse, either at the bequest of leading global companies or through pressures from Chinese firms themselves, are the manufacturing-intensive segments of particular value chains. More precisely, it is the codified, commodified, nonintegral manufacturing activities that move. (273)

These sentences fortunately occur late in the work, and the reader, providing that he or she has slogged through its entirety, is ready to understand them. However, it is particularly frustrating that “codified, commodified, nonintegral manufacturing activities” are variously described as granular or as modular. The number of conflicting abbreviations, too, is very high. Some chapters require constant turning back to remind the reader of the difference between OEM and ODM companies, to take another example. If there was not to be a strong editorial hand (and as an editor myself, the thought of repeatedly demanding changes from half the staff of the Department of Political Science at MIT produces the intellectual equivalent of the vapours), then there should certainly have been an extensive and convenient glossary.

The book does have excellent notes and a very thorough bibliography. Charts and graphs are blessedly clear to lay readers.

References

[1] I understand a module to be not so much a concrete part, but a function of a final assembly process, which is carried out according to the specs of the final purchaser. Motherboards, then, are modularly produced in of a number of processes and parts, perhaps by numerous firms who are assigned outsourced tasks formerly undertaken by the final producer. (See pp. 39-41; See also pp 76-77.) Moreover, these modular processes are continuously reformulated as products change, and new modular producers may enter the chain and others drop out.

[2] Those feeling the need for more information on the nature of the relationship between Taiwan and the mainland of China might begin with my earlier editorial in Interface, “The Internet, R&D, and U.S. policy in the Taiwan Straits Part I of II,” found at: http://bcis.pacificu.edu/journal/2003/01/edit.php Part II is found at: http://bcis.pacificu.edu/journal/2003/02/edit.php My reading of the work under review, however, would cause me to rewrite some of my conclusions had I the time to do so. In particular the great sophistication with which the authors, and particularly Edward S. Steinfield, analyze production relations between the two would make me less alarmist about the future of Taiwan, for reasons discussed in this review.