Commentary

Injecting vitality into Taiwan’s panel display industry

(Photo: Chang Su-ching)

• Publication Date：07/01/2012
• Source： Economic Daily News

A piece of news that has generated quite a bit of discussion recently involves Chen Li-yi, a former executive with Taiwan’s Chimei Corp. In 2009, he and a group of engineers at the company jumped ship to go and work for CSOT Corp., an aspiring panel-maker based in the southern mainland Chinese city of Shenzhen.

Within 18 months of their arrival, Chen and his followers had helped CSOT build mainland China’s first factory capable of producing the latest 8.5-generation panels on its own. It is estimated that CSOT’s plant will be capable of producing 24 million 32-inch television panels annually. Starting this June, the company is also slated to invest in an experimental production line, which will attempt to make active-matrix organic light-emitting diode (AMOLED) products of the 4.5th generation.

CSOT has RMB 24.5 billion (US$3.8 billion) in capital. The mainland Chinese companies TCL Corp. and Century Science & Technology Investment Corp. control 55 percent and 30 percent of CSOT’s shares respectively, while the remaining 15 percent of the company is in the hands of South Korea’s Samsung Electronics Co. Ltd. In terms of its clientele, CSOT sells 90 percent of its products to TCL; it has also signed a five-year contract with Samsung, according to which the latter will eventually purchase 15 percent of CSOT products.

From all this it can be seen that CSOT is a panel company combining the forces of many different brands. It also makes use of foreign know-how and technology, from Taiwan and South Korea, and it has received infusions of capital from the mainland Chinese government. Its future development cannot be ignored, posing as the company does a serious threat to the standing of all Taiwanese panel companies operating in the mainland Chinese market. All these are reasons why there has been so much discussion lately over topics such as turncoat employees and cross-strait industrial cooperation.

(CNA photos)

There are in fact larger structural and contextual reasons why Chen left Chimei for CSOT. In the last few years, for instance, growth in Taiwan’s panel industry has slowed down, and the industry as a whole needs fewer workers. More panel employees were laid off in 2010, when Chi Mei and Innolux Corp. merged into Chimei-Innolux Corp. The new company instituted an employee shares dividend system, which caused employees who received fewer shares to leave as well. And after the global financial tsunami of 2008, Taiwan’s panel industry has not been as profitable as it used to be, so that the salary of panel industry employees is lower than before. The long-term prospect of Taiwan’s panel industry is also far from clear.

Add to this the fact that panel-makers in mainland China have a large domestic market and downstream companies to which they can sell their goods. They are also able to entice employees from rival companies with high-paying, short-term jobs. With all these factors working in concert, it is only natural that panel industry professionals should want to work in the mainland.

This is not the first time, nor will it be the last, that talented individuals have made the move from Taiwan to mainland China. How to resolve this phenomenon, so that it becomes an opportunity not a crisis, is the critical question facing Taiwan’s panel industry at the moment. It is a question that can be considered from several points of view.

First of all, of course it would be better if the creation and implementation of value-adding activities were to take place in Taiwan. But whether because of lower operation costs, or proximity to an enormous market, it has become normal in today’s market for value production chains to move in and out of different markets. Although many sectors in Taiwan are relocating their value-adding activities elsewhere, there is also evidence that this outward migration is upgrading and transforming local industries.

There is thus no need to feel overly apprehensive about the outward movement of value activity and manpower. What really should be a concern is whether an industrial chain that could support such activities is taking root in Taiwan.

Second, when it comes to implementing policy, the emphasis should be on turning unfavorable market conditions around. For example, the concept of a local market should be extended, so that it includes not only Taiwan, but the mainland as well. In other words, mainland China should be thought of as potentially a part of the larger Taiwan market.

This is especially the case since there are so many industries where Taiwan and the mainland can cooperate with one another; for many of the same industries that have been earmarked as critical by the mainland have also been singled out for special attention by Taiwan. The seven strategic emerging industries identified by the mainland, for instance, largely overlap with the six major emerging industries and the four major smart industries identified by Taiwan.

If the two sides can apply the concept of the division of labor to these industries, and if the mainland market can become a part of the larger Taiwan market, the possibility of the two sides working together and collaborating closely would increase. This would also provide a platform for Taiwan individuals to demonstrate their skills, while the products developed as a result of such collaboration could also be used by Taiwan’s companies, which could also use the same products to attract talented mainland Chinese employees in the future.

Additionally, over the years many talented individuals from Taiwan have been compelled to work in the mainland because of domestic policy changes, industrial competition and layoffs. Some of these individuals have worked in many different types of mainland companies, and as a result they now have a profound understanding of the mainland Chinese market and its industrial sector. If some way can be devised to entice these knowledgeable individuals to return to Taiwan, that would be another way to encourage cross-strait collaboration.

Lastly, mainland China has used preferential policies to make up for its lack of industrial talent. Taiwan, too, needs to come up with a similar policy to nurture and cultivate talent. The first item on the agenda should be to make a clear assessment of Taiwan’s businesses, and figure out what their development goals should be in the context of limited resources. To foster an environment in which talented individuals can thrive, the government should consider the kinds of policies used by nearby countries, policies such as tax breaks, government research subsidies and incentives for especially talented foreigners. In this way, a new vitality can be injected into Taiwan’s industrial sector. (HZW)

(This commentary originally appeared in the Economic Daily News June 17.)

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