Empowering Taiwan's Export Growth Strategies for SMEs

1. Creating a New Era of Exports for SMEs Jien-Ping Wang Chief Secretary Bureau of Foreign Trade June 9, 2009

2. Outlines I. Trends in Taiwan’s Economy and Trade II. Government’s Efforts in Export Promotion III. Conclusions

3. I. Trends in Taiwan’s Economy and Trade Taiwan Profile The Development of Taiwan Economy and Trade Changes in the Structure of Taiwan’s Exports Taiwan’s Trade Performance since the Global Financial Tsunami

4. Taiwan ProfileSmall Yet Big Sources: Directorate-General of Budget, Accounting and Statistics, Executive Yuan, R.O.C

5. Taiwan Profile Trade growth rate Economic growth rate Data source: Global Insight Inc, May 2009; Directorate General of Budget, Accounting and Statistics, May 2009

6. The relationship between International Trade and Economic Growth Data source: Global Insight Perspectives, Nov. 2008

7. 2008 World Merchandise Trade Rankings for Taiwan Data source：WTO Press Release (March 23, 2009)

8. Taiwan Foreign Trade Statistics Unit: US$ billion；% year items Data source: Taiwan Directorate General of Customs; Compiled by the BOFT

9. Taiwan As No. 1 Data Source: Industry &Technology Intelligence Service (ITIS) and IDB

10. International Status of Taiwan’s Leading Industries ☆ Steering the global OEM market ☆Controlling Mainland China production orders An important hub for the supply of new, innovative IT products ☆ Controlling global IC OEM plus packaging and testing operations ☆2nd globally in IC design, 4th globally in manufacturing Among the world’s leading semiconductor industries World’s leading LCD industry ☆Close to 50% global market share in large LCDs

11. 1970s The Development of Taiwan Economy and Trade Import Replacement Policy (light industry) 1950s Export Expansion Policy (light industry) 1960s Era of Import Replacement and Export Expansion (heavy industry) 2000 ～ present Globalized operations (developing knowledge- based economy) 1980s Liberalization, Internationalization, and Systematization Policies (strategic industries) 1990s Era of high-tech industry (10 major emerging industries)

12. Era of Import Replacement (1953～1960)－The Development of Light Industry Background Important Policies The implementation of export tax rebates, low-interest export loans, foreign exchange and trade reforms; highly restrictive import policy changed to one of encouraging imports. Taiwan was facing a shortage of funds, high unemployment, trade deficits, lack of technology, shortage of foreign exchange, a small domestic market, and a shortage of capital. Main Industries Developed Target Textiles, cement, glass, fertilizer, food, plywood, bicycles, motorcycles, household appliances, plastic products. To replace imports with domestic production to stabilize domestic prices and save on foreign exchange expenditures. Key Economic Indicators ．The average economic growth rate: 7.7% ．CPI growth rate: 18.51% (1960) ．GDP ratio (1960) 　－Agriculture: 28.5% 　－Manufacturing: 26.9% 　－Services: 44.6% ．Trade Value (1960) －Exports: US$0.164 billion －Imports: US$0.297 billion －Trade Balance: -US$0.133 billion

13. Background Era of Export Promotion (1961～1972)－ The Development of Light Industry Important Policies The implementation of “Regulations to Encourage Investment,” a single exchange rate, export tax rebate, depreciation of the NT dollar, set up export processing zones, export low-interest loans, local content regulation, elimination of plant set-up restrictions. In the 1960s, light industrial goods substituting imports gradually saturated the domestic market, so it became necessary to export these products in order enable Taiwan's industries to develop further. Main Industries Developed Targets To change the passive protectionist policy to a strategy of developing competitiveness and expanding exports, and replacing agricultural and fishery exports with consumer items. Key Economic Indicators Textiles, plastic products, plywood industry, electronics (assembly). ． The average economic growth rate: 10.2% ．CPI growth rate: 3.32% ．GDP Ratio (1972) 　－Agriculture: 12.2% 　－Manufacturing: 41.6% 　－Services: 34.3% ．Trade Amount (1972) －Exports: US$2.988 billion －Imports: US$2.514 billion －Trade Balance: US$0.475 billion

14. Era of Import Replacement and Export Expansion (1973～1983) － The Development of Heavy Industry Background Important Policies The machinery, components and materials needed to feed the rapid expansion of light industry exports still depended on imports, which restricted the development of Taiwan’s companies and industries. Expand scope of export incentives, reduce oil import tariffs and taxes on petroleum products, coordinate petrochemical production and marketing, develop industrial zones, and undertake the Ten Major Construction Projects. Main Industries Developed Targets Iron and steel, copper, aluminum and other basic metal industries; shipbuilding; automobiles; motorcycles and other means of transport; plastics; intermediate raw materials required for manmade fibers; ethylene, propylene and other petrochemical industries. Replace imports a second time, and develop the production of light industrial capital goods, raw materials, and components. Key Economic Indicators ． The average economic growth rate: 8.2% ．CPI growth rate: 11.42% ．GDP Ratio (1983) 　－Agriculture: 7.3% 　－Manufacturing: 45.0% 　－Services: 47.8% ．Trade Value (1983) －Exports: US$25.123 billion －Imports: US$20.287 billion － Trade Balance: US$4.836 billion

15. Era of Liberalization, Internationalization, and Systematization (1984～1990) －The Development of Strategic Industry Background Important Policies Long-term foreign trade surplus, surging foreign exchange reserves, and sharp appreciation of the NT dollar in the second half of 1986 weakened export competitiveness. Meanwhile, a nascent labor movement, increasing wages, and strength of the environmental protection movement forced traditional industries to shift production overseas. Development of high-tech, high added-value and low-power strategic industries; establishment of Science-Based Industrial Park to develop high-tech industry; enterprises encouraged to strengthen R&D and to improve productivity, quality and international competitiveness. Main Industries Developed Targets Industries with market potential; those with large add-on effects; high value-added, technology-intensive, low energy, low-polluting industries: e.g., ITC, precision instruments, metals, and biotechnology. Key Economic Indicators Develop strategic industries and enhance export competitiveness. ． The average economic growth rate: 8.8% ．CPI growth rate: 1.55% ．GDP Ratio (1990) 　－Agriculture: 4.2% 　－Manufacturing: 41.2% 　－Services: 54.6% ．Trade Value (1990) －Exports: US$67.214 billion －Imports: US$54.716 billion －Trade Balance: US$ 12.498 billion

16. Era of High-tech Industries (1991～2000) －Promotion of Ten Major Emerging Industries Background Important Policies Statute for upgrading industries to replace investment incentives; strengthen guidance on technical R&D; promotion of automation and personnel training; upgrade quality; develop more industrial zones. Taiwan’s traditional industries continued to relocated overseas, while the competition from newly developing nations increased. Main Industries Developed Targets Communications, IT, consumer electronics, semiconductors, precision instruments and automation equipment, aerospace, advanced materials, chemicals, biotechnology and pharmaceuticals, healthcare, and pollution prevention. Upgrade industry and strengthen our international competitiveness. Key Economic Indicators ． The average economic growth rate: 6.5% ．CPI growth rate: 2.59% ．GDP Ratio (2000) 　－Agriculture: 2.0% 　－Manufacturing: 29.1% 　－Services: 68.9% ．Trade Value (2000) －Exports: US$151.950 billion －Imports: US$140.732 billion －Trade Balance: US$11.218 billion

17. Knowledge-Based Economy (2000 ～ present) －The Development of Knowledge-Based Industry Background Important Policies Implemented the knowledge-based economy development project, global logistics development plan, Challenge 2008:National Development Plan, New Ten Major Construction Projects,Guidelines and Action Plans for Service Industry Development, etc. International competition becomes more intense due to globalization, development of knowledge-based economy, and the acceleration of regional economic integration. Main Industries Developed Targets Promote knowledge-based economic activities and create an environment conducive to the development of knowledge-based industries. Key Economic Indicators The “two trillion double-star industries” (semiconductors, visual displays, digital content, and bio-technology) ． The average economic growth rate: 2.9% (2001~2007) ． The average CPI growth rate: 0.62% (2001~2005) ． GDP Ratio (2005) 　－Agriculture: 1.8% 　－Manufacturing: 24.6% 　－Services: 73.6% ．Trade Value (2005) －Exports: US$198.435 billion －Imports: US$182.616 billion －Trade Balance: US$15.819 billion

18. Changes in the Structure of Taiwan’s Exports Taiwan’s main export commodities in 1998 were electronic products, textile products, ITC products, and machinery products. By 2008, Taiwan’s main export commodities were electronic products, plastics &rubber and articles thereof, optical instruments, and iron & steel, accounting for 47.6% of total exports—a tendency toward over-concentration. Unit:% Data source: Taiwan Directorate General of Customs; Compiled by the BOFT

19. Taiwan’s major export destinations have shifted to China and emerging markets 1989 US$66.3 billion 1998 US$110.6 billion 2008 US$255.7 billion Mainland China 23.5% Mainland China 10.7% Emerging countries: Mainland China, Russia, Brazil, India, the Middle East, ASEAN (Vietnam, Malaysia, Indonesia) Mainland China 39.0% Data source: Taiwan Directorate General of Customs; Compiled by the BOFT

20. Taiwan’s Trade Performance since the Global Financial tsunami • Formation and Evolution of Global Financial Tsunami • Taiwan’s Trade Performance since the Global Financial tsunami • Taiwan’s exports severely plunged since September 2008. • Export alarms have gone off with Taiwan’s main trading partners. • Sluggishness in export of electronic products and electrical machinery products. • Declines in imports of electronic products, machinery, electrical machinery products, organic chemicals, optical instruments, and transport equipment. • Definite results obtained from efforts to enhance export promotion to 10 target markets.

21. The Global Financial Tsunami: its formation Easy money seeking higher returns flows into global stocks, real estate, and commodities, causing rapid increases in prices for real estate, energy, and grain, as well as high inflationary pressure worldwide. After collapse of the dot-com bubble and the 911 attacks, the US Fed lowers interest rate from 6% to 2% in 2001; the market becomes awash in capital. 1 2 4 3 US Fed is forced to impose large increases in interest rate. Many US homeowners default on mortgages, go bankrupt, or sharply reduce consumer spending to avoid default. 6 5 As subprime default rate climbs, the underwriting banks face serious losses and pressure from asset devaluation. After Lehman Bros. collapse in September, credit risk spreads to other banks and financial institutions. This causes financial turbulence, the US dollar declines in value, and the subprime mortgage crisis erupts. Because bonds issued by subprime underwriters, Fannie Mae and Freddie Mac were sold around the world, international finance and the global economy were also seriously affected.

22. The Global Financial Tsunami: its evolution 1 Weakening economy, stock and real estate market drop together 2 Prices for REITs and structured notes fall 3 Insufficient bank capital leads to the first line of bank collapses 4 Crisis of confidence in capital markets 5 When credit is tight, cash is king 6 Banks tightened business credit Insufficient domestic demand, economic decline Low turnover causes businesses to close or lay off employees 7 Low consumer confidence, cutbacks on spending 10 Unemployment rises 8 9

23. Severe plunge in Taiwan exports since Sep. 2008 Due to the rapid slowdown in the international economy caused by the global financial tsunami since Sep. 2008, Taiwan exports have shown eight consecutive months of decline. April 2009 exports decreased 34.3%, less than the first quarter average decline rate (36.6%). % % Unit: US$ billion Data source: Taiwan Directorate General of Customs

24. Export alarms have gone off with Taiwan’s main trading partners For the entire year of 2008, Taiwan exports to Europe and Japan increased 4.6% and 10.2% respectively; however, Taiwan exports to the US decreased 4%, while exports to Mainland China and ASEAN have shown four consecutive months (Sep.~Dec. 2008) of decline. Due to the global financial crisis, export alarms have gone off with Taiwan’s main trading partners. The largest export market (Mainland China): The share of exports to this market was 39%; exports to this market decreased 0.8% The fourth largest export market (Europe): The share of exports to this market was 11.7%; exports to this market increased 4.6% The third largest export market (US): The share of exports to this market was 12%; exports to this market decreased 4.0% The fifth largest export market (Japan): The share of exports to this market was 6.9%; exports to this market increased 10.2% The second largest export market (ASEAN): The share of exports to this market was 15%; exports to this market increased 7.3%

25. Exports of electronic products and electrical machinery products: sluggish Because of soaring raw material and crude oil prices in the first half of 2008, exports of chemicals grew 16.0% for the entire year. Because of the global financial crisis in the second half of 2008, exports of electronics and electrical machinery decreased 3.2% and 8.1% respectively for the entire year. unit：% Information and communi-ction products Optical instru-ments Transport equipment Iron & steel and articles thereof Machinery Chemicals Electronic products Electrical machinery products Data source: Taiwan Directorate General of Customs

26. Declines in imports of electronic products, machinery, electrical machinery products, organic chemicals, optical instruments, and transport equipment Because of soaring raw material and crude oil prices in the first half of 2008, imports of crude oil shot up by 35.1% for the entire year. Becauseof the global financial crisis in the second half of 2008, imports ofelectronic products, machinery, organic chemicals, optical instruments, and electrical machinery products decreased 3.4%, 0.2%, 1.8%, 8.8% and 4.4% respectively for the entire year. Imports of transport equipment plunged 18.7% because of drops in demand for rail transportation and aircraft equipment. unit：% Information and communi-ction products Crude oil Iron & steel and articles thereof Machinery Organic chemi-cals Electrical machinery products Electronic products Optical instru-ments Transport equipment Data source: Taiwan Directorate General of Customs

27. Global financial tsunami has impacted Taiwan’s main exports to Mainland China seriously The value and growth rate of top 10 imports in Mainland China market from Taiwan Unit：US$ million; % Data source：China Customs House

28. Significant results from export promotion directed at ten targeted markets For the whole year of 2008, Taiwan’s exports to the ten focus countries showed a 17.5% growth on average, which is 3.8 times that of Taiwan’s overall export growth rate (3.6%) in the same period. • Red font: The actual growth rate • Black font: The targeted growth rate Unit:% Brazil India Spain Indo-nesia Viet-nam South Korea Russia Japan Malaysia Turkey Data source: Taiwan Directorate General of Customs

29. II. Government’s Efforts in Export Promotion • Continuously Implement Region’s Working Agenda • GlobalMarket Expansion Plan • (New Cheng Ho Plan) • 3. Branding Taiwan Plan • 4. Taiwan MICE Advancement Program & Taiwan Exhibition Competitiveness Enhancement Project • 5. Our Views on ECFA

30. Continuously Implement Region’s Working Agenda • 5th stage: strengthening the working agenda for trade with North America • 5th stage: working agenda for trade with Europe • 4th stage: working agenda for trade with Central and South American countries with whom we have full diplomatic relations • 5th stage: strengthening the working agenda for trade with Southeast Asia, Australia, and New Zealand • Action agenda for strengthening economic and trade relations with India

31. Framework of the New Cheng Ho Plan Years Shaping the trade financial environment Strengthening of export finance and export insurance 2009-2010 New Cheng Ho Plan Expansion of the Mainland China market Expanding Mainland China’s markets 2009-2010 Expansion throughout the emerging markets Expanding throughout the emerging markets 2008.09-2012 Expansion of marketing strategies Attracting procurements from foreign buyers 2009 2008 9. ~ 2012 Creation of new procurement domain Pursuing global government procurement opportunities 2009-2010

32. Strengthening of export finance and export insurance • Initiate a series of plans to strengthen export finance and export insurance from 2009 to 2010, with a budget of NT$ 5.58 billion: • Favorable export financing plan: Support EXIM bank to provide export insurance on favorable terms. • Export promotion through re-lending plan Increase cooperation with global relending banks and extend relending credit on favorable terms. • Export insurance plan: Offer favorable terms for credit verification and insurance fees, and provide comprehensive compensation. Expansion to include all exporting industries and exporting districts Expected Benefits Increase the value of exports to NT$50 billion, with 70% of exports to emerging markets.

33. Expanding Mainland China’s markets • Build marketing channels 1.hold Taiwan food festivals 2.Set-up Taiwan food sections • Invite foreign buyers to purchase in Taiwan • Organize trade missions • Participate in important international food exhibitions • Organize Taiwan food Promotion Plan • Increase support to industrial associations to promote exports • Provide market research and business intelligence • Create Marketing Strategies • Enhance Internet promotion • Provide consultation on branding • Increase service points and human resources Promote exports of Taiwan food to Mainland China Pursue Mainland China’s domestic market

34. Expanding throughout the emerging markets General strategies Increase allowances for emerging markets Expand exports of 3 niche industries －Auto parts and accessories －Textiles －Machine tools and accessories Establish overseas business pioneer training program Promote exports with high-level trade missions to emerging markets Russia Brazil Specific strategies for different markets Middle East ASEAN India Including Saudi Arabia, UAE and other 12 countries Focus on Malaysia, Indonesia and Vietnam

35. Attracting procurements from foreign buyers Initiate a series of activities to invite foreign buyers to purchase in Taiwan, focusing on large and emerging market buyers: • Sourcing Taiwan(2009.03.30~04.02) Signed Letters of Intent, organized product displays, setting up industry discussion areas • Organize Reverse Shows (2009) Offer customized procurement services to international buyers. • Invite emerging market buyers to purchase in Taiwan(2009) Encourage emerging market buyers to organize trade missions to purchase in Taiwan Expected Benefits Invite foreign buyers to participate in 14,500 trade discussion meetings with 5,200 domestic firms Facilitate procurements worth up to NT$180 billion

36. Pursuing global government procurement opportunities • Enhance bidding • capabilities for tenders • Screen for competitive industries • Organize government procurement trainings and professional consultants • Hold series of seminars • Hold seminars for foreign government purchases • Hold seminars for business opportunities Assist firms to participate in government procurement opportunities • Set-up a business • opportunities website • Provide links to WTO member government procurement websites • Provide potential business opportunities • Create a professional counseling atabase • Develop a business opportunity handbook • Invite foreign business who won • GP tenders to purchase in Taiwan • Act as intermediary between foreign businesses and domestic suppliers • Provide air-fare and accomodations • Invite bid-winners to hold business opportunity meetings

37. Branding Taiwan Plan OEM ODM  OBM Innovation + Design = Springboard from OEM to ODM Biggest challenge: How to shift from OEM to an innovator Getting rid of traditional thinking/practices; setting new strategies to become more competitive 2000s 1990s 1980s OBM R＆D ODM OEM IDM Innovative Design & Manufacturing IDM Establish Taiwan’s uniqueness in manufacturing/design Motivate and stimulate the drive to create own brands

38. Branding Taiwan Plan • 6 measures • Branding Investment Fund • Foster an environment conducive to branding • Establish a brand appraisal system • Cultivate talent and provide training • Establish a branding information platform • Raise the international image of Taiwan Products and brands

39. Branding Taiwan Plan Future Goals • Stimulate Taiwan entrepreneurs to enhance their brand value • Encourage Taiwan SMEs to move forward to brand marketing (OBM) • Focus on “Branding Taiwan Plan” to bring more renowned brands into the world markets, and become the pride of Taiwan

40. Taiwan MICE Overall Implementation Project Taiwan MICE International Marketing and Promotion Project Taiwan MICE International Meetings Hosting Project Taiwan MICE Training and Certification Project The Framework of Taiwan MICE Advancement Program Taiwan MICE Advancement Program

41. Establish the contact window and to reinforce MICE-related policies. • Coordinate/integrate resources from central and local government organizations. • Conduct research on MICE industry. • Provide funding for MICE held in Taiwan by associations, academic organizations and companies. Taiwan MICE Overall Implementation Project • Market and brand Taiwan’s MICE industry internationally. • Re-structure and manage the MeetTaiwan portal. • Reinforce MICE sources and administer data pool. Taiwan MICE International Marketing and Promotion Project Taiwan MICE Advancement Program

42. Taiwan MICE International Meetings Hosting Project Taiwan MICE Training and Certification Project • Develop a training mechanism to cultivate MICE professionals. • Establish a certification system that meets international standards. • Establish an evaluation system to ensure the integration of training and practices. • Support associations/organizationsbidding for target conferences. • Provide complete information and customized assistance. Taiwan MICE Advancement Program

43. Taiwan Exhibition Competitiveness Enhancement Project • Develop new exhibitions in accordance with industry and • market needs: • Taiwan Exhibition & Convention Industry Show (EXCO Taiwan) • 7 Exhibitions held in 2008 will be continued. These include: AutoTronics Taipei, Motorcycle Taiwan, SenCare, Leisure Taiwan, Taiwan RFID, Broadband Taiwan, and Kaohsiung Food Show. • 2. Foreign Visitors Invitation Program Three types of subsidies to qualified applicants: • Round-trip economy class airfare or • Hotel subsidy: up to NT$20,000 or • Health exam: up to NT$20,000

44. Taiwan Exhibition Competitiveness Enhancement Project • 3. Expand exhibitions • Assist 14 targeted industries to expand the scale of exhibitions: computers, bicycles, auto parts and accessories, agriculture and food, food processing equipment, packaging, sporting goods, gifts and stationery, electronics, plastics and rubber, machine tools, medical equipment, furniture, and lighting. • 4. Establish a Taiwan virtual exhibition website • Taipei Tradeshows website was established to help exhibitors increase • business opportunities and sharpen their competitiveness. • Online campaigns and promotions • Online services

45. Title of the ECFA • The tentative title is “Cross-Strait Economic Cooperation Framework Agreement” (or simply “Cross-Strait Economic Agreement”). • The English title ECFA (Economic Cooperation Framework Agreement) may be used temporarily.

46. Objectives of the ECFA • Normalization of cross-strait economic and trade relations • While both parties are members of the WTO, there are still many economic and trade restrictions. • Avoidance of being marginalized from regional economic integration schemes • Currently, there are over 230 FTAs globally with mutual duty-free arrangements. If we do not participate, we will face the threat of being marginalized and losing our competitive edge in the important markets. • Internationalization of our economy, trade and investments • By signing the Framework Agreement, the cross-strait economic and trade relations will be more predictable and benefit Taiwanese business to make worldwide arrangements and attract foreign business to Taiwan, thus enabling Taiwan to become a trading hub in the Asia-Pacific.

47. Taiwan’s Positions on the ECFA • We do not adopt the model of Hong Kong and Macao, and the ECFA is not an ordinary free trade agreement (FTA); it is an economic cooperation agreement with a distinctive cross-strait quality and one that does not violate the spirit of the World Trade Organization (WTO). • It will cover matters pertaining to economic cooperation and will not touch on unification, independence, and political issues.

48. Meaning of the Framework Agreement • A comprehensive FTA cannot be achieved in one step. There will be more flexibility in dealing with it only by pre-determining the framework and goals and through future consultations on specific content. • The “Early Harvest” provisions will meet the urgent needs of the project and provide early realization of favorable benefits. Examples: ASEAN + China • The ASEAN-China Comprehensive Economic Cooperation Agreement was signed in Nov. 2002 (“Early Harvest”: HS Chapters 1-8 for agriculture and fishery products) and went into effect in Jan. 2004. • Signed a framework agreement for Agreement on Trade in Goods in Nov. 2004. • Signed a framework agreement for Agreement on Trade in Services in Dec. 2006.

49. The Process of ASEAN + X Immediate Impact of Not Advancing the Agreement

50. Vision for Cross-Strait Economic and Trade Cooperation Improve the basis of promoting Taiwan’s opportunities to enter into bilateral FTAs with other countries and participate in regional economic and trade cooperation. Establish a stable cross-strait economic and trade cooperation framework; open a favorable cross-strait interaction mechanism. Promote Taiwan in becoming a global center of innovation, an Asia-Pacific hub of economy and trade, and the headquarters for Taiwanese businesses