The Search for New Momentum
Jan 04, 2014

2014 may be the "year of transition" for Asia's "Little Dragons." What development strategies will Korea, Singapore and Taiwan take looking ahead?

The status of the East Asian nations in 2014, including Japan and the Four Little Dragons, can be summarized in one sentence: "full-on transformation."

The continuing worldwide economic crisis (now five years old), the rapidly developing digital economy, and China's transformation have not only shaken up the financial markets, strategies and resources of the region's countries, but have also eroded the structure of the trade, industrial chains and value chains established and maintained over the past decade-plus.

China is currently the largest export market for Taiwan, South Korea and Japan. Information electronics and petrochemical products are also among the chief exports to China, and pillars of economic growth for the three countries.

With China's slowing economic growth and the structural adjustments in its economy, its domestically manufactured products are supplanting imports, and this is causing a structural slumping of growth in exports from Taiwan, Korea and Japan.

Korea's central bank forecasts that Korea will manage only around three percent growth with the slowdown in export growth. Taiwan faces a similar struggle to maintain two to three percent growth. In the face of the strongest tide of trade and industry realignment in over a decade, the governments and corporations of East Asia have set out in search of new momentum for growth.

Korea's Transition: IT, Autos, Know-how

Samsung Electronics' new Silicon Valley R&D center will expand from just over 300 to 2000 people once it goes into operation in 2015.

The center is being set up principally to attract Silicon Valley's creative energy over to Samsung, to develop, invest, and acquire startups.

Samsung wooed former Google Global Partnerships chief David Eun more than two years ago to head up the new R&D center's operations.

In the effort to attract Silicon Valley talent to its platform, Samsung held its first program developers' conference in San Francisco in November to develop new applications software for its televisions, mobile phones, and wearable technology.

The Korean electronics giant's bold moves in Silicon Valley reflect its sense of urgency.

With the M-shaped stratification of the global automotive market, another major Korean exporter, Hyundai Motors, has reformulated its strategy towards an emphasis on the luxury market, aiming at enhanced design and performance features.

In one regard, the rise of low- and mid-priced cars out of China and India and the accompanying popularization of cars as affordable commodities means that manufacturers will have to compete on cost and volume while making thin margins in that sector. In another respect, the worse the economy has been in recent years the hotter the luxury auto market has gotten. The sizable profits turned by BMW, Audi, Mercedes-Benz and Lexus have Hyundai green with envy.

Hyundai introduced the luxury Equus model in 2009. Although not a top-line seller at the level of the big luxury makers, it chalked up an impressive 25 percent growth in sales in the American market in 2012.

Most ambitious of all, however, is Korea's moves to export its national development experience along the lines of Europe, America and Japan to earn a piece of the infrastructure development pie as emerging nations urbanize.

According to Asian Development Bank projections, ASEAN nations alone will invest US$60 billion on infrastructure over the coming decade.

Major Korean engineering firms such as Daewoo, Hyundai and Samsung have seen a steep rise in the number of infrastructure development contracts around the world in recent years. In 2010 they reached a record US$71.6 billion, achieving a nearly seven-fold increase in just five years. The Middle East accounted for the majority of the business, with around 60 percent of the total contracted value.

Among them, the most well known case is the Burj Khalifa in Dubai, the world's tallest building, built by Samsung Construction and Trading (Samsung C&T).

Other recent cases include urban development projects in Algeria, Baghdad, and South Sudan by Daewoo and other major construction firms.

In Southeast Asia, construction of the new Hanoi city center, the Siem Reap International Airport near Angkor Wat in Cambodia, and Cambodia's first stock exchange were also led by Korean firms.

The Korean government is set to establish the Global Infrastructure Fund to provide capital for the nation's firms to support overseas infrastructure projects.

Just as the real estate industry often serves as an engine of domestic economic growth, building cities overseas is sure to yield more comprehensive, diverse growth and higher profits for Korean construction materials, equipment, services and technical output than the basic export of materials and goods.

Singapore: New Clean Technology Solutions Provider

Singapore, which established its status and reputation as a financial center, nevertheless relies heavily on manufacturing exports for much of its economic growth. Over the last five years the Singaporean government has looked exhaustively for new sources of growth to replace the stalling electronics parts and components manufacturing sector.

Over the last two years Singapore has gone all-out to develop emerging clean technology consisting of alternative energy and water treatment, after previously concentrating on biotechnology and petrochemicals.

CleanTech One, the first clean technology zone in Singapore's first eco-business park, opened this past July, marking the first tangible result of the government's clean technology flagship program. At present, the complex counts 22 tenants including the Toray Water Technology Laboratory run by Japan's Toray Group.

In the future, the average annual growth of the global clean technology market is expected to reach US$1 trillion. Singapore's plans to transform itself into a global clean technology R&D center and provider of related products and solutions are among the city-state's key economic growth strategies.

Projected to be fully completed by 2030, CleanTech Park will encompass R&D, human resource training, startup incubation, industrial ecosphere development, and brand development.

Singapore's Ministry of Trade and Industry projects that clean technology will generate NT$81.6 billion of GDP value for Singapore in 2015 along with nearly 20,000 jobs.

Taiwan: Cloud Technology, Stealth Champion, Service Exports

Taiwan is the country most significantly threatened by the "Red Supply Chain" across the strait. Due to an over-reliance on exports, which are largely concentrated in information electronics, Taiwan desperately needs to identify alternative sources of growth moving forward.

Apart from Terry Gou's plan to transform Honhai, Taiwan's IT hardware manufacturers as a whole are particularly well equipped to take a bite out of the tantalizingly promising pie of cloud technology.

Quanta has taken the lead in the cloud computing and technology realm. As CommonWealth Magazine reported in our April 2013 issue, Quanta has become the largest supplier of servers for the world's biggest social media site, Facebook, generating over NT$100 billion in revenue from its cloud technology business. Quanta can claim to have made one out of every seven servers in operation around the world today, and industry estimates project another 50 percent climb in the company's server turnover in the coming year.

Other Taiwan-based OEM/ODM manufacturers including Compal, Inventec, and Wistron have also claimed slices of the Google and Amazon server supply chains.

Acting as a stealth champion is another viable avenue for Taiwan. Unable to compete in size or breadth, and lacking the sustenance of a massive home market, tiny Taiwan cannot go directly up against China or Korea, which backs a handful of companies with state resources.

In sectors that are clearly and narrowly demarcated but also possess global markets, Taiwan, with its outstanding technological know-how and flexibility, stands a much greater chance of prevailing against China and Korea if it exhibits both depth and precision.

In addition, whether in terms of exports or domestic demand, the high-end service industry is a key focus of Taiwanese industry's structural transformation.

Taiwan's service industry exports have grown from six percent of GDP in 2000 to 10 percent in 2013. The achievement of a net gain in service industry trade for the first time in 2008 marked a watershed for the island's external trade.

Investments by Taiwanese food and beverage chains such as 85?C in China, Southeast Asia and the United States have been instrumental in this respect.

In particular, Taiwan's baking industry – despite an annual output value of just NT$63 billion – has achieved an integrated export supply chain encompassing raw materials, hardware equipment, baking techniques, personnel development and management services.

Trillion-dollar Prospects in Eco-business

Eco-business exports also comprise a new program targeted by Taiwan's government for heavy promotion.

According to official European Union estimates, the global eco industry market can be expected to hit US$1 trillion over the next two years, with China packing the greatest potential for growth.

However, most Taiwanese firms in this sector remain small with capitalization under NT$50 million. Consequently, only a handful of larger such firms are equipped to enter the overseas market.

The Industrial Development Bureau of the Ministry of Economic Affairs set about promoting a green industry "flagship task force" plan three years ago, bringing firms in different positions of the supply chain together to form a team capable of providing total solutions encompassing hardware equipment, engineering, technology and management services, and systems integration. The move was conceived as the only viable approach to competing with the international giants in capital and service quality.

Although small in scale, and not contributing as much to economic growth as the manufacturing sector, these service and eco-industry firms are scouting out a new path for exports from Taiwan.

Translated from the Chinese by David Toman