Porter On Taiwan Competitiveness - 2010-0408

Creating an Economic Strategy for Taiwan
Prof. Michael E. Porter

Harvard Business School
Global Leaders Forum

Taipei, Taiwan
April 8, 2010
This presentation draws on ideas from Professor Porter’s articles and books, including, The Competitive Advantage of Nations (The Free Press,
1990), “The Microeconomic Foundations of Economic Development,” in The Global Competitiveness Report, (World Economic Forum), “Clusters
and the New Competitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press, 1998) and ongoing
research at the Institute for Strategy and Competitiveness. Additional information may be found at the website of the Institute for Strategy and
Competitiveness, www.isc.hbs.edu No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form
or by any means - electronic, mechanical, photocopying, recording, or otherwise - without the permission of Michael E. Porter.
Taiwan Competitiveness 20100408 1 Copyright © 2010 Professor Michael E. Porter
Taiwan’s Current Malaise
• Recent economic downturn
• Highest unemployment in decades
• Uncertainty of future relationship to China

Taiwan’s Current Malaise
• Recent economic downturn
• Highest unemployment in decades
• Uncertainty of future relationship to China
Slide from “The Competitive

Advantage of Taiwan”
Commonwealth Speech
delivered on July 31, 2001

Prosperity Performance
PPP-adjusted GDP per Selected Countries, 1990 to 2000
Capita, 2000 ($USD)
$60,000
OECD average: 4.15%
$50,000
$40,000
Norway
United States
Belgium
Switzerland
$30,000 Austria Ireland
Canada Netherlands Singapore
Iceland Sweden Denmark
Finland Australia
Japan Italy Hong Kong OECD average: $24,590
United Kingdom
France
Germany Spain Taiwan
$20,000 New Zealand
Israel
Greece South Korea
Portugal
Czech Republic
Hungary Poland
$10,000 Mexico Chile
Russia (-1.8%) Malaysia
Brazil Turkey
Thailand
Philippines (-0.3%) Indonesia China (11.0%)
Laos India
Vietnam
$0
0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
Growth of Real GDP per Capita (PPP-adjusted), CAGR, 1990 to 2000

Source: EIU (2010) , authors
Taiwan Competitiveness 20100408 calculations 4 Copyright © 2010 Professor Michael E. Porter
Prosperity Performance
PPP-adjusted GDP per Selected Countries, 2000 to 2009
Capita, 2009 ($USD)
$60,000
OECD average: 3.26%
Norway
$50,000
United States
Switzerland Hong Kong

Ireland
$40,000 Netherlands Australia
Sweden Austria Canada Singapore
Denmark Belgium
Iceland France Finland Taiwan OECD average: $32,810
Japan United Kingdom
$30,000 Italy Germany Spain Greece
New Zealand Israel South Korea
Czech Republic
Portugal
Slovakia
$20,000
Hungary Poland
Mexico Chile Russia

Malaysia
Brazil Turkey
$10,000
Thailand
China (12.44%)
Indonesia Vietnam
India
Philippines Laos Cambodia
$0
0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2000 to 2009

Source: EIU (2010) , authors
Taiwan Competitiveness 20100408 calculations 5 Copyright © 2010 Professor Michael E. Porter
Taiwan’s Prosperity Performance
1950-2009
Index of GDP per
Capita CAGR: CAGR: CAGR: CAGR:
(1950 = 100)
2,500 +5.05% +7.22% +5.63% +2.21%
Taiwan
2,000 China
1,500
Hong Kong
1,000
500
USA
100 -
0
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2009
Note: PPP using Geary Khamis calculation methodology. Source: Groningen Growth and
Development Centre, Total Economy Database (Accessed March 2010)
Unemployment Performance
Unemployment Selected Countries
Rate, 2009
20%
Improving Deteriorating
18% Spain
16%
14% Turkey
12%
Slovakia Ireland
Poland
India China
10% Hungary Portugal
France Chile
Canada
Greece United States
Russia Finland Sweden
8% Indonesia Iceland
Brazil Israel United Kingdom
Italy Belgium Czech Republic
Philippines
Germany Vietnam Netherlands Taiwan
6% New Zealand
Australia
Hong Kong Luxembourg
Japan Austria
4% Malaysia Switzerland
South Korea
Norway
Singapore
2% Thailand
0%
-8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0%
Change of Unemployment Rate in Percentage Points, 1999-2009
Source: EIU (2010)
Export Intensity
Exports as % Selected Countries
GDP, 2009
100%
Singapore (24.4%, 208.3%)
OECD Average: 3.1%
Hong Kong (68.3%, 196.6%)
Malaysia (-27.9%)
90%
Ireland
80%
Hungary
Belgium
70% Thailand Czech Republic

Vietnam
Netherlands
Slovakia
Taiwan
60%
Sweden Austria
50% South Korea
Switzerland
Cambodia Denmark Iceland
Norway
40% Chile
Germany
Finland Israel
Philippines (-20.2%) New Zealand
30% Canada
Mexico
Russia China
Spain
United Kingdom Turkey
Indonesia France Italy OECD Average: 23.8%
20% Australia
Greece India
Japan
10% United States
Brazil
0%
-20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0%
Change of Exports as Share of GDP, 1999 to 2009
Source: EUI (2010)
Innovative Output
Selected Countries, 1998 to 2008
Average U.S. patents per 1
million population, 2006-2008
300
United States
250 Japan Taiwan
200
Finland
Switzerland Israel
150
Sweden
Germany
South Korea
Canada
100
Denmark Singapore
Netherlands
UK
Belgium Austria
50 Australia
France Norway
Hong Kong
Italy
Spain India
South Africa China
0
-10% -5% 0% 5% 10% 15% 20% 25% 30%
CAGR of US-registered patents, 1998 to 2008
10,000 patents =
Source: USPTO (2008), EIU (2008)
International Patenting Output
Change in the annual Change 1998 - 2008
number of U.S. patents
per 1 million
population
85
65
45
25
5
Austria
Australia
Israel
United Kingdom
Vietnam
China
India
Singapore
Indonesia
Russia
South Korea
Germany
Canada
Denmark
Philippines
Malaysia
United States
Finland
Hong Kong
Iceland
Japan
Ireland
Thailand
Norway
Taiwan
Sweden
Switzerland
-15
Source: USPTO (2008), EIU (2008)

Top 20 Taiwanese Originators of U.S. Patents, 2004-2008
First-Named Assignee 2004 2005 2006 2007 2008 Total

Taiwan Semiconductor Manufacturing Co., Ltd. 455 430 459 454 355 2,153
Industrial Technology Research Institute, Taiwan 196 159 237 224 271 1,087
Hon Hai Precision Ind. Co., Ltd. 216 136 231 183 278 1,044
Au Optronics Corp. 76 104 157 176 174 687
Via Technologies, Inc. 112 118 159 144 125 658
Macronix International Co., Ltd. 161 101 107 124 119 612
United Microelectronics Corporation 74 91 104 122 117 508
Ben Q Corporation 79 81 105 134 39 438
Mediatek Inc. 22 29 104 121 151 427
Delta Electronics Inc. 85 70 90 82 86 413
Inventec Corporation 26 36 47 84 130 323
Nan Ya Technology Corporation 100 84 74 17 28 303
Advanced Semiconductor Engineering, Inc. 53 41 82 66 57 299
Winbond Electronics Corp. 81 54 48 31 17 231
Chunghwa Picture Tubes, Ltd. 12 27 32 49 70 190
Realtek Semiconductor Corporation 10 16 41 64 55 186
Quanta Computer Inc. 40 25 45 38 37 185
Powerchip Semiconductor Corp. 27 37 35 40 44 183
Hannstar Display Corp. 44 30 34 23 37 168
Lite-On Technology Corporation 35 27 42 25 37 166
All Other Taiwan Assignees 3,380 2,872 3,439 3,283 3,381 16,355
Total Taiwan Utility Patents 5,284 4,568 5,672 5,484 5,608 26,616
Source: Patenting By Geographic Region (State and Country), Breakout By Organization, USPTO (2010)
Taiwan’s Economic Challenge
Three Agendas
I. Address some chronic weaknesses
II. Expand, upgrade, and globalize the innovation-driven

economy
III. Redefine Taiwan’s economic relationship to China
These agendas are interrelated

What is Competitiveness?
• Competitiveness is the productivity with which a nation uses its
human, capital, and natural resources
– Productivity sets the standard of living
– Productivity growth sets sustainable economic growth
• Productivity and prosperity depends on how a nation competes, not what

industries it competes in
– Productivity in the modern global economy arises from a combination of domestic
and foreign firms
• Relentless innovation is necessary to drive productivity growth and

enable the standard of living to rise
– Technology, products, and organizational methods
• Nations compete to offer the most productive environment for business

• The public and private sectors play different but interrelated roles in
creating a productive economy
Determinants of Competitiveness
Microeconomic Competitiveness
Quality of the Sophistication

National State of Cluster of Company
Business Development Operations and
Environment Strategy
Macroeconomic Competitiveness
Social
Infrastructure Macroeconomic
and Political Policies
Institutions
Inherited Endowments
• Macroeconomic competitiveness creates the potential for high productivity, but is not
sufficient
• Productivity ultimately depends on improving the microeconomic capability of the
economy and the sophistication of local competition

Social Infrastructure and Macroeconomic

Political Institutions Policies
Basic human capacity Fiscal policy
• Basic education • Government surplus/deficit
• Health system • Government debt
Political institutions Monetary policy

• Political freedom • Inflation
• Voice and accountability • Interest rate spread
• Political stability
• Government effectiveness
• Decentralization of economic policymaking
Macroeconomic Management
Rule of law
• Judicial independence
• Efficiency of legal framework
• Business costs of corruption
• Civil rights

Sophistication
Environment Strategy of Company
Operations and
Macroeconomic Competitiveness Strategy
Social
Infrastructure
and Political
Macroeconomic
Policies
The internal
Institutions company
skills, capabilities,
and management
practices required
to attain a given
level of productivity
and innovation

Quality of the Environment Strategy
National Business
Environment Macroeconomic Competitiveness
Social
• The external business Infrastructure
and Political
Macroeconomic
Policies
environment Institutions
conditions supporting
company productivity
and innovation

Quality of the Business Environment
Context for
Competition
• Local rules and incentives that

encourage investment and productivity
– e.g. incentives for capital
Factor investments, intellectual property Demand
Inputs protection, corporate governance Conditions
standards
 Open and vigorous local competition
– Openness to foreign competition
• Access to high quality business – Competition laws • Sophisticated and demanding local
inputs and infrastructure customers and needs
– e.g., human resources, capital, – e.g., Strict quality, safety, and
physical infrastructure, environmental standards
administrative rules, scientific and Related and – Consumer protection laws
technological infrastructure Supporting
Industries
• Availability of suppliers and supporting

industries
• Many things matter for competitiveness

• Successful economic development is a process of successive upgrading, in which the
business environment improves to enable increasingly sophisticated ways of competing
Environment Strategy
Social
State of Cluster Infrastructure Macroeconomic
and Political Policies
Development Institutions
• The presence of a Inherited Endowments

concentration of firms in
particular fields, together
with specialized
skills, infrastructure, and
supporting
institutions, enabling
productivity through
externalities across related
entities
State of Cluster Development
Tourism Cluster in Cairns, Australia
Public Relations & Local retail,
Market Research Travel agents Tour operators health care, and
Services other services
Food Local
Suppliers Attractions and Transportation
Restaurants Activities
e.g., theme parks,
casinos, sports
Property Souvenirs,
Services Duty Free
Airlines,
Hotels Banks,
Maintenance Cruise Ships
Foreign
Services
Exchange
Government agencies Educational Institutions Industry Groups

e.g. Australian Tourism Commission, e.g. James Cook University, e.g. Queensland Tourism
Great Barrier Reef Authority Cairns College of TAFE Industry Council
Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden
Cluster Linkages and Economic Diversification
Fishing &
Fishing
Products Textiles
Hospitality Prefabricated
Agricultural & Tourism Enclosures
Products
Processed Transportation Furniture
Food & Logistics Enter- Building
Aerospace
tainment Fixtures,
Vehicles & Construction
Defense Equipment & Materials
Information Services
Jewelry & Distribution
Tech.
Precious Services Lightning & Heavy
Metals Electrical Construction
Business Analytical
Education & Equipment Services
Services Instruments
Knowledge Power Forest
Medical
Creation Generation Products
Devices Communi-
Publishing cations
Financial & Printing Biopharma- Equipment
Heavy
Services ceuticals Machinery
Production
Motor Driven
Chemical Technology
Products
Products
Tobacco
Oil &
Apparel Gas Mining & Metal
Automotive
Plastics Aerospace Manufacturing
Engines
Leather &
Footwear
Related Sporting
Products & Recreation
Goods
Note: Clusters with overlapping borders or identical shading have at least 20% overlap (by number of industries) in both directions.
Defining a National Economic Strategy
National Value Proposition
What are the distinctive competitive assets of the

nation’s economy given its location, legacy, existing
strengths, rate of progress, and potential strengths?
• What unique value as a business location?
• In what areas of the economy / clusters?
• Playing what roles with neighbors, the region, and the broader
world?
Developing Unique Strengths Addressing Crucial Constraints
• What elements of institutional context and • What are the crucial weaknesses and
the business environment can be unique constraints that must be addressed to
strengths relative to peers/neighbors? achieve parity with peer countries and
• What existing and emerging clusters allow the country to move to the next
can be built upon? level?
• Priorities and sequencing are a necessity in economic development

Taiwan’s Economic Agenda in 2010

economy
III. Redefine Taiwan’s economic relationship to China
These agendas are interrelated

Taiwan’s Competitiveness Profile, 2009
Harvard Country Competitiveness Model
Country Competitiveness (19)
Macroeconomic Microeconomic
Competitiveness (24) Competitiveness (13)
Business Company
Political Macroeconomic
Environment Sophistication
Institutions (22) Policy (12)
Quality (13) (14)
Rule of Law (29)
Taiwan’s GDP per capita rank

Human is 19th versus 133 countries
Development (24)
Note: Rank versus 133 countries; overall, Taiwan ranks 19th in 2009 PPP adjusted GDP per capita and 19th in Global Competitiveness
Source: Institute for Strategy and Competitiveness, Harvard Business School and Harvard University (2009), based in part on data ??? by the World
Economic Forum
Taiwan’s Strengths
Context for
Competition
• Strong intellectual property

protection and enforcement
• Network of industrial parks, export
Factor processing zones, and free trade Demand
Inputs zones Conditions
• Free and open media
• High level of innovation • Strict local regulations on

• Strong university education, environmental protection, consumer
especially scientists and engineers safety
• Strong research institutions • Sophisticated demand in technology-
Related and
• Excellent basic education related fields
Supporting
• Strong physical infrastructure
Industries
• Labor-management cooperation
• Venture financing
• Some deep clusters in higher technology

Ranking Economic Competitiveness and Prosperity
Harvard Country Competitiveness Index, 2009
GDP per Capita, log scale
(Purchasing Power Adjusted)
$100,000
5.0
Qatar Luxembourg
Brunei USA Norway Singapore

UAE Switzerland
Kuwait Sweden
Bahrain Ireland UK
4.5 Greece Italy Spain Japan Finland Denmark
Taiwan New Zealand
Hungary South Korea
Estonia
Croatia Poland
Russia Mexico
Argentina Chile
Venezuela Turkey Malaysia
Brazil Costa Rica
4.0
$10,000 Dominican Republic Peru Saudi Arabia
Jamaica Thailand Tunisia
Egypt Algeria China
Jordan
Paraguay
Mongolia Morocco
Indonesia
Guyana Philippines
3.5 Vietnam India
Nicaragua
Colombia Indonesia
Nigeria
Senegal
Bangladesh Benin
Ghana Gambia
Uganda Tanzania
$1,000
3.0 Madagascar
Ethiopia Malawi
R2 = 0.7377
Burundi
2.5
Low New Global Competitiveness Index 2009 High


― Improve political institutions

Governance Indicators
Selected Countries
Best
country in
the world
Index of
Governance
Quality,
2008
Voice and Accountability

Political Stability
Government Effectiveness
Regulatory Quality
Rule of Law
Control of Corruption
Worst
country in
lia
le
d
es
a
n
e
a
an
s
y
g
the world
n
nd
an
pa
an
or
ar
re
on
hi
ra
at
iw
hi
ap
Ko
g
C
nl
al
Ja
la
St
C
un
Ta
us
Ze
Fi
er
ng
h
d
A
H
on
h
ut
te
Si
ew
et
So
H
ni
N
N
Note: Sorted left to right by decreasing average value across all indicators. The ‘zero’ horizontal line corresponds to the median country’s average value across all indicators.
Source: World Bank (2009)

― Reduce corruption

Rank in Global Corruption Perception Index, 2009
Corruption Index,
2009
-1 Denmark New Zealand
Singapore Sweden Switzerland
Finland Netherlands
Deteriorating Iceland Canada Australia Improving
Low -11 Hong Kong
Luxembourg Norway
corruption Ireland Germany
United Kingdom Austria Japan
USA Belgium
-21 Chile France
Israel Spain Taiwan
Portugal
-31 South Korea
Hungary Poland
Czech Republic
-41 Slovakia
Italy Malaysia
Turkey
Greece
-51 Brazil
China
Thailand India
-61 Mexico
Indonesia
High Argentina
corruption -71 Vietnam
Philippines
-81 Russia
-91
-20 -15 -10 -5 0 5 10 15 20
Change in Rank, Global Corruption Report, 2009 versus 2001
Note: Ranks only countries available in both years (91 countries total)
Source: Global Corruption Report, 2009

― Reduce bureaucracy and regulatory complexity

Doing Business
Selected Countries
Ease of Dealing
Doing Starting a with Employing Getting Protecting Paying Enforcing Closing a
Business Business Construct- Workers Credit Investors Taxes Contracts Business
Rank ion Permits
Singapore 1 4 2 1 4 2 5 13 2
Hong Kong 3 18 1 6 4 3 3 3 13
United States 4 8 25 1 4 5 61 8 15
Thailand 12 55 13 52 71 12 88 24 48
Japan 15 91 45 40 15 16 123 20 1
South Korea 19 53 23 150 15 73 49 5 12
Taiwan 46 29 97 153 71 73 92 90 11
China 89 151 180 140 61 93 125 18 65
Rank out of 183 countries.

Source: World Bank Doing Business (2010).
Factor Factor Conditions
Conditions
Taiwan's Relative Position 2009
Competitive Advantages Competitive Disadvantages
Relative to GDP per Capita Relative to GDP per Capita
Utility patents per million population 1 Time required to start a business 59
Telephone lines per 100 population 3 Getting Credit, legal rights 54
Tertiary enrollment 4 Paying Taxes, tax rates 44
Quality of railroad infrastructure 6 Soundness of banks 41
Ease of starting a new business 6 Number of procedures to start a business 38
Quality of math and science education 6 Quality of air transport infrastructure 35
Financing through local equity market 7 Protection of minority shareholders’ interests 32
Availability of scientists and engineers 7 Financial market sophistication 31
Personal computers per 100 population 8 Mobile telephone subscribers per 100 population 30
Quality of roads 9 Quality of management schools 26
Quality of domestic transport network: business 9 Quality of electricity supply 24
Internet access in schools 9 Regulation of securities exchanges 23
Venture capital availability 10
Quality of port infrastructure 11
Quality of telephone infrastructure 11
Ease of access to loans 11
Quality of the educational system 11
University-industry research collaboration 13
Source: World Economic Forum and Institute for Strategy and Competitiveness, Harvard University (2009)

― Improve labor force flexibility and ease skilled immigration

Context for Firm
Strategy Context for Strategy and Rivalry
and Rivalry Taiwan's Relative Position 2009
Intensity of local competition 2 Rigidity of employment 64

Restrictions on capital flows 61
Pay and productivity 3 Distortive effect of taxes and 58
subsidies on competition
Low extent of market dominance by 5 Market disruption from state-owned 47
business groups enterprises
Tariff rate 42
Efficacy of corporate boards 12 Prevalence of trade barriers 41
Strength of investor protection 39
Cooperation in labor-employer relations 13
Prevalence of foreign ownership 32
FDI and technology transfer 13 Regulatory quality 30
Strength of auditing & reporting standards 26
Impact of taxation on incentives 13
to work and invest
Labor Force Mobilization
Selected Countries
Employees as % of
Total Population, 2009
70%
60%
50%
40%
30%
20%
10%
0%
ia
a
s
do d
ia
m
es
a
nd
d
nd
ia
ea
e
an
s
ay
te
si
n
si
nd
an
pa
an
Sw por
al
on
d
d
na
in
or
w
iw
hi
la
la
ay
ta
In
ne
bo
tr
nl
Ja
al
r la
gK
pp
or
er
et
C
ai
a
hK
Ta
us
dS
al
Ze
Fi
am
ng
Th
Vi
N
itz
he
ili
on
M
A
ut
te
ew
In
Si
Ph
C
et
So
H
ni
N
N
U
Source: Groningen Growth and Development Centre, Total Economy Database, accessed March 2010; Labor Force Mobilization is defined by total
employment over total population.

― Reduce distortions and barriers to competition

Context for Firm

Tariff rate 42
to work and invest

― Improve the quality and transparency of financial markets

Factor Factor Conditions
Conditions
Taiwan's Relative Position 2009
Utility patents per million population 1 Time required to start a business 59
Telephone lines per 100 population 3 Getting Credit, legal rights 54
Tertiary enrollment 4 Paying Taxes, tax rates 44
Quality of railroad infrastructure 6 Soundness of banks 41
Ease of starting a new business 6 Number of procedures to start a business 38
Quality of math and science education 6 Quality of air transport infrastructure 35
Financing through local equity market 7 Protection of minority shareholders’ interests 32
Availability of scientists and engineers 7 Financial market sophistication 31
Personal computers per 100 population 8 Mobile telephone subscribers per 100 population 30
Quality of roads 9 Quality of management schools 26
Quality of domestic transport network: business 9 Quality of electricity supply 24
Internet access in schools 9 Regulation of securities exchanges 23
Venture capital availability 10
Quality of port infrastructure 11
Quality of telephone infrastructure 11
Ease of access to loans 11
Quality of the educational system 11
University-industry research collaboration 13

economy
― Open Taiwan to foreign direct investment by world-class
companies

Inbound Foreign Investment
Inbound FDI Stocks Stocks and Flows, Selected Countries
as % of
GDP, Average 2000-
2008
80% Hong Kong (92.9%, 320.2%)
OECD Average 17.9% Ireland (105.8%)
Netherlands
Singapore (60.7%, 157.1%)
Vietnam Chile
60%
Hungary
Switzerland
New Zealand Czech Republic Sweden
Slovakia
Cambodia
40% OECD Average: 37.3% Portugal Malaysia
Spain
Denmark United Kingdom
Australia Thailand Canada
Finland Poland
Laos France
Austria
Norway Mexico Israel
Iceland
Russia
20% Brazil
China Germany
Greece Italy Philippines
Indonesia United States
Taiwan Turkey
South Korea
India
Japan
0%
0% 5% 10% 15% 20% 25% 30% 35% 40%
FDI Inflows as % of Gross Fixed Capital Formation, Average 2000 - 2008
Source: UNCTAD, World Investment Report (2009). OECD Average does not include Luxembourg.
Inbound Foreign Investment Performance
Flows, Selected Countries
Inbound FDI
Flows, % of GDP
40%
HongKong
Singapore
China
UnitedStates
SouthKorea
30% Taiwan
Japan
20%
10%
0%
1990 1994 1998 2002 2006 2008
Source: UNCTAD, World Investment Report (2009)

Context for Firm

Tariff rate 42
to work and invest

economy
― Open Taiwan to foreign direct investment by world-class companies
― Grow Taiwanese companies to regional and global stature


economy
― Broaden Taiwan’s portfolio of competitive clusters

National Cluster Export Portfolio
Taiwan, 1997-2007
14.0%
Change In Taiwan’s average
world export share: - 0.23%
Information Technology
12.0%
Taiwan’s world export market share, 2007
10.0% Change (97-07)
Rising Exports
Analytical Instruments
8.0% Declining Exports
6.0%
Sporting, Recreational and
Children's Goods (-5.5%)
Production Communications Equipment
4.0% Textiles Plastics Technology
Metal Manufacturing
Entertainment
Lighting and Electrical
Chemical Products
2.0%
Taiwan’s average world
Medical Devices
Tourism Business Services export share: 2.08%
Motor Products Oil and Gas Products
Apparel
Logistics
0.0% Automotive
-2.5% -1.5% -0.5% 0.5% 1.5% 2.5% 3.5% 4.5% 5.5%
Change in Taiwan’s world export market share, 1997 – 2007 Exports of US$8.8 Billion =
Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business
School; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database and the IMF BOP statistics.
Share of World Exports by Cluster
World Market Share Taiwan, 1997
2% - 4%
4% - 6% Fishing & Textiles

Fishing Prefabricated
> 6% Products Hospitality
& Tourism Enclosures
Agricultural
Products
Transportation Furniture
Enter-
Processed & Logistics Aerospace Building
tainment
Food Vehicles & Fixtures, Construction
Jewelry & Distribution Tech.
Analytical
Services
Business Education & Instruments Equipment
Services Knowledge Power Forest
Medical
Devices Communi-
Publishing cations
& Printing Biopharma- Equipment
Heavy
Financial ceuticals Machinery
Services Production
Motor Driven
Chemical Products Technology
Products
Tobacco
Oil & Automotive
Gas Aerospace Mining & Metal
Plastics Engines Manufacturing
Apparel
Leather &
Footwear Related Sporting Marine
Products & Recreation Equipment
Goods
Note: Clusters with overlapping borders have at least 20% overlap (by number of industries) in both directions.
2% - 4%

Agricultural
Products
Enter-
Processed & Logistics Aerospace Building
tainment
Food Vehicles & Fixtures, Construction
Analytical
Services
Medical
Devices Communi-
Publishing cations
Heavy
Services Production
Motor Driven
Products
Tobacco
Oil & Automotive
Apparel
Leather &
Goods
2% - 4%

Agricultural
Products
& Logistics Enter- Building
Processed Aerospace
tainment Fixtures,
Food Vehicles & Construction
Analytical
Services
Medical
Devices Communi-
Publishing cations
Heavy
Services Production
Motor Driven
Products
Tobacco
Oil & Automotive
Apparel
Leather &
Goods
2% - 4%

Agricultural
Products
& Logistics Enter- Building
Processed Aerospace
tainment Fixtures,
Food Vehicles & Construction
Analytical
Services
Medical
Devices Communi-
Publishing cations
Heavy
Services Production
Motor Driven
Products
Tobacco
Oil & Automotive
Apparel
Leather &
Goods
Clusters and Economic Diversification
Develop Related Clusters
Turn Niche Products Into Build Clusters Around

Deepen Existing Clusters
Clusters Strong MNCs


economy
― Broaden Taiwan’s portfolio of competitive clusters
III. Redefine Taiwan’s relationship with China

Taiwan’s Trade With China
1993-2007
80
US $B
60
40 Imports
Exports
20
-20
-40
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20
Source: Taiwan Bureau of Foreign Trade (2008)
Taiwan’s Total Exports By Partner
Exports (US$M)
300,000
250,000
All Other
Italy
Australia
200,000 United Kingdom
Thailand
Germany
South Korea
150,000 Singapore
Japan
United States
100,000
Hong Kong
50,000
China
0
1998 2008
Source:Taiwan Directorate-General of Budget, Accounting and Statistics

Approved Taiwanese Indirect Investment
In Mainland China, 1991 - 2008
Outbound Flows
($B)
12
10
8
6
4
2
0
Source: Investment Commission, Ministry of Economic Affairs, R.O.C., Statistics on Overseas Chinese & Foreign Investment, Outward Investment, Indirect Mainland
Investment, R.O.C., March 2009.

Ease of Doing Business Rankings
Taiwan’s Relative Position, 2009
Ranking, 2009 (of
183 countries) Favorable Unfavorable
180
160
140
120
100
80
60
40
Taiwan’s per capita 20
GDP rank: 19
0
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ith
of
w
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Hong Kong Taiwan China
Source: World Bank Report, Doing Business (2010).

Toward A Taiwanese Economic Strategy
What Is Unique About Taiwan?
• Highly innovative
• Strong intellectual property protection
• Entrepreneurial
• Flexible business culture reacts rapidly
• Large pool of researchers
• Strong science and technology education, research institutions
• Some deep technology clusters in closely related industries
• Logistics strengthened In past 10 years
• Strong outbound FDI
• Gateway to China: strongest democracy, freedom of speech of any Chinese-speaking
country

Creating a Complementary Positioning
Taiwan
• Innovation center for first-generation

technology
• Manufacturing of high-technology, complex
products
• Strong intellectual property rights and
protection make Taiwan a prime destination
for MNC Asian innovation centers
• Higher education center in science and
technology
• Skills training center for technical workers
China Hong Kong
• Assembly location for less • China commerce and trade

complex manufacturing gateway
• Source of commodities and natural • Business and financial services
resources • Commercialization center for
• Manufacturing center for mass consumer products
consumer market • Management training center
Toward A Taiwanese Economic Strategy
What Is Unique About Taiwan?
• Highly innovative
• Strong intellectual property protection
• Entrepreneurial
• Flexible business culture reacts rapidly
• Large pool of researchers
• Strong science and technology education, research institutions
• Some deep technology clusters in closely related industries
• Logistics strengthened In past 10 years
• Strong outbound FDI
• Gateway to China: strongest democracy, freedom of speech of any Chinese-speaking country
Some Implications
• Make Taiwan the research, technology, and complex manufacturing base for MNCs in Asia
― Become the most attractive site for R&D centers
― Create a welcoming, transparent, and highly efficient investment climate
― Make Taiwan the easiest place in Asia to do business
― Serve as the secure technology gateway to China
― Provide world-class logistics and business services
― Develop Taiwan as a knowledge and education center
― Become a hub for information

Porter On Taiwan Competitiveness - 2010-0408

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Creating an Economic Strategy for Taiwan

Prof. Michael E. Porter

Global Leaders Forum

• Recent economic downturn

• Highest unemployment in decades

• Uncertainty of future relationship to China

Taiwan Competitiveness 20100408 2 Copyright © 2010 Professor Michael E. Porter

• Recent economic downturn

• Highest unemployment in decades

• Uncertainty of future relationship to China

Slide from “The Competitive

Taiwan Competitiveness 20100408 3 Copyright © 2010 Professor Michael E. Porter

Growth of Real GDP per Capita (PPP-adjusted), CAGR, 1990 to 2000

Switzerland Hong Kong

Mexico Chile Russia

Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2000 to 2009

70% Thailand Czech Republic

250 Japan Taiwan

Source: USPTO (2008), EIU (2008)

First-Named Assignee 2004 2005 2006 2007 2008 Total

I. Address some chronic weaknesses

II. Expand, upgrade, and globalize the innovation-driven

III. Redefine Taiwan’s economic relationship to China

These agendas are interrelated

Taiwan Competitiveness 20100408 12 Copyright © 2010 Professor Michael E. Porter

• Productivity and prosperity depends on how a nation competes, not what

• Relentless innovation is necessary to drive productivity growth and

• Nations compete to offer the most productive environment for business

Quality of the Sophistication

Taiwan Competitiveness 20100408 14 Copyright © 2010 Professor Michael E. Porter

Social Infrastructure and Macroeconomic

Political institutions Monetary policy

Taiwan Competitiveness 20100408 15 Copyright © 2010 Professor Michael E. Porter

Taiwan Competitiveness 20100408 16 Copyright © 2010 Professor Michael E. Porter

Taiwan Competitiveness 20100408 17 Copyright © 2010 Professor Michael E. Porter

• Local rules and incentives that

• Availability of suppliers and supporting

• Many things matter for competitiveness

• The presence of a Inherited Endowments

Government agencies Educational Institutions Industry Groups

National Value Proposition

What are the distinctive competitive assets of the

Developing Unique Strengths Addressing Crucial Constraints

• Priorities and sequencing are a necessity in economic development

I. Address some chronic weaknesses

II. Expand, upgrade, and globalize the innovation-driven

III. Redefine Taiwan’s economic relationship to China

These agendas are interrelated

Taiwan Competitiveness 20100408 23 Copyright © 2010 Professor Michael E. Porter

Country Competitiveness (19)

Rule of Law (29)

Taiwan’s GDP per capita rank

• Strong intellectual property

• High level of innovation • Strict local regulations on

Taiwan Competitiveness 20100408 25 Copyright © 2010 Professor Michael E. Porter

Brunei USA Norway Singapore

Low New Global Competitiveness Index 2009 High

I. Address some chronic weaknesses

Taiwan Competitiveness 20100408 27 Copyright © 2010 Professor Michael E. Porter

Voice and Accountability

I. Address some chronic weaknesses

Taiwan Competitiveness 20100408 29 Copyright © 2010 Professor Michael E. Porter