With the second highest population density in the world after Bangladesh, Taipei’s Rapid Transit System (TRTS) is up to the challenge of transporting the city’s 2.6-million residents.
Designed by three American firms in 1985, construction of the TRTS began in 1988 with the engineering and the electric subway cars manufactured by European, Canadian and Japanese contractors. The first routes began operations in 1996, instantly relieving Taipei residents of overcrowded streets and buses. The expansion of the system into the suburbs has delivered a better quality of life for all residents in Taipei.
The system has five principal color-coded lines and 80 stations, and stretches for 191.3 kilometers (119 miles). As with the Bay Area Rapid Transportation (BART) system, ticket prices on Taipei’s metro are determined by the distance traveled, with prices ranging from NT$20 (US$0.63) to NT$65 (US$2.00). Passengers with bicycles are charged an additional NT$80 (US$2.50) each.
Frequently scheduled trains, together with the orderly behavior of passengers has enabled the system to convey roughly 2.16 million passengers to their destinations each day. The system has consistently received high satisfaction scores, as high as 95 percent, according to a recent survey.
On June 1, Foxconn, the world’s largest contract electronics manufacturer and maker of the iPhone, iPod and iPad, announced a comprehensive 30 percent wage increase for all its production-line workers in China. This bold announcement was followed by another six days later, that the minimum wage at its factory in Longhua, Shenzhen, would more than double from RMB900 (US$132) to RMB2,000 (US$293) starting in October. The company’s actions have sent shockwaves through the foreign investor community in China, according to the Commercial Times. The company has been making news for another reason recently, the alarmingly high number of employee suicides at its Shenzhen campus.
Foxconn, which falls under the umbrella of the Hon Hai Precision Industry Group, is headquartered in Taipei, Taiwan. After the 11th employee suicide at its 300,000-worker Longhua site, Terry Gou, the chairman of Hon Hai, invited over two hundred local and foreign journalists to inspect the facility. This initiative proved effective as the journalists could find little to criticize at the plant. Yet, the very night that Gou returned to Taiwan, the 12th suicide took place prompting him to fly back to Shenzhen immediately.
Gou: “I carry 12 crosses on my back”
At the annual shareholders’ meeting on June 7, Gou said he has ceased the practice of paying the high death benefits, which might be considered by some as an inducement to commit suicide. Foxconn previously paid out almost ten times its employees’ annual wages in death benefits, reported the United Daily News. Gou also stressed, “I carry 12 crosses on my back” and said he takes full responsibility for any management flaws.
In reference to an investigative report by Taiwan’s Suicide Prevention Association, Gou said three of the 12 workers attempting suicide had previous mental disorders, and their actions were in no way related to the work environment or to work pressure. The Foxconn management has been shocked that half of the suicide attempts occurred in quick succession in May, a fact that may be attributed to the so-called “Werther Effect” of copy-cat suicides. After Gou flew to Shenzhen to take personal command of the factory, dozens of suicides were apparently prevented, according to the United Daily News.
Not a “sweatshop,” only a “pressure cooker”
The Taiwanese media has written widely about Foxconn’s management style and Gou’s personality in particular. Yang Ren-kai, a veteran journalist who used to work at Hon Hai said, if Foxconn is a "sweatshop," Chinese journalists who have snuck into the factory by hiding their identity would have broken the story.
Yang wrote in the Journalist magazine that “Terry Gou is downright masochistic…Gou is the axis of Hon Hai, with all the people revolving around him… Gou is an absolute workaholic. He gets up usually around 7 a.m. and enters his office around 8 a.m., he is busy all day, until around 1 or 2 a.m. before returning home… Gou knows of course how to rally his subordinates; however, he has a superior sense of self-motivation. He started Hon Hai from scratch, and has long been fighting to keep his business afloat during hard times. This is all part of his survival instinct.”
Xin Huai-nan, a former senior executive at Hon Hai, said in an interview with the Hong Kong-based Sing Tao Daily that “Gou does not run a sweatshop, and Foxconn is not a “sweatshop,” but it might be a “pressure cooker.” “Hon Hai's culture dictates that it must be superior to its competitors. There are three elements that are crucial – the company must produce better products, with shorter lead times and at a lower cost.” Gou asks his staff to achieve all three. That is why Foxconn is like a “pressure cooker.”
Originally established in Taipei in 1974, Foxconn has held the top spot for a Chinese exporting enterprise according to Fortune magazine’s Global 500 for the last seven years. It employs in excess of 800,000 people in China. The entire employee population at its Longhua complex, including 3,700 Taiwanese workers, is greater than the population of one medium-sized city in Taiwan.
Managing that many employees is not easy and requires strict control, according to David Sun, co-founder of the flash memory maker Kingston Technology, speaking in an interview with the United Daily News. “It is not easy to run a factory, let alone to manage hundreds of thousands of employees, he said. Ray Chen, general manager of Compal Electronics, stressed, “I hope Foxconn can properly deal with this crisis as soon as possible. Otherwise this could lead to a chain of events affecting other Taiwanese and foreign enterprises in China.” In their view, this is not just a Foxconn issue, but is symptomatic of the changing economic and social environment in China.
Is rigid management a necessary evil?
The United Daily News said, China has been playing the role of “manufacturing base” in the global supply chain for almost three decades now. Many Taiwanese people have moved to China to set up operations to create large contract manufacturing businesses. They impose strict discipline when managing tens of thousands of employees to achieve fast delivery and quality production for global brand leaders. As well as the in-demand iPhones, iPods, and ipads, the latest computer models for HP and Dell are also made at Longhua. Even Acer Computer depends on these manufacturers to make its notebook computers in a bid to increase their global market share.
How to manage such a huge group of low-paid workers and achieve maximum performance in a short space of time has proved problematic for foreign businesses in China, but it works to the advantage of the Taiwanese firms. However, the Foxconn suicides are showing that even Taiwan businesses are powerless. Gou lamented, “What can I do except to apologize? I have done my best to seek advice from psychologists, feng-shui masters, Buddhist monks and the media, even announcing a 30 percent pay rise.”
Gou is not without his supporters though. Reporter Wang Zhong-fang wrote in her blog, “The recent criticism by the local media of Foxconn’s management style seems correct on the surface but not altogether correct. Those who have not worked in China do not really understand the situation there. Implementing a strict system is a “necessary evil.” Without such a system or discipline, the management of tens of thousands of workers would descend into chaos, with no production at all…” Wang also compared Chinese workers to their Taiwanese counterparts working in clean rooms at science parks in Taiwan. Asking why don’t they commit suicide? In either case, if these employees dislike their jobs, they can always quit, she wrote.
Generation Y factor
The labor conditions at Foxconn, at least on a physical level, are far better than the requirements stipulated in China’s official regulations, and certainly do not qualify as being a sweatshop. However, other factors could contribute to the high suicide rate; chief among these is the low regard given to the formation of personal relationships, which is reflected in the institutionalized management style. Additionally, most of the workers are young and away from their families and hometowns for the first time, so they might be emotionally vulnerable as well.
Most of today’s Taiwanese business leaders, including Terry Gou, were born into the first wave of baby boomers in the post-war period and grew up in poverty. In order to improve their lives and those of their families, they worked extremely hard to succeed. China is entering a stage where the generations born in the 1980s and 1990s are starting to work, noted the Commercial Times. The thinking of this generation is very different from those of their parents. The tried and tested Taiwanese business management models do not necessarily apply to this generation.
In speaking to the Taipei-based China Times, a senior manager at Foxconn said that young employees come to work with unrealistically high expectations. Whether they are pampered children from a one-child household, or hard workers away from their hometown and family for the first time, they are frustrated when reality does not meet their expectations.
Alienation and a lack of social mobility
The United Daily News also pointed out that China has learned from Taiwan’s experience to become the world’s workshop with an export-oriented economy, but the economic take-off in Taiwan in the 1970s differs from the current one in China. In Taiwan initially there were gaps between the cities and the countryside, but it was not as extreme as in China. In the early 1970s, Taiwanese workers in export processing zones went home at night, so their work pressure had an outlet for release and this allowed for the continuation of a normal family life. The Chinese workers, however, migrate to the cities from all over the country. There is no easy outlet for them to let off steam and forget about the pressures of work and life.
Furthermore, Taiwanese workers enjoyed equal educational opportunities, and social mobility is a real possibility. As long as they work hard, they have the opportunity to start their own business or succeed doing other things. While in China, the migrant workers are unable to register their households in the cities that they move to. The younger generations are excluded from equal educational opportunities. They feel hopeless because it is difficult for them to rise out of poverty regardless of how hard they work.
Preparing for the manufacturing shift
The reality is that the issues raised by the Foxconn suicide incidents signal a fundamental structural problem in China’s economic development pattern.
According to the Taiwan Electrical and Electronic Manufacturers’ Association chairman Arthur Yu-cheng Chiao, speaking in an interview with the United Daily News, Foxconn’s wage rise will mean higher production costs in China over the next three to five years and Taiwanese electronics manufacturers will be forced to leave. When this happens, the association will help them move to India, Indonesia, Vietnam and other countries, he said. Taiwanese manufacturers must expand their industrial scope and invest in new industries. Those firms that stay in China will have to enhance production automation.
Taiwan’s Economic Minister is already preparing for this critical moment in China’s transformation. In an interview with the Central News Agency on June 8, Minister Shih Yen-hsiang said the government will encourage Taiwanese businessmen to return to Taiwan to invest, and to help Taiwanese entrepreneurs transfer their investments to South East Asia, especially Indonesia. The government is urging investors to make technology-intensive manufacturing process in automated factory in Taiwan and move labor-intensive industries in Southeast Asia. The tragic Foxconn deaths serve as a stark early warning to Taiwan's government and businesses to be ready to face these inconvenient truths.
On May 28, Dr. Su Chi, the former secretary-general of Taiwan’s National Security Council was the guest speaker at a luncheon discussion at the Center on Democracy, Development, and the Rule of Law (CDDRL) at Stanford University. The event was part of a larger seminar on “Trends in the Strategic Triangle: US-China-Taiwan Relations in the Coming Decade.” The informal luncheon was hosted by Professor Larry Diamond, director of CDDRL and was on the topic “Assessing the first two years of the Ma Ying-jeou Presidency: A Conversation with Dr. Su Chi.”
Key problems facing the Ma administration
Su began by listing the problems that have dogged the Ma administration since assuming office in May 2008. “Economically, we were hit by the tsunami, the worst since 1929. We were surprised and ill prepared… Then in September 2008, the US economy had a heart attack. We were able to save Taiwan’s banking sector, but could not save our export sector,” he said. This in turn cast doubts on President Ma and his ability to turn things around.
Politically, public trust in government and democracy was at an all-time low. Former President Chen Shui-bian was convicted of embezzling official funds and was detained in jail. The Taiwanese people used to celebrate their democracy, but by the end of 2008, it was hard to celebrate. The opposition party also played a part in manipulating Taiwanese fear of China, according to Su.
In dealing with these issues, the Ma administration has focused on instilling trust, both internal and external, noted Su. Many Taiwanese people felt that the government had betrayed them and it was incumbent on the government to rebuild that trust within the country. Externally, Taiwan also needed to build a good relationship with the US and to prove itself trustworthy again, he said.
Rebuilding trust with the US
Taipei did not want to put the US in the position of again having to mediate between the two sides across the Taiwan Strait, where Washington needed to tell China “I love you” and then reassure Taiwan, but “I love you too,” said Su.
Much to the amusement of the audience, Professor Tom Christensen of Princeton University interjected that the State Department likely did not use “love”, maybe “like.”
Now Taipei is able to communicate directly with Beijing, sparing Washington the need to be the go-between. Since Ma took office, Taiwan’s international standing has improved, stressed Su.
Also, in the early days of the administration, Ma’s government strived not to make promises it could not keep. Ma himself was “surprise-free and low key,” said Su. This meant no hanky-panky, but being predictable where the administrations would consult each other fully. The Ma administration has also not rushed to claim victory at every round, said Su.
Professor Diamond noted the similarities between President Obama and President Ma. The former is noted for being “No Drama Obama,” while the latter is “surprise-free and low key.”
Focus on pragmatism
The Ma administration has focused on pragmatism, according to Su, approaching issues in a pragmatic fashion and not from an ideological standpoint. If it could be done, it would be done. It has not been a matter of what should be done. If it couldn’t be done, then it wasn’t attempted, said Su. As an example, a direct flight to Shanghai took 80 minutes. It made sense to allow direct flights between the two countries, but not direct flights to Taichung since it would be across Taiwan’s central line and not defense savvy, he said.
Pragmatically, the Ma administration sees Taiwan in geographic terms and in terms of US, China and Japan, said Su. Taiwan may represent only 1 percent of the world’s GDP (US - 25%, China - 7% and Japan - 7%), but nobody else is as close to the top three. Besides, Su joked, “we speak better Chinese and Japanese than the Koreans.”
“We have gone from being enemies to being good neighbors with China,” said Su. Eventually, maybe the two countries can be good friends, but Beijing has to show Taipei that they are trustworthy also, he said.
If the FTA-like Economic Cooperation Framework Agreement (ECFA) is signed between Taiwan and China, then fear of China will decrease and economic relations across the Taiwan Strait will be closer. However, people should not expect things to get easier as Taiwan and China become more integrated economically, said Su. The ECFA is shaping up and that by itself is getting more difficult, because both parties are now talking about specifics and fighting to gain ground on the early harvest list. It is the nature of things, Su concluded.
This year, seven Taiwanese high school students took home prizes from the Intel International Science and Engineering Fair (Intel ISEF) held in San Jose, California. In total, an impressive 87.5 percent of Taiwan’s entries won prizes, the highest percentage of any participating country.
Intel ISEF is the world’s largest science fair competition with over 50 countries participating this year. This May, over 1,700 pre-college students competed in 17 categories. The first prize in chemistry went to Jacqueline Hung and Lin Chi-chieh from the Taipei Municipal First Girls’ Senior High School for their experiments with iron selenide and its electrical superconductive properties at minus 273 degrees Celsius without suffering any energy loss.
Also in May, a group of young Taiwanese students competed in Malaysia at the 2010 International Invention, Innovation and Technology Exhibition (ITEX). Organized by the Malaysian Invention and Design Society, the exhibition concluded with Taiwan again outperforming other countries. With the theme of “Green Innovation,” the ITEX had 680 entries from eight countries on display at the Kuala Lumpur Convention Center. Taiwan’s 88 participants were made up of university and high school students, as well as individual inventors. Out of the 47 entries, Taiwan took home 18 gold, 22 sliver, 4 bronze and three special awards.
The results of both international competitions are very encouraging for Taiwan as it seeks to be an innovation leader as well as a hi-tech manufacturing center.
On May 15, the Silicon Valley Taiwanese American Industrial Technology Association (TAITA-SV) held its annual conference in San Jose, California. The association chose to focus this year’s theme on “Health Care Reform – Changes and Opportunities” by inviting speakers knowledgeable about health care reforms in Taiwan and the United States. Dr. Yeh Ching-chuan, the founding CEO of the Bureau of National Health Insurance (NHI), Taiwan’s universal health care system, noted that Taiwan spends one seventh of what the US spends on health care but with the same or better results.
Founded in 1995, the NHI is about to undergo a second-generation of reforms to combat rising costs. The new system will be in place by 2012 and will alter the premium structure currently in place. Before NHI, nine million of Taiwan’s twenty-two million residents were uninsured. Now, 99 percent of the population is insured. The program has consistently earned high satisfaction ratings, ranging from 60 to 80 percent during the last 15 years. It has helped to increase Taiwan’s life expectancy by four years and improved the health of Taiwan’s less fortunate.
Taiwan’s single-payer system is run by the government with mandatory enrollment. The premiums come from employers and the government, with the user also paying a share. The single payer system fosters social equity by protecting low income groups. Moreover, by pooling general administrative costs it also substantially reduces tax costs. As an example, if the US health care administration could be as efficient as Taiwan’s the US would save US$110 billion and cover the 50 million Americans currently without health insurance.
According to Yeh, the virtue of the US system lies in its research and development, which is two to five years ahead of Taiwan’s. This has enabled the US to more quickly adopt new drugs and technology. The US also has excellent medical education. Even so, health care should be an universal right and not a luxury. Taiwan’s system offers uniform benefits and equal access, but also reduces costs and improves efficiency, for instance by using a single database, containing costs and providing a higher level of quality control.
In conclusion, Yeh said the US system is marked by “inefficient insurance,” whereas Canada’s system is marked by “inefficient delivery.” Taiwan’s system is a matter of “inefficient government,” but out of the three, he considers it the better alternative.
In an interview with the Doha, Qatar,-based Al-Jazeera TV network on May 28, President Ma Ying-jeou condemned North Korea’s breach of peace and its use of violence in the Cheonan Incident. President Ma also urged the international community to take joint measures in order to maintain peace and stability in the region. Tensions on the Korean Peninsula have escalated since May 20, when Seoul accused Pyongyang of torpedoing one of its naval patrol ships in March and killing 46 crewmen.
On May 29, President Ma condemned North Korea and supported the joint efforts of the Republic of Korea, the United States, Japan and other countries in seeking to reduce tensions through the United Nations. And, Taiwan is concerned that the use of violence or any provocation will undermine regional peace.
At another occasion that day, President Ma said the Korean Peninsula and the Taiwan Strait were once considered the two dangerous flash points in the region. With significantly improved relations between Taiwan and China, few would consider this area as a tipping point now. However, the Korean Peninsula is still perilous, said President Ma.
As a precaution, Foreign Minister Timothy Chin-tien Yang is ready to evacuate the 30,000 overseas Taiwanese in South Korea if tensions explode between the Koreas. As a contingency measure, a C-130 Air Force transport plane is on standby just in case evacuation is needed said the Ministry of Defense. During the riots by the Red Shirts in Thailand, a C-130 plane was also ready for any evacuation missions.
In addressing what possible impact the crisis on the Korean Peninsula might have on Taiwan, Christina Liu, the new chair of the cabinet-level Council of Economic Planning and Development, told the Legislative Yuan that it would cause “more harm than good.” With very similar industries in common, if South Korea were to be embroiled in a war, international companies would likely turn to Taiwanese manufacturers to fulfill orders instead. As for the negative impact, Liu said, no matter which Asian country has a problem, international capital would withdraw from the region completely. The recent drops of both the stock markets and foreign exchange in Taiwan reflect this dual trend. Also, in today’s economic structure, it is much quicker to shut off capital flows and switch orders.
According to Chen Tian-yj, an economics professor at National Taiwan University, increased tensions on the Korean Peninsula would bring absolutely no benefits to Taiwan. In a world of globalization, we are all closely connected, he said. Instability in any region would impact international trade, especially since South Korea is a large economy and Taiwan is an important trading partner.
Chen is also skeptical about companies switching orders from Korea to Taiwan. He said once war breaks out between the two Koreas, international capital would flee to safer areas. Unless absolutely necessary, orders withdrawn from Korea would not come to Taiwan. Once a war breaks out, not matter who wins, no one will benefit, he said.
Liang Kuo-yuan, president of the Polaris Research Institute in Taipei, said with the global economy still not fully recovered, any uncertainty would simply “rub salt into the wounds.” With the continued debt crisis in Greece and the tensions on the Korean Peninsula, he expects the global stock markets to continue to reflect these tumultuous times.
Based on a newly released forecast from the International Monetary Fund (IMF), Taiwan’s economic growth rate is ranked No. 1 among the four Asian Tigers in 2010, and is expected to remain at the top from 2013 to 2015. According to Christina Liu, the new chairperson of the cabinet-level Council for Economic Planning and Development, Taiwan will continue to be at the top of the pack by embracing an open market policy.
The IMF predicted in April that Taiwan’s economic growth rate would be 6.5 percent, topping the other three economies, Hong Kong, Singapore and South Korea. Although Taiwan used to lead in growth, it has not done so over the past few years. After the global financial tsunami, the world economic order has witnessed a reshuffle so that the island is again outperforming its rivals.
Taiwan’s GDP for the first quarter of 2010 reached over 10 percent, the highest single quarterly figure in 20 years. The director-general of Budget, Accounting and Statistics also said that the GDP forecast will be revised from 4.72 to 5.3 percent.
Many other organizations have upgraded Taiwan’s GDP forecast, including Global Insight, a leading economic and financial intelligence publication, which has upped its February forecast from 5 percent to 5.3 percent.
The United Daily News reported government officials as saying that all indicators of production, export, expenditure and investment show a better forecast than the numbers released in February. First quarter exports reached US$92.17 billion, about 50 percent higher than the same period in 2009. The index of first quarter industrial production rose to 47.12 percent, the highest recorded for a single quarter.
There were 435 cases of overseas investment approved in Taiwan during the first quarter, almost a 26 percentage point jump from the same period in 2009. The total amount of overseas investment was US$1.6 billion, 50 percent higher than the same period in 2009.
In addition to economic growth, Liu noted that Taiwan has worked hard to increase employment, solve its structural unemployment, stabilize commodity prices, and balance income distribution. This has reflected positively in Taiwan’s competitiveness ranking as well.
Taiwan is now the eighth most competitive economy in the world according to the 2010 World Competitiveness Yearbook published by the Swiss-based Institute for Management Development (IMD). This is a huge jump from its 2009 standing of 23rd place. Rising corporate competitiveness and government efficiency have contributed to the island’s ascent. Currently, Singapore is ranked first, followed by Hong Kong and the US, which placed first in 2009.
Regarding Taiwan’s competitiveness ranking, Suzanne Rosselet, Deputy Director of the World Competitiveness Center at IMD, told the Central News Agency that it is really incredible to see Taiwan jump from 23rd to 8th. This shows Taiwan has a high degree of confidence in economic development. Also, based on the “first in first out” theory - meaning the first to enter the crisis should also be the first to exit - Rosselet suspects Taiwan will lead East Asia out of the woods.
After the recession of 2008, Taiwan’s recovery has benefited from China's continued rapid growth, which has helped boost Taiwan’s competitiveness ranking. According to Rosselet’s analysis, the Economic Cooperation Framework Agreement (ECFA) between Taiwan and China will further improve overall economic prospects.
If you would like to use any article in this blog, please contact us.
