Chapter 2: Taiwan’s Advantages

According to the 2003-2004 Global Competitiveness Report by the World Economic

Forum (WEF), Taiwan ranked fifth out of 102 economies around the world, and first
in Asia on the Growth Competitivenss Index (CGI), the WEF’s key indicator of
medium to long-term economic growth expectancy. Additionally, Taiwan’s
innovation potential is illustrated by the fact that the island holds the fourth highest
number of United States patents of any country in the world. Taiwan was also ranked
fifth in the world by Swiss risk assessment company BERI in its Business
Environment Risk Report. BERI described Taiwan as a low-risk country suitable for
investment. These evaluations once again identify Taiwan as one of the most
favorable environments for investment in Asia.

With over 50 years of solid economic development, Taiwan has established a high
degree of economic liberalization and possesses a number of substantial advantages:

I. Favorable Assessments from International Ratings Institutions

1. Recent assessments of Taiwan:

Taiwan worldwide rankings by international assessment institutions BERI, IMD,

PERC, WEF and EIU (scores in parentheses):

BERI IMD Global PERC Business WEF Growth EIU Business

Investment Competitiveness Environment Competitiveness Environment
Environment Report Comparison Comparison
Risk
Assessment
Report
April 2003: 4th June 2002: 7th April 2002: 8th December 2001: 1998-2002: 21st
(72) (4.61) 6th (7.34)
April 2004: 5th May 2003: 6th April 2003: 6th November 2003: 2003-2007: 17th
(72) (4.19) 5th (8.09)

Notes: (1) Scores used internally: PERC scores range from lowest to highest; EIU
rankings represent rank among Asian economies.

2. Assessment Notes:

(1)BERI was optimistic on Taiwan’s investment climate, citing Taiwan’s policy

continuity, attitude toward foreign companies, unlikelihood of returning to
state-run enterprises, economic growth and other positive indexes.
 (2)The IMD World Competitiveness Report notes that Taiwan has improved in
four major categories since 2003. IMD also notes that economic performance
and government efficiency have improved since 2002, concluding that
Taiwan’s competitiveness is on the rise.
(3)PERC ranked Taiwan 6th (4.19), two places higher than in 2002.
(4)WEF raised Taiwan’s growth competitiveness index rank from 6th place to 5th
place, while it’s company competitiveness remained at 16th place.
(5)EIU’s report (November 2003) ranked Taiwan’s historical performance
(1998-2002) as “good”, while its future prospects (2003-2007) rated
“excellent.”

II. Solid Industrial Infrastructure, Strong Vertical Integration Capacity in IT and

Electronics Industries

Over the past 20 years, Taiwan’s development has focused on information technology
(IT) as the economy’s driving force. With high quality labor resources, supply chain
integration, vertical and horizontal division of labor systems, and flexible and rapid
supply chain development, Taiwan has become an integral link in the global high
technology industry supply chain.

Products for which Taiwan was the world’s largest supplier in 2003:

World Number 1 World Number 2 World Number 3

1. Notebook PCs 1. IC Design 1. DRAM
2. Wireless LAN 2. Digital Still Cameras 2. Flat Panel Displays
3. xDSL Modems 3. Polyester Filament (including LCDs)
4. Cable Modems 4 . Polyster Staple Fiber 3. Nylon Fiber
5. Foundry 5. Purified Terephthalic Acid 4. Screws and Nuts
6. IC Packaging 6.Polyurethanes Synthetic Leather
7. SOHO Routers
8. LCD Monitors
9. Optical Disk Drives
10. Motherboards
11. Recordable Optical Disks
12. Network Interface Cards
13. Hubs
 14. ABS Copolymers
15. Glass Fiber
16. Bicycles
17. Ethernet Switches
18. Power Chairs

III. R&D Capacity

To maintain continued growth and economic competitiveness, Taiwan is placing an

ever-increasing emphasis on improving R&D capabilities. National expenditure on
R&D as a percentage of GDP rose from 1.66% in 1990 to 2.30% in 2002. Also in
2002, the number of SCI scientific dissertations published in Taiwan reached 10,381,
the 18th highest in the world, and Taiwan was granted 5,431 US patents (excluding
new models), the fourth largest quantity in the world after the US, Japan and
Germany.

R&D as % of GDP

2.5 2.16
2.05 2.3
1.88
1.75 1.78
%

2 1.7
2.05
1.97
1.5 1.78 1.77 1.8

1
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2003
Year

IV. Asia’s Leader in Venture Capital

Taiwan’s venture capital industry is now the largest in Asia. Venture capital firms can
flexibly integrate technology, personnel, market opportunities and capital investment
in new technology industries.
Since the venture capital industry was first established in Taiwan in 1983, a total of
nearly NT$160 billion has been raised and invested in over 8,000 technologies,
helping over 300 domestic and foreign high tech companies to launch IPOs. In
Taiwan, nearly half of all listed technology companies have some venture capital
backing. The NT$110 billion invested in domestic high tech industries by Taiwan
venture capital funds has resulted in an industry with NT$1.3 trillion in capital. By the
end of 2003, Taiwan had a total of 209 venture capital firms, and had raised a total of
NT$158.346 billion in venture capital in over 8,400 investment projects mainly
focused on the semiconductor, IT, telecoms, electronics, and fiber optics industries.
The growth of these industries in Taiwan has clearly benefited from venture capital
investment.

V. Complete Information and Telecommunications Infrastructure

In response to a general worldwide trend toward telecoms privatization, and to

provide the public with greater choice of telecoms providers, Taiwan began
privatization of the industry in 1998. Since then, the industry has seen rapid growth in
both quality and quantity. By the end of 2003, a total of 97 licenses had been issued
for a range of telecommunications services and the numbers of local phone line and
mobile phone subscribers had reached 13.36 million and 25.09 million, respectively.
There were 590.8 telephone line subscribers per 1,000 people, and 1,109.9 mobile
phone subscribers per 1,000 people.
According to statistics from the International Telecommunications Union (ITU),
Taiwan’s mobile phone saturation of 1,109.9 per 1,000 is now the highest in the world
for the second year—far higher than the US (at 488.1 mobile phones per 1,000
people), Japan (636.6 per 1,000) and South Korea (679.5 per 1,000) (year 2000
figures). Outgoing call minutes reached 23.2 billion, or an average of 34 hours per
person per year.
With increasing computer ownership, Internet accounts in 2003 reached 7.84 million
users, reflecting an average growth of 36.2% per year over the last five years. Of
these, ADSL broadband subscribers reached 3.01 million – a huge increase over the
1999 figure of only 4,000 subscribers. These figures illustrate the huge achievements
Taiwan has made in establishing telecommunications, information technology and
Internet infrastructure.

VI. Port Infrastructure: Taiwan’s geographical location provides significant

 advantages for shipping and transport. In March 2004, legislation was passed to
designate Kaohsiung Port and Keelung Port as free trade zones beginning in
January 2005 and September 2004, respectively. This measure will speed up
customs procedures, increase the flow of goods and lower business operating
costs.

VII. High Degree of Digitization, Automation, and Computerization, and an

Increasing Emphasis on Knowledge Industries

VIII. Taiwan has vast experience in doing business with both the international
community and Mainland China, placing the island in a prime position to play a
key role in the future integration of the Asia-Pacific region.