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Overcoming Deadlock Through Trade Integration

After more than two decades of development, cross-strait economic and trade ties between Taiwan and the mainland are undergoing a transition. Likewise, China's economy has also entered a transitional phase.

As the development of the manufacturing sector in China is mature, the low production costs seen during the past three decades are no longer advantageous for Taiwanese businesses operating there, which will need to transform in response to the rising costs and intensifying competition.

Beijing and Taipei along with Taiwan-invested companies should deliberate on the best policies for business transformation.

Taiwanese entrepreneurs working in China have usually adopted two approaches in response to the changing market environment, which have both pros and cons.

Firstly, they shifted their production bases to western China or Southeast Asia where labor costs were lower, but human resources were poorer and transportation was not convenient — unfavorable for global competition.

Secondly, Taiwanese enterprises adjusted their investment structure by shifting focus from processing and manufacturing to producing end products or catering to the services sector. However, Taiwan's advantage in these new areas remains limited because global competitors are already established in the sector.

The best way forward for Taiwanese entrepreneurs in China is to seek cooperation with local companies to consolidate their position in the supply chain. Those in the manufacturing sector should shift their role to the upstream of the supply chain and provide core technology to China as they can generate more profit by stepping out of the processing and manufacturing side.

As for the service industry, Taiwan needs to work with Chinese enterprises because they lack channels and local resources. Chinese companies, on the other hand, have resources but have inadequate technology and creative teams. Although Taiwanese firms are relatively small in size, they have an edge in market strategic planning, management and public relations.

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