Taiwan's manufacturing industry has a comprehensive upstream and downstream supply chain structure, as well as an abundance of high-quality professional talent. Industries from machinery, petroleum, plastic and rubber to advanced semiconductors in Taiwan have introduced advanced technology and equipment into their manufacturing processes. However, manufacturers in Taiwan have primarily focused on enhancing production efficiency as part of the B2B business model, according to Joseph Chou, chairman and CEO of PwC Taiwan. As a result, they have emphasized volume-based pricing and provided the most efficient and competitive prices to satisfy customers. Now, Taiwan is facing new challenges as consumer market demand moves toward a new economic model that emphasizes diversification - smaller volume with more diversity. For businesses adjusting to this new model, digital transformation and innovation have become good remedies.
The significance of digital transformation lies in creating value
Taiwan-based companies have strong manufacturing capabilities. Yet, at the same time, they are constrained by OEM thinking and lack the innovative imagination of new business models. They do not sufficiently understand end users and have been unable to grasp end-to-end marketing, operations, manufacturing, management and customer analysis. Traditional business models must change. Nowadays, companies that engage in B2B must also be capable of B2B2C and solving their customer's customer's problems.
Taiwan-based manufacturers must begin to understand end-user requirements to raise their competitiveness. While digital innovation helps Taiwanese businesses complete their digital transformation, there are still challenges.
Taiwan-based companies generally face three main issues. The first is not having a clear digital transformation goal and not knowing how to execute it. There are many ways to implement a digital transformation plan, but it is easy to veer off course without a well-established goal from the outset.
The second is not having enough professional talent well-versed in digitalization. Good digital professionals do not necessarily need a background in IT, just as technicians with IT backgrounds are not automatically good digital professionals. A good digital professional must be able to develop new and original business models.
Last is the lack of digital mindset by business decision-makers. Half of the decision-makers currently at companies in Taiwan are of an older generation and have a limited understanding of the value of digitalization. They have reduced digitalization to a task that is done for the sake of being done and ultimately does not address the actual issues. Furthermore, due to the traditional OEM way of thinking, many Taiwan-based companies only focus on lowering costs instead of creating value when carrying out their digital transformation.
However, COVID-19 has accelerated the digital transformation process for businesses in Taiwan. This year, Taiwan-based companies searched for the best business model to cope with the pandemic. Right now, a willingness to change and speed of execution are the keys to success.
Some companies will seek external resources, not just consultants but also upstream and downstream suppliers and others in the same market. If companies have time to plan ahead of a digital transformation deployment, they should prioritize setting goals, gradually executing them, and then implementing them. For companies that have yet to execute a digital transformation plan, using success cases from within the same industry should help them better understand the necessity and practice of digital transformation.
Execution strength is an advantage of Taiwan-based small and medium enterprises (SME). Knowing that others in their industry are also engaging in digital transformation will accelerate their progress.
Corporate venture capital provides startups with more channels
According to the 2020 Global CVC Report, there were 3,359 deals backed by corporate venture capital (CVC) in 2020 globally, for a total investment amount of US$73.1 billion and a growth of 24% compared to 2019.
The pandemic disrupted existing business models, leaving companies in a state of uncertainty and paying more attention to transformation strategies. Global technology and telecommunications industries are not the only ones paying closer attention to CVC development and execution, more and more companies in Taiwan are also starting to develop CVCs.
Corporate venture capitalists have a clear understanding of company development strategies, plans and goals, which allows them to better grasp their investment requirements. This is why they are such an important communication channel between businesses and startups. Corporate venture capitalists can discuss cooperation with startups based on their corporate strategic goals. CVC is not just a financial investment - it is also an important radar for business strategy development. As such, there should be a dedicated team responsible for CVC with a trader that is an expert in the field.
Startups should utilize the new advantages solutions provide to businesses as the main entry point when working with corporate venture capitalists. They should also do a proof of concept using the pain points of large enterprises. Large companies believe the market will be more willing to invest by using real cases to demonstrate solutions.
Governments should also use policies to help startups develop overseas channels. For example, when comparing Taiwan and South Korea, Taiwan mainly assists startups through financial subsidies, whereas South Korea uses policies. Not only do policies substantially reduce the uncertainty for startup operations, but they also allow startups to solidify their position in the future market.
Development potential for Taiwan startups in semiconductors, AI
Taiwan has developed a strong foundation in semiconductor and IC programming over the years. Its competitive strengths lie in important future technology applications such as self-driving technology, the internet of things (IoT), electric vehicles (EV) and LiDAR. Many of these technologies are extensions of semiconductors and AI. Additionally, the higher education and business environments in Taiwan are very good, which means there is great opportunity and potential for semiconductor and AI startups.
Over the past few years, Taiwan has been talking about how it can nurture unicorn companies. Most of Taiwan's startups have a solid technological foundation, but they must also have the vision to develop their operating structure internationally. In the end, Taiwan-based startups must position themselves in the global market and gain worldwide recognition if they want to become a unicorn.
Joseph Chou, chairman and CEO of PwC Taiwan, points out that most of Taiwan's startups have a solid technological foundation, but they must have the vision to develop their operating structure internationally.
(Editor's note: Readers can download "2021 Taiwan Startup Ecosystem Survey" jointly conducted by PwC Taiwan, TIER and DIGITIMES: https://www.pwc.tw/en/publications/taiwan-startup-ecosystem-survey.html)