Wednesday, May 24, 2006

Innovation is the Key to Survival (Everywhere)

The country is "running out of things that it can produce for world markets that are competitive based solely on price," which "spells death to a host of industries that are currently the nation's bread and butter." "A significant proportion of the production cycle can be easily established in the lower-cost centers of China and India."

The United States? No, Taiwan. An article titled "Innovation is the Key to Survival" in today's Taipei Times says that "the country's cost base is approaching that of North America and Europe" and "production in China is between 5 and 10 times cheaper. "

This is a far cry from the 1960s and 1970s when "Made in Taiwan" meant cheaply manufactured goods that flooded the United States. In fact, the trend toward outsourcing began in the 1980s in Taiwan, when many of its manufacturing industries began moving their production bases overseas. Taiwan shifted more and more to doing custom-designed manufacturing. A few years ago it was manufacturing two-thirds or more of the computers for Compaq, Dell, and IBM. But China is now catching up in those segments, too.

How is Taiwan responding? As the article says:

The answer is actually quite simple: innovate. Seek to make and trade goods and services that push the limits of the international production possibility frontier. No one invests in the U.S. due to cost considerations alone; they do so primarily because the U.S. is home to ideas and processes that are unique in the commercial world. This is the only model for the country's future growth.

Substitute "Pittsburgh Region" for "U.S." and you get a good prescription for southwestern Pennsylvania: no one will invest in the Pittsburgh Region due to cost considerations, they will do so because the Pittsburgh Region is home to innovative ideas and processes.

How to stimulate innovation and entrepreneurship? The Taipei Times article notes:

the suppression of innovation in the country is also attributable to ineffective capital markets. Smart firms have a tough time getting the investment dollars they need here, despite the fact that Taiwan saves 25% of its national income and the financial system is awash with cash…[The growth of] Yahoo, co-founded in the U.S. by Taiwanese entrepreneur Jerry Yang … was only possible in an open financial system that provided the right kind of investment at the right time. Taiwan’s financial system, by contrast, is still dominated by a dozen sluggish state-owned banks, and mired in a web of stifling regulations.

The article concludes "Taiwan...must rely on intelligence to build wealth. And to become a clever country, it needs to start investing like one."

And so must the Pittsburgh Region.


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