Global Taiwan Studies

Since the 1970s, Taiwanese firms have been known for their flexibility and coordination as small and medium-sized enterprises (SMEs) in a competitive global market. However, advancements in information technologies, the rise of China, and Taiwan’s accession to the World Trade Organization (WTO) in 2002 have introduced new challenges for these firms.

In “Subcontractors’ Dilemma: The Expansion of Taiwanese Firms 2002–2015,” Thung-hong Lin (Academia Sinica) and I analyze firm-level panel data from 2,969 top manufacturers to investigate how and why Taiwanese firms have scaled up their operations in the new century. Our findings reveal that these Taiwanese firms, primarily subcontractors, face a dilemma between expanding operations in China and pursuing industrial upgrading in Taiwan. Expanding operations in China allows firms to take advantage of a large, inexpensive labor pool with relatively minimal effort, but it often results in significantly reduced profit rates. In contrast, industrial upgrading, which is capital-intensive, can be highly profitable for a few Taiwanese firms, but poses significant challenges for most SMEs in terms of attracting long-term investment in research and development. This “subcontractors’ dilemma” underscores the difficulties Taiwanese firms face in surviving global competition and navigating the complexities of the US–China trade conflicts.