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Cablegate: Will Labor Shortages Hurt Taiwan's Tech Sector?

VZCZCXRO6738
PP RUEHCN RUEHGH RUEHVC
DE RUEHIN #1812/01 2220650
ZNR UUUUU ZZH
P 100650Z AUG 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC PRIORITY 6329
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHUL/AMEMBASSY SEOUL 8823
RUEHKO/AMEMBASSY TOKYO 8983
RHHMUNA/USPACOM HONOLULU HI
RUEAIIA/CIA WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 TAIPEI 001812

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SENSITIVE
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E.O. 12958: N/A
TAGS: ECON EINT ELAB ETRD TW CH
SUBJECT: WILL LABOR SHORTAGES HURT TAIWAN'S TECH SECTOR?

1. (SBU) SUMMARY. In the latest attempt to forestall a
predicted shortage of skilled labor that could
disproportionately affect Taiwan's high technology
industries, the Executive Yuan recently approved measures to
attract more foreign professionals to Taiwan. The measures
provide tax and non-tax incentives applicable to
approximately 1,000 expatriate managers and high-tech
workers. The measures, however, are deemed insufficient by
industry professionals and do not seem to be coordinated with
existing programs to attract foreign workers. As the tech
sector grows and Taiwan's population ages, skilled labor
shortages may become more acute, but official efforts to
alleviate potential shortfalls do not yet seem able to
address the problem. End Summary.

ATTRACTING FOREIGN TALENT - THE LATEST ATTEMPT

2.(SBU) The American and European Chambers of Commerce have
long called on Taiwan authorities to allow greater access to
Taiwan's labor market for highly skilled foreign workers. In
response, Taiwan's Council for Economic Planning and
Development (CEPD) drafted new measures to attract foreign
professionals, including small tax breaks and streamlined
administrative procedures for foreigners who come to Taiwan
under existing government recruiting programs. The measures
also provide financial aid to Taipei's American and European
schools. The measures were approved by the Executive Yuan in
late June.

3. (U) The new measures appear to be part of an ongoing trend
to attract foreign talent and support growth in Taiwan's
high-tech sector. The past few years have seen a series of
small steps such as the National Science Council's expanded
recruiting missions and the Ministry of Economic Affairs'
on-line job search tools, all of which are aimed at
alleviating a widely-perceived labor shortage.

TAIWAN'S LABOR SHORTAGE - IS THE SKY FALLING?

4. (U) Employment surveys from the past two years show that,
compared with other Asian economies such as Hong Kong and
Singapore, Taiwan has more firms reporting difficulty hiring
qualified engineering and technical staff. According to
forecasts by the Executive Yuan's Science and Technology
Advisory Group (STAG), Taiwan will continue to see large
labor shortages, particularly in the semiconductor industry,
for at least the next two years, if not longer. Executives
at Taiwan Semiconductor Manufacturing Company (TSMC),
Taiwan's largest semiconductor foundry, claim to have no
difficulty finding qualified staff, but say many of their
competitors do. According to CEPD data, growth in the
semiconductor industry could require 7,000 more electrical
engineers than are now available.

5. (U) In contrast, changes in the composition of Taiwan's
technology sector have caused labor surpluses in some
industries. The telecommunications sector has seen declining
growth, and biotechnology has not yet lived up to earlier
estimates of growth, with the result that both industries
have excess labor supply. Even if it were possible to
redistribute these surplus workers to other industries, STAG
still estimates Taiwan already faces a net shortage of about
10,000 high-tech workers.

SYSTEMIC AND DEMOGRAPHIC CHANGES COMPOUND THE PROBLEM

6. (SBU) In a meeting with econoffs, TSMC Director of
Investor Relations Elizabeth Sun and CFO Lora Ho suggested
Taiwan's skilled labor shortage is at least partly caused by
the poor quality of the higher education system, especially
the lack of advanced research institutions. This concern has
been heard in Taiwan for several years. This year's National
Science Council White Paper on Science and Technology, for
example, states that Taiwan's university system has expanded
too quickly and has diluted the quality of professors and
staff. Increased availability of domestic university
positions has kept more Taiwan students at home, resulting in
fewer students with overseas education and work experience,
attributes which high technology firms want. In addition,
the expansion of Taiwan's higher education system has not
generated significant increases in the number of master's
degree graduates in technical fields, precisely where the
shortages are most severe.

7. (U) A decline in Taiwan students' educational

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qualifications, combined with Taiwan's falling birth rates,
suggests that the shortage of qualified professional workers
cannot be resolved through the educational system alone.
Taiwan will need to attract foreign professionals if it hopes
to maintain growth in the high technology sector. Whether
the newly-approved measures can significantly improve the
situation is unclear.

BUILD IT, BUT WILL THEY COME?

8. (SBU) Some industry executives and expatriate
professionals in Taiwan predict the new measures will have
little effect. The American and European Chamber of Commerce
have called for the CEPD to expand measures to encompass all
foreign professionals, as the number of new professionals
that may be attracted to Taiwan by the measures as written is
insignificant. The measures' CEPD drafters admitted to us
that they have no target for the ultimate impact of the
measures, which suggests this move may be just the latest in
a series of uncoordinated steps to resolve the high-tech
labor problem. A recent editorial in the English-language
Taipei Times emphasized the ineffectiveness of Taiwan's
efforts to attract foreigners compared to the programs of
Hong Kong and Singapore, and called for more concrete,
large-scale efforts.

9. (U) In recent meetings with econoffs, administrators of
Taiwan's Hsinchu Science Park said the most important factor
in attracting foreign professionals is a welcoming
environment, but language and cultural difference make Taiwan
a difficult adjustment for many foreigners. Ironically,
mainland Chinese, who would not face many of these obstacles,
are subject to employment restrictions in Taiwan. Chinese
professionals are only permitted to transfer to Taiwan within
a multinational company if they have been working there for
more than one year.

10. (SBU) HB Chen, president of AU Optronics, told econoffs
that although his firm has moved significant operations to
China to take advantage of cost savings through supply chain
integration, Taiwan continues to be the center for its design
and front-end processes. For this part of the business, he
told us, Taiwan's labor quality is superior, while China's
talent pool is still developing. TSMC executives told us
that they see China as having great human resources
potential, but do not see value in moving operations there.
TSMC CFO Lora Ho said that labor is a small part of TSMC's

SIPDIS
costs as a semiconductor foundry, and due to the
organizational advantages, her company would benefit most
from skilled engineers who could integrate with their
existing operations. In other words, the quality of mainland
labor is seen as sufficient for manufacturing, but
insufficient for design and advanced processes. Regardless
of Taiwan's restrictions on cross-Strait business, relocation
to China is not the solution for all of Taiwan's labor
demands.

COMMENT

11. (SBU) Estimates of the extent of Taiwan's skilled labor
vary immensely, but there is a growing consensus that there
is a shortage. Continuing growth in the global market for
semiconductor and display technology, sectors where Taiwan
companies hold leading positions, is undeniable. If Taiwan,
ranked 6th in the world for information technology
competitiveness by the Economist Intelligence Unit, seeks to
maintain the competitive edge its companies derive from their
experience and organization, it will need many new
engineering professionals. But with all of the challenges
Taiwan faces in attracting foreign talent, it is unclear
whether Taiwan's tech companies will get the qualified
professionals they need to fuel future growth. End Comment.

YOUNG

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