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 
 
TAIPEI 00001812  002 OF 002 
 
 
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 
 
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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