During the 1950s, state-owned enterprises (SOEs) were so dominant that SMEs operated only at the margin. Their role was transformed in the 1960s when they began to serve as suppliers of multinational firms. Over time, as SMEs branched out, they became Taiwan’s engine of growth, dominating the export manufacturing sector. Agressive entrepreneurship, flexibility, and quick response to market changes led their operations to be characterized as “guerilla capitalism.” The ability to adapt quickly to market opportunities was sustained over time. For example, “one small manufacturing firm had nearly 3 million toy dinosaurs in US stores a week before the opening of Jurassic Park.
By 1998, approximately 80% of Taiwan’s labor force worked for SMEs with over 95% of Taiwan’s 930,000 registered companies falling into that category. SMEs accounted for half of the island’s aggregate export value.
All observers weren’t sold on SMEs, however. In 1990, Robert Wade noted “that the 96% of firms with under 100 employees produce only about a quarter of manufacturing output and value added.”
SMEs Model the Family Firm
SMEs typically employed less than 200 regular workers, averaging 40-50 employees. They were organized on the model of the family firm. This meant that family and kinship networks
perform diverse functions and depend on highly personal ties of trust and reciprocity in which favors and assistance are mutually bestowed and received in local as well as broad spatial settings.
Frequently members of one family provided the total capital required for start-up.
The firms are still the preferred model in Taiwan with workers beginning their career as employees of large corporations but striking out on their own as soon as they have access to enough capital to start a business. It is estimated that they account for 97.4% of Taiwanese-owned firms.
The role of SMEs was much greater in the 1960s through the 1980s than that of Taipei’s largest conglomerates. In fact, they produced almost two-thirds of the nation’s exports during this period. This despite the fact that they were usually forced to obtain financing from the informal market where they often paid interest rates as high as 300%.
The dynamism of SMEs was due to their link to the international economy. While the national political scene was primarily reserved for mainlanders, the country’s economic resources came to be held largely by the Taiwanese. Eventually, however, the economic cleavage between this group and the KMT-connected economic elite became a political division as well. The entrepreneurs became active financial and political supporters of the emerging opposition Democratic Progressive Party, the DPP.
Photograph by Denise Chan.
For more information on Taiwan’s economic development, check out our earlier posts: