Declining competitiveness removes world leader status

Up until the early 1980s, the country was a world leader in both production and export of footwear. However, with the increase in production costs and the resulting decline in competitiveness, there was a massive shift of production to other Asian countries and in particular to the Chinese province of Guangdong. At the same time, China was opening its doors to a market economy and for this reason more than 80% of Chinese footwear manufacturers are linked to Taiwan. In order to minimise investment risks, Taiwanese manufacturers have gradually moved their factories to China whilst retaining product development in Taiwan. This has enabled the industry to transfer technology without losing control over its output. The production concept used means that the customer supplies the materials, the models or samples and the funding, as well as the commercial agreement - similar to classic 21st century 'globalised production'. For this reason, a relaxation of trade policy and Taiwanese commercial exchange controls was necessary. Financial support was provided from Hong Kong and the number of shoes manufactured using this 'formula' increased from 300 million in 1990 to 3 billion pairs in 2000. Nevertheless, the Taiwanese government encouraged companies to keep production on the island to gain the utmost from 'higher added value' and their R & D expertise. For this reason, investments were subject to authorisation from the Economic Ministry Investment Commission. In addition, there are more than 500 products banned from being manufactured in China, but Taiwanese companies have managed to skirt around this rule by securing off-shore financing. In 2001, Taiwanese footwear production reached 39 million pairs, 27 million of which were exported. More than half of Taiwan's exports go to China and the USA, hence it is heavily dependent on the US economy. In 2002, Taiwan imported 14.9 million pairs of leather footwear, worth US$126.8 million according to the Taiwan Footwear Manufacturers Association (TFMA). The average import price for leather shoes from France was US$53.44, from Italy US$62.62 and from Spain US$38.88. There is a strong internal market in Taiwan with demand at around 35 million pairs with a value of TW$60 billion (US$1.92 billion) and the ladies' footwear sector constitutes two thirds of this. Women buy three pairs a year on average and men 1.3 pairs/year. However, students buy between 4-5 pairs, mainly sporting shoes or trainers. Major players in the industry include the Pou Chen Company, the world's biggest manufacturer of sports shoes, and a sub-contractor for companies such as Nike employing more than 65,000 people in the shoe manufacturing unit. The leathergoods market is currently worth an additional TW$5 billion (US$0.18 billion) with bags or handbags comprising 60% of the total, and smaller leathergoods accounting for 30%. With 250 luxury brands available in Taiwan, including footwear and leathergoods, the market is largely dominated by locally manufactured mid-range products. Today, piracy is prevalent in Taiwan, and the US Trade Representative considers the country to be a high risk in terms of intellectual property rights. Imports of Chinese products, now partly authorised, pass through Hong Kong. These represent 36% of Taiwanese footwear exports and 42% of leathergoods. Customs duties are 7.5% for footwear and 5.5% for leather goods. VAT is 5% and port taxes 0.3%.