Taiwan's strong focus on hardware could eventually become a weak point, especially in light of the challenge mainland China poses as a low-cost manufacturing base, experts say.

"In factors of production, such as land and labour, Taiwan is slowly losing its advantage over the mainland," Victor Tsan of Taiwan's Institute for Information Industry told Reuters.

"If everything moves to the mainland, what's left?," asked Tsan, head of the state-funded think tank's Market Intelligence Centre.

Tsan said China had overwhelming advantages in its low land and labour costs and could replace Taiwan as the world's information technology (IT) factory in "three to five years".

Comfortable niche
Taiwan tech firms are sitting pretty in their current niche, making sophisticated notebook computers at home and lower-end computer mouses and scanners in their mainland China factories.

Taiwan's IT industry is the world's third-largest behind the United States and Japan. Output was worth $39.9 billion in 1999, according to estimates. It produced half the world's notebook computers and 64 per cent of its motherboards last year.

But little attention is paid in Taiwan to software and content. Eighty per cent of capital investment in the IT goes to manufacturing and testing, Tsan said. Some say this neglect could come back to haunt Taiwan.

"We have to move towards developing and using information,"said James Wong, chairman of Taiwan's Information Services Industry Association. "We've run into an electronic commerce age, and content and software are the most important.""Most of our software companies are very very small," he said. "With support, Taiwan could have a chance."

Stan Shih, chairman of Taiwan's biggest tech conglomerate, the Acer Group, agrees. He has reorganised the group to include two Internet investment arms.Other companies, such as Quanta Computer Inc, which expects to become the world's biggest notebook maker this year, are staying in hardware but also moving into Internet appliances and mobile phones to claim ground in the "post-PC era".

Room for everyone?
For now, Tsan said the global logistics reach of Taiwan companies - many of which have plants in distribution centres throughout the world - as well as their marketing savvy, would keep them ahead of mainland competitors.

China's 1.3 billion customers and abundant cheap labour will continue to attract not only US and European manufacturers but their Taiwan counterparts as well.

But he said there could be room in the IT industry for all the big players."You can't deny the mainland will be an important market and manufacturing base," he said. "I often say that the mainland is the best chance for Taiwan to build its own brand name in the new century."

"In the United States, there will be ideas and innovation. In Taiwan there will be design, and also some innovation. And in the mainland, there will be manufacturing," he said. "It will turn into a clear division of labour."

Reuters