Subcontractors’ Dilemma: the Expansion of Taiwanese Firms 2002–2015

Since the 1970s development studies have conveyed an impression of Taiwanese firms as being active small and medium-sized enterprises (smes) with flexibility to successfully survive in a competitive global market. On the contrary, we use the unbalanced panel data of 2,969 top manufacturers during 2002–2015 to explore why and how Taiwanese firms expanded their scale and scope of operations in the new century. Our findings indicate that Taiwanese subcontractors are caught in a dilemma between the expansion of operational scale in China and industrial upgrading in Taiwan. Scale expansion can exploit the large cheap labour pool in China with minimal effort for most smes but significantly reduces the firms’ profit rates. Industrial upgrading is capital-intensive and profitable for a few Taiwanese firms but challenging for most smes to attract long-term investment in research and development. The ‘subcontractors’ dilemma’ explains Taiwanese firms’ struggles for survive in the US–China trade conflicts.