Coping with the fallout from the international financial crisis, an unemployment rate above 6 percent and plummeting domestic consumption, Taiwan's service industry saw its total annual revenue shrink 1.2 percent year-on-year, yet still managed to stay above the NT$7 trillion mark.

There is a silver lining to the doom and gloom. Among those companies that posted profits, total combined net profits doubled from 2008, recovering to the 2007 level of NT$200 billion, while the average profit margin returned to 3 percent.

Cars, IC Distribution in the Black Again

Amid dismal domestic consumption and falling total revenues, the telecommunications industry managed to come out at the top in terms of average net profits for the third year in a row, with net profits of NT$11 billion.

Information technology, communications technology and IC distribution, which had been hard hit by the financial crisis two years ago, were the sectors to first see the light at the end of the tunnel this time. While they posted negative revenue growth of 4.5 percent in 2008, revenues grew 7.6 percent in 2009. Simon Huang, chairman and president of Asia's largest electronics distributor WPG Holdings, said in an exclusive interview with CommonWealth Magazine that IC distributors are among the first to feel increasing demand since they are closest to the market end. WPG's order and inventory system, which precisely tracks daily changes, showed signs of an economic recovery as early as late 2008 and early 2009, notes Huang. IC distributor Yosun Industrial, which was bought out by WPG in March, also made it into the 2009 Top Ten of the largest companies in the service industry, squeezing out Yang Ming Marine Transport.

Automobile dealers, whose average revenues had hit rock bottom in 2008 with a negative growth rate of 20 percent, engineered a V-shaped recovery last year as revenues soared 28 percent.

The real estate development industry moved up in the profitability Top Ten, ranking second in the service industry in terms of average profit margin. Eight of Taiwan's top 20 most profitable companies are real estate developers. Patrick Chou, spokesman for the major general contracting firm Continental Engineering, explains that real estate developers profited from urban renewal projects that the government launched in the second half of 2009. On top of that, the government and other industries divested of real estate at an accelerated pace as the economy began to rebound.

General Contractors, Marine Transportation See Downturn

While some have reason to rejoice, others have laments to chant. Passenger transportation, the software industry, general contractors, marine transportation and shipping agents, which were going strong in 2008, began to operate in the red last year.

Analyzing the reasons for the slump in the general contracting business, Continental Engineering's Chou notes that private-sector construction projects came to a virtual standstill in the first half of last year in the wake of the financial crisis. And a pump-priming public works package that the government had in the pipeline was shelved after a NT$200 billion special budget had to be passed to rebuild areas wrecked by typhoon Morakot in August last year. At the same time the government gave out the remaining public works contracts to as many contractors as possible to keep them in business and save jobs amid rising unemployment. As a result, revenues were clearly affected, Chou points out.

Marine transportation and shipping agents were the hardest hit among the service industry, seeing their revenues dwindle by a staggering 47 percent.

Wu Younger, a professor in the Department of International Trade at the Technology and Science Institute of Northern Taiwan, notes that international container volume nose-dived to a historic low last year. To make things worse, international shipping lines engaged in a cut-throat price competition. With demand and supply severely out of sync, hundreds of huge merchant vessels – container ships, bulk carriers, freighters and oil tankers – were at one time laid-up off Singapore, forming an unprecedented spectacle.

"The bigger the scale, the bigger the losses. Every month means piling up a terrifying loss of several billion NT dollars," says Wu in explaining the depth of the crisis for the shipping industry. In order to survive the economic winter, companies have needed flexibility, stamina and persistence. He cites as an example Wanhai Lines, which last year immediately suspended long-haul routes to cut losses. And Evergreen Marine was the only major container line to post comparably small losses, because it had not placed orders for new vessels in 2007 when business was brisk. Therefore, it did not need to keep a large cash position for taking delivery of ships last year and also faced less pressure with regard to crew management. Yangming Marine, on the other hand, racked up losses of NT$15.8 billion last year.

Although marine transport and shipping agents are bringing up the rear when it comes to revenue growth, they retained the top spot for the average profit margin. Chinese Maritime Transport, U-Ming Marine Transport and Taiwan Navigation still rank high in the Top Ten most profitable service companies in 2009, just as they did in 2008.

Wu points out that bulk shipping companies make part of their money from leasing bulk carriers for fixed periods, and collecting leasing fees just like a landlord gets rent from his tenants. They are somewhat less affected by the global shipping slump, because they still have revenue from the leases even if the vessels lie idle for lack of cargo. Equally less affected by the economic slowdown were third-party logistics providers, which do not have their own fleets per se. Instead, they make money by charging a premium on shipping rates.

Henry Kao, president of Taiwan's second largest drugstore chain Cosmed, is cautious about the rebounding economy, even though his company managed to post 30-percent profit growth. "An economic recovery also means that competition will get fiercer," Kao notes.

The future direction of Taiwan's service industry is difficult to project, as instability in such key factors as exchange rates, oil prices or inflation rates may result in market volatility. Other variables include the Economic Cooperation Framework Agreement (ECFA) that Taiwan plans to sign with China, the envisaged formation of ASEAN plus One, the administrative restructuring of five metropolitan areas in Taiwan, and the implementation of the just adopted Statute for Industrial Innovation. Yet companies that have shown enough flexibility to make it through the economic winter have also early on seized the opportunity to buy out weaker rivals. Prominent cases are WPG's merger with Yosun, as well as the acquisition of the Regent international luxury hotel business by Formosa International Hotels Corporation, which owns the Grand Formosa Regent Taipei. And now that ship prices have come down substantially, Evergreen Marine, which currently does not have any vessels on order, is planning to go on a buying spree.

The recession has thoroughly reshuffled Taiwan's service industry. Whether Taiwanese enterprises will rise or fall, thrive or wither in the coming years as the economy starts to rebound depends on whether they have gathered enough energy to take a big leap in the right direction.

Translated from the Chinese by Susanne Ganz