While the overall economy caught a severe cold in 2008, Taiwan's service industry retained its vigor, posting total annual revenues of more than NT$7 trillion at an annual growth rate of 3.2 percent. But for the lion's share of the service industry, the more severe and immediate challenge is expanding slimming profits margins amid all this growth.

While turnover hit record levels, total profits were cut in half – a clear warning signal. There was only a slight decline in the number of companies that were operating in the black last year, but the average profit margin shrank by 50 percent.

General contractors, for instance, enjoyed a revenue growth rate of 11.54 percent last year. But average net profit was NT$167 million, down from the NT$186 million of the previous year.

Telecommunications, Shipping and Construction Booming

Amid this profitability crisis the telecommunications industry stands out with a stellar performance. The industry last year made a total of NT$12.517 billion and maintained its 2007 top spot in terms of average net profit. The top three in the industry – Chunghwa Telecom, Taiwan Mobile and FarEasTone – all rank among Taiwan's Top 50 service enterprises, both in terms of net after-tax profit and profit margin..

Shipping companies and shipping agents also retained the strong profitability they enjoyed in 2007. Seven out of the ten companies with the highest profit margins are from this industry.

And within the shipping sector, bulk carriers were doing particularly well. Shi Wei Navigation, Chinese Maritime Transport, U-ming Marine Transport and Taiwan Navigation all shone with profit margins above 50 percent.

"The lion's share of cargo is ironsand and coal. The demand for these in China is particularly strong," observes Younger Wu, professor at the Department of International Trade at the Technology and Science Institute of Northern Taiwan. Bulk carriers did brisk business on the back of China's strong economic growth, registering record booms in 2007 and the first half of 2008.

Yet this year robust growth in the service industry is more concentrated than last year. One industry with notably strong growth is general contracting. Mitsui & Co. (Taiwan), Li Jin Engineering, Ruentex Engineering & Construction, and Apex Science & Engineering Corp. all rank among the Top 10 fastest growing enterprises.

Patrick Chou, spokesman for general contractor Continental Engineering Corporation, notes that during the first half of 2008 the industry still benefited from the 2007 boom in private-sector construction projects and the real estate market, but that the economy markedly cooled down in the latter half of 2008. This year the industry may turn on its head, Chou feels, with projects in the previously languishing public sector posting growth instead.

Many expected the tourism industry to take off thanks to new government policies opening Taiwan to Chinese tourists. Yet the much touted boom has not yet materialized, and no hearty growth surge seems to be in sight.

Revenue growth rates in the tourism and hospitality industries were lower than last year, showing an industry slowdown. The industry's average net profit also shrank compared to the previous year.

Grand Formosa Regent Taipei CEO Amy Hsueh believes that the Taiwanese could carve out a niche for their tourism industry if they use their sophistication and creativity. If Taiwan establishes a strong position in the Greater China region, she contends, it could eventually lead to explosive growth.

Enter Asus

This year for the first time, Asustek Computer (ASUS) was included in the rankings for Taiwan's Top Ten service enterprises, and it immediately snatched fifth place.

ASUS separated its contract manufacturing business and its own-brand business on Jan. 1 last year, following the example of major rival Acer, which spun off its ODM operations as Wistron Corporation in 2002. With its development of the netbook Eee PC, ASUS proved that it has a good nose for what consumers want. And thanks to the Eee PC's brisk sales, ASUS rapidly rose in popularity, becoming the world's fifth largest laptop brand.

But in the latter half of 2008, ASUS suffered from narrowing profit margins, seeing the second largest decline in profitability in its 18-year history. ASUS chairman Jonney Shih frankly admits that the company needs to focus on a "psychologically persuasive" long-term branding strategy.

"The way to win hearts in the branding war is to keep saying the same thing over and over again, to imprint it in consumers' hearts and minds," notes Shih in an interview with CommonWealth Magazine.

Having braved the economic winter, Taiwan's service industry is hopefully looking for signs of approaching spring. A rebound in consumer spending and a boost from favorable government policies could bring the warm breeze that is urgently needed to thaw the economy.

Translated from the Chinese by Susanne Ganz 

Chinese Version:  營收飆高　成長火力集中