On a warm evening in the summer of 2019, I went to the Raohe Night Market in Taipei. I stood in line, hoping to sample the Fuzhou pepper bun that had been described as “freshly made crusty buns” that “burst with pork juices and pepperiness.” 

I was there because Fuzhou pepper buns was a Michelin rated food stall – who can resist a Michelin rated meal at affordable prices?   Now Michelin only rates upscale restaurants, the places that one only goes to on special occasions.   But when Michelin first rated restaurants in Taiwan in 2018, it found Taiwan’s night markets so enticing that it broke its tradition and handed out Michelin stars to 20 food stalls in the night markets.  

Many other people had the same idea that evening and we all waited patiently for our turn holding our Michelin guides.  But I would never taste the famed Fuzhou pepper bun.  After waiting for almost an hour, there were still many people ahead of me, and I had an early morning start the next day. I gave up and went to a neighboring food stall. It was a missed opportunity for me, but more importantly, it was a missed opportunity for Taiwan.

The Michelin star of the Fuzhou pepper bun suggests that it is a product that a large number of people around the world would enjoy, if only they could get their hands on it.  Think of it as the equivalent of TSMC’s 3-nanometer chip that the world’s leading companies eagerly buy.  The difference is that the millions of customers that would enjoy the Fuzhou pepper bun simply can’t buy it.

How can Taiwanese services be more accessible? (Source: flickr@changyisheng CC BY 2.0)

How successful would TSMC be if its customers had to visit Hsinchu or Tainan to purchase every single chip?  TSMC is a world leading company because it makes world-class computer chips. But an equally important part of its success is that it is also able to produce the same chip millions of times and ship it relatively cheaply to customers all over the world. 

You may think, “this is unfortunate, but a food stall in Raohe simply can’t be replicated in the same way as a TSMC chip.”   But this is just not true. The U.S. companies that have grown the most over the last four decades are those that figured out how to bring “chain production” to many services.  These include companies such as the Darden Group, which operates 1,800 restaurants and employs almost 200,000 workers, and HCA Healthcare, which operates 182 hospitals, 2,300 outpatient clinics, and employs almost 300,000 workers. 

These companies have invested in technologies that have enabled them to scale complicated restaurant sit-downs and hospital care over a large scale. For example, leading restaurant chains invest heavily in technology that helps determine optimal staffing, food purchases, and future locations for new restaurants. They invest in R&D facilities where their leading cooks experiment with ideas for new dishes. They invest in management and training so that their new dishes can be rolled out and replicated in all their restaurants throughout the world.   They have absorbed the same lesson as TSMC’s management.  It is not enough to have a great product. It is equally important to get yield rates up, to deliver the great product with a consistent quality millions of times. 

Taiwan is rife with missed opportunities to scale.  The tragedy is that the sectors with the missed opportunities, the ones that have not managed to scale, are the ones that employ a growing share of Taiwan’s workers. These are the predominantly low-wage sectors and the reason wages in Taiwan have stagnated for several decades is precisely because of the failure to scale. The owner of the Fuzhou pepper bun food stall is not rich, even if the buns are delicious, simply because her current “technology” limits the number of customers she can serve.    

To be sure, there are companies outside of manufacturing in Taiwan that have managed to scale – Ding Tai Fung, Eslite, and 85 are examples that come to mind. But three companies is simply not enough to make a difference to Taiwan’s economy.   

But how can this knowledge spread if there is no recognition of the problem?  What is the equivalent of the Ministry of Science and Technology, the Hsinchu Science Park, the Industrial Technology Research Institute for the Fuzhou Pepper Bun?  Where does the owner of the Fuzhou Pepper Bun turn to for support when she dreams of making her delicious pepper buns available to millions of customers?

Despite all the growth in the semiconductor industry, wages in Taiwan have stagnated for several decades.  The reason is that employment in semiconductors is relatively limited: the 50,000 workers employed by TSMC is simply not enough to put enough upward pressure on wages.    The only way to reverse the decades-long stagnation is to jump-start another industrial revolution in Taiwan, but this time in the non-manufacturing sectors where the majority of Taiwanese work.  

About the Author

Chang-Tai Hsieh is the Phyllis and Irwin Winkelried Professor of Economics and PCL Faculty Scholar, University of Chicago Booth School of Business

Have you read?

• Will PX-Mart and President Chain Store monopolize Taiwan’s retail? 
• Evergreen Marine profits jump 9-fold as era of mega vessels dawns 
• How Taiwanese baked sweet potatoes conquered Japanese supermarkets

Uploaded by Ian Huang