( Reuters ) - When Bernard Liu was looking for people to join his team of equity researchers at JPMorgan in Taiwan last year, he found a labor market rich in engineers but lacking in people qualified for the service sector.
In the end, it took him a whole year to fill the three posts.
"It's typically a much more mixed skillset and unfortunately on some of the critical skills, candidates sometimes are lacking," said Liu, whose company employs about 550 staff in Taiwan working in investment banking, securities and asset management. "It's actually quite a handicap for Taiwan in the integration in the global economy."
Managers like Liu are feeling the effects of a brain drain of talent from Taiwan to more global economies like the United States, Hong Kong and China.
Multinational companies also complain that candidates have weak English skills, a lack of talent in management and insufficient expertise in high-level research.
These deficiencies are hampering Taiwan as it tries to transform itself from a manufacturing economy into one that offers more sophisticated financial, legal and other business services.
"Some Taiwanese lawyers we know prefer to work in Hong Kong or China nowadays because the markets are hot," said Jack Huang, partner-in-chief in Taipei of global law firm Jones Day.
For decades, Taiwan has profited from contract manufacturing, making electronic products for brands such as Dell and Texas Instruments. But, as a growing China takes on some of that manufacturing, Taiwan could be left behind.
The Taiwan government wants to develop Taiwan into a financial hub by encouraging foreign banks, such as Citigroup and HSBC, to buy into the island's lenders to boost management and services expertise. It also hopes Taiwan's technology companies will evolve from being low-margin contract makers to global brands, though its push has not been as aggressive as neighboring South Korea, where labels like Samsung Electronicshave become household names.
"Obviously if you look around, there are more plants being set up in China or now Vietnam, than, say, new factories coming up in Taiwan, so demand for engineering expertise or disciplines (here) is obviously not increasing," said Tony Phoo, an economist at Standard Chartered in Taipei.
This will be especially true after elections on March 22, which the opposition party is expected to win, expected to lead to further opening of ties with China and more Taiwanese manufacturing jobs going to the mainland.
About 57 percent of Taiwan's jobs are in services such as financial, retail and property, while 37 percent are in manufacturing. By comparison, some 85 percent of Hong Kongers and 70 percent of Singaporeans, two key Asian financial hubs, work in the services sector.
Analysts say Taiwan needs to groom more talent in the financial and tourism sectors. Only 24 percent of graduates from Taiwan's universities study business and management, while 38 percent have degrees in engineering and the sciences, according to Taiwan's Education Ministry.
Within the manufacturing sector, Taiwan also needs innovation, sometimes a scarce commodity in an education system that often emphasizes rote tasks over developing new ideas.
"There is more focus on the academic side of things in Taiwan's education system. For instance, in law schools in Taiwan, students are mostly trained by academics. Perhaps colleges should consider including practicing lawyers in their faculties," Jones Day's Huang said.
Most of Taiwan's best-known firms are contract manufacturers, such as chip maker TSMC and laptop firm Quanta Computer, which make products for better known global brands like Dell and Texas Instruments.
Such firms need to become as innovative as their clients, creating ground-breaking innovations like Sony's Blu-ray technology or Apple's iPod to give Taiwan an upper edge in the technology chain.
"There are a few areas where there is a constant lack of manpower, such as R& D for tech, and newer industries like solar power," Terence Liu, general manager of employment service company Manpower in Taiwan.
For all its shortcomings, Taiwan isn't lacking in college graduates. In fact, some argue there are too many, given that joblessness among graduates hit an all-time high of 4.5 percent in 2007.
For Tang Ying-ting, a fourth-year foreign language major in Taiwan's National Chiao Tung University, it is clear that her studies do not match what employers are looking for.
Tang, who has been monitoring the job market for two years, is now considering doing a masters degree in business administration.
Meanwhile, thousands of students leave Taiwan every year to study at colleges overseas, and many of them don't come back.
"The cream of the crop tends to want to start their career overseas," JPMorgan's Liu said.
For now, recruiters like Liu have to make do with the talent pool that is available. "I've been doing recruiting in Taiwan for three years and I don't think the quality of candidates has improved."