They should focus on strengthening the rights of individuals against the State and against various constructions of "community" that play out within the pan-green field. That means strengthened private property rights through the repeal or amendment of existing legislation. Where the old KMT could find no objection at all to the legalized theft of people's property in Taipei and Miaoli and where the DPP is positioned to allow such expropriations to continue on condition of community involvement, a new KMT would stand to outlaw the practice and defend the rights of individuals.
They should also attempt to overhaul the criminal justice system. Whilst the old KMT was in favour of all manner of draconian laws, and the DPP will perhaps attempt to partially decriminalize things like cannabis use, a new KMT could outflank everyone by replacing all but a few areas of criminal law with civil law. Legally speaking crimes would no longer be acts committed against the State, but against particular victims whose rights entitle them to redress through the courts. That would instantly put a stop to victimless crimes such as young people smoking pot in Kenting, or men paying for sex with prostitutes. It would also mean that decisions as to whether to prosecute would be left with actual victims rather than State actors prone to abuse of power. So again, a new KMT could position itself as the party of individual rights and and a disciplined, careful State.
They should also seek to overhaul the military by actually carrying out the reforms president Ma promised but did not deliver on; switching to an all-volunteer force and making the corollary improvements that requires. The military also needs financing properly, which could be accomplished by altering budget priorities rather than by messing about with tax rates. Education is the single largest item in the government's budget; there is an enormous amount of waste here and this could be cut with the funds redirected to military reform (the new submarine program in particular isn't going to come cheap). Where the old KMT dragged its' heals on military reform, and while the DPP will probably attempt to finance military reform with tax rises and greater debt, a new KMT could paint themselves as the party of responsible national defense - replacing the frivolous areas of higher education with advanced military hardware.
They should also turn their attention to the Ministry of Education - and abolish it, or at least significantly curtail its' powers and responsibilities by introducing new legislation to allow freedom in education. Schools should be free from the demands of a national syllabus and examination system, and parents should be free to homeschool their children absent the diktats of the Ministry of Education. Whilst the old KMT was correctly perceived as the party of State-indoctrination, and the DPP will likely take over this role but be partially shielded from criticism by a compliant media, the new KMT could outflank its' rivals by positioning itself as the party of freedom in education. This approach could also be extended to encouraging the privatization of schools, colleges and universities and reducing the education budget to spend the money better elsewhere.
They should also pay attention to the green lobby and outflank the DPP by breaking up the Taipower monopoly. Leave Taipower in charge of the national grid, and privatize power generation. Done fairly, and without a byzantine labyrinth of subsidies, anybody will be free to invest their own money in whichever source of power generation they like and get whatever return they can on it. One obvious benefit is that the extent of our reliance on renewable sources of power generation will probably remain sensible until superior storage technologies come to market.
Yesterday's electoral results, with the DPP achieving a majority in the legislature, mean that there is a great danger that the opposition will be weak and unable to effectively oppose legislation introduced by the DPP. That is important because the DPP are likely to make mistakes - as we all are. This time, however, could be used by the KMT to reassess their position and ideology and attempt to contest the elections next time, or in eight years time. It would be a great disappointment if they were to attempt to return to power by simply changing a few faces and a few policy details and then waiting for the DPP to make a mess of things.