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2008 Top CEO National Policy Survey

The Executive Take on the Presidential Election

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What kind of expectations does Taiwan’s business community have toward the next president? In the run-up to elections, CommonWealth Magazine surveys the anxieties and hopes of Taiwanese execs.

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The Executive Take on the Presidential Election

By Sherry Lee
From CommonWealth Magazine (vol. 391 )

Waiting for a connection at the Hong Kong airport on February 15, Harn Jia-Chen, deputy chairman of DaChan Food (Asia), Ltd., is feeling a bit forlorn. Thinking back to 18 years ago when he first started doing business in China, he had a wallet full of cash and nowhere to spend it, and his luggage was filled with fine quality everyday items brought with him from Taiwan. Now, standing before a stocked duty-free shop and observing the gusto with which Hong Kong and mainland Chinese citizens go about their shopping, he laments, “I worry that I might not have any money to spend.”

Harn Jia-Chen, who has built an agriculture and animal husbandry empire in China, supplies McDonald’s and other fast-food restaurant chains with as much as 2,500 tons of chicken feed per day. Despite the broad scope of his business operations, his fears have been compounded over the last two years as rising wheat prices and labor costs have eaten into profit margins.

The introduction of China’s new Labor Contract Law is expected to reduce export tax rebates from 17 to 5 percent. China’s currency, the renminbi, has risen seven percent against the US dollar, and investment banks predict that figure will continue to climb to 14 percent. China’s exporters will find it difficult to overcome the impact of the new labor regulations. Foreign firms in China face the same challenges, but the nebulous state of the cross-strait situation gives Taiwanese businesses even more to fret over.

According to CommonWealth Magazine’s newly released 2008 National Policy Survey, half of the corporate executives surveyed are most worried about the negative impact of vague cross-strait relations on future business operations. Further, 46 percent are pessimistic about the international economy, while 41 percent find government laws and regulations restrictive.

The 1,600 corporations queried in the CommonWealth Magazine survey employ a combined total of around 362,000 people, and chalked up approximately NT$2.7 trillion in revenues last year. Many of them have expanded operations into Southeast Asia or globally, and over the past year their greatest trouble has centered on cross-strait issues, namely the vague definition of relations and government legal and regulatory restrictions.

These include direct cross-strait air links that, despite plenty of lip service, seem far off in the distant future; a cap on investments in China to 40 percent of net worth; and the inability of Taiwan’s financial services industry to enter China. These factors have posed difficulty for Taiwanese businesses to find financing across the strait and have hampered them from expanding their markets.

An overwhelming 91 percent of those surveyed expressed the wish that the government adopt a more lenient cross-strait policy, while eight percent would like to maintain the status quo, and less than one percent would prefer a more conservative approach.

In addition, when asked if they agree that the 40-percent net-worth limit on investments in China by local businesses should be relaxed, 54 percent opposed any restrictions, while 33 percent said they believe certain restrictions are necessary, but would like to see them relaxed.

The two major presidential candidates have both expressed the desire for greater openness regarding this issue. In an interview with CommonWealth Magazine, Kuomintang (KMT) candidate Ma Ying-Jeou said that as long as corporations establish their headquarters in Taiwan there should essentially be no restrictions on their investments in China. For his part, Democratic Progressive Party (DPP) candidate Frank Hsieh proposes case-by-case “dynamic management,” based on consideration of industry technology and corporate scale. Hsieh is mindful of the need to prevent the hollowing out of companies and letting businesses exit while leaving their debts on the island.

Corporate executives that responded to the survey privately conceded that there should still be certain restrictions on investments in China, so as to prevent the total erosion of Taiwan’s technological competitive edge.

The nebulous state of cross-strait relations has both gradually shaken Taiwanese businesses’ previous advantages and diminished investors’ confidence.

Last year during a forum in Xiamen with Taiwanese business people, PRC vice premier Wu Yi said, “Taiwanese businesses shouldn’t just know how to put their heads down and pull the cart; they must be able to look up and see the road ahead.” The implicit message seems to be that the prosperous conditions of the 1980s and 1990s for Taiwanese businesses are a thing of the past, and new tactics other than cut-throat pricing in the manufacturing industry are called for. Her words sent shivers down the spines of Taiwanese business people in the audience.

Kao Cheng-shu, vice-chairman of Feng Chia University’s Board of Trustees, who frequently leads tours of Taiwanese small- and medium-sized enterprises (SMEs) to China and Hong Kong, opines that the division of labor model between Taiwan and China – where Taiwan handles R&D and marketing, while China does the manufacturing – may no longer be applicable in the future.

Tough Competition on the Horizon

According to the survey, 71 percent of corporate executives view Chinese companies as the chief competitor to Taiwanese businesses within the next five years, compared to 18.6 percent for Korean companies.

Chung Chi Wu, professor of economics at National Taiwan University, notes that while Taiwanese SMEs have excellent management and product quality control capacities, they lack international marketing autonomy and technological R&D capacity.

Elaborating, Professor Wu explains that when Taiwanese businesses invest overseas, hiring local labor and managers, once they have been observed for a period of time, their advantages disappear. Having seen profits drop, and unable to continue bearing the cost of raw materials and equipment transportation, Taiwanese businesses are forced to purchase local supplies, and produce and market locally, becoming increasingly tied into the local economy.

The new cross-strait rivalry of the future will not only be manifested politically, but will also be evident in competition in the pricing chain among businesses. For example, Taichung-based Merry Electronics Co., Ltd., which made its mark devising cellular phone ring tones, employed 600 people 20 years ago. Today, it operates throughout Asia doing contract manufacturing for such major players as Motorola, employing over 15,000 people in Taiwan, China, and Thailand, and pulling in NT$5.9 billion a year in sales.

While Merry Electronics in China once focused exclusively on manufacturing, today it has expanded to take on research and development, employing 70 to 80 R&D technicians (with over 400 R&D staff in Taiwan). “China has had a steep learning curve from major international firms over the past few years. Combined with large numbers of students returning with degrees from abroad and the low costs here, China is a formidable competitor looking ahead,” says Merry Electronics CEO, Liao Lu-li.

Despite China’s strong momentum, Liao remains sanguine about Taiwanese SMEs, stressing, “Taiwan has to step out into the global ring and compete on a global level. Opening up could result in transitional growing pains, but without change there can’t be growth.”

Given the rapidly and widely changing global environment and competition from Chinese enterprises, corporate executives surveyed indicated that the three areas they would like to see Taiwan’s new president focus on are: charting a clear national direction (64%), peaceful handling of cross-strait relations (53%), and raising government efficiency (45%).

Unclear National Policy

Quite a few business executives said if they had the chance to ask the presidential candidates a question in person they would “have them describe what Taiwan will look like in 2018,” to define Taiwan’s place under globalization.

Globalization seems to have shaken things up, yet competition between nations has never ceased, as each country seeks its own position and to define its competitive and cooperative relations with other countries. Some respondents believe Taiwan can adopt the Singaporean open economic model, while other executives prefer the Swiss model, moving towards a knowledge-based economy and civil society.

With just one month to go before the presidential election, 54 percent of business executives surveyed indicate they are “unclear” on the direction Ma and Hsieh would take the country. Clearly, both parties’ candidates could better articulate their ideas for leading the country.

Executives surveyed found both candidates weakest in their economic policies (45%), followed by educational policies (23%) and national status (16%).

In this National Policy Survey, business executives also gave tangible examples of Taiwan’s diminished competitiveness over the past several years.

Brain Drain Hampers Competitiveness

From which areas has Taiwan lost the better part of its competitive advantage in recent years? A full 70 percent of those surveyed said “effective national administration,” another 66 percent indicated “an open and internationalized business environment,” and 48 percent said “cohesiveness among the populace.”

For five years in a row, in the International Institute for Management Development (IMD) World Competitiveness Yearbook, Taiwan’s “government efficiency” has lagged behind the country’s national ranking. For instance, last year Taiwan ranked 18th overall, while the government ranked 20th in that specific category.

DPP candidate Frank Hsieh agrees that economics is a political issue, largely due to political instability and the long-term hamstringing of the ruling party by a large opposition.

In the open question portion of the survey, executives were posed with the question, “If you were president, what three areas would you most like to promote?” Respondents focused on two issues, namely improving cross-strait relations and raising national competitiveness. The third issue that surfaced was “establishing a solid judicial system and a clean, efficient government.”

Nearly half of the executives surveyed believe that Taiwan’s most competitive sector over the next decade will be the electronics and information technology manufacturing industry, while 20 percent favor biotechnology, and an additional 10.5 percent see opportunities in tourism. On the other hand, they found financial and insurance services the least competitive.

Industry competitiveness is directly proportionate to the degree of global integration. Financial services account for the highest proportion of the GDP among the service sector, at 11.5 percent, yet locally based banks have continually been unable to upgrade and internationalize beyond savings and loans.

According to data released late last year by the World Economic Forum, Taiwan fell from 47th to 58th place among 131 countries in the area of Financial Market Sophistication. It also did poorly in terms of Soundness of Banks and Restriction on Capital Flows (ranking 114th and 80th, respectively). Clearly, finance has held back the country’s overall performance.

People are crucial to industry upgrading, and the majority of executives indicated that Taiwan is unable to find qualified international human resources.

As for the caliber of human resources, 39 percent of corporate executives were most dissatisfied with the international perspective of Taiwan’s labor pool, with another 20 percent indicating that Taiwanese workers lack ambition. An additional 14 percent found their foreign language skills lacking, and 13 percent said they lack proper work ethics.

With skilled workers in short supply, both corporate and national growth is naturally limited. Consequently, 89 percent of the executives surveyed call for allowing skilled labor immigration, while 74 percent would like to bring in professionals from China.

65% Consider Boosting Local Investment

Despite the lack of immediate hope on the horizon, executives surveyed are more optimistic about the prospects for Taiwan’s economy following March’s presidential election than they were last year. To wit, 49 percent of executives were optimistic, versus merely 18 percent that took a dimmer view, while 33 percent expected things to remain about the same.

Perhaps their optimism comes from the more open policies on trade and cross-strait relations of both the DPP’s Hsieh and KMT’s Ma compared to the Chen Shui-bian era, giving them reason to believe the cross-strait stalemate will come to an end.

A full 65 percent of executives surveyed indicated that, no matter what the outcome of the presidential election, they would consider increasing their local investment within the coming two years. However, 21 percent said they would only consider investing in Taiwan if Ma Ying-jeou ends up as president, seemingly revealing greater confidence in Ma’s handling of cross-strait relations.

Fourteen percent of the executives surveyed said that they would not raise their local investment no matter who comes out on top, comparable to the 18 percent that is pessimistic about economic prospects.

Faced with increasing challenges from both inside and out, business executives believe that given Taiwan’s current topsy-turvy political situation, the most important characteristics for Taiwan’s leader to have are not necessarily good character and an international perspective; rather, 35 percent think that the leader must “propose a long-term national outlook.” This echoes their reservations regarding a lack of clarity the two candidates share in the direction of national administration. In addition, 25 percent of executives surveyed believe “leadership ability” and “effective delegation of responsibility” are essential qualities for Taiwan’s next leader.

Private business managers know full well that a successful battle cannot merely rely on one hero, but requires a strong team fighting for common objectives. This is the kind of standard against which they measure the tactics and strategies the two candidates propose for administering the nation.

In Focus

Merry Electronics CEO, Mr. Liao Lu-li

Taiwan is Blessed – It’s Up to Leaders to Lead

Taiwan should move towards a knowledge-based, civil society. Knowledge-based refers to the direction of economic development, while a civil society means cohesiveness among the populace, forging social order, and respect among people. It’s our society, and we must all do our part to keep it in good shape.

Merry Electronics has over 400 people in Taiwan (and 15,000 around the globe), but they are all high-caliber personnel. We allow our employees to enjoy high-income lives, and integrate research and development with local education. No matter where my sales revenues are generated, our headquarters is here. The flow of capital is controlled in Taiwan, resources are utilized from here, and we will fulfill our social responsibility here.

We must cherish Taiwan. Taiwan is blessed with many great gifts – it’s just a question of how our leaders lead.


About the Survey

The 2008 Top CEO National Policy Survey was conducted among management leadership in CommonWealth Magazine’s databank of Top Taiwanese Corporations. From among a total of 1600 companies, 341 valid samples were collected, for a 21-percent response rate. The survey was conducted between January 16 and February 1, 2008 by the CommonWealth Survey Research Center.

Translated from the Chinese by David Toman

Keywords:

好友人數