Rising Consumer Confidence
Taiwan's Robust Rebound
Taiwan's businesses were the first to feel the economic recovery. Now, it is being felt in the labor market, with higher wages spurring rising consumer confidence.
Taiwan's Robust ReboundBy Jerry Lai
From CommonWealth Magazine (vol. 463 )
Nobody foresaw that Taiwan's economic performance in 2010 would outpace even the most optimistic forecasts by economists to post the country's highest growth in 21 years.
The question on most people's minds now is whether the momentum can be sustained in 2011. A high degree of skepticism exists among those who believe Taiwan's economy relies completely on exports and would be moribund without the high-tech sector.
But Taiwan in fact has changed, because the confidence of consumers has returned.
In the second half of 2010, Taiwan has seen shoppers queuing up to spend, spend, spend.
The introduction of Japanese casual wear brand Uniqlo by Uni-President Hanyku Department Store caused a frenzy in the Xinyi shopping district, leading to traffic jams and exacerbating annual department store discount wars during the anniversary sales periods late in the year.
Apple fans defied a cold front to line up overnight for the iPhone4 and iPad, even with their hefty price tags exceeding NT$10,000. Porsche SUVs costing between NT$2 million and NT$5 million have sold so well that buyers who ordered them at the end of 2010 will not be able to take delivery until the first half of this year. And Mercedes Benz had its best year ever in Taiwan in 2010, selling over 8,000 units, 60 percent more than a year earlier.
In the stock market, hundreds of thousands of investors with hundreds of billions of Taiwan dollars in their pockets jockeyed for shares in the IPOs of Gourmet Master Co., MStar Semiconductor Inc. and Dynamic Medical Technologies Inc., with a record low ratio of issued shares to share applications.
The economic recovery, which was first felt among Taiwan's businesses, is gradually reverberating in the labor market, with pay raises and bonuses, spurring resurgent consumer confidence.
"People will definitely feel it in 2011," says economist Kuan Chung-ming, a research fellow at Academia Sinica, of the strengthening economy. By any measure, from quantitative economic indicators to simply observing activity at the neighborhood restaurant or in the Zhongxiao East Road shopping district, real prosperity has returned, Kuan believes.
According to an annual survey conducted by market research firm Eastern Online Co., monthly spending on basic needs has returned to levels seen before the global financial crisis. One indicator: the frequency of group dining among relatives or friends has risen. Taiwanese people are once again willing to spend a little more to live a little better. (Table 1)
Taiwan's statistics bureau, the Directorate-General of Budget, Accounting and Statistics (DGBAS), has forecast that private consumption in the country in 2011 will grow 3.51 percent, which would be the highest growth for the second year in a row since the credit card bubble burst in the mid-2000s. (Table 2)
Wholesale, retail, and catering sector spending, which puts money directly in businesses' pockets, has gradually risen, and outbound traveler numbers and credit card spending have also seen substantial growth. (Table 3)
This recovery has been far broader than others in the past. Pacific Sogo Department Stores Co. general manager Lee Kuang-rong correctly anticipated the return to prosperity in 2010, and raised the minimum spending threshold needed to earn a free gift during his stores' anniversary sale to NT$6,000. But consumers didn't spend heavily on cosmetics and upscale merchandise alone. Even sales of clothes that had relatively flat results during previous sales – such as men's casual wear and suits, and mid-range young women's fashion – also experienced strong growth. Average spending per customer rose 14 percent, an indication that Taiwan's private consumption is no longer driven only by purchases of high-end goods, as has been the case in the past. Items in the middle and lower price ranges are starting to pull their weight.
Pacific Sogo believes Taiwan's domestic market will remain strong in 2011. The company invested NT$6.5 billion to acquire and renovate the Windance Shopping Mall in Hsinchu, creating a huge complex integrating department stores and shopping centers.
As for tourism, Taiwan residents took 8 million trips abroad in the first 10 months of 2010, an increase of 18 percent from a year earlier, according to Tourism Bureau figures. Travel agency business was so good that they were able to raise tour package prices by an average of 7 percent during that time, and they plan another round of price hikes ahead of the Lunar New Year holiday this year.
Helped by sharp increases in tourist numbers from China and Southeast Asia, inbound arrivals to Taiwan exceeded 5 million in 2010 for the first time in history. An estimated 1.5 million Chinese nationals will visit Taiwan in 2011, and the DGBAS believes they will pump NT$60 billion into the economy, based on an average of 3,500 people visiting per day.
As Taiwan opens it doors to independent Chinese tourists (rather than confining them to tour groups, as is the case at present) that NT$60 billion will be transformed from an abstract number reported on the news into an economic shot in the arm that will be felt by people and businesses in all corners of the country.
The winds of prosperity have also been felt in the advertising sector, according to Simon Ho, deputy director of the Taiwan branch of global media network Mindshare. In the past, he says, he would commonly be approached by media representatives soliciting ads, but in 2010, especially as the year wore on, the people coming to see him were clients pleading for help in placing their commercials on television.
The heavy demand for advertising and publicity got to the point where a war nearly erupted at the end of the year between a domestic financial holding company and a foreign bank over the sponsorship of a New Year's Eve event, forcing an emergency meeting to be held to negotiate a truce and help both financial institutions meet their needs.
"There was no slow season throughout the year. Industry revenues approached NT$40 billion," Ho says, adding that the market, with advertising space booked well into 2011, has not been this good for years. (Table 4)
Big Advertising Harvest
The last time advertising agencies needed to beg television stations for space was two decades ago, when Taiwan still only had three terrestrial stations, but that phenomenon has returned in an age when there are countless stations to choose from.
To secure spots for their commercials, advertising agencies are now willing to bet on new shows, placing ads even before they know the program's ratings. Some of the most popular shows have ditched the generally accepted model of pricing ads based on viewership, in favor of charging by the second, as was the case for the 8 p.m. time slot during the heyday of the three channel era.
"That would have been inconceivable a few years ago," says Ho, amazed at the recent explosion in the sector.
The advertising battle is expected to grow even fiercer in 2011. Ho believes that this year advertising on real estate alone could exceed all advertising in 2010. He estimates growth in the sector at 10-15 percent for the year.
Pressure on Companies to Raise Wages
Eastern Online marketing manager Crystal Lee observes that companies were haunted by the powerful financial tsunami that struck without warning and now have no reservations over heavy discounting. The reaction has been far swifter throughout Taiwan than after the dot.com bubble burst in the early 2000s.
The current pressure on companies to raise wages has also been rarely seen in recent years. One indication of the changing labor market was the strong performance in 2010 of Taiwan's biggest online manpower agency, 104 Job Bank. Its revenues, which depend largely on enterprises posting job openings on the site, grew 30 percent in the first three quarters of 2010, and the company announced recently that for the first time since the global financial crisis, job opportunities outnumbered job applicants.
The five industries with the highest job-to-applicant ratio at present are the insurance, real estate, construction and civil engineering, financial services, and beauty and wedding sectors.
Not only are businesses scrambling for people, but employees have also been on the move. Turnover has been especially high recently. In a 2010 survey on the labor market, the DGBAS found that 720,000 people around the country were looking for better opportunities, after being afraid to switch jobs during the global economic meltdown.
Employers have felt the pressure. Average salaries rose 5.9 percent in the first 10 months of 2010 to a record high of NT$45,000 per month, and if companies want to retain their people in 2011, further wage hikes will likely be necessary.
Translated from the Chinese by Luke Sabatier