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'Rootless' Taiwanese Companies

Ready for Rotten Weather


Pummeled by the global economic storm, many "rootless" Taiwanese companies registered overseas are coming back to the island. And some, having sought shelter and hoarded supplies, were ready for the onslaught before its arrival.



Ready for Rotten Weather

By Jimmy Hsiung
From CommonWealth Magazine (vol. 408 )

Winter is here! And this winter season will be considerably more frigid and much longer than years past.

According to the latest research from Larry Hsien Ping Lang, chair professor at Chinese University of Hong Kong's Department of Finance, in the period of March through June alone, as many as 60,000 to 70,000 businesses closed their doors in just the Pearl River Delta region.

Even relatively structurally sound Taiwanese companies have not been immune to the current plague of business shutdowns and investment withdrawals. According to the Guangdong Provincial Situation Survey and Research Center, 20 percent of the roughly 8,000 Taiwanese businesses in Dongguan City closed their doors in 2007.

This mass disappearance of Taiwanese businesses has gone unnoticed in Taiwan, causing nary a ripple, as these were so-called "rootless" Taiwanese companies, registered overseas with corporate headquarters and operational bases in China. In Taiwan their names are virtually unknown, and even less is known about their operations.

But with the current economic downturn prompting the government to plead with Taiwanese companies to return to Taiwan and list on local stock exchanges, some rootless companies are beginning to feel the pull of home and are quietly beginning to show themselves.

To date, Keen High Technologies has shown the strongest response to the Taiwanese government's economic siren song.

Keen High Technologies

GreTai Listing Early Next Year at Latest

Keen High Technologies, one of the world's top three OEM producers of MP3 players, is expected to pull in about US$5 billion in operating revenue this year. Since earlier this year Keen High has really started to make a name for itself. Located in Shenzhen, Keen High was reported in March to be the recipient of a US$10 million influx of venture capital from Wistron Corp. and China Israel Value Capital (CIVC), one of the largest local China-focused venture capital funds, in exchange for equity.

Amidst the government's appeals to Taiwanese businesses to return home and list on local securities exchanges, Keen High is the only Taiwanese company to actually sign a letter of intent with the GreTai Securities Market, confirming its listing on that exchange by early next year at the latest.

That it was able to so quickly respond to the embrace of the government's call, at least a year ahead of other Taiwanese companies, indicates that Keen High had early on made the necessary preparations for such a listing.

"When a business reaches a certain stage, you have to aggressively do what needs to be done," says Keen High chairman Arthur Wang.

Early this year, when China Israel Value Capital and Wistron Corp. bought into the company, friends tried to persuade him that there was no need to sacrifice portions of his own shareholdings and those of several major stockholders just to bring in new partners, given that the company had no worries about capital and was developing smoothly.

"Cooperation is the only way to make the pie bigger," Wang says, explaining his actions at the time.

Looking back, he's now even more glad that he made that decision.

"Who would have thought at the time that things would be so bad now?" Wang laughs.

Those friends of his have now changed their tune, calling him visionary for bringing in new capital in a timely fashion before the economic slump began.

Ta Yang Group Holdings, Ltd.

Returning to Apply for TDR Issue

Like Keen High, another rootless Taiwanese company that remains constantly on the ready is Ta Yang Group Holdings, Ltd., which listed in Hong Kong in June of last year. With the Taiwanese government continuing to offer incentives to overseas-registered Taiwanese companies to return to Taiwan and on the heels of Juteng International Holdings and Want Want Group bucking the economic trends and coming back to apply for Taiwan Depositary Receipt (TDRs) issues, Ta Yang is also preparing an application for its own TDR issue.

Like Keen High Technologies, Ta Yang is an unknown actor in Taiwan. In 1991, Ta Yang executive director and CEO Wu Ih Chen headed to Guangdong to set up a silicone rubber keypad production plant. Ta Yang is now the world's largest supplier of such keypads.

Ta Yang was long able to maintain gross profit margins of 40 percent while its competitors commonly managed only 10 percent, according to Wu. Now, with the global economic downturn, Ta Yang's gross profit margin has suddenly dipped to 30 percent.

"How can my competitors stay afloat?" Wu wonders with more than a hint of pride.

A close scrutiny of how Ta Yang has been able to consistently lead competitors in profit margins shows that the answer lies in always being prepared for a storm even in fair weather. Ta Yang chief financial officer Kirk Yang says that when the company is making money it focuses on upstream-downstream integration. Consequently, as its competitors are all aware, Ta Yang possesses a secret weapon – its own chemical plant to supply its silicone rubber raw materials and its own formula for making them.

"Competitors all want to build their own chemical plants, but when times are good, you're too busy making money," says Yang, who jumped ship as chief technology sector analyst with Citigroup Capital Markets to join Ta Yang. "Who wants to waste their resources?"

Ta Yang's key strength is its ability to always make preparations in advance.

Amidst the major global recession, companies are now engaging in major layoffs and stringent bean counting, slashing capital outlays and freezing hiring. But judging from the survival skills of those rootless Taiwanese companies that are now bucking the trend, a company that remains constantly prepared can forge ahead in good times and bad times alike.

Translated from the Chinese by Brian Kennedy

Chinese Version: 無根台商 迎戰大蕭條年代