Taiwanese Enterprises in Southeast Asia
Second Wave Southward
Second Wave SouthwardBy Maxine S. C. Yang
From CommonWealth Magazine (vol. 373 )
In the early 1990s Chinfon Group chairman Shi H. Huang would get a red carpet welcome each time he flew to Vietnam.
Huang’s Chinfon Commercial Bank was Vietnam’s first foreign-owned bank and SYM Motor was Vietnam’s first foreign owned motorcycle factory. Furthermore, Chinfon Haiphong Cement was Vietnam’s first foreign-invested cement plant, as well as the first foreign listed company in the country.
In view of the global attention paid to Vietnam’s economy today, Huang was decidedly a man of foresight.
Indeed, Taiwanese businesses as a whole had foresight, when they began making inroads into Southeast Asia ten to twenty years ago.
Having arrived in Vietnam earlier than competitors from other countries, Taiwanese companies are now Vietnam’s biggest bloc of foreign investors.
First Wave Southward: An Eye on Low-cost Manufacturing
The first wave of Taiwanese businesses moving into Southeast Asia was mainly in the manufacturing sector, as they had their eyes on the region’s relatively low production costs.
As there was money to be made, small and medium-sized Taiwanese enterprises teamed up with big factories in moving satellite supply systems almost completely lock, stock and barrel to destinations in Southeast Asia.
In Malaysia there were TECO, Inventec, Advanced Semiconductor Engineering, Acer, Chuanghwa Picture Tubes Limited and the hundreds of small factories that surrounded them. In Vietnam there were the San Yang and Jiu Yi motorcycle part supply chains.
“Wherever there are customers, that’s where we’ll go.” Shenmao Technology Incorporated has factories in Malaysia and China and is listed in Taiwan, with profits of over NT$6 per share last year. Shenmao Malaysia executive director Frank Lee says, “As long as there is enough money, we will go invest.”
But with the rise of China and Vietnam after 2000, many companies such as Acer, Chuanghwa Picture Tubes and Inventec moved or downsized factory operations in Malaysia or the Philippines. Many small and medium-sized businesses followed suit, pulling up stakes and moving next to their big customers.
Those Taiwanese businesses that did stay behind did so because there was still low-cost labor to be had, as well as tax incentives. With the advent of the ASEAN Free Trade Agreement, “ASEAN plus one” (China) and “ASEAN plus three” (China, Japan and South Korea), the Taiwanese businesses that did make forays into Southeast Asia could save a considerable amount of customs duties.
TECO and other electronic component or product manufacturers would have been subject to 40 percent tariffs from goods that emanated from Taiwan. But because they set up factories in Malaysia or the Philippines and obtained certificates of origin from those countries, the largest tariff that can be imposed on products entering Southeast Asian markets is only 5 percent.
Second Wave Southward: Enter the Service Sector
Now, along with other global businesses, Taiwanese companies are making another go at Southeast Asian markets. Chinese National Association of Industry and Commerce (CNAIC) chairman Theodore Huang describes this as a second wave southward.
In the eyes of Taiwanese businessmen, this second wave southward has seen Southeast Asia transformed from a manufacturing base to a viable market in its own right.
The Nomura Research Institute in Japan observes that the middle class in Asia is growing rapidly. In two years, 400 million people in China, India, South Korea, Taiwan and a few Southeast Asian countries will have annual incomes of US$3,000 or more.
Taiwanese companies centered on manufacturing in the past have now made the transformation to providing services. Acer, for example, is the leader in notebook computers, personal computers and plasma screen televisions in Thailand. And Shihlin Electric and Engineering Corporation is cooperating with the Vietnamese government in helping the country build an electronics factory.
Of course, more and more service-sector companies are setting up in the region, including Chunghwa Telecom, Shin Kong Life Insurance and the CTCI Corporation, among others. These companies have established strongholds in Southeast Asian countries like Vietnam and the Philippines awaiting the opening for more foreign investment to take advantage of local business opportunities.
Previously confined to strictly local business, Taiwanese financial institutions are joining in the fever for Southeast Asia. As of the end of last year, seventeen Taiwanese banks have set up shop in Vietnam at twenty-five different locations.
According to many Taiwanese officials and businessmen, Vietnamese government officials often ask, “What are you doing setting up so many banks here?” The number of Taiwanese banks in the country makes them the first in terms of foreign capital, but leaves some puzzled at their real purport.
Taiwanese businesses are going about this in the same way you’d go about setting up a small town, by providing comprehensive services in Southeast Asia. The Century Development Corporation helped plan and now operates the NankangSoftwarePark in Taiwan. The corporation has already made plans with the Vietnamese government to transplant its experience with the science park to Vietnam and provide both infrastructure support and services.
The Shining Group and Ye Mei construction groups as well as the Industrial Bank of Taiwan and other local financial institutions have plans to develop the real estate market and other property-related business opportunities in Vietnam. One observer compared these efforts to “the enclosure movement.”
The biggest challenge for Taiwanese companies abroad is in educating and managing local workers.
Arrival of International Competitors: The Battle Intensifies
“Wow, the whole world has come! We arrived too late. Look at how the Koreans took advantage so early!” Shining Building Business Company chairman Lai Cheng-i lamented, surveying an office building, hotel and housing group that the Korean company Daewoo built ten years ago. Lai was scheduled to look at four pieces of land for a luxury hotel development project later in the afternoon.
Most Southeast Asian nations protect their service sectors and control foreign capital within their borders, but Taiwanese companies understand how to adjust to exigencies and break through barriers.
The baby clothing specialty store Les Enphants has chosen to stock shelves in department stores throughout Southeast Asia. Legally, this is considered a wholesale venture, but it still allows them to develop retail outlets. Presently, of its 1,000 stores worldwide, nearly 300 are in the Southeast Asian region with most taking this approach. “Southeast Asia is still in the development stages,” Les Enphants chairman Eric Lin observes, but future potential business opportunities are staggering.
Today, Taiwanese businesses know even more about how to integrate global resources in developing different supply chain systems.
The Yung Shin Pharmaceutical Company has developed different manufacturing and supply systems for Southeast Asia, China and the United States, as there are different specifications and testing standards for pharmaceuticals in these places. Its YSP Southeast Asia Holdings, headquartered in Malaysia, does business in every ASEAN nation except for Laos and Brunei.
In the future, challenges facing Taiwanese businesses will only be stronger. On the road into town from airports in Hanoi or Ho Chi Minh City, among the stretches of green fields you can see the billboards of many rival internationals. Samsung, LG, Honda and Sony adorn the landscape, along with the smiles of Korean pop stars.
“Taiwanese businesses only had to contend with domestic competitors before, now we have to deal with international players,” Panasonic Taiwan chairman Richard Hong sighs.
In winning any battle, the brand is key. Les Enphants, for example, imports brand-name children’s garments such as Disney and Oshkosh for sale in local markets.
Another alternative is joining forces with a local name brand. President Enterprises found it tough-going for many years in Vietnam. But now they are cooperating in a joint venture with the country’s biggest food and beverage company. Next year, President can begin operations and move products through local channels.
As international competitors flock to the region, Taiwanese businesses also have to vie with them for local talent.
Local Workers Wanted
The lack of qualified employees in Southeast Asia is becoming a prevalent problem. One Taiwanese businessman working in BinhDuongProvince in Vietnam said when he posted a want ad for a position five years ago, as many as five hundred people per day would come to apply. But now maybe only five bother showing up, sometimes even only one.
CNAIC chairman Theodore Huang suggests Taiwanese businesses should invest in training local managers.
Imparting skills in a place where people speak a different language is no easy task. Tatung found that it only had to teach Taiwanese employees a task twice before they learned it, but in Vietnam it took five times. “But Vietnamese employees work hard. They even take evening classes after work.”
The Taiwan G-Shank Enterprise Company in Malaysia has plans to introduce “seeded players” from other countries. For example, they will hire Vietnamese employees in Malaysia or Taipei. Then, when it comes time to set up factories in Vietnam they will already have a readymade batch of Vietnamese managers.
“Training local managers is the only way a company can sustain operations,” comments Panasonic Taiwan’s Richard Hong, who personally observed how Panasonic Japan cultivated managers for its own Taiwan and China operations.
Many Taiwanese companies have moved factories to Malaysia to save on customs duties.
The Battle of Organization Begins
The most severe test ahead comes from American, Japanese, Chinese and Korean companies that are making forays into Southeast Asia with the help of government and business-group support. These companies work together in Southeast Asia in carrying out projects, but many Taiwanese companies have to go it alone as they lack this kind of support network.
“Taiwanese companies have to start fighting together to face these organizational battles,” said Theodore Huang as he led a group of over seventy members of the Chinese National Association of Industry and Commerce on an observation tour of Vietnam in mid-April. Three tour buses pulled into an industrial park still under construction, showing the strength and resolve of Taiwanese companies. “We can no longer afford to be disorganized. It’s impossible to negotiate independently now – we need to come together and help one another.”
Now that ASEAN is gradually establishing ties with China, Japan, South Korea, India, Australia and New Zealand and even the European Union, many have expressed concern for the plight of Taiwanese businesses. But Taipei Business Association in Singapore president Gatsby Shih states bluntly, “There is no problem with Taiwanese businesses, only with Taiwan.”
Traveling around Southeast Asia, it is easy to see that Taiwanese businesses have reacted to international competition early on in order to survive, so there is no need to worry on their behalf. The ones being truly marginalized are the people who stay behind in Taiwan. And what is truly being sacrificed is Taiwan’s future.
Translated from the Chinese by Steven Marsh"