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2007 Top 1000 CEO Survey

70 Percent of CEOs: Taiwan's Competitiveness Declining


Taiwan's top CEOs were dissatisfied with Taiwan's economic performance in 2006, as they continued to shift their focus overseas. What role do they foresee for Taiwan?



70 Percent of CEOs: Taiwan's Competitiveness Declining

By Jau-Yi Wu
From CommonWealth Magazine (vol. 371 )

CommonWealth Magazine’s latest annual survey of the CEOs of Taiwan’s top 1,000 enterprises shows that corporate leaders have never been more dissatisfied or more vocal in expressing their discontent than this year.

As many as 66 percent of surveyed CEOs were “dissatisfied” with Taiwan’s economic performance in 2006, and another 11% were “very dissatisfied.” This adds up to a level of dissatisfaction of 77 percent. The ratio of CEOs who are dissatisfied with Taiwan’s economic situation has been steadily increasing since 2004. (Table 1-1)

Taiwan last year posted economic growth of 4.6 percent, up 0.6 percentage points from the previous year, but still hovers at the bottom end of Asia’s four little dragons. Taiwan’s economy relies mainly on exports, but even export performance is weakening. According to global trade statistics for 2006 just released by the World Trade Organization (WTO), Taiwan has slipped to number 17 among the world’s leading trading nations, its worst-ever ranking.

Company executives are also not very optimistic about Taiwan’s economic performance this year. Some 56.8 percent of surveyed CEOs believe that the island’s economy will remain unchanged this year, while 25.1 percent expect it to turn worse. The numbers responding in these answer categories increased over last year. (Table 1-2)

China Airlines chairman Philip Wei noted that among the world’s 30 busiest airports, TaoyuanInternationalAirport counts among the few that registered negative growth last year in terms of cargo traffic. Before Taiwan’s high-speed railway took up operations early this year, domestic air traffic had already been posting double-digit negative growth for years. “Traffic volume represents a country’s economic situation,” Wei asserted. “Taiwan’s vitality has been declining continuously.”

Reducing Investment in Taiwan, Shifting Focus Overseas

Where entrepreneurs put their money most directly reflects their confidence about a certain place. Given the sense of uncertainty over Taiwan’s future, they have been reducing investment on the island. Overall, 73 percent of surveyed CEOs are still considering greater investment in Taiwan. But the longer the time frame is, the more conservative they get about investing at home. (Table 1-3)

Faced with fierce competition and limited resources, CEOs are opting to reduce investment in Taiwan, thus naturally shifting their business focus overseas. This year, for example, nearly 80 percent of CEOs are considering recruiting more staff at their overseas branches and subsidiaries. (Table 2-1)

This year more than 60 percent of CEOs said that they have already expanded their businesses to areas beyond Taiwan (including China). So in the eyes of these world-conquering entrepreneurs, precisely what role should today’s Taiwan perform?

The top three answers were research and development (48.3%), manufacturing (44.9%), and sales of own-brand products (32.4%). This order is virtually identical to that of five years ago. (Table 2-2)

But if we take a closer look, Taiwan’s value-creating capabilities have weakened. The three categories that showed the sharpest declines in comparison with 2006 were global operations management center (down 17.1 percentage points), R&D (down 6.2 percentage points), and capital financing (down 4.4 percentage points).

That Taiwan’s major role – that of servicing enterprises – is diminishing also indicates the gradually loosening ties between Taiwanese enterprises and the island’s economy.

The Government Should Not Play ‘Controller’

In this year’s survey 25.7 percent of CEOs said they are considering raising capital overseas or listing their companies on foreign stock exchanges (including Hong Kong and China), representing a slight 0.6 percentage point increase over last year. The top three areas where CEOs would take their companies public were Hong Kong (51.8%), China (23.2%) and the United States (8.9%). Among these, the figure for China showed the biggest increase with 7 percentage points. (Table 2-3),(Table 2-4)

Moreover, 56.6 percent of CEOs said that they have set up offshore companies mainly to reduce risk, avoid taxes and allocate capital (41.8%), and to be able to expand business and their company’s geographical scope (17%). But 14.8 percent of CEOs frankly admit that they want to circumvent government restrictions that ban Taiwanese companies from investing more than 40 percent of their net worth in China. (Table 2-5?^,?]Table 2-6)

“Relevant laws in Taiwan prevent enterprises from building a good connection with Taiwan,” says Kang Jang-pao, associate professor in the accounting department at NationalChengchiUniversity.

“Running a company and taking a company public are very localized things. IBM wouldn’t cut itself into 10 pieces and then list them separately on stock markets in different countries. This is a very strange phenomenon that is particular to the relationship among Taiwan, Hong Kong and China,” Kang explains. “When ties are completely severed, in such a situation the Taiwan part will either fail to survive or barely break even, and this will affect the interests of Taiwanese investors and creditors,” he adds.

Given that China has already become an important battleground for Taiwanese companies on their road toward internationalization, how do CEOs view Taiwan’s giant neighbor?

More Than Half Make Money in China

The China operations of Taiwan’s top 1,000 enterprises are also slowly facing better prospects.

In this year’s survey 54.4 percent of CEOs said that their investments in China are already turning a profit, representing an 11 percentage-point increase over 2003. At the same time fewer China investments are losing money, as the share of loss-making companies has dropped from 34.4 percent five years ago to 20.3 percent this year. (Table 3-1)

With multiple answers allowed, China’s “huge market” was the top reason that attracted enterprises to invest there (69.4%), followed by “low costs” (59.7%) and the fact that “upstream and downstream manufacturers have already relocated to China.” (Table 3-2)

Moreover, today’s China is no longer just the world’s factory, but also a hotly contested market of 1.3 billion people. China’s role as a market is increasingly prominent.

At the same time, the ratio of enterprises that realize “more than half” of their manufacturing or sales in China keeps increasing, accounting for 35.3 percent and 19.1 percent, respectively. (Table 3-3),(Table 3-4)

This trend can also be corroborated with the way enterprises lay out their China strategies.

With multiple answers allowed, China currently plays the following major roles for Taiwan’s top 1,000 enterprises: Manufacturing (60.5%), retail channel management (29.3%), sales of own-brand products (28.1%). In comparison with last year, the market-related answer “retail channel management” showed a continued increase. Correspondingly, the share of enterprises that view China mainly as a manufacturing base has markedly declined from 74.7 percent in 2006 to 60.5 percent this year. (Table 3-5)

Taiwan’s Competitiveness Keeps Declining

A new question was added in the survey this year, which asked corporate leaders about their utmost concern for the coming year in terms of business management.

Their answers were quite a surprise.

It’s not business management topics per se that CEOs fret about most, but Taiwan’s declining competitiveness. As many as 41.8 percent of CEOs worry most about a continued drop in Taiwan’s competitiveness, whereas “limited room for growth” is somewhat less cause for concern (36.6%). “Clashes between ruling and opposition parties” and an “unclear cross-strait situation” tie for third place with 30.1 percent each. (Table 4-1)

A company executive requesting anonymity describes his frustration like this: “At this crucial moment of transformation Taiwan needs a government that has foresight and takes the lead. But very unfortunately, Taiwan lacks such a cohesive force, since the political parties only care about competing for power.”

In the eyes of Taiwan’s CEOs, the island presently faces the following three major challenges: “inconsistent policies, excessive restrictions” (54.5%), an “unclear cross-strait situation” (50%), and “marginalization” (44%). (Table 4-2)

As many as 67 percent of CEOs think that Taiwan’s international competitiveness has declined in comparison with five years ago. In fact, in 2006 Taiwan slipped to its lowest ranking in four years in both the global competitiveness report by the World Economic Forum (WEF) and the World Competitiveness Yearbook by the Swiss-based International Institute for Management Development (IMD). (Table 4-3)

Still Maintaining Competitive Advantages

With view to the 2008 presidential election the CEOs think that the new leader’s top priorities must be creating a business-friendly and investment-friendly environment (54.5%), further opening up cross-strait interaction (52.3%), and building a future-oriented development vision (39.2%). (Table 4-4)

After the protracted political turmoil of 2006, Taiwan’s CEOs feel deeply uncertain about the island’s business environment at large, but they have not lost the stamina to win. As Taiwan’s enterprises are put to test again and again, CEOs consider their continuously growing competitive advantages to be flexibility and speed, the ability to lower costs, and a risk-taking entrepreneurial spirit. (Table 4-5)

“I have never been pessimistic about Taiwan. I believe that Taiwan is a vibrant and grounded economy. Taiwan truly has a lot of strength,” says Victor Kung, president of Fubon Financial Holding Co. Ltd.

The only question is, who will lead Taiwan into a better tomorrow?

About the 2007 Survey of CEOs of Taiwan's Top 1000 Enterprises

Commonwealth Magazine's 2007 Survey of CEOs of Taiwan's Top 1000 Enterprises surveyed the CEOs of the companies most likely to make Commonwealth's top 1,000 companies in 2007. Some 60.5 percent ran manufacturing businesses, 28.4 percent ran service businesses, and 11.1 percent were from the financial sector.

The survey was conducted between March 9 and April 11, 2007. Some 3,047 questionnaires were sent out, with 352 valid responses received, a response rate of 11.6 percent.

Translated by Susanne Ganz