Taiwan Business News
Taiwan Is A Leader In Electric Scooters:
Environmentally Friendly Mobility
Electric Scooters Could be the Future of Mobility
Given the right government policy and smart marketing by local manufacturers, Taiwan’s love affair with scooters could help the environment.
It’s a daily commute for tens of thousands of people, but it has also become an annual pilgrimage for electric motorcycle owners. In what is known as the “motorcycle waterfall,” scooters jostle for position like a huge shoal of fish cascading over Taipei Bridge.
This year, electric scooters gathered on the final Sunday of September at a park in the gritty, post-industrial district of Sanchong in New Taipei City. After a mass crossing of the bridge and pausing for PR shots at the lights on the off-ramp exit, the convoy of riders wearing fancy dress and angel wings bore down Minquan West Road and headed to Taipei City Hall Plaza in the glossy Xinyi shopping district.
Though the “flash mob event” was organized by the electric scooter manufacturer Gogoro, this year’s edition was open to everyone with an e-scooter. A total of 1,572 bikes came from all over the country, setting a Guiness World Record for the world’s largest motorcycle parade.
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Taiwan plans to buy $2.2 billion in Illinois corn, soybeans
Bloomberg
“Lifeline? Really, that’s about what it is,” said Bobby Dowson, international marketing representative for the Illinois Department of Agriculture. “It’s hard to replace the 400-pound gorilla on the block.”
Taiwanese buyers signed letters of intent with Illinois crop marketers, according to a statement from Gov. J.B. Pritzker. There are two agreements for $1.1 billion apiece to buy corn and soy in 2020 and 2021.
Taiwan’s Status Is a Geopolitical Absurdity
The Taiwanese see themselves as Taiwanese, not as Chinese
Taiwan Rises Fast as New Production Hub
Trump’s tank sale to Taiwan is a boon for Ohio manufacturing
Report: Google shifting Nest, other hardware manufacturing out of China
ClearVue boosts solar glass plans with Taiwan manufacturing deal
Courtesy of American Chamber of Commerce In Taipei :
Moving Toward a Free Trade Agreement
The AmCham Taipei CEO Mission that visited Washington, D.C., this June found growing interest among American government officials in seeking ways to strengthen bilateral relations with Taiwan. As reported in this issue of TOPICS, there now appears to be greater understanding and appreciation in Washington of Taiwan’s strategic value in the Indo-Pacific as a staunch proponent of democracy and human rights. On the economic front, as the United States calls China to task over its chronic violations of international trading rules and fair play, Taiwan stands out in clear contrast as a reliable trading partner.
In the opinion of many of the political observers that the AmCham delegation spoke to, the atmosphere has never been more favorable for attempting to put the U.S.-Taiwan relationship on an even sounder footing. In Congressional offices and think tanks in particular, it was frequently suggested that the time has come for Taiwan to push for a free trade agreement (FTA) with the U.S. as the best way to solidify those ties.
Unfortunately, some key officials in the U.S. executive branch seem to disagree. The CEO Mission was told that Taiwan is currently not included on the list of countries even being considered for eventual FTA negotiations, despite its standing as America’s 11th largest trading partner.
To be sure, Taiwan is off the radar screen partly because U.S. trade negotiators are busier than they’ve ever been before. They’re trying to resolve the U.S.-China trade tensions while also dealing with a full pipeline of trade deals with the United Kingdom, European Union, and Japan.
Considering the vital importance of the U.S. relationship for Taiwan’s security and economic prosperity, the challenge for the Taiwan government will be to convince the American side that Taiwan would be an ideal partner for a trade agreement. AmCham believes that the quickest way for Taiwan to get positive attention in Washington would be to show its determination to resolve all nagging outstanding trade issues. Taiwan needs to better position itself as a country that adheres to high standards.
Taiwan recently took a major first step in that direction when it opened the way to establishing an effective pharmaceutical patent-linkage system to keep infringing drug products from getting to market. The issue had been a key item on the bilateral trade agenda for many years. Two years ago, Taiwan enacted the necessary legislation to create patent linkage, and this summer it finalized appropriate implementation rules that are expected to soon go into force.
The Taiwan government deserves commendation for smoothly carrying out this process. In addition to the direct significance for the pharmaceutical industry, the achievement underscores Taiwan’s dedication to intellectual property protection in general.
Some of the other still-unresolved trade issues – particularly those involving food products such as pork and beef – have been more politically sensitive domestically. But even if those issues cannot be fully resolved immediately, evident progress in moving toward a solution could contribute to changing minds about the feasibility of an FTA with Taiwan.
The Taiwan election cycle may complicate the ability to move ahead quickly. But AmCham hopes that both the incumbent government and the opposition will recognize the need for Taiwan to take full advantage of any potential opportunities while they are available. Given its potential boost for Taiwan both strategically and economically, an FTA with the U.S. should be a goal that all elements on the political spectrum can rally around
Airbnb Resilient in Taiwan
The home-sharing company’s business has grown steadily while it has largely dodged penalties for hosting unlicensed properties on its platform.
For years, Airbnb and Taiwanese regulators have been playing a cat-and-mouse game. Local regulations limit short-stay accommodation rentals to licensed hotels or inns, but most Taiwan properties listed on the home-sharing platform do not meet that requirement. Nevertheless, demand for economical lodging is strong enough that Airbnb is willing to risk the inevitable fallout with regulators.
Previous crackdowns – which brought sharp increases in fines for operating illegal hotels – only temporarily curbed the number of listings. After a while, the volume start to creep up again.
In practice, regulators can’t easily punish Airbnb because the company has no physical presence in Taiwan. The company is registered in San Francisco. There are no Airbnb staff members on the ground here.
“What are regulators going to do? Send a notification of a fine to the Airbnb office in California?” says C.K. Cheng, founder of the Taipei-based vacation-rental platform AsiaYo.
Yet while Airbnb’s business continues to thrive here, the government’s tough stance on unlicensed hotels and homestays is having an adverse effect on some local businesses that cannot so easily skirt regulations.
For instance, most vacation rentals in Taiwan’s large urban areas are empty apartment units that do not qualify as homestays and cannot be legally listed on AsiaYo’s platform. Taiwanese law defines a “homestay facility” as accommodation services operated as a side business in an owner-occupied residence. If the owner is absent from a property being used for homestay purposes – as is the case with almost all Airbnb rentals in Taiwan – then it’s not a homestay and isn’t legal. Unlicensed facilities are subject to a maximum fine of NT$500,000 and must be shut down.
Being largely unable to serve the markets of Taipei, Taichung, Tainan, and Kaohsiung, “we are taking a big hit,” says Cheng. The company’s business is good in rural areas where homestay regulations are more relaxed, including Hualien, Taitung, Chiayi, and Pingtung counties. However, those markets are much smaller than the urban centers and tend to be overlooked by international visitors.
“If you’re coming to Taiwan from overseas, especially for the first time, you’re definitely coming to Taipei,” Cheng says. “You can imagine the frustration of being a vacation-rental platform that’s cut off from the largest tourism market in Taiwan.”
In contrast, Airbnb’s business is thriving, according to the most recent data compiled by the company. Guest numbers increased to 1.61 million last year from 1.3 million in 2017. Listings have increased from 15,000 in 2015 to 38,000 as of June.
In a forecast published in December 2018 based on internal search, booking, and wish-list data, Airbnb estimated that Taiwan would be its 19th most popular travel destination globally in 2019.
“There’s very strong demand for the segment, which feels like a homestay, for the leisure and family markets,” says Achim v. Hake, long-time general manager of the Sherwood Taipei, who has stayed in Airbnb properties in Germany.
For its part, the government seems determined to curb Airbnb’s Taiwan business, which it sees as non-compliant with regulations. In March, the Ministry of Transportation and Communications (MOTC) proposed to increase the maximum fine for operating an unlicensed hotel or homestay from NT$500,000 to NT$2 million.
Airbnb hopes to open a dialogue with the government to resolve the current impasse, says Singapore-based Marvin Ma, Airbnb’s public affairs manager for Hong Kong and Taiwan. The company understands that the government faces pressure from hoteliers to crack down on unlicensed short-term rentals, but it believes the best solution is to change the current regulatory framework, which was established long before homestays were a mainstream form of travel accommodation.
“We want the government to amend the law so that Airbnb can legally operate, and we believe that the government knows it needs to change the regulations,” he adds.
Overcoming a trust deficit
A trust deficit seems to be preventing Airbnb and the Taiwanese government from reaching a solution to the impasse. On the one hand, the government insists that Airbnb conform to existing regulations designed for traditional hotels and inns, though that may not be suitable for its business model, a third-party booking platform connecting property owners with guests.
“The message being sent is that new business models are not welcome, which isn’t good for Taiwan’s overall business environment,” says AsiaYo’s Cheng.
The Sherwood’s v. Hake says that hotels and Airbnb properties are “completely different” and should be regulated separately.
On the other hand, Chen Ming-ming, founder and chief executive officer of online travel activities booking platform Kkday, says that “from the government and hotel industry’s standpoint, Airbnb is competing in an unfair way.” He notes that Airbnb can charge lower prices than hotels because it pays no taxes on business it does here – transactions occur overseas. Nor does Airbnb have to pay the salaries of a large team of staff or high insurance fees like a hotel does.
Chen points out that Airbnb has also strayed far from its original “home-sharing” concept in the Taiwan market, where real-estate speculation is common. Professional landlords often have multiple apartment units that they rent out to Airbnb guests, just as they would to long-term tenants, he says.
The solution to the impasse is for the government to draft new regulations designed for Airbnb’s business model, while Airbnb should register in Taiwan and set up an office, he says.
“As long as Airbnb doesn’t have operations in Taiwan, it’s doubtful the government will be sympathetic to their views,” he says.
When asked about Airbnb’s lack of boots on the ground in Taiwan, public affairs manager Ma that the company has a “light operating model” that doesn’t always call for a physical office. He points out that other key markets for the company in Asia, such as Hong Kong and Thailand, also have no Airbnb office or staff members.
One way to resolve the conundrum would be to follow Japan’s model for short-term rentals, set up in June 2017 in large part to boost lodging supply ahead of the 2020 Tokyo Olympics. Under Japan’s new law, property owners must register their short-term rental units with the relevant government authority and can host a maximum of 180 overnight stays annually.
Reportedly, regulators two years ago considered permitting Airbnb and similar services to operate legally but dropped the idea after some hoteliers and inn owners cried foul. Many of the fiercest opponents of Airbnb had jumped into the hotel business during Ma Ying-jeou’s presidency to cash in on the Chinese tourist boom. They fell on hard times after Beijing curbed the number of group tours to Taiwan to signal its displeasure with President Tsai Ing-wen’s cross-Strait policy.
“Some small hotel operators see Airbnb as a direct threat to their business,” says Ping Lee, head of research at CBRE Taiwan, a property consultancy.
She points out that illegal short-term rentals have existed in Taiwan for years, but only attracted heavy regulatory scrutiny when Airbnb arrived. “Airbnb’s platform may have caused the number of such rentals to rise, but Airbnb did not create the problem,” she says. “The government needs to change industry regulations if it wants to ensure compliance.”
In the short term, Airbnb will likely continue operating in a legal gray area in Taiwan. The enforceability of fines is limited because authorities often don’t know where unlicensed hotels and homestays are located. Airbnb’s booking system conceals that information until after payment is made. And many people would think twice about reporting a neighbor to the authorities given the potential legal trouble it could bring.
Yet a lack of openness to new business models will ultimately not benefit Taiwan’s investment climate, the Sherwood’s v. Hake says.
“Airbnb represents a trend – a new way of traveling, with a lot of market potential. It’s not a good idea to try and shut it down,” he says.
Uber on the Brink Again in Taiwan
Amended transportation regulations could cripple the ride-hailing giant’s Taiwan business, sending a worrying message about the investment climate.
Uber has struggled in East Asia. The San Francisco-based ride-hailing giant burned through billions of dollars battling China’s Didi Chuxing before bowing out of the Chinese market in 2016. It never gained a foothold in Japan or Korea, and last year withdrew from eight Southeast Asian countries.
Currently, Uber continues to holds stakes in Didi and Singapore-based Grab, but it operates a major business of its own in just two East Asian markets: Hong Kong and Taiwan.
Once again, however, Uber’s ability to operate in Taiwan is at risk due to strong pressure from the politically influential taxi industry. Article 103-1 of the Transportation Management Regulations was amended in June, overturning provisions in force since 2017 that allowed Uber to offer its ride-hailing services through rental-car companies.
The new rules (the so-called “Uber clause”) – scheduled to be take effect from October 1 following a four-month grace period – require “vehicle rental services” like Uber (but not taxis) to charge by the hour or day. Upon completion of a trip, rental vehicles must return to the garage without picking up another fare.
Uber estimates that complying with the regulations would cause its fare prices to rise fourfold, hitting the company’s bottom line hard. Without a feasible business model, Uber would likely exit Taiwan. That would not be welcome news for the company’s 10,000 drivers, 3 million regular customers, and 250 rental-car company partners.
A chilling effect could also occur on the wider business climate. In an April statement, the American Institute in Taiwan (AIT), which functions as the de facto U.S. embassy, said that the draft measures run contrary to President Tsai Ing-wen’s goal of building a regional startup hub and innovation ecosystem in Taiwan.
“A predictable and transparent regulatory environment is critical to attracting foreign investment,” AIT said. “However, some of the requirements in the Draft Measures could contravene President Tsai’s objective and jeopardize Taiwan’s reputation as a safe place to invest and innovate.”
Willy Wu, general manager of Uber Taiwan, says that the draft measures would have a negative effect on Taiwan’s business environment. He notes that local ride-hailing services Call Car Bar and Join Me, which entered the market after Uber, would also be affected. “Business in Taiwan should be concerned in general, not just international companies,” he says.
Drivers cite Uber’s flexible hours and competitive pay as reasons they choose to work for the company. One driver in Taipei City, who asked to be identified by his surname Hsiao, recently retired from the military at age 49. He says he likes being able to decide his own working hours – a nice change from regimented military life.
Deax Lin, a former steakhouse manager, has been driving full-time for Uber for a year. He says that he can earn about NT$60,000 a month after subtracting his own costs and Uber’s fees. “It’s well above average for Taiwan,” he says. “It would be hard to earn this much in many other jobs here.”
For consumers, the main benefit Uber offers is greater choice. “They can choose taxis or Uber, whichever they think provides them with better service,” says Allen Cheng, a senior industry analyst at the semi-governmental Market Intelligence & Consulting Institute (MIC). He says that Uber’s presence in Taiwan has pushed taxi companies to improve service quality to remain competitive, whether by accepting cashless payments, creating booking apps, and even requiring drivers to behave more professionally.
“However, the government has to evaluate Uber’s impact on the taxi industry very carefully,” he adds.
Compliance and competition
Two types of issues – compliance and competition – have been at the center of the controversy over Uber’s legal status in Taiwan. Regarding compliance, the company accumulated more than NT$1 billion in fines from the time it entered the market in 2013 until early 2017, due to the government’s contention that it had registered as a technology company but was in fact doing transportation business.
That issue was fully resolved through the business model – a technology company providing services to local rental-car firms – that Uber and the authorities agreed on in 2017, says Uber’s Wu.
Likai Gu, Uber’s former Taiwan general manager, adds that Uber made a number of changes to comply with Taiwanese transport laws, notably agreeing to pay taxes and provide passenger-injury insurance.
Why then has a case that was seemingly closed two years ago been reopened? The answer appears to be the competition factor. The taxi industry, historically a powerful voting bloc, is pressuring the MOTC, Gu says.
Taxi companies dislike Uber because they believe that the ride-hailing company takes customers away from them. That’s often true, but the fundamentals of the taxi industry were problematic long before Uber arrived in Taiwan. There are almost certainly too many taxis in Taiwan given market demand. By MOTC’s estimates, 88,000 yellow cabs are on the road nationwide – 30,000 of them in Taipei City, which has a population of 2.7 million. Hong Kong, with a population of 7.4 million, has just 18,000 taxis. Seoul, with a population of 9.7 million, has 23,000 taxis.
Even if taxis no longer have to compete with Uber, the market will remain saturated unless the government decides to undertake sweeping reforms. That’s not likely in the short term, especially as the taxi industry seems more concerned with ousting Uber than anything else.
In February, MOTC announced that it had found that Uber is a taxi service in everything but name and thus in violation of the law. The Ministry’s statement said that a lack of clarity about what defines a taxi business has “allowed Uber to offers services similar to taxis, causing unfair competition.”
“I am all for the sharing economy, but Uber must follow the law to operate legally in Taiwan,” MOTC Minister Lin Chia-lung said at an April press conference.
His predecessor, Hochen Tan, wrote in a May commentary in the English-language Taipei Times that “since the taxi industry is full of people living near the [poverty line] and drivers are notorious for their strong political opinions, there is undoubtedly strong motivation for politicians to formulate policies designed to win their support.”
The ruling Democratic Progressive Party (DPP) suffered a major setback in the 2018 municipal elections and is looking to shore up support with the taxi industry ahead of the 2020 presidential election, many observers say.
At the same time, “it’s easy to make Uber a target because of all the controversies about the company in the past,” Gu says.
To be sure, Uber’s combative style under former CEO Travis Kalanick rubbed some local officials the wrong way. Under Kalanick’s leadership, the company flouted local regulations first and asked questions later.
Yet Uber has struck a more conciliatory tone since establishing the partnership with local rental-car companies. “We want an open dialogue with the government,” says Wu. He urges the government to consider how the proposed change to transportation regulations “would impact the lives of drivers, rental-car companies, and passengers.”
If Uber is forced to exit Taiwan, Gu says that many Uber drivers would likely end up becoming taxi drivers. Adding taxi supply to a saturated market would cause drivers to compete for the same limited number of fares, though the dispatch companies might be happy because they could collect more fees in the aggregate.
Uber’s departure would also give taxi companies less incentive to further improve their service. The inconsistency of taxi service quality is one of the main reasons Uber has been successful here. On a recent ride, when this writer requested to make a cashless payment, the driver responded: “When taxi drivers see cash, their eyes light up. When they see EasyCard or a credit card, their eyes darken.”
The long road ahead
There is no easy solution to Uber’s dilemma. MOTC has advised Uber to register as a taxi company to be compliant with local laws. That would involve investing NT$5 million to set up a taxi company, getting the drivers licensed (through the same test that taxi drivers take), and applying for a taxi service operation permit. Uber would then be part of Taiwan’s multi-purpose taxi (MPT) program without having to overhaul its business model, MOTC says.
Taiwan set up the MPT program more than two years ago during ongoing efforts to make Uber compliant with local regulations. The just over 1,000 drivers enrolled in the program must use metered fares but are not legally required to drive a yellow car. Passengers must use an app to contact the drivers.
The MPT program has yet to catch on, probably because the positioning of its fleet – neither Uber vehicle nor traditional yellow cab – is unclear. But the government is now pressing Uber’s 10,000 drivers to join the program by taking a test for a commercial driver’s license for non-traditional taxis. The tests will be offered through September.
It appears that the government is trying to ensure that those drivers won’t be unemployed come October 1, when it will begin issuing fines for violation of the amended transportation regulations.
For Uber, the situation looks increasingly dire. MOTC’s proposal that it register as a taxi firm may seem straightforward, but “there are massive regulatory requirements to become a certified taxi company in Taiwan when it comes to licensing, insurance, and fare-rate control,” says MIC’s Cheng. “Uber is unlikely to operate as a taxi company without a major change in its business model.”
In particular, Uber is concerned that participation in the MPT program would not permit it to have upfront and dynamic pricing, whereby fares are determined by supply and demand at any given time and passengers know how much they will pay before beginning their journey. The company considers these features integral to its business model, Wu says.
Certainly some regulatory changes would be necessary to allow Uber to be compliant with local laws and maintain its core competitive advantages. “A major overhaul to current taxi regulations or a new definition of micro-transportation service will be required,” says MIC’s Cheng. “Questions about legislative purposes, definitions of key terms and economic impact should be discussed through a multi-stakeholder process. Obviously, this would require a lot of effort.”
Ahead of the end of a 60-day consultation period for the proposed regulatory changes in late April, the Platform Driver Alliance, a group formed by Uber drivers, announced that it had collected more than 300,000 signatures – the threshold for proposing a referendum – in support of Uber and its existing business model in Taiwan.
At the time, the Platform Driver Alliance said that it would propose an amendment to the Highway Act that would allow drivers to legally accept assignments from internet platforms on a commercial basis. The group has not issued any updates of that plan since then.
For its part, Uber plans to keep its operations unchanged through September. After that, it is unclear whether the company will continue to operate in Taiwan.
Asked about Uber’s future prospects in Taiwan, Uber driver Deax Lin says, “There’s definitely hope, since the government knows that forcing Uber out wouldn’t be good for Taiwan’s image.”
“I’m an optimistic person,” he adds.
The Four Stages of Life (as experienced through Taiwanese cuisine)
Childhood: Consequence-Free Dining at the Night Market
Will was on assignment in Taiwan, one of a group of bloggers, YouTubers, and other influencers invited by the Tourism Bureau to produce millennial-friendly content promoting Taiwan on the internet. It was his first day in town, so I figured the night market was a good place to start.
I texted my suggestion. When he replied, “Take me where the locals go,” I knew I was dealing with a fellow travel professional.
While Taipei’s night market scene is well-known, the casual traveler generally tends to stick to the big three as promoted heavily by the folks in the aforementioned bureau: the ever-popular yet maddeningly confusing Shilin market (the confusion begins with the fact that if you get off the MRT at the Shilin station, you’ve gone a stop too far), the more traditional Raohe market, and the tourist-friendly Ningxia market.
But Will had requested a local experience, so I brought him to Jingmei, where the only Occidental face (other than my own) occasionally seen chomping down a comically Flintstones-sized grilled octopus tentacle slathered in teriyaki sauce generally belongs to one of the long-term Western denizens of the neighborhood (still reasonably affordable by dint of its being nearly on the city’s outskirts).
Our epicurean excursion began with the tentacle, grilled to moist perfection over hot coals, and I felt strongly that the folks at the bureau would appreciate the film Will was making of our eating this most monstrous of appetizers. After we’d wolfed down our snacks, Will asked me to introduce him to another typical night market dish. Across the lane, an old woman stood behind a metal grill preparing one of Taiwan’s better-known dishes, oh ah jen, the oyster omelet. This artery-clogging fare consists of a dozen or so shucked oysters cooked on a generously lard-lubricated grill in a batter made from egg and cornstarch, fried to the consistency of cold motor oil and served smeared in red sauce.
Taiwan’s Growing Thirst for Wine
[ Do Not Serve Alcohol to Minors ]
Consumers are gradually developing a taste for grape wine, but it still remains outside the mainstream dining culture.
In 2006, the Taiwan economy was still booming, buoyed by surging trade with the People’s Republic of China. It was a time when many Taiwanese businesspeople thought that closer economic ties with the PRC would bringing lasting prosperity to the island. Taiwan’s GDP expanded by 5.6% that year.
That summer I made the acquaintance of a businessman who was thriving thanks to his factories in China. We were both dining in the now-defunct Taipei branch of the gourmet Thai restaurant Patara, which was located just south of the flagship Eslite bookstore on Anhe Road.
We met because I spied a bottle of 1988 Château Margaux Premier Grand Cru (French for “first growth”) Classé on his table, and remarked to him that 1988 “was an excellent year.” Actually I didn’t know whether that was true, but figured it was a good way to start a conversation. I knew the winemaker was excellent because my uncle had given me a sublime 1979 (that was an excellent year) Margaux for my 21st birthday – still one of the best wines I’ve ever tasted.
He introduced himself in fluent English, and in courteous Taiwanese fashion, said that he hoped I could help him and his wife improve their proficiency as English speakers. Once we got past the niceties and a bit of small talk about the ascendant Chinese economy, he offered me a glass of the 1988 Margaux, which he had brought to Patara from his private collection.
Taiwan Economic Outlook and International Affairs– December 2017
THE ECONOMIC NEWS IS MOSTLY POSITIVE
On November 17 economist Chen Shin-hui, assistant research fellow at the Center for Economic Forecasting, part of the Chung-Hua Institution for Economic Research (CIER), offered a lively presentation and discussion on the state of Taiwan’s and the world’s economy. As the compiler of CIER’s Purchasing Managers’ Index (PMI), a monthly survey of Taiwan’s major industries that is widely viewed as a leading indicator of the economic health of the manufacturing sector, Chen has a comprehensive view of Taiwan’s economy.
Chen noted that Taiwan has benefited from the recent global upturn in growth and trade. The global economy is looking to post higher growth rates in 2017 – in the vicinity of 3.6% on the strength of modest growth in the United States (2.17%), the Eurozone (2.22%), and China (6.8%), according to the Global Insights website. Chen noted that Global Insights remains particularly bullish on anticipated tax cuts and business growth in the United States. The OECD, meanwhile, though more cautious, likewise sees broad-based recovery throughout the economies it tracks.
This global recovery has resulted in a 20-month long expansion in Taiwan’s exports, up 13% in year-to-date annual comparisons as of October, according to the Bureau of Foreign Trade under the Ministry of Economic Affairs (MOEA).
The PMI tracked by Chen reflects this upward trend, coming in at 57.7, although it fell a slight 1.7% from September’s 58.7. Anything over 50 is considered expansion. Chen noted that both New Export Orders and Industrial Production Indexes also recorded healthy scores of 58.6 and 57.9, respectively, although both were down slightly from the previous month. What’s more, this expansion was seen in all of Taiwan’s major industrial sectors.
Taiwan Companies Take a Fresh Look at the U.S.
As an investment destination, the United States is attracting greater interest from Taiwan’s top corporations – but it’s struggling to attract smaller players.
Terry Gou knows an opportunity when he sees one.
The Foxconn chief’s fine-tuned business and political instincts seized the chance provided by the new Trump administration’s push to revive the American manufacturing sector and “bring back” jobs that had been sent abroad – or in many cases lost to automation. After two low-key visits to the White House, he was invited back in late July, where he received VIP treatment.
Sharing the stage with some of the heaviest hitters in the Republican party – President Trump, Vice President Pence, House Speaker Paul Ryan, and Wisconsin governor Scott Walker – Gou beamed as he was hailed for Foxconn’s newly announced investment: a US$10 billion LCD-panel manufacturing facility. The factory will be located in Ryan’s Congressional district in Wisconsin.
Gou’s smile may have been inspired by the words of praise lavished on him by President Trump, who called him “one of the great businessmen of our time.” Or perhaps he was smiling because Foxconn’s deal will be receiving a US$3 billion subsidy from Wisconsin taxpayers – the biggest subsidy ever offered to a foreign investment in the United States.
The Internet of Things Arrives in Taiwan
Few technological advances have gained the world’s attention like the Internet of Things (IoT), defined by global analytics firm IDC as “a network of uniquely identifiable ‘things’ that communicate without human interaction using IP connectivity.” Some 13 billion connected devices are already in operation, used mostly in manufacturing, transportation, smart cities, and consumer applications, and IDC forecasts global annual growth of nearly 17% for IoT hardware, software, services, and connectivity. Another leading research firm, IHS, estimates that more than 30 billion devices will be connected by 2020, with the number rising to 75 billion by 2025.
Taiwan is betting big on leveraging its strengths in cost-effective, advanced manufacturing to grab a chunk of the global IoT market, calculated by IDC to currently stand at US$800 billion and rising to US$1.4 trillion by 2021. The Tsai administration has included technological development of IoT-enabled devices under its “5+2” industrial development plan. The Asian Silicon Valley segment of the plan will focus on R&D into IoT, while the Smart Machinery segment will develop machine-to-machine communication in industrial processes.
The government has already allocated some NT$11.3 billion (US$357.9 million) this year for internet infrastructure, mobile broadband services, e-commerce, smart applications, test beds, industry-university collaboration, digital talent, and regulatory adjustment, according to the National Development Council. The NDC reports that Taiwan’s share of the IoT value chain is expected to climb from the current 3.8% to 4.2% in 2020 and 5% by 2025.
Taiwan: The Hot-Spring Heaven
Winter is hot-spring season in Taiwan. It never gets truly cold in the lowlands, even in January, but a population used to daytime temperatures that are often above 32 degrees Celsius (almost 90 degrees Fahrenheit) begins to shiver when the mercury drops. This is when many citizens head to the hundred-plus locations around Taiwan where mineral-enriched waters, warmed by the Earth’s geothermal heat, bubble to the surface.
These natural spas are a result of the volcanism and tectonic action that created Taiwan’s stunning landscape. The volcanoes are long extinct, but the hot springs they bequeathed continue to amaze and delight visitors as well as locals. In terms of temperature, mineral content or scenic setting, no two are alike.
Taipei residents are fortunate in having on their doorsteps the springs of Xinbeitou. The sheer number of soaking options there, and the convenience of the capital’s MRT rapid-transit rail system, enable many people to go for a soothing dip on the way home from work.
Taiwan’s love affair with hot springs is in part a result of 50 years’ of Japanese rule, but the island’s springs are also a hit with Western visitors and expatriates. “My father is a hot springs buff, and when I was a child, we did countless hot-spring road trips in the Rockies. Because of him, I was always aware of and drawn to Taiwan as a hot springs destination,” says Nick Kembel, a Canadian writer/photographer based in Taipei. “I have many favorites, but we especially love taking our kids to Jianshi in Hsinchu County. It’s a short drive from Taipei but it feels remote, and the spas there are in gorgeous natural settings.”
From the international tourist’s perspective, Taiwan’s hot springs have certain advantages over their Japanese counterparts. Whereas segregation by gender and nudity are standard (and required) at Japan’s famous onsen, swimsuits are worn at the majority of public hot-spring pools in Taiwan. Families can splash and soak together in these places, many of which are open-air. As in Japan, each hot-spring guest is expected to wash his or her body thoroughly before getting in the water.
Building Cellular Connectivity
Mobile phones are all the rage in Taiwan, with over 29 million devices in use in a society of 23 million people, according to research by Berkshire Hathaway’s Business Wire. That market penetration of 127% compares to what Statista calculates to be just 81% in the United States. Nearly all of Taiwan enjoys 4G network coverage, and the International Telecommunications Union (ITU), the global industry organization, anticipates that 5G technology will be introduced to the market as early as 2020.
Mobile internet access employs invisible radio signals transmitted to and from mobile phones, but substantial infrastructure is needed to support those transmissions. As the demand for higher data transmission rises, so does the amount of infrastructure required. Larger volumes of data transmission also necessitate the use of higher frequencies, but higher frequencies degrade faster, requiring more base stations to ensure adequate coverage.
Third-generation (3G) mobile phone networks required double the number of base stations compared to 2G, and 4G doubled that again. According to National Communications Commission (NCC) data, Taiwan currently has nearly 80,000 base stations owned by its major telecoms. Far EasTone is in the lead with 23,493 4G base stations, followed by Chunghwa Telecom with 20,944 and Taiwan Mobile with 20,680. The remainder belong to Asia Pacific Telecom (7,518) and Taiwan Star (7,026).
Contract Production Still Dominates Taiwan’s Manufacturing
Supporting a brand is difficult. Despite low margins, the OEM/ODM model brings in steady business.
Factories of Hon Hai Precision (also known as Foxconn) and other major Taiwanese contract manufacturers are currently running at full capacity churning out the iPhone 8 and other new models launched by Apple.
Economists regularly disparage Taiwan’s continued heavy reliance on contract manufacturing – also known as Original Equipment Manufacturing (OEM) and Original Design Manufacturing (ODM) – and urge domestic industry to develop their own brands to command better margins and greater control over their business.
Few companies have succeeded in making the leap to their own brands, however. Despite the shortcomings, production on an outsourced basis for overseas customers continues to be a standard business model – and for many enterprises it remains a big business, though much of the actual production is often done offshore.
That is the case with much of the business undertaken as part of the Apple supply chain. Apple’s leading contractor, Hon Hai, the world’s leading EMS (electronic manufacturing service) provider, has received some 95% of the contract production orders for the iPhone 8 and is also responsible for part of the orders for the iPhone 7 and iPhone 7 Plus.
Taiwan Business in Brief – November 2017
PV Taiwan Expo Highlights Green Energy
The Taiwan External Trade Development Council (TAITRA), in cooperation with SEMI Taiwan and the Taiwan Photovoltaic Industry Association, hosted PV Taiwan 2017, Taiwan’s leading solar industry trade show, October 18-20 at the Nangang Exhibition Center. Taiwan has the world’s second largest solar cell manufacturing industry after China, with some 13 gigawatts (GW) of manufacturing capacity, as well as significant solar wafer and module manufacturing. The Tsai administration is banking on seeing 20GW of installed solar power in Taiwan by 2025. PV Taiwan 2017 was held concurrently with the 2017 Taiwan International Green Industry Show and 2017 Renewable Energy Week, and featured pavilions highlighting not only solar power and components but also wind energy and hydrogen fuel technology. President Tsai opened the expo with a speech in which she reaffirmed her administration’s efforts to transform Taiwan’s energy system and promised speedier solar power installations, which are currently lagging behind stated goals.
In the run-up to the expo, Taiwanese solar cell makers Neo Solar Power Corp., Gintech Energy Corp., and Solartech Energy Corp. announced October 16 that they had inked a letter of intent to merge via a share swap. The trilateral merger will create Taiwan’s largest solar company and the world’s fifth largest solar cell maker in terms of production capacity, giving the new company to be formed from the union, United Renewable Energy Co., Ltd. (UREC), the scale to compete against larger Chinese rivals. The new company will also be vertically integrated, with capacity ranging from midstream solar cell and module manufacturing to downstream solar system installations.
Two other major solar firms, solar cell manufacturer Motech Industries Inc. and solar paste and components maker Gigasolar Materials Corp., announced a joint venture for solar module making. The joint venture will have 400 megawatts of module manufacturing capacity aimed initially at supplying the local installations market, with exports to follow at a later stage.
Taiwan’s Outlook for 2018: Riding the International Wave
For the first time in a decade, the world’s major economies this year are all experiencing positive growth, signifying that the shockwaves emitted by global financial crises are finally fading.
Consequently, demand for Taiwanese exports in all categories is increasing strongly and Taiwan’s economic growth rates are exceeding expectations. GDP growth is now widely forecast within the 2-2.5% range for both this year and next, a stable if not stellar performance – and a marked improvement over last year’s 1.5%. But in the long-run, economists say, export-dependent Taiwan will need to move up the industrial value chain as its strength in electronics manufacturing is under mounting threat from foreign competition.
Energy in Taiwan: Uncertainty in Liquefied Natural Gas
The third receiving terminal has been postponed for environmental reasons – the prospective impact on a unique reef.
Citing the need for further study of the rare coral reefs that lie nearby beneath the waters off Taoyuan County, the Environmental Protection Administration (EPA) on October 26 called for further postponement of a project to build Taiwan’s third liquefied natural gas (LNG) receiving terminal in Guantang, adjacent to the Datan natural-gas power plant on the Taoyuan coast. The NT$60 billion (US$2 billion) project to accommodate increased imports of LNG is considered vital to the government’s plans to transform the energy mix away from nuclear power and coal and towards cleaner natural gas and renewable energy.
Taiwan Economic Outlook – November 2017
Please see this month’s Taiwan Business TOPICS Cover Section for a comprehensive look Taiwan’s current macroeconomic conditions and forecast for 2018.
Taiwan Remains at the Core of Apple’s Supply Chain
With the U.S. tech giant ready to launch three iPhone models this year, Taiwanese suppliers and transporters expect a big boost in business.
The Taiwan technology sector is often criticized for lacking viable brands. In the consumer electronics category, the number of big names can be counted on one hand, and these companies have generally been struggling ever since the PC era began to wane.
Pundits – analysts, bureaucrats, academics, and especially journalists – often urge Taiwanese tech firms to invest more in brand building. It’s costly, they concede, but it’s the best way to develop higher value products.
The alternative is acquiescing to permanent razor-thin margins as a contract electronics manufacturer. For the many Taiwanese manufacturers in Apple’s supply chain, however, that option is working out just fine. It can be a tumultuous ride at times – Apple negotiates fiercely on price – but the payoff is big. In July, ahead of the much-hyped iPhone 8 release, nine Apple suppliers in Taiwan on Nikkei Asian Review’s watchlist posted a 9.7% increase in revenue compared to a year earlier.