A Half Century of TOPICS – Breaking Down a Globalized Business Model in Taiwan

TOPICS’ first editorial, published in March 2002 – The situation has improved, but some of the content remains relevant 18 years later.

The recent formation of Taiwan’s new Cabinet provides a good opportunity to review the difficulties faced by international companies attempting to implement a globalized business model in Taiwan.

Much has been done to open Taiwan’s economy to foreign participation, no doubt. Yet what is perplexing is that there are still so many barriers – seen and unseen – to operating within the market once entry has been established.

Take the issue of people. In a globalized business model, a company usually follows the strategy of dividing its human resources to best suit its global needs. Multinational companies therefore need their workforces to be flexible and mobile; but Taiwan’s rules and regulations work against this. For instance, companies can’t base their salaries of their managerial staff on the same company-wide performance and merit-based systems used elsewhere. Why? Because Taiwan’s Labor Standards Law requires everyone in the company (except the general manager) to be paid overtime….

It also assumes that managers are able to bring staff into Taiwan from any country on the same basis. This is not the case, however, thanks to differing standards on visa requirements for countries such as Bangladesh or the Philippines. Those are the difficult ones; the near-impossible ones are stuck across the Strait….

Another major disincentive for foreign investors is that the transparency of corporate governance and insolvency resolution in Taiwan is still far below international standards. Company reorganization laws, for insurance, are heavily weighted toward the debtor-in possession. This works as a trade barrier against foreign investors, because funds in the U.S. and elsewhere have certain standards of corporate governance that must be met for them to invest in a company. But their local counterparts have no such limitations, so foreigners do not, in effect, get access to the same choice of Taiwanese listed companies.

There are other limitations to the movement of capital, such as the requirement that a mutual fund have a two-year history of operations before it can set up in Taiwan. Moreover, a fund can’t invest more than 15% of its asset value in derivatives. That immediately eliminates hedge funds and capital guarantee funds, which are fixed-term.

Taiwan’s inadequate infrastructure presents another unseen barrier [for multinationals]….If access to sufficient power, water, and transportation facilities is not up to international standards, they cannot operate on a globally competitive scale.

All in all, this is a pity. Discriminatory treatment of foreign business only hurts Taiwan. AmCham Taipei has many members who could contribute in an extremely positive way to Taiwan’s drive to develop a services-based “knowledge” economy. But they need to have the same ability to bring people in and out of Taiwan that they have elsewhere, their capital and technology need to be able to enter, move about, be protected, and leave as freely as in other countries, and they need infrastructure that allows them to operate as they would in any other country focused on developing a cutting-edge “services economy.”