Environmental protection is a hot topic for overseas chemical manufacturers in Taiwan. Many of them are discovering that in order to balance the interests of shareholders against those of local communities they must walk an increasingly fine line.
In 1998, Taiwan's drive to become the Asian operations center of choice for foreign investors suffered a major setback. The spring of that year saw German chemicals and health-care conglomerate Bayer abandon plans for the construction of a plant in a coastal area of Taichung County, central Taiwan, despite three years of intensive and very expensive preparatory work. Communities near the proposed site, loosely grouped under the leadership of Taichung County Magistrate Liao Yung-lai, mounted a vicious campaign against Bayer, citing fears that the plant's lethal chemical products might leak, with disastrous consequences for those living nearby. The German company and its supporters went to great lengths to demonstrate that the ultra-modern facility would pose no threat to the environment, but their efforts were in vain. Bayer decided, with regret, to build the plant elsewhere.
Nowadays, officials at the company's Taiwan office are reluctant to discuss the debacle, but other interested parties are less inclined to let bygones be bygones. Bayer's decision to cancel the project caused consternation in ROC government circles. If a market leader with a global work force of more than 120,000 employees could be prevented from expanding its Taiwan operations, who would succeed? The problem of hostility on the part of the public is certainly not going to evaporate anytime soon. "In Taiwan, not all chemical manufacturing industries are regarded as safe, suitable neighbors," says Geoff Ingham, vice president of San Fu Chemical Co. "People are afraid, even though companies like Bayer and DuPont have tremendous environmental records around the world."
But public perception of danger, however misconceived, is not the only problem. Rising awareness of environmental protection issues, often fueled by civic pride, is another reason why overseas chemical companies such as Bayer and DuPont encounter difficulties with their investment plans. "They build plants with state-of-the-art technology for the products they handle, so the risks are minimal, but that isn't always understood," says Ingham, whose company set up a local joint venture with US-based Air Products and Chemicals Inc. in 1987.
Politics plays a part, too. The Nationalist party, the KMT, at one time controlled Taiwan at all levels, central and local. After the 1997 elections for city mayors and county magistrates, however, the major opposition Democratic Progressive Party (DPP) gained control of more than half of the island's various local governments, which naturally tend to focus more on the interests of constituents than on the bigger picture. As a result, friction between local authorities and the central hub, with its long-standing commitment to attracting foreign capital, arises more frequently than before. Not surprisingly, the Taichung County government was controlled by the DPP when the Bayer controversy began, and it still is today.
Of course, it would be wrong to think that all opposition-led local governments are hostile to pharmaceutical and chemical companies. "Taiwan's environmental protection campaign is becoming less emotional than before," notes S.T. Tsay, president of DuPont Taiwan. "As long as we tell the truth, and the public is willing to listen to what the experts say, everything can be resolved sensibly. And the problem should never just come down to money"--a reference to the unsavory practice of mounting protests against projects ostensibly in the name of environmental protection, but actually as a means of extorting compensation from overseas investors.
San Fu's Ingham feels that if Taiwan genuinely wants a better investment environment for overseas chemical manufac turing companies, there is still work to do. "This industry needs a fair amount of land because chemical plants are quite large," he points out. "But Taiwan doesn't have much land available, and what there is can be very expensive. Water's an issue here, too, but the biggest problem Taiwan faces on its way to becoming a regional manufacturing center is definitely environmental protection. What looks like an investment opportunity to a civil servant can be a huge problem in the eyes of the local community. How are we going to resolve this?"
S.T. Tsay believes that the island is generally moving in the right direction in its attempts to strike a balance between economic development and environmental protection. According to him, the government now realizes that in the early days it put too much emphasis on unabashed progress, whereas during the last decade it may have swung too far in the opposite direction as it tried to nurture the green movement.
Rising public awareness of environmental issues has undoubtedly put polluters and potential polluters on the defensive. The founding of the Taiwan Responsible Care Association, under the supervision of the International Council of Chemical Associations (ICCA), is a good example of the efforts being made to enhance the reputations of locally based chemical plants and their owners. This corporate-sponsored watchdog group was set up in January 1998 and now has sixty-two members. They comprise both local and foreign concerns, mostly chemical manufacturers like San Fu and DuPont Taiwan, two of its founders. Members exchange experiences on environmental protection issues with enterprises from other associations, and must comply with the ICCA's environmental guidelines. As Tsay says, "We compete in business, but when it comes to environmental protection, we cooperate." He hopes that in this way the chemical sector can win the public's trust, which in turn will help attract foreign investors to Taiwan.
Philippe Auvaro, managing director of Hoechst Marion Roussel Taiwan, a German pharmaceutical multinational, has no regrets about having a plant in Taiwan. "If the environment had been seriously polluted, my company wouldn't have set up a factory here," he says. "A protected environment is vital for the pharmaceutical industry, because it needs clean air and water if it's to produce drugs of high quality." He points out that one reason why Swiss pharmaceutical companies enjoy such a good reputation is that their home country is widely perceived as having an excellent environment. This perception is at least partly responsible for one major advantage that such companies operating in Taiwan have over their rivals: since 1998, they have been exempt from the requirement that drug manufacturers must submit plant master files for new products, giving them a lead in new drug launches over other foreign manufacturers. The submission of these files, most of which run to thousands of pages, is an expensive, cumbersome process that can slow new product launches to stalling point.
According to Auvaro, pharmaceutical companies rarely have to worry about public opposition, because they do not produce much waste. For him, environmental protection legislation is not a major concern. He does, however, have reservations about some of the other laws affecting corporations and the way in which they are applied. "Here, you can't afford to rely on the rules alone when drawing up business plans," he says. "Multinationals especially have a problem understanding this. They believe that rules are the same for everyone, everywhere." Ingham agrees that it is often difficult for foreign chemical manufacturers to know how environmental regulations are going to be implemented. "In normal circumstances, you meet the criteria and that's it," he says. "But in Taiwan, things aren't always as straightforward as that. There's room for more than one opinion when the rules are being interpreted."
As a result, most companies, especially foreign ones, are at a loss to know how they should develop their long-term strategies on the island. "If a foreign enterprise can't see into the future, it'll just try to make a quick buck and then leave Taiwan," observes Mark Lee, vice general manager of Fujisawa Taiwan, a Japanese pharmaceutical company. "That won't benefit Taiwan at all."
Lee is also concerned about some of the government's protectionist policies. For example, the Department of Health (DOH) gives Taiwan companies an edge when they manufacture drugs originally invented and patented by overseas enterprises. As long as these local firms can show that they have carried out certain basic routine tests on their products, they are allowed to charge almost the same price for them as the foreign inventor would get for the original. "A drug sold for one hundred dollars by the original company may be sold as a generic by a local firm for more than ninety," Lee says. "Many foreign companies find this practice incredibly unfair."
Moreover, if ever the government decides that pharmaceuticals need an extra push, domestic companies receive preferential treatment then, too. "I can understand that," Lee concedes. "And overseas companies like to compete with strong rivals, although you shouldn't take that too far. But if you're receiving special protection, you shouldn't be content to stay where you are, as tends to happen in Taiwan. Few local companies try to progress by, for example, investing money in R&D, whereas most foreign-based companies put more than 15 percent of their global turnover into it."
Auvaro believes that outdated regulations also militate against the island's attempts to internationalize the pharmaceutical industry. "The leading principle of trade in the world today is mutual recognition, which means that you recognize my product standards and I recognize yours," he says. That, however, is not necessarily the case in Taiwan. For example, if a foreign drug company wants to sell its products on the island, it must conduct clinical trials in accordance with procedures laid down by the ROC government, even though similar, or even more exacting tests have already been carried out in other countries. This duplication wastes time, money and energy, which in turn discourages investment from abroad. "Even local companies are hampered by the rules," Auvaro says. "The local market isn't big enough, so some of them want to expand outside of Taiwan. But that's not so easy, because the rules are still far from internationalized."
So it would seem that Taiwan, while a good place to invest, is still a less-than-ideal environment for overseas chemical producers. But just as DuPont Taiwan's S.T. Tsay believes that society's attitudes toward chemical product manufacture may be changing, Auvaro also sees a brighter side. "I've talked to government officials at the DOH," he says. "At least I know they're aware of the need to harmonize current practices with the rest of the world."
For most overseas investors, Taiwan is an appealing destination because of its economic stability and high-quality human resources, two points all commentators seem to agree on. For DuPont Taiwan, the island's legendary small- and medium-sized enterprises (SMEs) are an added attraction, since many of these smaller companies have shown themselves able to derive new products from its mainstream chemicals. "Say our products aren't selling as well as they might in certain other countries; that's often because the local manufacturers aren't as efficient and creative as Taiwan's," Tsay says. "Overseas investors know the reputation of Taiwan's SMEs, and it's not difficult for them to find partners here."
Today, DuPont regards Taiwan as its Asia-Pacific hub for the manufacture of agricultural chemicals and titanium dioxide. Last June, it decided to establish a regional textile research center on the island. "DuPont has invested about US$1.1 billion in Taiwan to date, more than in any other Asian country," Tsay notes. "As to turnover, in this region Taiwan is second only to Japan."
US-based Air Products and Chemicals is eager to continue its association with San Fu in Taiwan. "This is a dynamic market, and we want to participate in the growing economy," Ingham says. "That's the main reason for cooperating with San Fu." He adds that the local partner has helped the American company understand Taiwan's investment environment better. Air Products and Chemicals had been supplying industrial gases to companies all over the world, but it did not expand its market to include Taiwan until it established a joint venture here.
Fujisawa's Mark Lee feels that Taiwan shows tremendous strength in other areas, such as marketing. Rather more surprisingly, perhaps, he also believes that the island has some potential for becoming a clinical trials center. That is on account of its medical treatment standards which, he says, at their best lag behind only those of Japan in the region. But Fujisawa can afford to be confident no matter what happens: it now occupies the number-one spot among Japanese pharmaceutical companies on Taiwan in terms of annual turnover, which last year reached NT$800 million (US$25 million), not including Taiwan-made products exported to Japan and Southeast Asia.
Taiwan is apparently a good place for foreign chemical manufacturers to make money, at least in comparison with other Asian markets. According to the Investment Commission of the Ministry of Economic Affairs, overseas companies have pumped more than US$3.6 billion into this sector since 1952, making it the second- largest beneficiary of foreign investment after electronics and electrical appliances manufacturing. And, as with electronics, the benefits involve much more than money. Capital inflow is of course a given, following the entrance of foreign investors, but they also bring technology and know-how. For example, San Fu uses pure oxygen to treat wastewater, a technology transferred to it by Air Products and Chemicals. "And the GMP seal of approval is another thing that originated with the assistance of overseas pharmaceutical companies," says Fujisawa's Lee, referring to the Good Manufacturing Practice label, awarded by the DOH to drug products that meet certain international safety and health standards.
"We need a lot of financial support from both local and foreign shareholders if San Fu is to operate properly," notes Sumi Chang, the company's chairman. "And we try to import not only production technology but also applications technology--how to use the products properly--as well as safer equipment and working practices." But perhaps the most significant contribution advanced multinationals make in practice is "attitude transfer." "They have a positive influence on Taiwan's chemical manufacturers because their standards for environmental protection are so high," Tsay notes. "And by their very presence on the island they help raise local operators' awareness of that issue."
In such a win-win environment, it would be a shame to see conflicts reduce the number of mutual benefits available. But as long as sections of the public resist foreign-invested plants on a NIMBY (Not In My Back Yard) basis, and the government protects local drug companies at the cost of overseas manufacturers, the delicate balance between the island and its foreign investors will remain under threat. It is up to the government to create the kind of chemistry that will bring about true synthesis.