Last year was supposed to be the year of “Fortress Europe.” After the fall of the Berlin Wall four years earlier, political and economic integration seemed imminent. Europe was poised to help write a new definition of political power, one that emphasized economic might over military muscle. And it was expected to be an important player in the worldwide trend toward regional trade blocs. Conventional wisdom at the time held that this huge new bloc would pull together a common trade policy and throw up a fortress of trade barriers around itself.
At the same time, the hope for a unified Europe stimulated many governments on the Continent to reconsider their economic development strategies. They began to take a closer look at their trade policies in order to find new sources of investment and to broaden overseas markets. In this process, they took note of the huge foreign currency reserves and burgeoning economy of Taiwan. European nations quickly began to cultivate stronger ties with the ROC by setting up trade and investment offices in Taipei. By 1993, there were twenty-three such offices, representing seventeen European countries.
Meanwhile, the thinking in Taiwan was that stronger economic relations with Europe were necessary in order to get a foothold before the fortress doors slammed shut. The government was also encouraging a shift away from overdependence on the U.S. market. By the late 1980s, Taiwanese traders and investors were flocking to Europe in increasing numbers. Taiwan's two-way trade with Europe, as a percentage of total trade, shot from 10.7 percent in 1985 to 17.9 percent in 1990. The ROC currently has trade offices in sixteen European countries.
But yesterday's conventional wisdom has become today's unfulfilled hope. It is now mid-1994, and the ramparts never quite got built around Europe. The cement to hold them together was too diluted with sovereignty squabbles and Eurocratic wrangling to take hold. That infighting, together with a long economic downturn and pressure from GAIT to reduce trade barriers, has now made the threat of a monolithic, protectionist Europe seem remote.
This has taken some of the pressure off Taiwan businesspeople, and the pell-mell rush into the European market has slowed somewhat. Although Europe remains Taiwan's third largest trading partner, by 1993 the island's trade with the Continent had dropped to 16.5 percent of its total trade. Many Taiwan traders and investors in Europe, confronted with a difficult and unfamiliar new market, are using this respite to re-evaluate their business strategies. The European trade offices have also learned some valuable lessons about the Taiwan market and are reconsidering how best to achieve their goals.
“We've had to change our focus a bit since setting up our Taiwan office in 1989,” says Michael Garvey, director of Ireland's Institute for Trade and Investment (ITI Ireland). “Back then, there was a Fortress Europe mentality that assumed outside investors would flock to Europe to take advantage of the huge potential market. So we positioned ourselves to be a prime investment center and a base for Taiwan companies looking for a manufacturing location in Europe, and waited for the investments to pour in.”
And waited. And waited. Although ITI Ireland had some initial success, the expected flood of money never materialized. The recession in Europe, the failure of the Fortress to develop, and the differences in business mentality between Taiwan and Europe all conspired to deflate the initial euphoria local investors had with the European market. An even more decisive factor was the opening up of mainland China for investment. Compared with the potential and proximity of the mainland market, as well as the relative lack of language and cultural barriers, Europe seemed far less attractive.
Upscale European brand-name products enjoy extraordinary popularity with local shoppers. Chic clothes, shoes, jewelry, wine, and specialty foods are all big sellers.
European trade representatives in Taiwan had to shift gears. “We've now changed the focus of this office to one of encouraging partnerships between Irish and Taiwan firms,” Garvey says. He finds this is the best approach considering the basic differences between the Taiwan and European business environments. “Here, there is no delegation of authority or management structure that allows anyone other than the owner to be a decision-maker,” Garvey explains. “And the owner can't take his eye off the ball and travel all the way to Ireland to try to set up shop there.” Since 1992, Garvey has been pushing for strategic partnerships that emphasize two-way technology transfer and allow both companies to grow, rather than trying to move an entire Taiwan company to Ireland.
The new strategy appears to be working. Two to three partnership talks take place each month, about half ending up with agreements. Some fifteen to twenty potential linkages are now in the pipeline. Two-way trade between Taiwan and Ireland, although still relatively small, grew from US$184.4 million in 1992 to US$240.7 million last year, an increase of more than 30 percent.
One of Ireland's main draws is its economic compatibility with Taiwan. About 70 percent of Ireland's GNP comes from exports, mostly electrical hardware and information technology sold to other European countries. Additionally, four of the world's top six personal computer assembly operations are located in Ireland. Many of the components for these high-tech Irish industries are imported from Taiwan. One Irish firm, B.G. Turnkey Services, which provides assembly and components to Apple, IBM, and other computer makers, has signed several agreements with Taiwan component makers. In fact, Ireland bought so many electric and computer components last year that it was the only EC country to show an increase in imports from Taiwan between 1992 and 1993.
This is the precise area that Garvey sees as ripe for partnerships. He says the future of Taiwan-Irish relations will rely on companies with compatible interests and complementary strengths to share the benefits of two-way technology transfer. Moreover, he is plugging Ireland as the ideal location for Taiwan's entry into the European market. It offers generous investment incentives, a highly educated work force, and the benefits of full membership in the European Union. Taiwan also has something to offer Ireland. Its regional investment experience, high-tech industry and growing economy make it an attractive trading partner and a good springboard for Irish trade with mainland China.
Other European countries do not have such direct economic compatibility with Taiwan. Sweden, for example, has an economy fueled mainly by huge corporations, compared with Taiwan's reliance on small- and medium-sized businesses. The sheer bulk of Sweden's large multinational corporations sometimes causes them to miss opportunities in the dynamic Taiwan market.
Vincenzo Masi, director of the Italian Trade and Promotion Office – “The phasing out of labor-intensive industries in Taiwan means not only a rich market for capital goods, but also signals a richer population. This creates more space for consumer goods.”
But Swedish multinationals have not been put off trying to develop partnerships in Taiwan. In fact, size can be an advantage. “Because production in Sweden is very concentrated, our companies have the resources to scan the market here,” says Bengt Johansson, general affairs director of the Swedish Trade Council. “Our biggest challenge. then, is to help match those Swedish firms with one of the multitude of agents, representatives, and companies here in Taiwan.” Johansson has matched well: From 1983 to 1993, ROC-Swedish trade has more than quadrupled to around US$800 million, with another projected increase in sales this year. Sweden's largest exports to Taiwan are transport machinery and equipment, with SAAB-Scania and Volvo as two of the major companies involved. SAAB also uses Taiwan as its base for sales to mainland China and elsewhere in Asia.
Also involved in the search for business partners is Enlei Tuan (段恩雷), an executive director for market development with Taiwan's semi-public China External Trade Development Council (CETRA). As the man in charge of scoping out North American and European markets for Taiwan traders and investors, Tuan no longer focuses on imports and exports as in the past. “We are now encouraging partnerships with European and American businesses,” he says. “This is a change of philosophy.”
Tuan, like many others, would like to see Taiwan develop as a regional trading center rather than just a midway point between exporters and importers. He says companies from outside Asia find it difficult to identify the different market trends in, for example, Japan and Southeast Asia. Many others are looking for an inroad into Mainland China. They need a reliable intermediary such as Taiwan. “Because of our experience in the region,” he says, “we know this area better than anyone and can best see what those differences are.”
For the benefit of companies in both Europe and Taiwan, Tuan says, business links must emphasize more than just profit. CETRA has a number of programs that point in this direction. Graduates of its International Trade Institute, for example, are eligible for six-week study tours of the ROC-funded Far East Industrial Park in Ireland. Another program brings Irish university graduates to Taiwan to work in local firms for two years, then return to Ireland as managers and agents for the same firm.
This May, eight leading Taiwan auto parts manufacturers will fly to Europe on a CETRA-sponsored tour to meet with managers at several auto factories. They will try to reach an agreement to sell parts directly to the factories rather than through suppliers. By working together to cut costs, Taiwan and European companies can develop a more fruitful relationship.
Taiwan is also using its Six-Year National Development Plan to initiate business partnerships with European gain points in its bid to enter GATT. The French engineering firm MATRA, for example, has been involved in designing Taipei's mass rapid transit system, now under construction. Other major players are the German company Siemens, which is building power plants, and Philips, a Dutch firm working on pollution-control projects.
Other European countries are also trying to get in on the show. Johansson of the Swedish Trade Council hopes the ROC will make use of Sweden's expertise in telecommunications and energy. But he finds it can still be difficult for foreign companies to win contracts. “Although Taiwan has a much more open market than other countries in the region,” he says, “it is still far from easy for the newcomer to break into new fields.”
A land of increasingly conspicuous consumption – Wearing a real Rolex watch, not a pirated one, has become a popular local method of demonstrating affluence.
One country that has reaped benefits from Taiwan's development plan is Italy. Some US$400 million in public works projects have already gone to Italian firms, including a stretch of the Taipei-Ilan freeway and the construction of two incinerators. Vincenzo Masi, director of the Italian Trade and Promotion Office, expects more of the same in the future. Italian exports of machinery linked to the Six-Year Plan as well as to the general upgrading of factories in Taiwan were up more than 87 percent in the first six months of 1993 compared to the same period in 1992. “And the groundwork is laid for continued cooperation,” Masi says.
But factory upgrading and heavy machinery are only half the story. “The phasing out of labor-intensive industries in Taiwan means not only a rich market for capital goods, but also signals a richer population,” Masi says. “This creates more space for consumer goods as well.” He believes the Taiwan consumer market is a particularly good one because local consumers are interested in trying new products.
Charting the changes in Taiwan over the years, Masi discerns a distinct pattern: “First there was a change in clothing styles, indicating a more Western influence. Then came a change in home living, with more washers and dryers and stoves and such being sold, indicating a willingness to modernize. Then came a change in diet, witnessed by the opening of many new restaurants, heralding the true internationalization of the Taiwan market.” Masi is hoping to capitalize on this proclivity to experiment by promoting the consumer goods that have made Italy famous: chic clothes, shoes, jewelry, and specialty foods and wine.
While much of his time is spent trying to find outlets, distribution channels and representatives for Italian goods in Taiwan, Masi also works at finding local investors for Italy. He cites special tax incentives and accelerated amortization as major draws into southern Italy. In addition, CETRA runs a design center in Milan that is active in bringing together potential business partners.
Overall, Masi gives Taiwan's business climate high marks. “The Taiwanese are very good businessmen,” he says. “I really appreciate the good feeling you can generate here. I value that human touch.” As for the ROC government, Masi says, “there is an excellent level of government cooperation. The ROC's desire to join GATT has helped. Taiwan is not just an export-oriented country anymore, but part of the global system.”
Another country developing strong economic ties with Taiwan is Switzerland. Although it may not seem obvious, the two countries are similar in many respects. They are roughly the same size, both are about three-quarters mountainous, with scenic high peaks, and both are lacking in natural resources. In addition, both have export-oriented economies supported by small- and medium-sized businesses. And while Switzerland is a worldwide business center, Taiwan is positioning itself to become a regional powerhouse.
Jost Feer, director of the Trade Office of Swiss Industries, says that his country offers Taiwan traders an excellent place to test their skills – “If you can sell in Switzerland, you can sell anywhere.”
But to Jost Feer, director of the Trade Office of Swiss Industries (TOSI), it is not the similarities between Switzerland and Taiwan that make for good relations, but the differences. “Our industries are not competing with one another because they're not in the same business,” he says, “so our economies are quite complementary.” With more than sixty Swiss companies having offices in Taiwan, including Rolex and Ciba-Geigy, and another six hundred doing business here through local agents, Taiwan is one of Switzerland's most important Asian markets. Two-way trade increased sixfold between 1983 and 1992, from US$194.3 million to US$1.4 billion, although the figure dropped slightly for 1993.
Other profitable differences between Taiwan and Switzerland occur in the realm of business philosophy, Feer says. “The Swiss have a more conservative, wait-and-see approach, while ROC businessmen have a risk-taking, try-it-and-see attitude.” This can be good for both exploring new markets and trying new products within a market.
As one of the oldest trade offices in Taiwan, TOSI has changed right along with the nature of ROC-Swiss trade. Originally formed at the initiative of private industry to look after Swiss interests in Taiwan, TOSI became sanctioned by the Swiss government in 1982. Having undergone three expansions since its opening, the Swiss office now offers a full range of services beyond trade and investment data. It has been among those European trade offices at the forefront in easing visa restrictions for Taiwan businesspeople and tourists traveling to Europe. The office also provides information on Swiss boarding and hotel management schools. About three hundred Taiwan students are currently studying at Swiss hotel management schools, which Feer sees as an indication of Taiwan's increased internationalization and professionalism.
Feer would like to see this professionalism develop even more. “Taiwan products suffer from an image problem,” he says. “Though they are well made, many are still considered lower quality.” He says Taiwan should follow Switzerland's example in developing trade names that are associated with specific, high-quality products. “For instance,” he explains, “if I say 'Name a Swiss watch,' you'll likely say 'Rolex' immediately. However, though products made in Taiwan are ubiquitous throughout the world, if I ask the same question [about a Taiwan-made product], few names come to mind."
Feer stresses Switzerland's ongoing commitment to Taiwan. “Our first company came to Taiwan in 1949,” he says, “and Taiwan continues to be an important trading partner.” This commitment goes both ways: On a per capita basis, Switzerland is Taiwan's best European market. In 1992, it purchased US$334.9 million worth of Taiwan goods, mostly machinery and electrical equipment, although the economic slowdown in Europe has lessened demand since then. The Swiss market may be a relatively small one, Feer says, but it could be an exceedingly good one because of the complete absence of import duties and quotas and because its demanding consumer market will give ROC traders excellent experience. “If you can find a niche, you're free to sell,” Feer says. “And if you can sell in Switzerland, you can sell anywhere.”
In whatever country Taiwan companies decide to do business, it is clear that Europe's trade representatives in Taiwan are eager to create an environment conducive to more European-Taiwan partnerships. They are trying to overcome whatever obstacles may exist, whether it be differing business philosophies or visa restrictions. Says Bengt Johansson of the Swedish Trade Council, “We feel we need to do what we can to lessen the complications and get on with the business of business.” – Richard L. Henson is a freelance writer based in Taipei.