Taiwan Today

When the first delegation of Taiwan business people visited the Soviet Union in 1988, the trip marked the beginning of a wave of interest in Russia. At first, Taiwan entrepreneurs conducted trade through third countries without ROC government sanction. But since March 1990, when the government an­nounced the opening of direct trade, fre­quent visits have been made by government officials, business people, and journalists from both sides.

Taiwan and Russia have been slow to build up economic and trade relations. When direct trade first opened, there were vast differences in economic systems and political ideologies. But the political revo­lution in the Soviet Union at the end of 1991 broke the superpower into constituent republics, initiating a painful process of re­structuring the massive state-run economy. Business was disrupted by the reforms, and the economy verged on collapse, but the policy of direct trade between the new Commonwealth of Independent States (CIS) and the ROC remained intact. New opportunities continue to emerge, and in­vestors and entrepreneurs around the globe view the CIS as the greatest potential market in the world.

Russia, the largest republic in the eleven-member Commonwealth, is the most attractive to foreign investors because of its rich natural resources, abundant manpower, and vast market. Economic reforms aimed at transforming the cumbersome state-run economy into an efficient free-market system were im­plemented by the Yeltsin government in 1992. The government removed price controls and allowed the rouble to be freely traded on the world market. The country has also undertaken the formidable task of privatizing state-run enter­prises. In spite of ensuing high inflation and a radical depreciation of the rouble, the Russian republic seems determined to implement a capitalist system. It is ac­tively seeking the cooperation of foreign investors to assist in building a new economic system.

According to statistics compiled by the Board of Foreign Trade, Ministry of Economic Affairs, Russia accounts for only 0.15 percent of Taiwan's foreign trade. But that figure is expected to in­ crease to 2 or 3 percent this year. In 1988, bilateral trade between Taiwan and Russia stood at just US$7 million; it jumped to US$75 million in 1989, and to US$226 million in 1991. Two-way trade totaled US$190 million in the first eight months of this year, up 30 percent over the same period in 1991.

Businesses face many obstacles to launching cooperative ventures and attract­ing investment from overseas. Everything is lacking from basic business information on Russia to a sound tariff system. How­ever, this situation is gradually improving. In January 1991, the China External Trade Development Council (CETRA) set up an office in Moscow. "Our job here is to col­lect the latest information on the CIS and assist our business people in every way we can," says Frank Wu (吳立民), the experi­enced director of the Moscow office who once worked in the council's German of­fice. CETRA'S reports on Russia are the only reliable data targeted for Taiwan businesses. Since CETRA is the first Taiwan trade or­ganization in Russia, it performs a wide variety of services. In fact, the Moscow office is generally the first stop for all govern­ment officials, business people, journalists, academics, and representatives of private groups from Taiwan.

Besides gathering trade information and conducting market research, CETRA also hosts trade shows, business delega­tions, and educational seminar". The ex­hibitions of consumer goods and computers in Moscow have been well re­ceived. Wu and his staff have organized a trade delegation of fifteen companies to visit Moscow early next year, and they are also sponsoring a number of similar del­egations in cooperation with the ROC Board of Foreign Trade. The office is also arranging for high-ranking Russian offi­cials to attend seminars on economic and trade issues in the ROC. "For Taiwan, economic and trade relations often develop earlier than official relations," Wu says. "CETRA has to be flexible enough to provide efficient services."

CETRA'S operations have expanded rapidly in its first year. At first, Wu man­aged everything himself. Now he has a staff of nine, seven Russians and two Chinese. In mid July, Wu and his staff moved to new quarters. With four times as much space, the office now has a li­brary and a show room displaying made­ in-Taiwan products. CETRA also has representatives based in Kiev and Minsk to provide the latest information on Ukraine and Belorussia. Plans for sending a representative to the far eastern part of Russia are also in the works.

According to Wu, there are only about fifteen Taiwan companies doing business in the CIS, mainly in Russia. "One of our urgent tasks is to bring them together and form a greater resource pool," Wu says. In his view, the market has a great potential which has barely been tapped. Therefore, it is worth long­-term exploration. Wu points out that as an area for investment, the CIS compares favorably with mainland China. It has more territory than the mainland, a higher level of education, and a good basic infra­ structure. Wu encourages Taiwan businessmen to come in person and bring products to sell. But he also stresses the importance of patience in the preliminary stages: "It may take three to five years, or even longer, to get results."

Another major step towards forging closer ties and increasing trade occurred in September this year when Russia and the ROC officially announced the estab­lishment of representative offices, mod­eled on the U.S.-ROC relationship, wherein trade and cultural ties exist in the absence of diplomatic relations. The Taipei government has representative offices in Moscow, St. Petersburg, and Vladivostok, while Russia maintains of­fices in Taipei and Kaohsiung. It is be­lieved that these new ties will serve as an example for other members of the Com­monwealth.

Three years ago, CMP Enterprise Co., a Taiwan computer manu­facturer, set up branch offices in Germany and Austria to ex­plore the European market. While pro­moting their products at a computer fair in Vienna in 1989, opportunity knocked—in the Soviet Union. A Russian computer dealer visited the company's booth and was immediately attracted by their products. He invited CMP to Moscow, for fur­ther cooperation. The association has been fruitful for both sides. According to statistics compiled by the Board of For­eign Trade, CMP is the most successful Taiwan company in the Russian market. In 1989, sales were less than US$1 mil­lion. In 1990, they jumped to US$7 mil­lion, and to more than US$20 million in 1991. The figure for the first half of this year exceeds US$10 million.

Although computers and other high­-tech products have been in great demand in Russia, the lack of hard currency and the difficulty of converting the rouble make trade difficult. CMP hit upon a practical solution: barter trade. Although bar­ter is the oldest form of trade, involving trading goods for goods, it is not without its problems. "Taiwan banks have no ex­perience handling this form of trade; they don't know how to establish the validity of a barter contract or verify the ability of the parties to fulfill it," says Lee Ke-lin (李克琳), general manager of Clee Inter­national, a trading company, and former CMP trade section vice president.

In their first barter deal, CMP's Russian partner proposed a list of items for exchange, including aluminum ingot, timber, coal, oil, and iron. Aluminum in­got was selected because it is lighter and easier to handle, and it is also a regular item of trade on the London Metals Ex­change. CMP first looked for buyers in Tai­wan but, to their disappointment, Taiwan business people were wary. Few had ex­perience with barter trade, and all voiced concern over product quality and trans­portation. But the impasse was temporary. The company was later able to trade the aluminum with the Exchange's repre­sentatives in England, Germany, and France. Eventually, six thousand tons of aluminum were exchanged for computers worth approximately US$10 million. CMP has the distinction of being the first Tai­wan company to carry out barter trade with Russia. This first success gave the company confidence to continue and ex­pand operations.

CMP has had to overcome many ob­stacles in its three years in Russia. In ad­dition to a hard currency shortage, the absence of a clear division of power among the various levels of government has also been a problem. Often, responsi­bility overlaps. Conflicts are common. According to Lee, since the former com­munist superpower broke up, local governments are on the ascent. As such, he suggests that Taiwan business people should first contact local government of­ficials. But making such contacts is not always easy. Taiwan businesses are at a disadvantage compared with those of other nations because of the lack of dip­lomatic relations.

But non-governmental organizations are ready and willing to help. For example, the Far East Foundation, established in August 1991 by the Russian Union of Entrepreneurs and Industrialists, was set up to promote economic ties between Russia and Asia. Composed of business people and high-ranking local govern­ment officials, the organization has been helpful in broadening the scope of CMP'S relations inside Russia. CMP is an active member in the foundation. And one of the company's first Russian partners, Andrey V. Efimov, is the former general director of the foundation. According to Efimov, the foundation plays an important role. "If two countries do not have diplomatic re­lations," he says, "a non-government organization like the foundation is essential for promoting trade and dealing with re­ ally big projects, especially since we now have a free economy and local govern­ments have become more powerful."

In June, Lee invited foundation rep­resentatives to Taiwan to make a pitch for new members. At the same time, the foundation asked the governor of the Irkutsk Region to give a presentation on investment opportunities. Traditionally, the region received little funding from the central government, even though it is rich in natural resources such as timber.

Through the assistance of the foun­dation, CMP'S business with Russia is growing steadily. In setting up any joint venture with the help of the foundation, CMP first proposes the type of investment and the foundation will suggest places or regions to explore possible contacts. Then the company sends representatives to meet with local experts, after which com­pany executives will visit for discussions. "This kind of process takes a pioneering spirit," says Charley Hsu (許宗政), now vice president of the trade section of CMP. Hsu worked in the company's branch of­fices in Germany and mainland China be­fore he was assigned to his present post last year.

The company is also hoping to in­crease its business in Ukraine. This summer, Hsu accompanied P.K. Chiang, Vice Minister of Economic Affairs, on a six­teen-day trip to the Commonwealth and Ukraine. Several feasible projects came out of the trip, including an aluminum factory on the east coast of the Black Sea and a fruit processing plant in Ukraine. According to Hsu, all sides have something to offer. Russia has rich natu­ral resources and Urkaine, long noted as "the granary of Europe," is rich in agricul­tural products. "The Commonwealth has abundant resources," Hsu says, "and Taiwan has manufacturing skills and management experience. That makes a perfect combination for exchange and cooperation."

Doing business in the area is still plagued with risk. Hsu's greatest concern is transportation. "There is always the fear that goods can't be shipped smoothly, safely, or on schedule," he says. Customs duties are inconsistent, and often decided by local officials. But Hsu remains com­mitted: "There are many risks, but many chances, too. It takes a great deal of pa­tience. Since we have invested so much time and money, we are committed to a long-term relationship." The company's commitment is obvious. CMP is now inten­sively training their Chinese staff to work in joint venture companies. They are given a crash course in Russian, law, and the principles of barter trade.

For Hsu, the key to doing business in the region is to "make friends first." How­ever, he admits that this is sometimes dif­ficult: "Seventy years of Communist rule make it difficult for them to trust people. But paperwork is not enough in doing business; personal contact is very impor­tant. That's why I have to spend so much time in one place." Hsu describes himself as "mortgaged to the Commonwealth." He feels a sense of responsibility to con­tinue. "In many places, I am often the first foreigner they have seen," he says. "If I give up, they may have to wait years for another chance to communicate with the outside."

Unlike CMP, whose business is based largely on barter, Yung Huang (Vigorous) trading company deals strictly in cash. It is run by the husband and wife team of Johnston J. Zhu, a mainland Chinese, and Lee Chu-ju, a native of Taiwan. In 1990, the couple began collecting information on the Eastern European and Russian markets. Although they were primarily interested in doing business in Russia, profit margins were low because Russian consumers had little real purchasing power. The couple decided to start in Bu­dapest, Hungary, where the market had opened much earlier and where consum­ers have a higher purchasing power. Hun­gary, they felt, would eventually provide them with convenient access to the Russian market.

But the Hungarian market proved too small and too competitive. Since their ul­timate goal was to enter the Russian mar­ket, they decided to plunge in and beat the competition. They moved to Moscow in March 1991. At first, they planned to open a restaurant, but they couldn't get permission from the authorities. According to Lee, things were chaotic. The cou­ple moved eight times in forty days because of arbitrary increases in rent. For­tunately, they met Sergy J. Ponkin, an economist who later became a partner and general manager in the company. With his assistance in the application process, Zhu was able to set up a trading company to import clothes, shoes, and consumer goods from Taiwan, and export alumi­num, scrap metal, chemical fuels, urea, rubber, and coffee to Southeast Asia and Taiwan.

The company now has a staff of around thirty, including twenty part-time Russian sales representatives who work on commission. From their first 65-square-meter office, Yung Huang has grown to occupy a 1,330-square-meter facility five minutes from Red Square. The company show room, warehouse, and administrative offices are all housed under one roof.

Yung Huang's products are very popular with Russian consumers and business is booming. Every month, an average of four 20-meter containers are shipped from Taiwan to Russia by air and by sea. The suppliers now include mainland China and Hong Kong. "The market is wide open. They need almost every­thing. That's why we continue diversify­ing our line of imports," says Lu Chien (盧監), who is in charge of the financial affairs and the warehouse. According to Lu, Taiwan products are competitive in design, quality, and price, compared with those from mainland China, Hong Kong, and Europe.

Yung Huang has been successful in Russia without relying heavily on barter trade. But the company encountered its first major setback during the political revolu­tion of 1991. "It was frustrating," Lu says. "Everything we did came to nothing after the transfer of political power. We had to start all over again." The second blow came in March this year when the Yeltsin government decided to freeze the free move­ment of hard currency. But Lu feels the political situation in Russia is becoming much more stable.

In the future, the company plans to diversify and import new and more profitable items such as fax machines, telephones, household appliances, and computers. Unlike other companies, Yung Huang is using Russia as a base for exploring the Eastern European market. "We have patience and confidence," Lu says. According to Lu, patience is a necessary virtue for any business people coming to a new market. "Many of them left after just a week or a month," he says. "It took us two years just to open the company."

Although there are practical obsta­cles in communication, transportation, language, and ideology to overcome in doing business in Russia, many business people believe it is worth the effort. As Andrey Efimov says, "Taiwan has expe­rience in the production of consumer goods and Russia has lots of room to de­velop."—Staff writer Emma Wu and staff photographer Chen Ping-hsun visited Russia in July 1992. ▪