Taiwan Today

The development of new markets has been one of the chief rea­sons for the success of many of Taiwan's small- and medium­ sized enterprises. In fact, Taiwan's eco­nomic miracle rests upon external trade. Though direct trade has existed between Taiwan and the nations of Eastern Europe since 1979, most local business people know little about the market because of the geographical and cultural distances. But with the decline of the region's centrally planned economies and the begin­nings of a free-market system, the situation is changing.

Although business opportunities are increasing, most of the region's new free-market economies are still weak and in need of capital infusions and infrastructure development. "For those who are looking for immediate profits, Eastern Europe may not be the best choice," says Tsai Feng-ming (蔡豐名), president of Fame Mark Harrison Taiwan, a clothing manufacturer. Tsai was one of the first Taiwan businessmen to set up operations in Eastern Europe. "The long-term potential is very good," Tsai says. "And by getting in on the ground floor, we will have a better chance against our competitors."

To promote bilateral economic rela­tions, the public and private sectors have both organized several delegations to visit Eastern Europe in the last four years. The highest level delegation to date was led by P.K. Chiang (江丙坤), vice minister of the Ministry of Economic Affairs, in May 1991. And this March, with the assistance of the China External Trade Development Council (CETRA), the Taipei-based Central European Business Association of the ROC was founded. The association is a private organization composed of forty­-six Taiwan enterprises that are interested in entering the Eastern European market. At the opening ceremony, P.K. Chiang stressed that the Eastern European coun­tries, with their solid industrial base and natural resources, will have a positive in­ fluence on Taiwan's economic growth.

But not all Eastern European coun­tries are considered ideal business partners at the moment. On the basis of economic and political conditions, infrastructural development, and the level of risk, it is generally agreed that Hungary, Czechoslovakia, and Poland have the greatest potential.

"We have a free market here. If you consider Hungary a good place to do business you are welcome any time," says Kund Bándi, Director of Hungary's Ministry of International Economic Relations. With an area of 93,000 square kilometers and a population of 10.5 mil­lion, Hungary has the closest economic relations with Taiwan of any country in the area. In 1991, bilateral trade between the two countries reached US$74 million, up 30 percent from 1990. In the first five months of this year, two-way trade amounted to US$33 million. Hungary's major exports to Taiwan are metals and chemicals, and it imports computer com­ponents, office automation products, and electronics from Taiwan.

Hungary is poor in natural resources, but the country has attracted more foreign businesses than any other nation in the region. "The main reason is our ideal lo­cation," says Bándi. "And we were the first country [in this area] to start eco­nomic reforms, so we are much better prepared in terms of a legal framework and business infrastructure."

Most foreign business people in Hungary would concur with Bándi. Hungary is generally considered to have the best investment environment in Eastern Europe. And for good reason. According to Kelvin Chen (陳國良), chief executive and chairman of a Taiwan-based commercial and service company, "Generally speaking, Hungary has a very open and free market. The legal structure is more com­plete than in other former COMECON countries, and the telecommunications system and transportation are also more convenient than in other countries in the area."

According to the Hungarian Foreign Trade Bank, 60 percent of all foreign investment in the area has been made in Hungary. "We make it easy for people who are interested in doing business or investing here," says Ferenc Persányi, director-general of the Investment and Trade Promotion Agency, Ministry of International Economic Relations. Persányi explains that wholly owned for­eign companies and joint ventures may engage in any kind of manufacturing, trade, or service industry—and at any level. In addition, Hungary has tax laws that offer significant incentives for companies to invest in key industries such as electronics, vehicles and vehicle parts, machine tools, public telecommunication services, and tourism development.

Since direct trade began with Hun­gary in 1979, nearly all Taiwan companies entering the market have been trading firms. Because of the lack of information and the high cost of shipping, the volume of trade has never been large. Tamás Heffner, general manager of the Interna­tional Banking group of the Hungarian Foreign Trade Bank, stresses that Hungary actually has one of the most liberal markets. For example, licenses are not required for nearly 95 percent of all im­port and export items. "Although our business with Taiwan is very limited, the experience has been a good and pleasant one, and we are ready to increase it," Heffner says.

To boost bilateral trade, the Taipei Trade Office and CETRA have set up offices in Budapest. They collect business infor­mation and maintain working relations with related Hungarian government agencies and private organizations. Taiwan businessmen can also find useful information at CETRA's Taipei headquarters. But the amount of information on Taiwan available in Hungary is limited. According to Esther Kozma, director of international relations, CO-NEXUS Corporation for Management and Financial Consulting, Hungarian businessmen are troubled by the lack of information on Taiwan. "People here want to do business with Taiwan, but they don't know how to start," Kozma says. "We can't really transfer this minimal amount of in­formation to business, so we need some help to learn more about the Taiwan market."

For many Taiwan business people who wish to trade with Hungary, two of the most commonly en­countered problems are finding a suitable partner and arranging for payment. In the past, Hungary's most important trade partners were members of the former Council for Mutual Economic Assistance or the Council for Mutual Economic Aid (COMECON). The council was formed in 1949 and its members included the Soviet Union, Poland, Czechoslovakia, Hungary, Romania, Bulgaria, Algeria, East Germany, Mongolia, Yugoslavia, Cuba, and Vietnam. Because barter played an important role in Hungary's external trade, the number of transactions requiring hard cash was small. As a result, the country is still having some trouble adapting to free-market trade. Normally, Taiwan companies provide letters of credit when buying from Hungary. But because many Hungarian buyers are unable to supply such letters, they ask to sell the merchandise supplied by their Taiwan partners first and then pay. Naturally, this is very risky for Taiwan traders. Yin Yan-hsing (尹燕興), director of the economic division of the Taipei Trade Office in Budapest, warns that there has been more than one case of a Taiwan trader being unable to collect payment after de­livery was made. "You have to be very careful in choosing business partners," Yin says. "Don't trust a prospective partner until you see cash on the barrelhead; that's the safest way."

Many Taiwan businesses made ini­tial contact with Hungary through their partners in other European countries such as Germany and Austria. Taiwan busi­nessmen have tended to find trade or investment partners on their own. Consequently, the risks are high and more time is needed for both parties to build up mu­tual trust. In order to reduce the risk involved in finding a suitable business partner, a number of consulting firms have opened in Hungary. "Hungary ac­tually has a very limited market," says Esther Kozma, of CO-NEXUS. "If you want to know more about business opportunities and find reliable partners in Hungary, we can help." The services offered by the company include financial evaluation, investment counseling, legal counseling, and assistance for foreigners wishing to establish joint ventures or wholly owned companies in Hungary. The company would also like to invest with its foreign clients. "Knowing that we are joining them in an investment should provide foreign investors with an additional feeling of security," says Kozma.

After trading for a period of time, some Taiwan companies have taken the additional step of establishing branches or joint-venture companies. However, not all of these have lived up to expectations. "There has been a substantial difference between what actually happened after we got here and what we had expected," says Philip Ho (何信權), project manager of a Taiwan-Hungary joint-venture computer company in Budapest. Because the mar­ket seemed to have great potential, Ho was sent to Budapest to set up the com­pany about a year ago. The joint venture, according to Ho, is the only one of its kind in Hungary. "The market has a rich potential all right, but different concepts of management are the main reason many joint ventures don't last long." he says.

Having had little experience in a free-market economy, many Hungarian man­agement personnel fail to understand the importance of advertising and quality control. As a result of irreconcilable differences, some joint ventures eventually become wholly owned companies. Inson Corporation, a Taiwan computer and communications instrument company, is a good example. According to Paulina M.Y. Lin (林孟瑩), general manager of the company, the relations between Inson and its Hungarian partners started with trade in 1988. Profits weren't bad, so Inson established a joint venture company in Budapest in 1990. Their purpose was to reduce production costs and thereby in­crease profits. But things didn't work out as expected. Land and labor costs are high in Hungary, especially in Budapest, where about one quarter of Hungary's population lives. The per capita income is only about US$3,000, much lower than Taiwan. Therefore, the cost of labor ought to be fairly low, but if unemployment in­surance, retirement pensions, and taxes are added in, it goes up considerably. And then there were quarrels between Inson and its Hungarian partners over management principles. Inson eventually decided to stop the joint venture and start a wholly owned company in 1991. Lin agrees that the potential of the market is substantial, and that's why they are still there. "But it is not likely that there will be a profit in the next three to five years," says Lin. "You have to wait longer for that."

Based on Ho and Lin's experiences, the difference in management style between Taiwan and Hungarian business people is a major source of problems. Though the economic reforms in Hungary took place earlier than in other Eastern European countries, there are some residual habits left by decades of a centrally planned economic system. In the past, most of its business partners were limited to other communist countries. Under the former economy, there was no need for hard work or advertising and market development. "They don't understand that promotional activities play an important role in a market economy," says Wei Wu-lien (魏武煉), representative of the Taipei Trade Office in Budapest. For example, while many Tai­wan companies have visited Hungary in search of business opportunities, the Hun­garians seldom visit Taiwan. "They believe it is pointless to invest in uncertain promo­tional activities," Wei says. Up to now, Hungary has sent only one delegation to Taiwan and has participated twice in the biannual Taipei International Fair. Therefore, Wei suggests that Taiwan business people should not limit their market to Hungary. They can use it as a stepping stone to the huge market of the former Soviet Union and Eastern Europe.

Despite many differences, business prospects look good. "They are in the learning stage. Naturally, they are having some problems making the transition to a free market economy," says Wei Wu-lien of the Taipei Trade Office in Budapest. "But given time and a little help, Hungary will become a good business partner in the long run."—Staff writer Jim Hwang and staff photographer Chen Ping-hsun visited Hungary in July 1992. ▪