"Europe is a unique market," says Yuk Sung (宋育), European marketing director for the German branch office of AOC International, Taipei, a computer monitor manufacturer. "To succeed, you must win their trust and maintain very close relationships. Then you can talk business. It is not unusual to spend six months on a deal." AOC's German office, set up in 1989, is responsible for the European market, and accounts for 40 to 50 percent of company sales. "And since unification, our market has doubled," Sung says.
The European market is now larger, but it's also more complex. "It is not a single market as the name might suggest," Sung says. "Just look at the number of languages, customs, and cultural backgrounds. Our products and services must be tailored to meet the varied tastes of European customers. We plan to move gradually, especially in Eastern Europe. Building up channels is the first step." AOC's way of doing business is in many ways representative of Taiwan's approach. In the words of one entrepreneur: Germany, especially Berlin, is the "springboard" into a market that now extends from Lisbon to Moscow.
Germany is Taiwan's largest trade partner in Europe. Despite the lack of diplomatic relations since 1972, trade has grown steadily over the years. When relations were broken, total bilateral trade was roughly US$227 million. By 1990, two-way trade reached US$5.9 billion; and in 1991, it grew by 17 percent to US$6.9 billion. According to statistics compiled by the China External Trade Development Council (CETRA), Taiwan companies are prospering in Germany. There are about 160 Taiwan businesses operating in the country, mainly in the old western sector, accounting for more than half of all the Taiwan companies in Europe. Shipping companies, computer and electronics firms, and banks have made the most significant inroads into the market.
Since national unification and the opening of Eastern Europe, Germany has quickly become the financial and transportation center of the continent. Analysts see the country as the key to the entire European market. In addition to providing access to the Eastern European consumer market of about 400 million, Germany can also open the door to the Western European market of 340 million consumers. Needless to say, a good number of the businesses entering Germany have their eyes on the larger European market.
The industrialized West has a sophisticated market where expensive, high-quality, brand-name products are in demand. In order to maintain a competitive edge, Taiwan companies are being forced to rethink the way they have done business. They are adopting new, more sophisticated marketing strategies, upgrading production, and moving away from OEM subcontracting.
Taiwan's computer and information industry has been successful largely be cause of its flexibility, price cutting, and subcontracting. But many local computer manufacturing companies are beginning to feel the need to develop their own brand-name products to satisfy European tastes. Chicony Electronics Co., Taipei, which manufactures laptop and notebook computers, is making the transition to brand-name manufacturing. The company set up a subsidiary in Hamburg in June 1988 to create a European sales and service network for its products. The same year, they opened a branch office in Berlin. The company experienced 300 percent growth in its first three years of operations.
According to Che-hwa Fu (扈喆華), managing director of Chicony Electronics GmbH, a subsidiary of Chicony, Taipei, the company is now seeking to promote products under its own brand name. "It is costly and risky for the small- and medium-sized Taiwan businesses like ours to develop a brand name, but I see no other solution," he says. "We are now giving more attention to R&D, with the aim of diversifying our line of products." The company is also building direct sales channels to cut out middle men. "This is a trend," he says. "To upgrade Taiwan's information industry and succeed in Europe, we cannot continue playing the game of price-cutting. We have to upgrade our technology and diversify."
Datatech Computer GmbH (DTK), Munich, a subsidiary of Datatech Computer, Taipei, also shifted to manufacturing and marketing its own brand-name products a few years ago. "Our policy is to produce high-quality products with high value-added functions. We have also spent years in promoting our own brand name. Now DTK is a familiar name among European consumers and though our prices are high, we have loyal customers," says Johnny Liu (劉幸忠), managing director of DTK, which covers southern Germany and Europe.
Having lived in Germany for eighteen years, Liu knows that quality is the key to success. "German customers are brand-name oriented and will stick with one for a long time," he says. "Computers are high-tech products, so quality counts most." DTK was once a subcontractor specializing in motherboards. But now the company plans to transfer business to other OEM subcontractors and focus on promoting their own name-brand systems products. "Our ultimate aim is to sell products under the DTK brand name all over Europe," he says.
The company has made impressive progress in that direction. From its first office in Dϋsseldorf, which was opened in 1988 when Taiwan businesses first began systematically exploring Europe, the company has grown and established offices in Paris, Vienna, Madrid, and Munich. This year, another office was opened in London. "Our policy is to localize management and production," Liu says.
Berlin's International Conference Center—home of the lucrative Berlin Trade Fair.
German unification, in October 1990, greatly expanded the country's market—eastward. The five new federal states of Western Pomerania, Brandenburg, Saxony, Saxony-Anhalt, and Thuringia, and the city-state of Berlin cover an area of 41,720 square miles and have a combined population of 16 million. "The unification of Germany has had a positive effect on our company," says Michel Bourlon, manager of the import division of OTTO Versand, a retail mail-order firm. "It has given us a tremendous number of new customers in the eastern part of the country." Taiwan's traders and manufacturers have also displayed an increased interest in the new German market and the ready access it provides to all of Eastern Europe and the Commonwealth of Independent States (CIS).
To assist Taiwan's business people in taking advantage of the growing market, CETRA set up trade centers in Hamburg and Dϋsseldorf. Berlin is slated as the location for the next CETRA center. Hamburg, Breman, Berlin, and Frankfurt signed economic cooperation agreements with CETRA. These guarantee incentives for Taiwan business people to set up warehouses, and trade and exhibition centers for their products.
The German government is actively courting foreign investors to help build up the economy of the eastern part of the country. The federal government implemented its huge "East Upswing" project to restructure eastern Germany's obsolete state-run economy and overcome the country's internal division in the standard of living. As part of the project, investment allowances, accelerated depreciation allowances, and reductions in capital asset taxes are also available to anyone who invests in the new states.
Detlef Blau "We welcome Taiwan businesses in Berlin. It's an ideal location for trade with all of Europe."
Privatization of state-owned enterprises in the former East Germany is the central focus of the project. The Treuhand Agency, the public trust charged with this project, is headquartered in Berlin and has fifteen branch offices in the eastern areas. "They are looking for potential investors and the opportunities are the same for Germans and the nationals of other countries," says Detlef F. Blau, director of Berlin's Economic Development Corporation, a nonprofit private organization which advises domestic and foreign investors. The program has been quite successful. By April this year, 60 percent of the 11,500 formerly state-owned enterprises had been privatized.
"To narrow the development gap between east and west, a lot of government funds and private investment are going to the east," says Thomas Weber, company spokesman for Siemens AG. "The gap is big; we can't change forty years overnight. Development has been proceeding at an astonishing rate. For example, before unification, Siemens never did more than DM200 million (US$130 million) in business with East Germany. But in the last two years, the volume has jumped to DM5 billion (US$3.25 billion). That's a big step in such a short time. It will probably require ten years to balance the country."
The city-state of Berlin, considered the driving force that will transform eastern Germany, is the major focus of the government's efforts. "We especially welcome manufacturing companies which will create new jobs," Blau says. "If you invest in eastern Berlin, the government will basically finance 40 percent of your investment plan." But he also adds that this incentive program favors early investors because it is being executed within a five-year time frame.
The Berlin city government itself is also actively encouraging foreign investment and has instituted its own incentive programs, which include grants, low-interest loans, tax reductions, and training subsidies. "We welcome Taiwan businesses in Berlin. It's an ideal location for trade with all of Europe," Blau says. Although there are only a few trading companies from Taiwan in Berlin, he points out that the city is ideal for foreign investment because of its economic and political stability. "The fall of the Berlin Wall, unification, and the government's move from Bonn to Berlin have created a highly promising investment climate in the city. Berlin will become the gateway to Europe, west and east," he says.
Berlin, the city that was once divided by the Cold War, is particularly well suited to become the bridge between Eastern and Western Europe. The capital is considered the country's industrial and educational center. There are over 300 scientific research institutes and it is the largest industrial city between Paris and Moscow. Taken together, these factors make the city one of the best places in Germany for making contacts with Eastern Europe and the CIS.
To facilitate the expansion of trade, Berlin hosts various promotional activities and fairs. For those wishing to test the waters of the eastern German market, Tsai Feng-ming (蔡豐名), of Fame Mark Harrison, a clothing manufacturer, recommends attending the Berlin Trade Fair. According to Tsai, the fair is unique in that it not only provides opportunities for business people to promote their products, but also grants liberal textile quotas to participants. Last year, ROC exhibitors logged a record US$50 million in textile orders. This year a 70-firm group which exhibited textiles, sporting equipment, jewelry, and household goods, logged US$65 million in business. According to Tsai, the figure before unification was less than half that amount.
The fair began thirty years ago to keep then isolated West Berlin as prosperous as the rest of West Germany. The fair has expanded to promote business in the five new states as well. According to Tsai, the exhibit also attracts a good number of buyers from Eastern Europe and the Commonwealth. Through participation in the fair, Tsai's company has established branches in Hungary, Poland, and Czechoslovakia. Tsai calls Berlin a "springboard" into Western as well as Eastern Europe.
Volkmar Grassert—"Because of a shortage of hard cash, buyers in eastern Germany are more interested in barter."
Confident in the potential of the new markets, some Taiwan businesses have set up shop in the eastern part of the city. "This office was founded in order to have direct contact with eastern Germany and the Eastern European countries," says Volkmar Grassert, director of the textile import section of Holden Industrial, GmbH, in eastern Berlin, a subsidiary of Holden Industrial, Taipei. The company imports garments and household appliances to eastern Germany from Taiwan, Hong Kong, and Thailand. It is also the company's first and only base in Europe.
According to Grassert, a native of eastern Germany, when the company first opened, they dealt primarily through the state-run distribution channels. But after unification, all the former sales channels were destroyed. The office has had to shift to merchandising through retail shops. He feels that Taiwan business people can help the new economies. "Though there is a slight language barrier, I get along well with my Chinese colleagues," he says. "They have brought a lot of experience in management. Our most urgent task is to build up a network of retail shops, but wholesaling is still our ultimate goal because it is more profitable. "
The company is focusing on eastern Germany because there is a high demand for medium-quality, low-priced consumer goods. According to Grassert, consumer products from Taiwan and Southeast Asia are competitive in design, price, and quality. But there are obstacles. "For the moment, the market is not so good," he says. "Because of a shortage of hard cash, buyers in eastern Germany are more interested in barter. But barter trade is too complicated for us. We don't know how to handle the goods they have to offer. Besides, it involves a lot of capital and too much paperwork."
Grassert says that foreign investors face neither protectionism nor quotas in eastern Germany. "The area is open," he says. The only disadvantage foreigners seem to face is the daunting amount of paperwork. "It took us a year to complete the registration process," he says. Ac cording to Grassert, a strong negotiating team is required.
Unification has not only provided businesses with new markets, it has also given some parts of western Germany a new lease on life. "Since unification, Hamburg's status has improved greatly," says Eike Riepe, marketing manager, Hans Schwarzkopf GmbH, a shampoo company. "At one time, Hamburg was the central shipping point for Europe and the Soviet Union. But after World War II, the city was isolated and fell into decline. Since the Berlin Wall came down, Hamburg's fortunes have been reversed. It is once again becoming a European shipping hub. The shipping industry grew by more than 50 percent in 1991. Goods are unloaded every day of the week," he adds.
Today, the city is buzzing with activity. "Hamburg is now one of the most attractive business locations in Europe," says Hans-Jurgen Krupp, deputy mayor of Hamburg. According to Krupp, Germany's union has brought many benefits to the country's largest port. Statistics provided by Krupp's office show that more international businesses are moving to Hamburg, especially in the shipping and service industries.
Taiwan's well-known shipping firm, the Yangming Line, is one of many companies relocating operations to the port of Hamburg.
One example is the Yangming Line, a Taiwan shipping company that is planning to move operations from London to Hamburg this month. The company decided to make the move for two reasons. First, it wants to take advantage of the city's proximity to eastern Germany. "In the past, business people always felt the heavy presence of the Iron Curtain cutting them off from the east," says Walter C.P. Wang (汪基平), deputy chief representative of Yangming Marine Transport Corporation office in Europe. "Hamburg was unattractive in spite of the special government incentives. Now that the curtain has been lifted, it's a completely different picture." Secondly, Hamburg's proximity to other European urban centers is highly advantageous for business. "We have to prepare for the coming single European market. After that, all physical borders in Europe will disappear and the transportation system will change enormously."
In some ways, Germany can be considered Europe in microcosm. It is the only country on the continent that has had to unify two regions that were once under highly disparate economic and political systems. Thus it has a unique position in Europe. The country can function as a market laboratory for Taiwan businesses. Products and marketing strategies can be developed and tested for the larger European economy, east and west. Germany's strong monetary and financial system and stable political environment have long made it popular with Taiwan businesses. It should be especially attractive now since it can provide safe, ready access to some of the largest new markets in the world. —Staff writer Emma Wu and staff photographer Chen Ping-hsun visited Germany in July. ▪