AmCham Taipei Business Climate Survey

Detailed Findings

2015 Business Climate Survey

Summary of Results

Results of the online survey conducted in November and December 2014 by Independent Marketing & Research Limited on behalf of AmCham Taipei. Of the 422 voting representatives (mainly CEOs) from

AmCham member companies who were invited to take part, 245 did so for a 58% response rate.

The sample covered a wide spectrum of companies by size of employment – from the very small to the very large. The primary business focus of more than 70% of the respondents is to supply goods or

services to the Taiwan domestic market.

American Chamber of Commerce in Taipei

Suite 706, Worldwide House129 MinSheng East Road, Section 3, Taipei 10596, Taiwan

Tel: +886-2-2718-8226 Fax: +886-2-2718-8182www.amcham.com.tw

C O N S U L T A N T

S P O N S O R

2 2015 TAiwAN BUSiNeSS CLimATe SUrvey


During the past several months, AmCham Taipei conducted its fifth annual Business Climate Survey, inviting the 422 voting representatives from our member companies (generally the CEOs) to answer a series of questions about the business environment in an online questionnaire. I would like to express the Chamber’s appreciation to Gordon Stewart of Independent Marketing & Research for his professional guidance in conducting the survey and analyzing the data.

Thanks are also due to the 245 member executives who took the time to complete the survey. The high 58% response rate, which reflects members’ recognition of the importance of this exercise, has produced a solid quantity of data.

It is now possible to track AmCham leaders’ view of the business environment over a five-year time span. Overall, the results of the five surveys have been quite consistent. On the one hand, AmCham companies regard Taiwan as a good place to do business, characterized by an industrious and well-educated work force (although some respondents are reporting a shortage of suitable new personnel). Nearly all companies are profitable and are continuing to increase investment and expand employment. The executives are especially positive about the quality of life in Taiwan, describing this society as a safe and friendly environment in which to live and work.

But on the other hand, the 2015 survey reflects widespread frustration over certain chronic problems that have remained over the past five years without any substantial improvement – and in some cases have been worsening. Among the continuing chief points of dissatisfaction cited are inconsistent regulatory interpretations, excessive bureaucracy, outdated laws and regulations, inconsistent application of the rule of law, differences between local and internationally accepted standards, insufficient notice before regulatory changes are introduced, and lack of transparency. With regard to inconsistent regulatory interpretations, for example, 21% of the respondents say it has an “extreme impact” on their business while another 39% say it has a “significant impact.”

AmCham company leaders hope that the government – both the executive and legislative branches – will pay increased atten-tion to these shortcomings in the interest of enhancing Taiwan’s international competitiveness, with favorable consequences for employment and overall prosperity. Other countries, notably Taiwan’s chief trade rival South Korea, are benefiting from participa-tion in numerous free trade agreements. Since that path has been difficult for Taiwan to follow for political reasons, this country must find other ways to bolster its attractiveness to foreign partners for trade and investment. Regulatory reform should be at the top of the list.

During the past year, the Chamber has been encouraged by indications that the government has been reviewing the regulatory process with an eye to bringing Taiwan’s procedures in line with standard international practices. The direction is positive, but so far few major revisions have actually been put in place. The pace will need to be accelerated to enhance Taiwan’s chances for even-tual inclusion in the Trans-Pacific Partnership. But whether or not TPP membership materializes, liberalization would improve Taiwan’s ability to compete effectively in global markets. We hope that we may look forward to the vigorous adoption of economic reform initiatives in the coming year, including implementation of the Free Economic Pilot Zone plan, to further strengthen Tai-wan’s future economic outlook.

Thomas Fann2015 AmCham Taipei Chairman

At the Five-Year Mark, Time for Serious Reflection

Message from 2015 AmCham Chairman Thomas Fann

2015 TAiwAN BUSiNeSS CLimATe SUrvey 3

2014 Business Climate SurveyExecutive Summary

Major Takeaways

>General Conditions• OftheAmChamexecutivestakingthesurvey,69%percentreportedthatthepastyearwasveryorrelativelyprofitable.• Comparedwithlastyear’ssurvey,thenumberofrespondentsforecastinggrowthinrevenueandprofitsinthecomingyear

wasaboutthesame(63%vs.61%),aswasthenumberforecastingincreasedlevelsofinvestment(48%vs.50%).• 60%oftheexecutivesexpressedoptimismaboutthefive-yearbusinessoutlook.• Morethanhalfofthesurveyedcompanies(56%)increasedtheiremploymentin2014,and49%anticipatefurther

increases in hiring in 2015.• TheTaiwanworkforcecontinuestobeviewedveryfavorablyforbeingindustriousandwell-educated,thoughlaggingin

creativity, initiative, and international-mindedness.• Taiwanratesveryfavorablyasasafeandcomfortableplacetolive.Foodsafetyisviewedasaproblem,however,andthe

English-language environment needs improvement.

>Areas of Concern• Overthepastfiveannualsurveys,thefactorscitedbyrespondentsashavingamajornegativeimpactontheirbusiness

operations have been largely the same: inconsistent regulatory interpretations, adverse changes in local demand, govern-mental bureaucracy, inadequate/out-dated laws and regulations, and inconsistent application of the rule of law.

• Domesticpoliticalunrestwasalsoviewedasagrowingproblem,aswereprotectionismandgovernmentprocurementpro-cedures.

• Thesinglecategorycitedasshowingmarkedprogressisdirectflightsto/frommainlandChina.• Governmentaction(necessarilyfromboththeexecutiveandlegislativebranches)isrequestedtodealwiththeareasof

deficiency.

>Trade Pacts• TherespondentsexpressedsupportforTaiwan’sentryintotheTrans-PacificPartnership(TPP)andforaBilateralInvest-

ment Agreement between Taiwan and the United States.• ECFAisgenerallyperceivedashavingapositiveeffectonTaiwanasawholeandonAmChammembers’ownbusinesses.• OnthequestionofwhethertheCross-StraitServicesTradeAgreementwouldbebeneficialtoTaiwan,60%ofrespondents

said yes, 24% no, and the rest had no opinion



2014: A decent year for business

A substantial 70% of the companies surveyed – the highest percentage since 2011 – said their operations last year were either very or relatively profitable. The 14% describing the performance as “very profitable” was also the highest since the same level was reached in 2011. Most of the remaining respondents reported finishing 2014 at break-even or with a small profit or loss, with only 2% reporting a “relatively large loss” and none experiencing a “very large loss.”

2015 Forecast: More of the same

11% of respondents, the same proportion as last year, said they expect to achieve “substantial growth” in both revenue and profits in the coming year. Those anticipating “modest growth” in both revenue and profits came to 50%, slightly less than the 53% of the past two years. A total of 9% said revenues and profits were likely to see a “modest decline” in 2015.


2014 Business Climate SurveyDetailed Findings

92% of the executives said their companies were likely to invest at least as much in the next 12 months as they did the previous year. 10% (compared to 7% last year) said they expected to make a “substantial increase” in investment, while 40% (41% last year) said there would be a “slight increase.”

Looking ahead five years

After a three-year slide, those describing themselves as optimistic or slightly optimistic about business prospects over thenextfiveyearsamountedto60%ofrespondents.Fromahighof81%in2011,thatfigurehadfallento65%in2012,56%in2013,and54%in2014beforerisinginthe2015survey.

Near-term Investment: Further momentum



“Inconsistent regulatory interpretations” ranked as the number-one factor that respondents said had the biggest impact on their business. “Changes in local demand” was second, reflecting the fact that most AmCham member companies focus chiefly on the local market.

Other adverse factors cited among the top 10 were governmental bureaucracy, inadequate/outdated laws, inconsistent appli-cation of the rule of law, difficulty recruiting appropriate new personnel, differences between local and internationally accepted standards, insufficient notice before changes to laws or regulations are introduced, lack of transparency, and domestic political unrest.

What impacts their business?



Where has progress occurred?

Most of the major progress over the past three years, in the opinion of the respondents, was in the area of cross-Strait relations. In fact, the only item where the number of respondents seeing significant improvement was in double digits was for direct flights between Taiwan and mainland dest inat ions (19.3%). Many other categories saw little progress over the past three years, or even regressed. Among the areas seen as wors-ening were political unrest, domestic protectionism, personal taxation, and government procurement procedures.

Issue

1 1

2012-14 2011-13 2010-12 2009-11 2008-10

2 6 7 3 53 12 10 7 254 16 8 8 85 8 6 2 3 12 107 7 8 26 9 30 20 26 26

10 5 6 1 211 11 12 10 312 15 14 5 613 19 9 9 714 22 15 32 19 18 1516 9 17 4 2 2 118 29 17 11 919 14 11 6 1120 13 16 19 1421 3 1 4 422 17 21 25 1823 10 5 20 1924 25 22 16 1725 18 18 15 1226 20 27 23 13 13 1328 21 15 17 2429 28 30 31 24 24 2331 36 27 27 2832 24 4 14 1633 33 25 22 2234 35 35 34 26 21 2036 27 23 23 2137 38 28 28 2738 37 39 39 29 29 29

Ranking

Political turmoil in Taiwan

Domestic protectionism

Personal taxation levels

Government procurement procedures

Changes in energy costs

Governmental bureaucracy

Consistency in the application of the rule of law

Access to private equity financing

Corporate taxation levels

Changes in employment expenses

Revision of inadequate/outdated laws

Changes in raw material costs

Changes in financing costs

Ability to raise capital locally

Changes in tariffsSufficiency of notice before changes to

regulations or laws are introducedConsistency of regulatory interpretations

Illegal imports

Changes in transport costs

Governmental reform/restructuring

Ability to recruit appropriate new personnel

Corruption

Changes in local demand

Customs and trade regulations

Transparency

Ability to secure credit locally

Financial industry reform

Changes in overseas demandDifferences between local and Internationally

accepted standardsEU - Taiwan government relations

Economic Cooperation Framework Agreement (ECFA)

Management of currency exchange rate fluctuations

Intellectual Property Rights enforcement

Ability of PRC personnel to work in Taiwan

USA - Taiwan government relations

Infrastructure (power, water, telecom, transport, etc.)

China - Taiwan government relations

Ability of PRC personnel to travel to Taiwan

Direct flights to/from mainland China

What progress has been made in the past 3 years? Worst to Best ranking

Green = significant progress (top 10th percentile)Red = significant regression (top 10th percentile)



The major worries confronting business

Respondents were invited to tick all the items they considered applicable. Topping the list of prospective concerns, both cited by 54% of respondents, were 1) an economic slowdown affecting Taiwan’s domestic consumption and 2) a global economic slowdown. Others in the top 10 included uncertainty in Taiwan’s policy toward China (new to the survey in 2015), shortage of human resources, increased domestic political unrest, economic slowdown in mainland China, increased governmental interference, enactment of TPP without Taiwan (also new in 2015), economic slowdown in the USA, and economic slowdown in Europe.

Increased domestic political unrest

Lack of Human Resources

Uncertainty in Taiwan’spolicy towards China

Global economic slowdown

Economic slowdown inTaiwan’s domestic consumption

Increased governmental interference

Economic slowdown in Europe

Enactment of TPPwithout Taiwan as a member

Taiwan Dollar (TWD) depreciation

Economic slowdown in USA

Taiwan inflation rising

Economic slowdown inmainland China

Taiwan unemployment rising

Decreased exports

Energy shortage in Taiwan

Taiwan Dollar (TWD) appreciation

Increased imports

54%

54%

42%

35%

32%

30%

30%

20%

19%

18%

17%

14%

13%

12%

12%

11%

2%201320142015

20122011

0 10 20 30 40 50 60 70 80 %

58%54% 64%61%

58% 72%74%69%

34%

40%

37%

37%39%34%28%

34% 41%40%27%

25%

18%

20%

18%16%

15%10%

12%

11%

3%2%2%2%

15%17% 22%

18%16% 20%

26%22%19%

18%18% 24%

35%36%

42%41%28%

22% 32%33%

35%35%

36%

What are the major risks facing your entity in the coming years?



Utilization of business incentives

Relatively few respondents have taken advantage of incentives provided by various levels of government in Taiwan. For those who had, the most popular incentives were tax incentives for R&D, low-interest loans, government participation in investment, Free Trade Zone incentives, and indirect tax incentives for Science Parks, Export Processing Zones, bonded factories, and bonded warehouse.

Has your company participated in, or taken advantage of, any of the Taiwan government's business incentives?

Yes

No

Don’t know

2014 2015

15%10%12%

19%

71%73%

What needs to be done

The survey asked:“What are the main things the Taiwan and U.S. governments could so in the next 12 months to help business?”

1. Reduce political turmoil

2. S i m p l i f y g o v e r n m e n t bureaucracy

3. Resolve inadequate/out-dated laws

4. R e m o v e d i f f e r e n c e s between local & interna-tionally accepted standards

5. Reduce personal taxation

6. Devise plan to stimulate local demand

7. Consistently apply the rule of law

8. Provide sufficient notice before changes to laws or regulations are introduced

9. Reduce domestic protec-tionism

10. Broaden ECFA

11. R e d u c e e m p l o y m e n t expenses

12. Negotiate and sign a Bilat-eral Investment Agree-ment with the U.S.

13. Liberalize the labor market

14. Increase direct foreign investment incentives

15. Improve R&D incentives

16. Reduce corruption

17. Finalize policy regarding the China-Taiwan Services Trade Pact

18. Negotiate and sign more bilateral trade agreements with other countries

19. Pass Free Economic Pilot Zone legislation

1. Assist Taiwan to prepare for accession to TPP

2. Negotiate and sign a Bilateral Investment Agreement with Taiwan

3. Conduct more regular follow-up of TIFA items with Taiwan

4. Send more senior U.S. government offi-cials to visit Taiwan

5. Reduce corporate taxation

6. Reduce personal taxation

7. Repeal or reevaluate the Foreign Account Tax Compliance Act (FACTA)

8. Negotiate and finalize an extradition treaty with Taiwan

9. Resolve agricultural disputes with Taiwan

Taiwan Government USA Government



AmCham Taipei member companies are hiring

In last year’s survey, AmCham companies signaled an intention to increase employment this year. In practice they surpassed that forecast – and are expressing the desire to do even more hiring in 2015.

In 2014, fully 55% of AmCham increased their employment numbers, compared with only 43% in 2013. Hiring occurred across a broad range of industries, but the top sectors were 1) Legal services, 2) Medical devices, 3) Banking, 4) Manufacturing, 5) HR con-sulting,6)Foodandbeverages,7)Consumerpackagedgoods,8)Insurance,9)Travelandleisure,and10)Logisics&distribution.

49% of respondents said they planned to increase their headcount during 2015, with another 42% maintaining 2014 levels. Only 7% anticipate a reduction. Banking led the list of sectors planning increased hiring this year, followed by medical devices; legal ser-vices; HR consulting; insurance; hospitality; travel & leisure; securities, mutual funds, and asset management; chemicals; and real estate and rental & leasing.



Human Resources remain a big issue

Deficiencies in the quantity and quality of available human resources are one of the higher risk factors seen as confronting Tai-wan-based businesses in the future. We asked our corporate leaders about their impression of the quality of the available human capital in Taiwan.

As in the past, the survey produced what overall is a highly positive picture of the Taiwan work force:

But also, as with previous surveys, there were some shortcomings as well:

Areas of shortages

Respondents citing difficulties in recruiting appropriate personnel were in such sectors as Education and Training, High-tech Manufacturing, Hospitality, and Logistics and Distribution.

Employment trends

HardworkingVery trustworthy

Very loyalEasy to develop/train

Extremely well educatedHighly productive

Show a high degree of EQWell-roundedEasy to retain

Good English skills

50 100 150 2000

Easy to recruitOf 'World class' standard

Show a good deal of creativityShow a great deal of initiative

Innovative

-50 0


2015 Business Climate Survey TPP/BIA

What should be Taiwan’s position regarding the Trans-Pacific Partnership (TPP)?

Taiwan has expressed interest in joining the second round of the TPP, the comprehensive trade pact now being negotiated by 12 countries, including the United States. More than 2/3 of the respondents believe Taiwan is capable of meeting the high standards required for membership, and a resounding 83% would encourage Taiwan to pursue that goal to avoid economic marginalization.

Is Taiwan capable of meeting the high standards required for TPP membership?

Should Taiwan pursue membership of the TPP?

2015

No! 12%

Don’t know20%

Yes! 68%

2015

No! 3%Don’t know14%

Yes! 83%

Nearly 2/3 of respondents see the lack of a U.S.-Taiwan BIA as a disadvantage for Taiwan; among them, 20% view it as a major disadvantage.

More than half see the absence of a BIA as a disadvantage for their own business, including 12% viewing it as a major disad-vantage.

Should Taiwan and the U.S. negotiate a Bilateral Investment Agreement (BIA)?


2014 Business Climate SurveyCross-Strait economic

relations

Positive view of ECFA

The Economic Cooperation Frame-work Agreement (ECFA) s igned between Taiwan and China in 2010 is generally viewed in a favorable light. 21% of respondents saw it as having a “very positive” effect on Taiwan, up from 13% the previous two years, and 13% perceived a “very positive” impact on their own business, com-pared with just 4% last year and 5% in 2013.

China-Taiwan Services Agreement

The Cross-Strait Services Trade Agreement under ECFA was signed in 2013 but has not yet been rat-ifiedbytheLegislativeYuan.60%ofrespondentssaid that implementing the agreement would be to Taiwan’s benefit.

Yes

No

Don’t know/ Can’t say

16%60%

24%


2015 Business Climate Survey M&A Activity

Consistent results

According to the survey results, over the past five years around 10% of AmCham companies engaged in M&A activity each year. In 2014, some tried and failed (3%) and another 21% considered M&A activity but did not implement a project.

One in five interested in M&A for 2015

In any given year, about twice as many companies say they would definitely or possibly consider M&A in the coming 12 months, compared with those who actually pursue it.


2014 Business Climate SurveyM&A Activity

Top Objectives of M&A

But when it happens, there are sound business reasons for M&A

Major Challenges for M&A in 2014

Finding an appropriate target was the biggest challenge last year.


2015 Business Climate Survey Living in Taiwan

As in previous surveys, the respondents praised Taiwan as a safe, friendly place to live for themselves and their families, and they also paid tribute to the healthcare system.

But they also noted certain conditions in need of improvement, such as food safety and the English-friendliness of the environment.

AmCham Taipei Business Climate Survey

Documents

Transcript of AmCham Taipei Business Climate Survey