Taiwan Business Climate Survey Jan. 2011 - FULL REPORT

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AmCham Taipei

2010/11 Business Climate Survey

MarketingIndependent

  Continued optimism, but reinforcing the need for several crucial changes  Message from 2011 AmCham Chairman Bill Wiseman

  AmCham Taipei ran our first Business Climate Survey since 2002 to get a read on our members’ view of the Taiwan’s economy andinvestment environment. The Chamber recently asked our 351 voting delegates from corporate sustaining and company members – a strong representation of CEOs and business leaders from across a wide spectrum of industries – to answer 22 questions on the subject. I would like to express AmCham’s gratitude to the 117 members (33%) who took the time to fill out the online questionnaire – and our congratulations to Larry Chang of BRS Nike, the respondent who won the lucky draw of a round-trip plane ticket within Asia.

  The results of the survey will be of great value to AmCham in crafting policy and advocacy positions to more effectively represent members’ needs and interests. We also offer the results to Taiwan government policymakers as reference on the views and expectations of multinational companies based on their practical experience conducting business in Taiwan.

  The results of the survey reflect the broad themes put forward in AmCham’s 2010 Taiwan White Paper: Taiwan currently enjoys a strong business climate, but Taiwan must do better to compete on equal terms with top investment locations in Asia.

  Our members expressed their baseline optimism on the economy and doing business in Taiwan. The majority of respondents reported 2010 to be an excellent year for business performance, with 2011 shaping up to be as good or possibly even better. Over half of the companies responding indicated plans to increase investment in the coming year, and more than 80% had positive views of the five-year outlook in Taiwan. ECFA was seen as good for Taiwan and good for their businesses, and Taiwan was described as a safe, friendly, easy place to live.

  On the basis of the survey results, the Taiwan government clearly deserves commendation for several important achievements. The respondents cited the noteworthy progress in cross-Strait transportation, cross-Strait economic links, improved IPR protection, and the adjustment in corporate income tax rates to make Taiwan more competitive within the Asian region.

  But in a number of other areas – many of them related to human resources – our delegates view progress as disappointingly slow or lacking altogether. The same conclusion emerged on their views of major risks facing enterprise in the coming years. Many companies face problems of recruitment and retention within Taiwan, yet still confront constraints on their ability to freely hire qualified technical or managerial personnel from outside Taiwan. Our delegates see the strong qualities of the available labor in Taiwan – hardworking, loyal, and easy to train – but also the gaps, in particular less creativity and initiative, relative to the world-class talent available in other markets. Additionally, there is concern that in several sectors – presumably for relatively senior technical and financial services personnel – there is a serious and growing under-supply of available talent, creating a constraint to further growth in these sectors.

  The high tax rate on personal income was cited as a significant burden to business performance, as it discourages many talented individuals from accepting assignments to Taiwan. At up to 40% in the highest bracket, it is arguably the steepest rate among key markets in the region. When asked what the Taiwan government can do to facilitate business, “reduce personal taxation” was mentioned second only to “simplify government bureaucracy.” Cutting taxes, and thereby putting more money into the economy to stimulate consumption, would also address the concern raised by many respondents about the level of local demand.

  Our delegates continue to express frustration on the topics of government inefficiency, inconsistent regulatory interpretations, and outdated or inadequate laws – again, very much in line with AmCham Taipei’s 2010 Taiwan White Paper. In meetings with the AmChamleadership, high-level government officials have indicated that they recognize these problems and are working to make improvements.

  Electronic copies of the complete survey will be shared with respondents, and they are also available to other AmCham members and other interested parties upon request. In closing, I would like to extend the Chamber’s hearty thanks to Gordon Stewart of Independent Marketing Pty Limited for his invaluable guidance in the planning and execution of this project.


Executive summary - Key takeaways

• AmCham’s Business leaders are focused-on and generally optimistic about the future of their businesses in Taiwan. So much so, that most plan to increase their investment in 2011.

• Whilst acknowledging progress has been made by the Taiwanese government in certain areas, their belief is that more can be done – especially in the areas of government bureaucracy, personal taxation, pushing forward with ECFA, increasing labor market flexibility, and improving research and development incentives .


Executive Summary – Key Indicators

2010 Profitability

2011 Forecast for revenue

and profit growth

Increased Investment in

2011


Leaders Focused on Taiwan

• Our business leaders are clearly focused on Taiwan as nearly 80% of their entities’ primary goal is to supply the Taiwan market with goods or services. This makes their comments and observations even more pertinent to the Taiwan government.

MarketingIndependent6

13.7%

1.7%

1.7%

78.6%

4.3%None of the above

Provide/source goods

or services for export

to Mainland China


or services for the

Greater China market


or services for export

to the U.S.A.


or services for the

Taiwanese market

What is your business’ primary goal in Taiwan?


And with good reason…Taiwan – a good little earner!

• Almost 3 out of 4 of our business leaders assert that their business in Taiwan is either “relatively” or “very profitable”. No one claimed to be have suffered “very large losses”. Only a very small proportion (less than 3%), experienced a “relatively large loss” and they seem to be younger, developing companies (less than 15 years in Taiwan), which may have had relatively substantial expenses during 2010.


And age does matter…

• …at least in terms of high profits. An entity who has been established in Taiwan for more than 30 years is almost twice as likely to report that they had a “very profitable” performance in 2010, compared to those with less time in the market.


And the good news is…

• …They expect 2011 to be as, or even more, profitable than in 2010 (almost 80% of all respondents).

• A further 7.7% see “Substantial growth in revenues and a modest growth in profits”.

• While another 7.7% see “Modest growth in revenues” and a combination of outcomes for profitability.


17.1%

53.8%

7.7%

6.0%

7.7%

2.6%

2.6%

2.6%

Substantial growth in both revenue and profits

Modest growth in both revenue and profits

Remain the same

Modest decline in both revenues and profits

Substantial growth in revenue and modest growth in profits

Modest growth in revenue and substantial growth in profits

Modest growth in revenue and modest decline in profits

Modest growth in revenue and no change in profits

What is your Taiwan business’ revenue and profits forecast for next year compared to this year?


More good news… On the Investment front!

• More than half (54%) of all company leaders claim that that the will invest “slightly” or “substantially more” in Taiwan during 2011.

• Companies which employ more than 850 full time equivalent employees (FTEE) are even more likely to increase their investment in 2011 (65%).

• More than another third (36%) of all companies, claim there will be no change to their level of investment.

• And only 9% are claiming any sort of reduction in investment (possibly because they have already invested a relatively large amount to date).


But not much happening in M&A

• Few businesses pursued any form of merger and acquisition (M&A) activity during 2010. Of these, a few completed the exercise (less than 5%), a few more are still in the process (7%), some tried and failed (less than 4%) and some thought about it but didn’t pursue it (23%). However, for the vast majority of business leaders (almost 2 out of 3), M&A simply wasn’t on their radar for 2010.


Sounds business reasons for M&A

• While only a few companies did attempt the M&A route in the past 12 months, their reasons for doing so show sound business logic. To increase market share, acquire capacity and to gain synergies - to reduce costs and improve profits - were the major drivers behind M&A.


restricted industry


But finding an appropriate target was the major barrier to M&A

• Along with: negotiating the valuation gap; conducting due diligence and other financial issues. Interestingly, “transparency of regulations” and “obtaining government approvals” also feature as barriers to M&A.


Interestingly…

• Neither an entity’s size nor its time in the Taiwan market were determining factors for those who chose the M&A route. They were as likely to be small to medium as they were large: new as mature. No particular industry dominated the M&A market either although, they were slightly more likely to come from the manufacturing industry.


However, still some ongoing M&A interest for 2011

• Nearly 29% of all entities in our survey would either “possibly” or “definitely” consider M&A in the next twelve months.


Leaders optimistic about the longer term…

• Again, more than 80% of our business leaders are either “Slightly” or “Optimistic” about the their five-year outlook for their Taiwan businesses.


Unfortunately, or realistically…

• …Taiwan just doesn’t make it too high on their global entity’s investment plans. Its generally, viewed as “Not a high priority” back at head office.

• Perhaps Taiwan needs to better position and market itself to try and gain some more global attention? Changes to personal taxation rates and research & development incentives may go a long way here.


What impacts their business?

• Not surprisingly, given their Taiwan focus, changes in local demand have the single greatest impact on their businesses.

• However, there are several areas where the Taiwanese government directly and negatively impact our Leader’s businesses. Specifically in the areas of: government bureaucracy; inconsistent regulatory interpretation; inadequate or outdated laws; and company and personal taxation levels. Indeed, reducing taxation levels may well release more money into the economy and help stimulate the largest impact – domestic demand. Time for the government to do more?


Which of the following impacts your operation in Taiwan, and how much of an impact do they have?

Average values only shown on 4 point scale where 4 = extreme impact and 1 = no impact

1.6

1.8

1.9

1.9

1.9

2.0

2.0

2.0

2.0

2.1

2.1

2.1

2.1

2.1

2.1

2.2

2.2

2.3

2.3

2.4

2.4

2.4

2.5

2.5

2.6

2.6

2.7

2.8

3.0

0 0.5 1.0 1.5 2.0 2.5 3.0 3.5

Changes in financing costs

Inadequate infrastructure (power, water,…)

Corruption

Financial industry reform

Changes in tariffs

Changes in raw material costs

Government procurement procedures

EU-Taiwan government relations

Insufficient direct flights to the Mainland

Illegal imports

Changes in employment expenses

Lack of transparency

Governmental reform/restructuring

Domestic protectionism

Human resources constraints

The economic cooperation framework …

Intellectual property rights infringements

Customs and trade regulations

Changes in transport costs

Changes in overseas demand

USA-Taiwan government relations

China-Taiwan government relations

Currency exchange rate fluctuations

Taxation levels (company and personal)

Inadequate/out-dated laws

Ability to recruit appropriate new personnel

Inconsistent regulatory interpretation

Governmental bureaucracy

Changes in local demand


Which of the following impacts your operation in

Taiwan, and how much of an impact do they have?

Governmental bureaucracy

Human resources constraints

Taxation levels (company and personal)

USA-Taiwan government relations

Currency exchange rate fluctuations

Changes in employment expenses


Inadequate infrastructure (power, water,…)


Corruption



100

China-Taiwan government relations

80

EU-Taiwan government relations

40


200 60


The Economic Cooperation Framework

Agreement (ECFA)Changes in tariffs

Changes in transport costs

Inadequate/out-dated laws


Changes in raw material costs

Changes in local demand

Financial industry reform

Changes in financing costs

Changes in overseas demand

Intellectual property rights infringements

Illegal imports


Extreme impact

Significant impact

Some impact

Don’t know/can’t say

No impact


Changes in Local Demand

Governmental Bureaucracy



Inadequate/Out-dated laws

Taxation levels (Company and Personal)

Currency Exchange rate fluctuations

China - Taiwan government relations

Changes in Employment expenses


1

2

3

4

5

6

7

8

9

10

Top 10 issues Combined greatest impact


Top issues with an extreme impact

impactChanges in Local Demand










1

2

2

4

5

5

5

8

9

9Changes in Overseas Demand9


Top 10 issues with a significant impactChanges in Local Demand










1

2

3

3

5

6

7

7

9

10





Corruption


Changes in Transport costs

Changes in Financing costs

The Economic Cooperation Framework Agreement (ECFA)

Human Resources Constraints


1

2

3

4

4

4

4

8

9

9

Top 10 Issues with some impact


Illegal imports


Changes in Raw Material costs

Financial Industry Reform

Changes in Tariffs



Changes in Overseas Demand

Inadequate Infrastructure (Power, Water, Telecommunications,

Transport, etc.)

EU - Taiwan government relations

1

2

3

4

5

6

7

8

9

10

Top 10 Issues stated as having No impact


A message to the Taiwan Government

Thanks! You have been doing some great things to help business with the Mainland, like direct flights and better cross-strait government relations and of course, ECFA. You have also made some progress on important issues such as Taxation and Intellectual Property rights infringements.


But…

Please, there’s still much more that can be done. Especially in the areas of simplifying government bureaucracy, taxation (particularly personal tax),increasing Direct Foreign Investment incentives and speeding-up and broadening ECFA.

MarketingIndependent" Other" priorities relate to single-mention issues


And speaking of ECFA…Business leaders are bullish on ECFA

• When asked what sort of impact they felt ECFA would have on their business and on Taiwan as a whole, the response was overwhelmingly positive for the country (with almost 90% of business leaders believing it will have either “some” or a “very” positive effect on Taiwan).

• However, this strength of belief is not shared for their own businesses. This may have as much to do with a lack of knowledge as to the specifics of ECFA? Perhaps the Government should consider doing a better job of communicating those specifics to business leaders?


What keeps our business leaders awake at night?

• Overwhelmingly, it is related to economic slowdowns. Globally, or in Taiwan (including disruptions caused by political unrest), China or the USA. However, once they move past those concerns, Human Resources issues takes front of stage.


Human Resources – A big issue.

• As was seen earlier, HR issues not only have a large impact on our businesses – especially the ability to recruit appropriate new personnel – but a lack of human resources is also one of the highest risk factors confronting our Leaders entities in the future.

• What is it about HR that is such an issue – aside from the lack of labor market flexibility? Is it also the quality (appropriateness) of existing or available personnel? We asked our leaders to give us their impression of the quality of available human Capital in Taiwan. First the positives…


Taiwanese Human Resources are…

• …Hard-working, very trustworthy, extremely well-educated, very loyal, easy to develop or train and highly productive. A very positive profile of employees.


However…

• …They are not perceived as being of ‘World class’ standard, nor easy to recruit and retain (Remember: there is also a lack of them). There are also concerns over their lack of creativity and an inability to display initiative. Our respondent leaders were also somewhat divided over whether they are ‘well-rounded’ or if they generally display a high degree of emotional intelligence.


Interestingly…

Leaders who employ greater numbers of employees (more than 850 full time equivalent employees - FTEE), are likely to be less positive than others in their assessment of Taiwanese human capital. Especially in the areas of: showing a high degree of EQ; ease of recruitment; creativity; productivity and in being well-rounded.


And finally…’The Living is Easy’

• When asked about the quality of life in Taiwan our leader strongly agree that Taiwan is a place where “My family feels safe. Taiwanese people are extremely nice. Taiwan provides quality Health/Medical/Dental services. Taiwan is an easy country to live in”.


My family feels safe in Taiwan

Taiwanese people are extremely nice

Taiwan provides quality Health/Medical/Dental services

Taiwan is an easy country to live in

Alternative transportation options are usable and provide options

to driving my car (i.e., buses, bike lanes, taxis, trains, sidewalks)

Taiwan delivers reliable electricity

Taiwan provides adequate shopping opportunities

The Postal service is excellent

Internet connectivity is excellent

Mobile telephone coverage is excellent

1

2

3

4

5

6

7

8

9

10

95

90

82

82

79

76

74

70

68

67

Top 10 Most agreed on living in Taiwan (net promoter)


Living in Taiwan…The not so great things.

• Water runoff from storms is not controlled and results in flooding.

• Taiwan doesn’t provide quality activities for youths.

• Taiwan doesn’t provide quality drinking water.

• Banking and other financial services are seen as not good.

• Nor are the library services provided to their community.


Bottom 10 - The least agreed on (net promoter)Water runoff from storms is controlled and minimizes flooding

Taiwan provides quality youth activities

Taiwan provides quality drinking water

Banking and other financial services are excellent

The library services provided to our community are current and

meet our needs

Taiwan provides quality Police services

The sewer system in Taiwan works reliably

Taiwan provides quality Fire/Rescue services

The standard of schooling is excellent

I can travel by car to locations in Taiwan with minimal delays

1

2

3

4

4

6

7

8

8

10

-17

7

16

20

20

32

37

39

39

45


About our sample

http://www.sxc.hu/browse.phtml?f=download&id=1319105&redirect=photo


Who, When and How

• The survey was addressed, via email, to the principal leader within AmCham’s Corporate Membership. Usually this is the CEO.

• The survey was sent out during November 30th, 2010. [Most responses were received prior to the municipal elections on the 27th of November.]

• The survey was conducted online with each respondent receiving a unique link.

• Certain question choices were randomized, to avoid bias.• The survey received a total of 117 responses, representing

a 33% response rate. The survey consisted of up to 22 questions covering the aforementioned topics.


Industry Classifications

• We have reclassified our sample according to the ‘STANDARD INDUSTRIAL CLASSIFICATION SYSTEM OF THE REPUBLIC OF CHINA（Rev.8 , 2006)’

• Our sample draws from all of the major industrial classifications in Taiwan. The one exception is ‘Water supply and remediation services’ - which represents only 0.6% of all registered businesses in Taiwan.

• Our sample is more skewed towards ‘Manufacturing’, ‘Finance and Insurances’ and ‘Professional Scientific and technical services’, industries. And it is under-weighted in the ‘Wholesale and Retail Trade’ industry – by virtue of the fact there are simply some 616,000 of these businesses registered in Taiwan, representing 52% of all business numbers.

• With these covenants, we believe the sample to be a fairly good representation of business in Taiwan and a very good sample of AmCham’s corporate membership.


0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Sample vs. Universe

Sample No. of registered businesses stores in Universe*

*STATISTICAL YEARBOOK OF THE REPUBLIC OF CHINA 2009 Edited 2010


Type of legal entity

• The majority (59%) of businesses in this sample are Foreign owned - either as a subsidiary or in its own right.

• The next most popular entity type is a Branch Office.

• A few of those surveyed also have a R&D centers and some have regional HQ’s, located in Taiwan. Consequently, the results in the next chart show multiple responses and total more than 100%.


Time in Taiwan

• Our sample is split between those who are relatively new to Taiwan (less than 15 years with a physical presence here), 29%, those who are established (15-30 years), 46% and those who are well-established (more than 30 years), 25%. The most frequent length of a physical presence in Taiwan is 16 to 20 years (shortly after the lifting of Martial Law).


Number of Full Time Equivalent Employees (FTEE)

• Our sample covers a wide spectrum of employers - from the very small to the very large. However, 52% employ lees than 100 FTEE, 27% employ between 100 and 500 and a further 22% employ more than 500.


Engaged in CSR

• The majority of the entities surveyed in this study have an extremely strong commitment to Corporate Social Responsibility (CSR), with nearly all (96%) companies having policies dealing with: the ethical treatment of employees and honest and fair dealings with customers, suppliers and contractors. Moreover, more than 90% have policies covering transparency towards shareholders (or their equivalent) and a Management commitment to CSR. Marginally less strong, although still very high, are formal policies dealing with contributing to the community (89%) and protection of the environment (87%)


For more details

• Please contact: American Chamber of Commerce in Taipei Suite 706, Worldwide House 129 MinSheng East Road, Section 3, Taipei 10596, Taiwan Tel: +886-2-2718-8226 Fax: +886-2-2718-8182

Or:

• Gordon Stewart of Independent Marketing Limited at: [email protected]

mailto:[email protected]

Taiwan Business Climate Survey Jan. 2011 - FULL REPORT

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