Taiwan Business Climate Survey Jan. 2011 - FULL REPORT


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The full report from a survey published in January 2011 from AmCham Taipei

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Taiwan Business Climate Survey Jan. 2011 - FULL REPORT

  1. 1. AmCham Taipei2010/11 Business Climate Survey Independent Marketing
  2. 2.   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 and investment 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 AmCham leadership, 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. Independent Marketing
  3. 3. 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 . Independent Marketing
  4. 4. Executive Summary – Key Indicators 2011 Forecast for revenue Increased Investment in2010 Profitability and profit growth 2011 Independent Marketing
  5. 5. 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. Independent Marketing
  6. 6. What is your business’ primary goal in Taiwan? Provide/source goods or services for the 13.7% Taiwanese market Provide/source goods or services for the 4.3% Greater China market None of the above 1.7% Provide/source goods 1.7% or services for export to the U.S.A. Provide/source goods or services for export to Mainland China 78.6%6 Independent Marketing
  7. 7. 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. Independent Marketing
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  9. 9. 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. Independent Marketing
  10. 10. 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. Independent Marketing
  11. 11. What is your Taiwan business’ revenue and profits forecast for next year compared to this year?Substantial growth in both revenue and profits 17.1% Modest growth in both revenue and profits 53.8% Remain the same 7.7% Modest decline in both revenues and profits 6.0% Substantial growth in revenue and modest 7.7% growth in profits Modest growth in revenue and substantial 2.6% growth in profitsModest growth in revenue and modest decline 2.6% in profits Modest growth in revenue and no change in 2.6% profits Independent Marketing
  12. 12. 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). Independent Marketing
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  14. 14. 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. Independent Marketing
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  16. 16. 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. Independent Marketing
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  18. 18. 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. Independent Marketing
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  20. 20. 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. Independent Marketing
  21. 21. 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. Independent Marketing
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  23. 23. 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. Independent Marketing
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  25. 25. 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. Independent Marketing
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  27. 27. 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? Independent Marketing
  28. 28. 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 Changes in local demand 3.0 Governmental bureaucracy 2.8 Inconsistent regulatory interpretation 2.7 Ability to recruit appropriate new personnel 2.6 Inadequate/out-dated laws 2.6 Taxation levels (company and personal) 2.5 Currency exchange rate fluctuations 2.5 China-Taiwan government relations 2.4 Changes in employment expenses 2.4 Lack of transparency 2.4 Governmental reform/restructuring 2.3 Domestic protectionism 2.3 Human resources constraints 2.2 The economic cooperation framework … 2.2 Intellectual property rights infringements 2.1 Customs and trade regulations 2.1 Changes in transport costs 2.1 Changes in overseas demand 2.1 USA-Taiwan government relations 2.1 Changes in financing costs 2.1 Inadequate infrastructure (power, water,…) 2.0 Corruption 2.0 Financial industry reform 2.0 Changes in tariffs 2.0 Government procurement procedures 1.9 Changes in raw material costs 1.9 EU-Taiwan government relations 1.9 Insufficient direct flights to the Mainland 1.8 Illegal imports 1.6 0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 28 Independent Marketing
  29. 29. Don’t know/can’t sayWhich of the following impacts your operation in No impact Some impactTaiwan, and how much of an impact do they have? Significant impact Extreme impactInconsistent regulatory interpretationGovernmental bureaucracyLack of transparencyCustoms and trade regulationsInadequate/out-dated lawsHuman resources constraintsTaxation levels (company and personal)USA-Taiwan government relationsCurrency exchange rate fluctuationsChanges in employment expensesAbility to recruit appropriate new personnelInadequate infrastructure (power, water,…)Governmental reform/restructuringCorruptionDomestic protectionismGovernment procurement proceduresChina-Taiwan government relationsEU-Taiwan government relationsThe Economic Cooperation FrameworkAgreement (ECFA)Changes in tariffsChanges in transport costsChanges in raw material costsChanges in local demandFinancial industry reformChanges in financing costsChanges in overseas demandIntellectual property rights infringementsIllegal importsInsufficient direct flights to the Mainland 0 20 40 60 80 100 29 Independent Marketing
  30. 30. Top 10 issues Combined greatest impact 1 Changes in Local Demand 2 Governmental Bureaucracy 3 Inconsistent regulatory interpretation 4 Ability to recruit appropriate new personnel 5 Inadequate/Out-dated laws 6 Taxation levels (Company and Personal) 7 Currency Exchange rate fluctuations 8 China - Taiwan government relations 9 Changes in Employment expenses 10 Lack of transparency30 Independent Marketing
  31. 31. Top issues with an extreme impact 1 impact Changes in Local Demand 2 Inconsistent regulatory interpretation 2 Governmental Bureaucracy 4 Ability to recruit appropriate new personnel 5 Taxation levels (Company and Personal) 5 China - Taiwan government relations 5 Inadequate/Out-dated laws 8 Currency Exchange rate fluctuations 9 Lack of transparency 9 Domestic protectionism 9 Changes in Overseas Demand31 Independent Marketing
  32. 32. Top 10 issues with a significant impact 1 Changes in Local Demand 2 Inadequate/Out-dated laws 3 Governmental Bureaucracy 3 Taxation levels (Company and Personal) 5 Ability to recruit appropriate new personnel 6 Inconsistent regulatory interpretation 7 Inconsistent regulatory interpretation 7 Changes in Employment expenses 9 Governmental reform/restructuring 10 Domestic protectionism32 Independent Marketing
  33. 33. Top 10 Issues with some impact 1 Lack of transparency 2 Changes in Employment expenses 3 Currency Exchange rate fluctuations 4 Corruption 4 China - Taiwan government relations 4 Changes in Transport costs 4 Changes in Financing costs 8 The Economic Cooperation Framework Agreement (ECFA) 9 Human Resources Constraints 9 Governmental reform/restructuring33 Independent Marketing
  34. 34. Top 10 Issues stated as having No impact 1 Illegal imports 2 Insufficient direct flights to the Mainland 3 Changes in Raw Material costs 4 Financial Industry Reform 5 Changes in Tariffs 6 Customs and trade regulations 7 Government procurement procedures 8 Changes in Overseas Demand Inadequate Infrastructure (Power, Water, Telecommunications, 9 Transport, etc.) 10 EU - Taiwan government relations34 Independent Marketing
  35. 35. A message to the Taiwan GovernmentThanks! You have been doing some greatthings to help business with the Mainland, likedirect flights and better cross-straitgovernment relations and of course, ECFA. Youhave also made some progress on importantissues such as Taxation and IntellectualProperty rights infringements. Independent Marketing
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  37. 37. But…Please, there’s still much more that can bedone. Especially in the areas of simplifyinggovernment bureaucracy, taxation(particularly personal tax),increasing DirectForeign Investment incentives and speeding-up and broadening ECFA. Independent Marketing
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  39. 39. " Other" priorities relate to single-mention issues Independent Marketing
  40. 40. 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? Independent Marketing
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  42. 42. 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. Independent Marketing
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  44. 44. 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… Independent Marketing
  45. 45. 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. Independent Marketing
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  47. 47. 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. Independent Marketing
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  49. 49. Interestingly…Leaders who employ greater numbers ofemployees (more than 850 full timeequivalent employees - FTEE), are likely to beless positive than others in their assessmentof Taiwanese human capital. Especially in theareas of: showing a high degree of EQ; ease ofrecruitment; creativity; productivity and inbeing well-rounded. Independent Marketing
  50. 50. 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”. Independent Marketing
  51. 51. Top 10 Most agreed on living in Taiwan (net promoter) 1 My family feels safe in Taiwan 95 2 Taiwanese people are extremely nice 90 3 Taiwan provides quality Health/Medical/Dental services 82 4 Taiwan is an easy country to live in 82 Alternative transportation options are usable and provide options 5 to driving my car (i.e., buses, bike lanes, taxis, trains, sidewalks) 79 6 Taiwan delivers reliable electricity 76 7 Taiwan provides adequate shopping opportunities 74 8 The Postal service is excellent 70 9 Internet connectivity is excellent 68 10 Mobile telephone coverage is excellent 67 51 Independent Marketing
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  53. 53. 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. Independent Marketing
  54. 54. Bottom 10 - The least agreed on (net promoter) 1 Water runoff from storms is controlled and minimizes flooding -17 2 Taiwan provides quality youth activities 7 3 Taiwan provides quality drinking water 16 4 Banking and other financial services are excellent 20 The library services provided to our community are current and 4 meet our needs 20 6 Taiwan provides quality Police services 32 7 The sewer system in Taiwan works reliably 37 8 Taiwan provides quality Fire/Rescue services 39 8 The standard of schooling is excellent 3910 I can travel by car to locations in Taiwan with minimal delays 4554 Independent Marketing
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  56. 56. About our sample56 Independent Marketing
  57. 57. 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. Independent Marketing
  58. 58. 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. Independent Marketing
  59. 59. Sample vs. Universe Sample No. of registered businesses stores in Universe*60.0%50.0%40.0%30.0%20.0%10.0% 0.0%*STATISTICAL YEARBOOK OF THE REPUBLIC OF CHINA 2009 Edited 2010 Independent Marketing
  60. 60. 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%. Independent Marketing
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  62. 62. 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). Independent Marketing
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  64. 64. 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. Independent Marketing
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  66. 66. 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%) Independent Marketing
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  69. 69. 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: +886-2-2718-8182Or:• Gordon Stewart of Independent Marketing Limited at: gordon@stewartconsult.com Independent Marketing