AmCham Taipei 2010/11 Business Climate Survey Results

AmCham Taipei

2010/11 Business Climate
Survey

Independent Marketing

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.


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
2011 Forecast for revenue Increased Investment in
2010 Profitability and profit growth 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.


What is your business’ primary goal in Taiwan?
Provide/source goods
or services for the
13.7% Taiwanese market
or services for the
4.3% Greater China market
None of the above
1.7%
1.7% or services for export
to the U.S.A.
or services for export
to Mainland China

78.6%

6 Independent Marketing

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.


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 profits
Modest growth in revenue and modest decline
2.6%
in profits
Modest growth in revenue and no change in
2.6%
profits


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
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


Don’t know/can’t say

Which of the following impacts your operation in No impact

Some impact

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

Extreme impact

Inconsistent regulatory interpretation
Governmental bureaucracy
Lack of transparency
Customs and trade regulations
Inadequate/out-dated laws
Human resources constraints
Taxation levels (company and personal)
USA-Taiwan government relations
Currency exchange rate fluctuations
Changes in employment expenses
Ability to recruit appropriate new personnel
Inadequate infrastructure (power, water,…)
Governmental reform/restructuring
Corruption
Domestic protectionism
Government procurement procedures
China-Taiwan government relations
EU-Taiwan government relations
The Economic Cooperation Framework
Agreement (ECFA)
Changes in tariffs
Changes in transport costs
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
Insufficient direct flights to the Mainland

0 20 40 60 80 100


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 transparency


Top issues with an extreme impact
1 impact
Changes in Local Demand









9 Domestic protectionism

9 Changes in Overseas Demand


Top 10 issues with a significant impact
1 Changes in Local Demand








9 Governmental reform/restructuring

10 Domestic protectionism


Top 10 Issues with some impact



4 Corruption


4 Changes in Transport costs

4 Changes in Financing costs

8 The Economic Cooperation Framework Agreement (ECFA)

9 Human Resources Constraints

9 Governmental reform/restructuring


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 relations


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.


" Other" priorities relate to single-mention issues Independent Marketing

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”.


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


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)
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 39

10 I can travel by car to locations in Taiwan with minimal delays 45


About our sample


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.


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

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: gordon@stewartconsult.com


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