Taiwan firms in mainland China ponder salmon run – Taiwan Today

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Taiwan firms in mainland China ponder salmon run

Many Taiwanese firms operating in mainland China, like those in the auto parts sector, are returning home in the wake of the global recession. (CNA photos)

Publication Date：01/06/2013

Source：  China Times

Changing labor conditions, stricter environmental protection regulations and the persistent global economic slump have prompted many Taiwanese-controlled firms operating in mainland China to relocate to the less developed interior or to Southeast Asia, with many even considering moving back to Taiwan.

While the ROC government is pulling out all the stops to encourage homebound investment, such a salmon run will not be easy given ever changing market dynamics and the political complexities involved.

According to research by the Boston Consulting Group, the average payroll in mainland Chinese factories will go up 18 percent annually till 2015. Taking into account costs for land, plant facilities and transportation, plus import tariffs and supply chain risks, total production costs in mainland China will catch up with those of some parts of the U.S. in five years.

Inadequate protection of intellectual property rights is also a serious concern for firms relying on technological know-how to compete. As the gap between labor costs on the two sides closes and the ROC government continues regulatory easing, now allowing such companies to float shares on local bourses, setting up regional headquarters or R&D centers in Taiwan is becoming an attractive option for businesses wishing to sharpen their competitive edge and protect their core technologies.

But these enterprises are not cutting off their ties with the mainland Chinese market. Instead, they plan to leverage Taiwan’s R&D capabilities and produce key components in the country, while taking advantage of their established connections on the other side for continuous expansion in the huge domestic markets there, a unique advantage of locally grown businesses.

A case in point is Airmate Electrical (Shenzhen) Co. Ltd., a home appliance manufacturer that got its start in southern Taiwan. The firm has been making headway in the Chinese mainland and other markets with high-value products co-developed with a research lab at Taiwan’s National Cheng Kung University. The company is stepping up R&D activity back home and mulling stock issuance in Taiwan.

This phenomenon is not unique to traditional sectors, as an insufficient supply of skilled laborers and the gradual phase-out of policy incentives in mainland China are also prompting firms in technology–intensive industries to make the same move. Notebook computer housing producer Catcher Technology Co. Ltd. and computer producer Compal Electronics Inc. have both expressed an interest in repatriating part of their mainland Chinese capacity if the government can help solve labor issues.

According to ROC Minister of Economic Affairs Shih Yen-shiang, encouraging homecoming investment is a key element in the government’s effort to re-engineer Taiwan’s economy. Ministry statistics show that for the first nine months of 2012, such investment amounted to NT$44.9 billion (US$1.54 billion).

“We hope to see that number surge to NT$200 billion in the next two years,” Shih said. He expects such additional business activity to help create NT$300 billion in economic benefits and 82,000 jobs, while increasing the country’s gross domestic product by 0.31 percent.

“We especially welcome investment that focuses on value creation or can help accelerate Taiwan’s industrial transformation,” Shih said, adding that the state will offer assistance in environmental assessment, labor supply and land acquisition, among other key business issues.

But before firms can qualify for preferential treatment, they must own a global brand, produce high-value products or key components, be leading players in the global supply chain, or intend to set up regional headquarters or an R&D center.

More relaxed regulations on foreign labor are one of the major state incentives aimed at attracting homebound investment.

If such new ventures reach NT$100 million and NT$500 million in the traditional and high-tech sectors, respectively, and create 100 jobs over a period of 12 months, the state will raise the upper limit on the number of foreign laborers allowed on their payroll to a maximum of 40 percent and provide preferential financing for up to 80 percent of their capital needs, according to the MOEA.

Council for Economic Planning and Development Minister Yiin Chii-ming pointed out that inbound investment will be an effective solution to Taiwan’s growing unemployment and help drive up the country’s persistently stagnant wages. “If such new ventures can employ more foreign laborers, who usually work for lower pay, employers will have more flexibility in raising local workers’ salaries,” he said.

Encouraging homebound investment is also high on policy agendas in South Korea and the U.S. Many in Taiwan believe the country is already several steps behind and have criticized the government for not doing enough in this regard, especially after U.S. President Barack Obama began urging companies to “insource” jobs back to America in early 2012.

Among the many challenges hampering inbound investment, the biggest hurdle remains government inefficiency. In a recent meeting between President Ma Ying-jeou and Taipei-based business association the Wednesday Club, club Vice Chairman Hsu Sheng-hsiung pointed out that Taiwan’s excessive regulations and lengthy government procedures leave much to be desired.

“The recent controversies concerning policies on the minimum wage, foreign labor and environmental protection show that there is a lot of room for improvement in terms of interagency collaboration.”

Hsu urged the central government to fast-track its re-engineering efforts, as the current state of uncertainty has triggered a bureaucratic mindset among ministries. “With challenging conditions at home and abroad, such government inaction will hamstring Taiwan’s economy,” he said, adding that public servants need to be re-educated to take a service-oriented approach to their duties.

Given its vibrant economy and solid business fundamentals, Taiwan is still a safe haven for local firms operating across the strait. “I really want to come back to Taiwan,” said Chen Wu-hsiung, founder of Taipei-based Ho Tung Chemical Corp., who owns several petrochemical ventures in mainland China. The generous incentives offered by mainland Chinese authorities were the main reasons for his decision to invest on the other side of the strait, Chen said.

“The mainland Chinese market is increasingly competitive and approaching saturation. Now is the best time to encourage homebound investment, but it all depends on how attractive the state incentives will be.” (SFC-THN)

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