Tain-Jy Chen (ed.): Taiwanese Firms in Southeast Asia — Networking Across Borders

The years 1986-1987 stand out in the history of Taiwanese
Direct Investments (DI) abroad. Until that time, such investments were not significant,
instigated by the major companies and mainly targeting the United States. But
under the twofold pressure of a salary increase on the island and the appreciation
of the new Taiwanese dollar (NT$) in the mid-1980s, Taiwanese firms soon went
offshore en masse to low-wage countries, particularly China and Southeast Asia,
in order to preserve their foreign market competitiveness. The drive behind such
DI came this time from small- to medium-sized businesses which profited especially
from Taipei’s lifting of controls on capital movements (July 1987), and the
tax exemption on the foreign earnings of private individuals. Although this movement
underwent a slowing down in the early 1990s, Southeast Asia and China have nonetheless
remained the two favourite host regions for Taiwanese investors ever since.

In 1994, Tain-Jy Chen, Professor of Economics at the National
Taiwan University, formed a team made up of Taiwanese researchers from the Chung-Hua
Institution for Economic Research, as well as academics and officials from the
United States and Southeast Asia, in order to undertake a major study of Taiwanese
DI in Southeast Asia. This study was conducted for a year with questionnaires
being sent out both to the parent companies (113 responses), and to subsidiaries
(287 responses), and interviews carried out in Taiwan and in the receiving countries.
The results were collated and analysed in a report published by the Chung-Hua
Institution in April 1995, which provides most of the source material for this
collective work edited by Tain-Jy Chen in 1998.

The aim of the book is to study “the behaviour of
Taiwanese firms in general, and small- to medium-sized businesses in particular,
in the area of foreign DI” (p. 18). In fact, the authors concentrate in the
main on Taiwanese DI in Southeast Asian countries, by trying to bring out the
special features of small- to medium-sized businesses (under 300 employees) in
relation to large firms. Following an introduction situating Taiwanese DI abroad
in a theoretical perspective, in particular by focusing on a network-based approach
first introduced by Johanson and Mattsson among others (Tain-Jy Chen), four chapters
are devoted to global studies. The DI abroad are thereby analysed from the perspective
of small- to medium-sized businesses from developed countries (James Riedel),
Taiwanese small- to medium-sized businesses (Tain-Jy Chen), the effects on the
receiving countries (Ying-Hua Ku) and non-economic factors (Homin Chen, Meng-chun
Liu). The subsequent five chapters offer case studies of particular countries—Indonesia
(Mari Pangestu), Malaysia (Mohamed Ariff, Sor Tho Ng), Thailand (Bunluasak Pussarungsri),
The Philippines (Thomas G. Aquino) and Vietnam (Da-Nien Liu, James Riedel)—outlining
each government’s policy on foreign DI. Finally, in his conclusion, Tain-Jy
Chen gives a summary of the effects of Taiwanese DI on three levels: on the Taiwanese
economy (de-industrialisation/restructuring), the receiving countries (integration
of subsidiaries into the local economy) and the region as a whole (the dynamics
of East-Asian development).

Traditionally, in order to be able to invest abroad, a
company had to have an “intangible asset”, enabling it to offset the
costs of setting-up operations abroad, and giving it a specific edge over local
firms. While for the large multinationals the intangible asset often meant a brand
name, or a technology on account of which they produced highly differentiated
goods, a strong R and D capability or a know-how in terms of marketing, for the
Taiwanese small- to medium-sized businesses, it remained mostly in their ability
to make, on a small scale and with considerable flexibility (pp. 36-37), within
a limited time frame and a competitive cost structure, products satisfying the
quality demands of foreign customers (pp. 50-52). This ability stems from the
possibility for small- to medium-sized businesses in Taiwan to call upon a network
of small highly specialised producers who are independent but often linked through
personal relations, and whose effectiveness is based upon the exchange of information
and the division of labour within the network.

This particular feature of Taiwanese small- to medium-sized
businesses was to influence their behaviour abroad in two stages. The first was
the preservation of their intangible asset, determining their foreign market competitiveness,
which was to lead firms to keep close links with their network in Taiwan. But,
secondly, the high cost of maintaining these cross-border connections requiring
both human and financial resources that small- to medium-size businesses are often
lacking, was later to push them to find ways of integrating into the local economy—the
authors write of “localisation”—by generating if need be a new
network in the host country.

This trend towards “localisation” which, among
Taiwanese firms in Southeast Asia, constitutes the distinctive feature of the
small- to medium-sized businesses in comparison to the large companies, appears
on four levels at least: 1) A greater proportion of sales on the home market.
The edge that the small- to medium-sized businesses have over local firms (flexibility,
special relations with buyers) being very thin, it is difficult for them to keep
it over a long period of time. Experiencing competition in their export markets,
they spread the risks associated with a possible loss of external markets by developing
their sales on the local market. 2) A possibly slower but surer transfer of know-how
and technology to the local workforce. Employing expatriates is expensive. That
is why the small- to medium-sized businesses give preference to using local executives
and technicians to whom the Taiwanese boss often gives responsibilities and directly
passes on the know-how in his possession. As the skilled workers are faced with
multiple work tasks in the subsidiary, they can often acquire enough “on
the job” experience to set up their own business later on. 3) A stronger
linkage effect on the local economy. With limited finances, the small- to medium-sized
businesses often do not have the capability either of producing themselves the
components and spare parts they need or of getting them in over the long term
from subcontractors in Taiwan. They therefore don’t have any other solution
than to call upon firms on the spot. That forces them on the one hand to adapt
their machines and equipment to local conditions, and on the other to encourage
their former employees, parents and friends in Taiwan, etc., to get into business
in turn by becoming their supplier. 4) A greater autonomy for the subsidiary vis-à-vis
the parent company. The Taiwanese small- to medium-sized businesses which invest
abroad are more “binational” than “multinational” firms. Moreover,
it is not unusual for a subsidiary, thanks to the experience it has gained at
the local level, to develop its own technology. It also frequently happens that
the scale of production of the subsidiary surpasses that of the parent company,
and that the subsidiary itself takes on the responsibility for the commercialisation
of the products. An extreme case scenario would be if the parent company fails
to carry out its own restructuring, it will then change into a simple liaison
office working for the subsidiary (p. 234).

Three observations need to be made. First of all, it is
a pity that the papers by the various authors have not been integrated more. There
are numerous repetitions which give the work a certain unwieldiness. This is all
the more disturbing in that the virtually complete absence of themes heading the
different chapters does not help the cause of the main ideas being presented here
(for instance, the subtitle “technology transfer” appears without any
qualification on no less than eight occasions throughout the book). Next, it is
astonishing that there is no reference to the “southwards policy”—that
is towards Southeast Asia—launched by the Taiwanese government at the start
of 1994, and which encouraged entrepreneurs to put their capital in Southeast
Asia rather than on the Chinese mainland. Finally, it is to be regretted that
the Taiwanese DI in Southeast Asia have not really been covered in conjunction
with the Taiwanese DI in China. In fact, not only do these two regions often represent
an alternative for Taiwanese businesses wishing to invest abroad, but the island’s
small businessmen are also often more inclined to cross the strait than to head
south. A comparative study would be all the more interesting in that Taiwanese
businessmen do not seem to behave exactly in the same way in both regions. Thus
they reportedly do not impose any “military-style” discipline in their
factories in the countries of Southeast Asia, as they sometimes do on the Chinese
mainland, for fear of provoking xenophobic reactions on the part of local workers
(p. 114).

To sum up, by bringing together a large amount of data
that is all the more useful in that it is not always easy to get hold of, this
work offers us a general and rather complete study of the movement of Taiwanese
DI into Southeast Asia. Tain-Jy’s accomplishment is clearly in giving an
“overall logic” to this movement which takes account of the originality
of the Taiwanese economic structure, over 95% of which is made up of small- to
medium-sized firms, and reveals a dynamics allowing us to speculate on the future
development of Taiwanese DI in the region.

Translated from French original by Peter Brown

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