Research Paper: Business Environment in Taiwan

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[. . .] S. territory. This will allow the U.S. raw material suppliers (for Taiwan's ICT sector) to freely interact with their existing and potential clients and follow-up through their own visits at a later stage to Taiwan. The Ministry of Economic Affairs Taiwan also reviewed a 'negative list' containing items legally allowed for foreign investment. Items in this list were reduced from 52 to 30. Except shareholding ratios and industries involving national security, Taiwan now allows all industry sectors open to FDI. Services sectors, specifically financial services are now accessible for foreign investors to invest money. MOEA also recommended waiving off the requirement of 'pre-investment' approval by foreign nationals (Council for Economic Planning and Development, 2013). This will significantly reduce the time required for making FDI in Taiwan along with simplification of investment process. As mentioned earlier, services sector has been specifically opened up by the government of Taiwan. Taiwan recently reduced minimum annual operating revenue (from NT$10 billion to NT$6 billion) for airline carriers that operate international passenger routes in Taiwan. Landing fees were also reduced as far as 50% at some of Taiwanese major airports such as those at Taitung, Kinmen, Tainan, etc. (Council for Economic Planning and Development & MOTC, 2013). Under the guidance of American Chamber of Commerce in Taipei (AmCham), MOEA also announced in June 2013 that Taiwan, as part of economic liberalization policy, would soon start operating Free Economic Pilot Zones (FEPZs). To improve inward investments in Taiwan, strengthening of intellectual property (IP) laws, and regulatory frameworks, Taiwan's government has assured AmCham at the highest possible level of Prime Minister of Taiwan. Another specific event that will help the U.S. suppliers and MNCs to leverage from Taiwan's market potential is the signing of WTO Government Procurement Agreement in 2009 by Taiwan government. This has effectively reduced non-tariff barriers along with gradual elimination of all trade related barriers over a period of next 5 years from 2009 (U.S. Commercial Service, 2013). This relaxation is aimed at increasing imports from the U.S. companies in sectors of petrochemicals, lifestyle products, high-value added electronic components, and luxury consumer goods. The recent opening up of Taiwan's market for the U.S. beef under the Trade and Investment Framework Agreement (TIFA) has also great potential of growth. Taiwan has also announced relaxing capital controls that will allow the U.S. And other international investors to commit more investments in Taiwan's stock markets (Poon, 2013).

Business climate in Taiwan

The evaluation of Taiwan's political, economic, social, and technological environment along with an assessment of current events that took place in economic arena of Taiwan indicates that the country possesses promising investment potential for foreign investors. However, we must delve deeper to ascertain whether or not Taiwan's market is business friendly. This is because despite immense growth potential (Chow & Lin, 2002; Kim, Chen & Jang, 2006) and appetite for technological orientation, Taiwan's economic structure is also marred by lack of adherence to IP rights, infringement of copyrighted materials, and inadequate legislation of guarding business secrets. The American Chamber of Commerce in Taipei (AmCham Taipei) is an appropriate platform to acquire business climate information of Taiwan as this private, non-profit, and corporate body has, through its representative firms, the most up-to date and relevant feedback regarding Taiwan's business climate. It seems that Taiwan is yet to fully leverage the 'Asia advantage' in attracting private equity investment. Although the government has started to relax capital flow regulations, there are still much restrictive policies in human capital transferring. Foreign nationals are required to have two years work experience before applying jobs in Taiwan. There is high rate of personal income tax for foreign nationals that de-incentivize foreign human capital to be imported to Taiwan. There remains large gap between governmental resolve of 'economic liberalization' at the top level and implementation at the departmental level. This is represented as Taiwan's Investment Commission only managed to approve $5.56 billion of FDI in 2012 compared to $4.96 billion in 2011 and $3.81 billion in 2010 (AmCham Taipei, 2013). South Korea on the other hand attracted $16.3 billion of FDI during FY 2012. Weak IP rights and patent infringement still deters leading international firms to start operating from Taiwan. The current business climate of Taiwan lacks rigorous implementation of regulatory standards by the government, such as there are weak product registration guidelines in agro-chemical sector.

Judgment regarding business prospects: In light of researched evidence

The assessed evidence regarding macro environmental and business related aspects of Taiwan, it seems that there are handsome opportunities for the U.S. investors. Specifically, the U.S. companies that manufacture micro-processing chips and other ICT components can greatly take advantage of recent tariff reductions. Investments in capital markets, banking, petro-chemicals, and raw materials in ICT sector will yield higher than normal profits in Taiwan in coming years. Despite being labeled as 'advance economy', Taiwan still carries structural issues and challenges that need to be addressed before FDIs as huge as South Korea and Hong Kong could be attracted by Taiwan. The U.S. businesses must seek prior support from the U.S. commercial services and AmCham Taipei to deliberate upon investment decisions. While the returns over investment might be promising, the conditions (such as scrutiny by regulators for FDI above NT$1 million) may hamper profit earning capability of foreign firms and individuals in the local Taiwan capital market. Governmental regulatory bodies play an important role in providing a level playing field to foreign investors (Vogel, 2008) and FDI only increases in a digitized economy (Zekos, 2005) when supported by sustainable policy and implementation measures by the government.

Conclusion

PEST analysis of Taiwan indicates that Taiwan has strong business prospects with increasing domestic demand for goods and services. The economy is vibrant enough, courtesy of stable political environment, to post long-term growth. Taiwan's cordial trade relations with the U.S. And other developed countries also position Taiwan as a potentially favorable destination for international investments. However, the country has only moved in the right direction recently by abolishing pre-investment approval requirement for foreign investors and simplifying investment process. Still, the business climate suffers from lack of enforcement of IP rights and patent infringements. The U.S. investors may invest freely under the newly signed trade agreements to benefit from tariff reductions. Investors from industrial sectors such as raw materials for semi-conductors, micro-chips, and those belonging to ICT sector have profitability prospects.

References

Chow, G., & Lin, A.L. (2002). Accounting for economic growth in Taiwan and Mainland China: a comparative analysis. Journal of Comparative Economics,30(3), 507-530.

Council for Economic Planning and Development & MOTC. (2013). Taiwan lowers Threshold for establishment of international airlines. CEPD. Retrieved from: http://www.cepd.gov.tw/encontent/m1.aspx?sNo=0019595

Council for Economic Planning and Development. (2013). Removal of items from negative list increase choices for foreign investors. CEPD. Retrieved from: http://www.cepd.gov.tw/encontent/m1.aspx?sNo=0019594

Department of Investment Services. (2013). Invest in Taiwan: Stable Politics, Emphasis on Democracy, Laws, and Freedom. Ministry of Economic Affairs Taiwan. Retrieved from: http://investtaiwan.org/matter/show_eng.jsp?ID=412

Internet World Stats. (2013). Taiwan: Internet Usage Stats and Marketing Report. Retrieved from: http://www.internetworldstats.com/asia/tw.htm

Kim, H.J., Chen, M.H., & Jang, S. (2006). Tourism expansion and economic development: The case of Taiwan. Tourism Management, 27(5), 925-933.

Lalkaka, R. (2002). Technology business incubators to help build an innovation-based economy. Journal of Change Management, 3(2), 167-176.

Liu, X., & Wang, C. (2003). Does foreign direct investment facilitate technological progress?: Evidence from Chinese industries. Research policy,32(6), 945-953.

Ministry of Economic Affairs. (2013). Statistics of Economic. Ministry of Economic Affairs, R.O.C. Retrieved from: http://www.moea.gov.tw/Mns/english/content/ContentLink2.aspx?menu_id=213

Poon, A. (2013, July). Taiwan Mulls Easing Foreign Investment Rules. Wall Street Journal. Retrieved from: http://online.wsj.com/article/BT-CO-20130709-712302.html

Quazi, R. (2007). Economic freedom and foreign direct investment in East Asia.Journal of the Asia Pacific Economy, 12(3), 329-344.

Transparency International. (2013). Corruption by Territory/Country: Taiwan. Retrieved from: http://www.transparency.org/country#TWN

U.S Commercial Service. (2013). Doing Business in Taiwan: 2013 Commercial Guide for U.S. Companies. American Institute in Taiwan & U.S. Department of State. Retrieved from: http://www.buyusainfo.net/docs/x_4887084.pdf

Vogel, D. (2008). Private global business regulation. Annual. Rev. Polit. Sci., 11, 261-282.

World Bank. (2011). World Wide Governance Indicators: Country Data Report for Taiwan, China 1996-2011. The World Bank Group. Retrieved from: http://info.worldbank.org/governance/wgi/pdf/c223.pdf

World Economic Outlook. (2013). World… [END OF PREVIEW]

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Business Environment in Taiwan.  (2013, September 13).  Retrieved June 26, 2019, from https://www.essaytown.com/subjects/paper/business-environment-taiwan/3008175

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"Business Environment in Taiwan."  13 September 2013.  Web.  26 June 2019. <https://www.essaytown.com/subjects/paper/business-environment-taiwan/3008175>.

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"Business Environment in Taiwan."  Essaytown.com.  September 13, 2013.  Accessed June 26, 2019.
https://www.essaytown.com/subjects/paper/business-environment-taiwan/3008175.