Asia's little dragon has plenty of firepower

The relationship between the People's Republic of China and Taiwan, the Republic of China, is complex and difficult. But economically they are increasingly entwined and share many characteristics.

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Indeed, for western enterprises who may find the giant dragon of the mainland too daunting, Taiwan is a dragon but on a smaller scale.

"We don't get a lot of New Zealand firms giving Taiwan the attention and time it deserves."
Dean Prebble, Director of the NZ Trade Development Centre in Taipei

Taiwan is not just smaller but more Westernised with excellent links into other Asian markets. For New Zealand exporters, now the countries share a free trade deal, it looks even better.

The night market in downtown Taipei looks like a night market in any other Asian country. But get in among the stalls and it becomes clear some things are different.

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Caption: Shuangcheng night market bustles with activity on a Thursday night. One of several in the city which run daily from 4pm to midnight.

It is spotlessly clean and there are no touts or hard sell. The quality of goods on sale is a notch above the rows of fake running shoes and headphones found almost everywhere else in the region while the freshly cooked Japanese and Korean-influenced food is incredible.

Yet when the story of Asia's Dragon economies is told, Taiwan seldom gets top billing as a market exporters and investors must be in.

Taipei - Asia's little dragon with plenty of fire power

"We don't get a lot of New Zealand firms giving Taiwan the attention and time it deserves because they're attracted by China, the big guy next door," says Dean Prebble, Director of the New Zealand Trade Development Centre in Taipei.

"The fact is China does offer more opportunity but it also carries greatly increased risk. It's easy to think of Taiwan as a developing country, but when you arrive here you find it is a very developed country with sophisticated consumers. It's good to test what we've got in a market like this."

Seven years after New Zealand's world-first Free Trade Agreement with China, there is a growing club of Kiwi companies that have cracked the market but few have found it easy going. The cultural, regulatory, bureaucratic and language barriers are high and a torture test of any firm's resources and adaptability.

In May ANZ NZ took a group of New Zealand food and beverage, education, engineering and forestry producers (along with three Australian companies) to Shanghai and Taipei, Taiwan, to see those markets first-hand. The week-long tour was an intense program of workshops with experts in the market, meetings with potential customers and contacts, visits to the frontlines of retail.

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Caption: Networking dinner with many representatives from Taiwanese companies.

The businesses that went along were top of their game in New Zealand and serious about exploring opportunities in both markets. For many, Taiwan was an unknown quantity but it held interest not just as a sizeable standalone market but a stepping stone to China.

Increasingly, Asia entrants, along with a few who are in market but finding China a handful, look to Taiwan as a market that offers many of the opportunities of Mainland China - but with a simpler to navigate business environment.

"Doing business in China is like swimming in the sea - it's big and deep but there's also a lot of variables. Taiwan is like a pool - easy to see the sides and where to get in and out," says Royal Reed, a Taiwan-born Kiwi lawyer whose firm specialises in Taiwan-NZ trade relationships.

While China's economy has been subject to decades of political restrictions and control, the more free-wheeling Taiwan has been an active participant in the global economy. As such, its norms and practices are more in line with other modern market economies.

"China is making fast progress, but still has a lot of catching up and adjustment to do which brings cost and risk for business," Reed says.

The attraction to New Zealand firms - particularly those in the high-quality primary produce industries - has been heightened by the agreement between New Zealand and the Separate Customs Territory of Taiwan, Penghu, Kinmen, and Matsu on Economic Cooperation (ANZTEC), a comprehensive free-trade agreement between New Zealand and Taiwan that came into effect in December 2013.

ANZTEC is Taiwan's first with a developed country, and it makes New Zealand the first country to sign agreements with China, Hong Kong and Chinese Taipei (Taiwan's accepted international moniker).

While New Zealand doesn't have government-to-government relations with Taiwan, New Zealand and Chinese Taipei (as a Separate Customs Territory) are both WTO members, which was a platform from which to negotiate and sign a trade agreement.

Charles Finny, who led the ANZTEC negotiating team, agrees Taiwan is an easier place to do business than the Mainland.

"This is certainly true in terms of scale but other ways too," he says. "But it is not necessarily easy per se. Some of the norms are the same as the Mainland. Others are different. What works in Taiwan may be transplantable to the Mainland. But maybe not ..."

Taiwan by the numbers

  • As one of Asia's four Little Dragons (along with Hong Kong, Singapore and South Korea) Taiwan stands as the best performing economy over the past three to four quarters with forecast GDP growth of 3 to 4 per cent over the next five years.
  • While Taiwan has Western influence, it is still a predominantly Chinese society with traditional Chinese values – “it's 60 per cent Chinese, 20 per cent Japanese and 20 per cent American", says Terry King, ANZ's Taiwan CEO.
  • China, Hong Kong and the US are Taiwan's most important trading partners (67 per cent of total exports in 2012).
  • Per capital consumer spending is expected to rise 3.1 per cent a year between 2012 and 2020.
  • GDP/capita - NZ: $USD43,837, Taiwan: $USD22,598
  • GDP growth 2014 (10yr average) - NZ: 8.3 per cent, Taiwan: 3.7 per cent
  • Exports to GDP ratio - NZ: 28.6 per cent, Taiwan: 59 per cent. Taiwan's economy is heavily reliant on external producers of hi-tech products, such as computers, electronics and telecommunications.

With negotiations for other Western FTAs in the early stages, New Zealand exporters have what Prebble estimates to be a handy two-year window to make the most of their tariff advantage.

But exports to the Taiwan market - sizeable at 23 million people and $USD500 billion GDP per annum - is only part of the opportunity. Taiwan has been active in signing FTAs with other Asian economies, including Mainland China.

A growing opportunity exists for businesses to utilise Taiwan as a way-station into the wider region or partner with Taiwanese companies taking advantage of Taiwan's preferred tariff status.

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Caption: 36°C outside and casual shoppers head to the air-conditioned upmarket shopping centres, filled with Western brands.

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Caption: Luxury brands across 4 floors at the Taipei 101 complex. Covering an entire city block, it has the scale of shopping malls in China, but a smaller population of 2.6 million to cater for.

With widespread and well-founded concern throughout the region about food security, the food and beverage sector potentially stands to benefit most, says Raymond Yeung, ANZ's senior economist for Greater China and Taiwan.

"The food and beverage industry has been one of the main drivers of growth in Taiwan manufacturing," he says. "It's seen as premium in the eyes of Asian consumers, but there is a need to continue improving food safety.

“Countries such as New Zealand can work with Taiwan food and beverage to continue upgrading the industry by providing high-quality components and supplies."

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Caption: An outdoor Cider tasting stand; just the thing to pull in new customers during summer. The Taiwanese are very open to trying new food and beverage options, and local regulations for a pop-up stand are more streamlined than the mainland.

For many of the ANZ business tourists, Taiwan was a revelation in being a well-developed, advanced but intensely competitive market.

“Taiwan is a very unsung opportunity," says Mark Ward, Director of Business Engagement Massey University and Programme Director for Food HQ - an international centre for food research.

“One of the key messages I'll take back is to be niche and be very focussed. It looks like it's pretty easy to do business here but you have a good value proposition."

Stefan Herrick - Senior Manager External Communications, Corporate Affairs ANZ NZ.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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