Read part 2 of this series here.
When I travel Asia and tell people I live in Taiwan, a pretty common response I get is “oooh, good food huh?!” Why is that Taiwan’s greatest reputation is for food? Yes, the food in Taiwan is unreasonably good, but behind this mantle of snacks and tea is one of the scrappiest economic forces in the world.
After my last post, which was fairly critical of Taiwan’s media, government, and certain business figures, I figured I needed to temper that negativity a bit by pointing out that, like all places, Taiwan is a mixed bag. Negatives exist, but it has a number of strong positives as well. So, in the first of a two-part series that proffer the benefits of Taiwan as a business and startup destination, let’s talk numbers.
Incredible Economic Potency
Despite its small population of 23 million, Taiwan has the 24rd largest economy in the world by GDP. What this ranking alone fails to tell is one of the more miraculous growth stories of the 20th century (more on that later). The KMT government who ushered in this growth just celebrated its 100th birthday and was able to do so (grow, not celebrate) in spite of the tumultuous first fifty years it spent fighting the Japanese and Mao Zedong’s Communist Party.
When the KMT finally did get ousted in China, the party brought countless cultural relics, money and much of China’s business & intellectual elite to the island of Taiwan, creating a beacon of capitalism in what is still Asia’s longest-running democracy.
This concentration of culture, money, and education served as an intense economic springboard in the 20th century. Wikipedia confirms this: “In 1962, Taiwan had a per-capita gross national product (GNP) of $170, placing its economy on a par with those of Zaire and Congo.” Today, the UN ranks it 18th on the UN’s Human Development Index, ahead of the UK, France, and Singapore. By comparison, China is 101st on the same index, below such countries as Azerbaijan, Iran, and Libya.
This economic concentration is perhaps best demonstrated on a per capita basis. According to the IMF, Taiwan has a nominal per capita GDP of $18,558, ranking 37th. China has a per capita income of $4,382, ranking 91st. Once you adjust Taiwan’s GDP for purchasing power parity, the figure nearly doubles to about $35,000, higher than France and Japan. This prosperity shows no sign of slowing, as Taiwan’s economy still continues to demonstrate…
Ridiculous Growth (Thanks China)
Investors and financiers look at China as being the holy grail of economic growth in
Asia the world, but hidden in China’s shadow is Taiwan’s own solid growth record. I didn’t realize this until I started researching, but Taiwan had 10.88% growth in 2010. In fact, it’s averaged almost 8% economic growth (GDP) since 1962. It experienced some years of negative growth in 2001 and 2008, but that is more of a reflection of the world economy than anything else.
Moreover, to talk China growth is to talk Taiwan growth. China represents Taiwan’s largest consumer of its export-driven economy, accounting for about 30% of Taiwan’s total. As China’s economy grows, its increased demand for consumption represents a boon to Taiwanese businesses and services. In fact, 2010 saw $274 billion in exports from the island, which is an alltime record. The economic boon comes not just from exports, but more and more from tourism as well. A limit on Chinese tourists to Taiwan was lifted earlier this year, and the response has been intense. In the year prior to August, 1.6 million Chinese tourists have contributed to the island an amount equivalent to .72% of its GDP.
This link has been brought even closer with the signing of the Economic Cooperation Framework Agreement (ECFA), the monumental trade agreement between China and Taiwan signed in 2010 that opened up postal, shipping, and direct air links and has further boosted economic ties between the two countries. The direct air links mean that travelers and goods no longer have to be re-routed through Hong Kong, and represent a large improvement in moving between China and Taiwan.
A Tradition of Entrepreneurialism and Craftiness
To evolve an economy as quickly as Taiwan has, a country needs capable traders and merchants. In the period after 1949, it was the educated and wealthy (perhaps standing the most to lose in Communist China) that fled to Taiwan. These individuals were among the most successful, erudite and well-connected in Chinese society at the time. In the period following their exile from the mainland, they quickly got their business feet under them and began to set up trades and attract investment from the United States. A quick history lesson, via Wikipedia:
Partially with the help of the China Aid Act of 1948 and the Chinese-American Joint Commission on Rural Reconstruction, the Republic of China government implemented a far-reaching and highly successful land reform program on Taiwan during the 1950s…
…Overall, although the reforms left some large landowners impoverished, others turned their compensation into capital and started commercial and industrial enterprises. These entrepreneurs were to become Taiwan’s first industrial capitalists. Together with refugee businessmen from mainland China, they managed Taiwan’s transition from an agricultural to a commercial, industrial economy.
Using Japan as a model for industrial development, the Taiwanese began to move from raw materials processing (such as rubber) to small consumer electronics and eventually automotives. It is in this development that you begin to see a seriously crafty business force begin to develop. A shrewd set of businessmen would learn an industry very quickly, often from foreign investors, and then begin to move slowly into independent business using the know-how paid for by international companies at the time.
For example, Piaggio, the Italian scooter company that makes Vespas, partnered with Taiwanese manufacturers to build Vespas from 1972 to 1982. Following that, the local PGO (a name pretty directly ripped off from Piaggio) manufacturer brand was established, and has thrived ever since. Their motorcycles are clearly descendent of Vespas and to this day have a distinct Vespa feel to them.
Local versions of Honda and Kawasaki were made in the form of Symco and Kymco, respectively. The crafty Taiwanese businessmen have taken these companies, also originally born as clones (ahem, China, sound familiar? More on this in part 2), and have quickly evolved them into respectable brands. For example, BMW, a company so well-known for its outstanding engineering, chose Symco to produce a series of engines for its own motorcycles.
This entrepreneurial agility continues today. The semiconductor industry, now such a prominent part of Taiwan’s economic makeup, was itself an evolution of the electronics manufacturing it was doing just a decade prior, and was seen as a transformation away from low-skill manufacturing that was later sent to China by those same Taiwanese businessmen.
Is it only a matter of time before it turns this nimble workforce loose on a furture evolution to another industry, such as biotech, or perhaps, software? More on this is part 2, where we look at the qualitative business and startup advantages of Taiwan.
[edit 11/22/2011: typos]