Moving to a Latin Beat--Taiwan Business Discovers Latin America

Inca and Mayan culture. Cowboys riding on the Pampas. The Panama Canal, bridging the Atlantic and Pacific oceans. Football, the tango, Latin passion, optimism even in the face of disaster. Besides these stereotypes, for most Taiwanese businessmen-"economic animals" as they are-Latin America is just a remote continent on the far side of the globe.

Chu Tzae Kang, headquartered in Kaohsiung, has been operating in Argentina for several years. It is already the world's largest specialized producer of peanut oil. The photo shows an edible-oil storage facility in Buenos Aires.

However, Latin America, being relatively virgin land with perhaps the highest potential in the southern hemisphere, is beginning to attract some worldwide attention, including in Taiwan.

When you open an economic map of the world, Taiwan's importance far exceeds its actual physical size.

This tiny island, accounting for a mere 1/4000th of the earth's land surface, through the efforts of its 21 million people, has become the world's 15th largest trading nation and 13th largest foreign investor. When you look in detail at the places where its economic power has reached, the list begins with areas closest to Taiwan-the PRC and Southeast Asia-then moves on, at the second level, to the US, Europe, Australia, and New Zealand. Latin America, meanwhile, accounts for a negligible proportion.

Going with the flow

In direct contrast to the tenuous economic links with Latin America, however, are robust diplomatic ties. For many years now, Central America is the region where states which have formal ties with the ROC are concentrated. Thus, the Taiwan government has established many incentives to encourage Taiwan businesses to invest there. In the last few years the most concrete examples have been the Caribbean Basin investment program and the plan for strengthening economic links with Central America. Also, business organizations like the Chinese National Association of Industry and Commerce frequently organize groups to visit the region. But results have not come up to expectations.

When you look for the reasons, inherent difficulties account for the better part.

Taiwan is an ocean away from Latin America. The languages are entirely unrelated. It takes at least an entire day to fly from one place to the other. In the past, politics in the region tended to be unstable, and many countries had heavy debt burdens. Thus, "The way Taiwan businessmen have looked at Latin America has sometimes been good, but sometimes bad. When you consider that mainland China is so close, and the market is familiar, it is the easiest place for Taiwanese to invest, and Taiwanese capital will focus there," says Liu Chung-yi, director of the Taiwan Trade Center in Miami.

But he notes that there has been an economic renaissance in the region that began in the late 1980s, a structural change driven by democratization and free trade policies. This is very different from the oil and mineral development of the past. Also, traditional industries which have set up a foundation in Southeast Asia and the PRC are looking for markets. At this juncture, Latin America is a region very much worth paying attention to.

"In fact, Latin America is a very suitable place for Taiwanese business to go and develop," says Hung Ming-ssu, vice general manager in the office of the chairman of Acer Computers, who has a uniquely well-informed view of Latin America. "Whatever it may be-local customs and human relations, business methods, client preferences, purchasing power-this region is very suitable for us."

Lots of consumer power

Hung, who was general manager of Acer's Latin American branch company for many years, offers this analysis: Although per capita income in Latin American countries is only US$2000-3000 per annum, 80% of the wealth is concentrated in the hands of about 5% of the population. Given that Latin America has a total population of 350 million, then there is a very wealthy group of well over 10 million. "These heavy consumers are almost equal in number to the whole population of Taiwan," he concludes.

In addition, there is a rapidly growing middle class. Though its members do not have a great deal of purchasing power, they are influenced by the US and absorb information rapidly, so they tend to want attractive, inexpensive items. "It's not just computers. In other areas, too, like bicycles and machinery, their needs fit just right with Taiwan's production." In countries like Mexico and Chile, Acer is the top-selling brand.

Moreover, in the larger states-Brazil, Mexico, Argentina-the population is concentrated in huge urban areas. Mexico has a population of 90 million; the capital, Mexico City, is home to 25 million of them. In Argentina, of a population of 33 million, 12 million live in the Buenos Aires metropolitan area.

In a market with such concentrated populations, establishing brand recognition is relatively inexpensive. Says Hung, "In contrast to the US, with its diffuse market, in Latin America most large- and medium-sized Taiwanese firms can afford the costs of marketing."

Market, transport, raw materials

It's not just the big companies with global strategies that should be targeting Latin America. Traditional small- and medium-sized firms can also profitably exist there.

"For processed goods for export, the closer the final market, the better. Transportation is faster and less expensive." Liu Chung-yi suggests that the various trading blocs in the world are an obstacle to global trading, and companies must establish production facilities to get inside a given trading area. For example, goods produced in Mexico will have a competitive advantage when sold in the US market.

Another case in point is the Fort Davis export processing zone, recently strongly promoted by the two governments. Taking advantage of the Panama Canal, this export processing zone is incredibly convenient for transport, with easy sailing everywhere-the US, South America, Europe, and Asia. The world's largest container shipping company, Taiwan's own Evergreen Lines, setting its sights on Panama's geographic advantages, has invested U$100 million in the junction of the Canal and the Atlantic Ocean to build a container port. Moreover, Evergreen plans to set up an air transshipment center in Panama, to develop its air freight business in Central and South America.

"The areas with the greatest potential for investment in Latin America are agricultural and industrial raw materials, energy, and minerals. It is very important to figure out how to cooperate internationally to move at the right time to assure supplies of the most basic materials," avers Liu. Taiwan firms can use cheap local raw materials to make semi-finished products for the Taiwan market. "Our food processing industry is very sophisticated. There would be a lot of room for its development in Latin America."

Chu Tzae Kang International is an excellent example. The Chu Tzae Kang company made its fortune in Taiwan selling peanut oil. Five years ago it invested in Argentina, which is a sunflower and peanut growing area. It purchased a local factory and farms, and it is now the world's largest company specializing in the production of peanut oil, and boasts the biggest sunflower oil factory in Southeast Asia.

Moreover, the 200-mile economic zone that extends out from Argentina's Atlantic coast is the most important source of cuttlefish in the world. Taiwan's long-range fishing fleet has its largest overseas base in Argentina.

A win-win situation

Adds Liu: "There are 32 countries in Latin America, and each is unique. You must adopt different strategies for each country." Foreign investment and economic diplomacy are of course important, but in the end specific business and management considerations must be weighed. Only then can Taiwan's economic might be translated into diplomatic strength, and a win-win situation for both business and foreign policy be created.

What conditions have caused the generation of Taiwanese businessmen who created the "miracle" in the 1960s and 1970s to make the decision to go all the way to Latin America? How are they deploying globally, breaking through difficulties, and developing new territories for the future? On the eve of the Panama Canal Conference, Sinorama has specially sent a reporter to provide first-hand information.

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Latin America is a newly rising market waiting to be developed. It's not likely that Taiwan business people, who have always had a nose for opportunities, will be laggard. The photo was taken in Argentina's capital of Buenos Aires.

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Acer Computers is the top name brand in Latin American countries like Mexico and Chile. And in the western hemisphere's largest free-trade area-Panama's Colon Free Zone-the International Commercial Bank of China has the largest operations of any bank.

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Chu Tzae Kang, headquartered in Kaohsiung, has been operating in Argentina for several years. It is already the world's largest specialized producer of peanut oil. The photo shows an edible-oil storage facility in Buenos Aires.