TaiSugar--New Look for a New Century

In late autumn in Houpi Rural Township, the warm gentle sun of the Chianan Plain drenches the fields surrounding the Wushulin sugar refinery, and "half-scale" narrow-gauge trains crawl along the tracks at ten kilometers an hour. Fine wrinkles cover the sun-darkened face of Chan Yung-jui, the engineer. Out over the Daimler diesel engine imported from Germany, the track stretches into the distance amidst rice paddies and six-foot sugarcane stalks standing against the breeze. Engineer Chan lights up a Long Life cigarette and gazes out at the long-familiar sight.

On the weekends domestic tourists ride on 15 converted sugarcane trains and are truly delighted by the local everyday scenery. When the train cuts across Provincial Route 172 the tourists enthusiastically wave to the automobile drivers stopped at the crossing. The reborn sugarcane train ambles along at a speed out of sync with the times as it travels into the crisscrossing field pathways. Those at the crossing wait patiently. This, after all, is the Chianan Plain. For generations it has been the granary that has fed Taiwan. What's the harm if things move a bit slowly?

For Chan Yung-jui and many of TSC's employees, the image of trains in the cane fields is an indelible part of their memories. After the post-war "foster industry through agriculture" period and after decades when TSC earned a great deal of foreign exchange, only very sensitive people would be shocked at the change that has come over TSC. Chan Yung-jui, who has spent almost his entire life in the cane fields, says, "Really, it is hard to believe the sugar refineries are all closing down one after the other!"

Orchid raising is a quite specialized undertaking. It requires constant experimentation and observation, and a decision to market a particular variety depends on market factors like desirability. Although the pink flower in the photo is quite beautiful, it has not yet been given the approval of Hsu Tsung-yao and thus a decision on its marketing still lies in the future.

Serving the "motherland"

In 1911 during the Japanese occupation, the privately owned Toyo Sugar Refining Company set up the Wushulin factory. In 1926 it came under the control of another firm, the Meiji Corporation, which placed it under their Hsinying factory. At the height of its production the Wushulin plant pressed as much as 1,600 metric tons of cane daily. Not only did Wushulin have a huge capacity, its products were of excellent quality and were specially designated for use by the Japanese royal household. As a result, the plant was much praised by the colonial "motherland."

Following the occupation, the Chinese government took over the four major sugar corporations of that period and created the Taiwan Sugar Corporation, and Wushulin again experienced several glorious decades. Even the popular-selling soft drink brand of the post-occupation period, Hey Song, used Wushulin sugar.

In retrospect, TSC's decline from its heyday was rapid. In 1983 TSC conducted a profit and loss review and decided to close down operations at Wushulin. The web-like sugarcane railroad network gradually sank into oblivion. Today, following Taiwan's entry into the WTO and the threat of imported sugar products, the sugar industry has declined even further. The company-operated farms and the "contract production" sugarcane fields, which in the past were connected by the sugarcane railroads, may very well continue to go out of production.

In fact, it is not only Wushulin in Tainan County. From a high point of some 40 sugar refineries, the overall number has gradually diminished. It is estimated that by the end of 2005 the domestic production of sugar will have declined to 120,000 metric tons. The company-operated farms of TSC will be responsible for 70,000 tons and the contract production output will be 50,000 tons. By that time the total area under sugarcane cultivation will have been reduced to 16,000 hectares, and of many sugarcane pressing plants, only Huwei, Nanching, Shanhua and Nanchou will remain.

No longer needing to supply water for sugar refining, Jianshanpi's scenic beauty was destined to become the lead in TaiSugar's touristic offerings.

Selling off the family silver?

Data from the Ministry of Economic Affairs' State-Owned Enterprise Commission shows that at the end of 2002 the mighty TSC chalked up operating losses of NT$1.97 billion. Only because these losses were offset by profits from property transactions was the company ultimately able to squeeze out a pre-tax profit of NT$2.19 billion.

Operating as a state-owned enterprise for many years, signs of TSC's decline have been in the air for some time. From 1981 to 1990 the domestic price of sugar stabilized at NT$27 per kilo. It was then rapidly pulled down by the international price. The bottom of NT$10.50 per kilo was finally reached in 2000. After this TSC adopted a policy of keeping in step with the international price, maintaining an average price level of about NT$14 per kilo.

Nevertheless, to preserve the sugarcane farmers' standard of living, TSC had for several decades been buying sugarcane at the same price level, stabilized at around NT$24 per kilo. In other words, for years TSC had been engaging in business practices that guaranteed failure.

Losing money year after year, and being the "number-one land owner in Taiwan," TSC was like fallen nobility, possessed of rich ancestral lands but unable to maintain them and consequently causing others to cast covetous eyes on its property. Luckily just at this juncture, TSC awoke from its sweet dreams of yesteryear and moved into action.

Overcoming numerous difficulties, TSC began to plan for privatization in 1995. Step by step it encouraged contract sugarcane farmers to "go out of production," and this year it initiated the breakup of the corporation into eight divisions.

The photo shows the "Taisuco Darling," created at the Wushulin Orchid Center in 1999. This orchid has done extremely well in the Japanese market and has been registered by the British Royal Horticultural Society.

A complicated background

In line with established government policy, TSC resolutely adopted a privatization program. But in light of all the controversy in recent years surrounding the privatization of BES Engineering Corporation, Chunghwa Telecom, Taiwan Motor Transport Corporation and the Taiwan Railway Administration, the road to privatization for TSC, an organization with a broader scope of operations and a more complex structure than the others, will presumably be very difficult. TSC union board member Weng Wan-fu argues that without an understanding of TSC's historical role, it is impossible objectively to handle TSC's current problems.

From 1952 to 1964 TSC sugar exports headed the list of Taiwan's overseas sales. During the initial stages of the island's development, TSC exports represented at their high point 74% of foreign currency earnings. Having seen the ups and downs of TSC, longtime employees like Chan Yung-jui and Weng Wan-fu have a heavy heart that is difficult describe when thinking of the glory days of the past.

From the "money tree" it once was, TSC has become the "burdensome stepchild" it is today. In addition to the restructuring and refocusing of the domestic economy, the primary element that perplexes outside observers about TSC is its many and varied business commitments.

"From the time of the Japanese occupation when it served the colonial 'motherland' down to the 1950s and 1960s when it earned foreign exchange, the state-owned TSC served the government," says cultural worker Tseng Chi-hsien, a longtime observer of TSC's development.

Tseng points out that after World War II the United States guided Taiwan's industrial development. The US manipulated international sugar prices to undermine the Castro regime on Cuba, lowering the price of sugar to attack the economy of that major producer. The International Sugar Agreement, introduced by the US at that time, required Taiwan to increase its production of sugar to a yearly 700,000 metric tons to meet the demands of the international market. To meet US requests, although rice prices were higher than those of sugar at the time, Taiwan set up the Sugarcane Farmers' Extension Service in 1965. This organization continually made use of fertilizer loan credits, cash loans, and guaranteed loans to encourage expanded sugarcane production.

Tseng Chi-hsien says, "It is very clear. TSC's capital investment was already too high from the beginning yet they kept on raising their production and expanding the area of cultivation." Politics was holding back the "invisible hand" of the market. The market's capacity to make supply and demand adjustments freely had been lost and the groundwork was laid for the many problems that beset TSC later on.

Associate Professor Wang Shao-heng of the Economics Department at National Chengchi University says, "TSC was uneconomic." He points out that even when the economy had taken off and before the price rises occurred, capital investment in sugarcane cultivation and personnel already exceeded that of Cuba, Java and other areas. "If TSC were a closed-off economic entity then perhaps an adjustment of sugar prices would have been possible. But Taiwan has long relied on foreign trade and today we have entered the era of open competition. Importing sugar makes rather a lot of sense now, and the prohibition against its importation should have been abolished long ago."

(left, right) With extensive land holdings, TaiSugar was intent upon turning itself into a major player in the service and logistics industries. The photos show a TaiSugar filling station and the Sugar Mall in Jente Rural Township, Tainan County.

Making a name with orchids

Its core business no longer feasible, TSC has tied its future to the development of ancillary product lines. In 1983 after it closed down, "Wushulin the orchid factory" replaced "Wushulin the sugar refinery." This past June TSC set up an Agribusiness Division. In addition to growing a variety of standard ornamental plants, the company excels in the production of the moth orchid (Phalaenopsis).

Wu Yi-ju, former "factory manager" now turned "technical expert" following the establishment of the Agribusiness Division, laughs and says, "Other people spend a lot of money raising orchids, we make a lot of money raising them." Wu Yi-ju joined TSC after graduating from the Department of Horticulture at National Chung Hsing University. Although possessing a solid academic background, he learns from the employees how to transplant the orchids from the 2.5-inch flowerpots to the 3-inch ones, to water them, to package them and to select them. In addition to his love of horticulture, it has been a sense of pride in what he is doing that has been the biggest factor in keeping him in the greenhouse for the past eight years.

"People make fun of us for being 'unorthodox,'" says Wu Yi-ju-because no one has his feet up reading the newspaper at work and no one is ever "AWOL." Add to this the technical excellence of the product and it is easy to see why the TSC orchid business is known the world over. "The most important thing is that people's impression of TSC has changed, and this goes for those inside the company as well as those outside it. The TSC brand has become the benchmark for Taiwan's orchid industry," says Wu.

(above, below) Jianshanpi's "Drunken Moon Pavilion," with its windows giving full view to the mountain and water panorama, is a scenic match for the Hanpi Building at Sun Moon Lake.

Hidebound agricultural thinking

The success of the orchid business may cause people to sit up and take notice, but the old impression of TSC with its lack of competitiveness and psychology of "everyone eating from the same pot" has deep roots and dies hard. And except for a few achievements, capital invested in new projects has run into many snags. Among the latter have been the "Million" convenience store chain and the TSC gas stations, both consistent money losers that have given substance to outside criticism.

"At the TSC gas stations, employees really don't want any customers," says TSC union board member Weng Wan-fu. Personnel problems in TSC, as in all state-owned enterprises, can be summed up in one sentence: they all result from violating the most basic management principle, that of "motivation." The management model is stuck in the past. One day there might be a constant stream of customers, but if the next day there are none, well, everyone gets paid just the same. As for the constant loses suffered by the "Million" stores, not only was the management team unable to come up with a solution, they just sat there and watched their losses mount up.

"But even worse, who came up with and carried out the plan? If there's a loss, isn't anyone responsible?" questions Weng Wan-fu.

Despite the major personnel cuts of recent years, TSC's employees still number as many as 5,500. With all these mouths to feed, TSC still has huge land holdings and a product line of 480 items. Its overheads are enormous. The company financial report has become an impenetrable tome. Even Wu Nai-jen, who took over as chairman of the board in 2002 and resigned in December 2003, admitted he didn't understand it.

The best solution is to break up the huge monolith and allow the various units to become independent profit centers. In keeping with this concept, TSC has set up divisions of animal husbandry, biotechnology, sales, hypermarkets, agribusiness and petroleum products. In addition to a further rationalization of the organizational structure, this move represents a solid recognition of a multi-faceted business model for the future.

(above, below) Jianshanpi's "Drunken Moon Pavilion," with its windows giving full view to the mountain and water panorama, is a scenic match for the Hanpi Building at Sun Moon Lake.

Amazing market for new products

Breaking up the huge corporate monolith was like making an elephant dance. There was no end to the conflicts and clashes. Luckily, this transformation gradually led to TSC seeing the light at the end of the tunnel.

Since the year before last when TSC started promoting its biotech products, the market success of its skin care products, like collagen cream and placenta extract, have been amazing. From 2001 with sales at NT$810,000 gross receipts grew in 2002 to NT$48.9 million. In the first eight months of this year sales reached NT$45 million. This year's total sales receipts look to top out at NT$83 million, to give an increase of over 100-fold compared to three years ago.

TSC's biotech products started with alcohol, which had a long history. The success of its collagen product not only benefited from specialized technology but was better priced compared with similar products on the market. In addition a health supplement derived from the fungus Cordyceps sinensis hit the market almost simultaneously with the collagen cream. Within two short years these products made TSC some NT$400 million.

Since 1995 when Yang Po-wen, executive director of TSC's Biotech Division, began to lead the research team at the TSC Research Institute to develop Cordyceps sinensis, the price of sugar has been NT$14.5 a kilo, he says. When one compares this to the NT$20 price of a 0.4 gram capsule of Cordyceps, it is quite obvious where TSC's future lies.

from the very beginning of operations.

Technology transfer can't fill the gap

Aside from the biotech products that have gradually won such a name for themselves in the market, TSC has jumped into the service industry, has made use of its prodigious land holdings and has developed leisure and tourism and logistics businesses. The Jianshanpi Resort that opened in January of this year and the "Sugar Mall" that began test operations in September in Jente Rural Township, Tainan County, have both met with good responses.

Since it opened its doors, the Jianshanpi Resort has had a 60% occupancy rate. Hsiao Chi-liang, the deputy general manager, who himself admits to being still learning about the leisure industry, hasn't had an extended vacation in the two years since he took over his responsibilities. A few days ago he caught a cold and was feeling very weak. After getting an intravenous drip at the hospital he hurried back to the resort.

The Jianshanpi reservoir was originally built in 1934 to supply water for sugar production at the Hsinying and Yenshui refineries. After the refineries ceased operations, the location moved into the leisure and tourism field. The resort combines traditional Chinese gardens with the beautiful scenery of the reservoir and so far this year has drawn a stream of 150,000 visitors.

The scenery at Jianshanpi is gorgeous. Several small wooden buildings border the water and are a scenic match for the old Hanpi Building (now the site of the Lalu Resort Hotel) on the shore of Sun Moon Lake. Lin Yung-tsun, manager of guest services, originally had a position with TSC. After two years of retraining at the Food and Beverage Management School of Kaohsiung Hospitality College, he followed Hsiao Chi-liang and embarked on a career in the leisure and tourism industry. Lin says that in the past at TSC November to March was sugar-making time. This was the only period during the year they were really busy. The rest of the time people just "twiddled their thumbs." "Now we have to pay attention and work hard more than eight hours every day," he says.

Watching the birds flying high as dots against the sky and the painted pleasure boats as they slowly traverse the sparkling water of the lake, one realizes that the Jianshanpi area, having given up its burden of supplying water for the sugar refineries, is blessed with truly unique characteristics. But resort management is a highly specialized profession and so TSC has called in Kang Fu-hsiung, a man with many years of experience running five-star hotels, to guide Hsiao Chi-liang, Lin Yung-tsun and other re-trainee TSC employees in their work.

Professional managers having been brought in for Jianshanpi, and the developing Logistics Division is now looking for a team to come in and institute a total transfer of technology for it too.

TSC designed its Sugar Mall with a cavernous shopping space and a giant-sized parking lot in an attempt to reproduce an American-style suburban shopping center, and from the day it opened its doors the mall had a 90% lease rate. To make it convenient for customers to drive their cars to the mall and do their shopping, they provided a parking lot of 38,800 square meters that can hold 1,000 cars.

To make up for the lack of experience of TSC's Logistics Division, mall management engaged a consulting firm selected by TSC that not only helped design the mall but also sent out a number of specialists in the initial stages to guide TSC volunteer re-trainees and new hires. In addition, they did some "technology transfer" work with the staff as well.

The TSC Evergreen Laurel, which opened in late 2003, has used this same model. The land and capital are entirely provided by TSC while the upper-level management team were sent in by the Evergreen Laurel Hotel Group.

(left, right) With extensive land holdings, TaiSugar was intent upon turning itself into a major player in the service and logistics industries. The photos show a TaiSugar filling station and the Sugar Mall in Jente Rural Township, Tainan County.

Responsibility

Because the "profit center" approach has been adopted, each business entity feels the pressure of being responsible for its own profits and losses and each has shown an unprecedentedly positive attitude. Jianshanpi Resort deputy general manager Hsiao Chi-liang frankly admits that the pressure for results is tremendous.

"To open up the first phase of the Jianshanpi leisure business required a capital investment of NT$240 million. If we can't come up with any results, well, then there's no sense talking about any second planning phase," he says.

In addition, an in-house competitive relationship has emerged. For example, the TSC's Chih-Shang Pastoral Resort located in Chihshang Rural Township, Taitung County, famous for introducing Mongolian yurts as an accommodation choice for its guests, consistently ranks as the top dog in TSC's leisure and tourism business, but with the coming onstream of the Jianshanpi Resort this year, it is already feeling the pressure.

In the face of Jianshanpi Resort's challenge, the Chih-Shang Pastoral Resort, with its 400 hectares of land and beautiful grassland scenery, introduced hippos, vicunas, antelopes, and zebras from the Taipei City Zoo this past June to enhance the pastoral experience.

Discovering a new asset

Although former chairman Wu Nai-jen repeatedly pledged not to reduce staff before privatization, TSC employees continue to feel unsettled. Following a wave of personnel reductions, TaiSugar executives feel the current level of 5,500 is still too high. A new wave of reductions seems inevitable. Under assault from the outside world, the young stalwarts of TSC are still full of energy, eager to retrain and become the vanguard of the various business divisions. At this critical juncture a TSC prepared to do serious business must learn how to cherish and nurture its most valuable asset-its people.

"We're not afraid of privatization," says "professional gardener" Hsu Tsung-yao, who for the past ten years or so has staked out the domain of the moth orchid for TSC. Just as with the establishment of the various business divisions, Wushulin's technical personnel rely on their own individual ability and are all in favor of privatization. "If there are problems, it will be the way things are set up and planned and, most important, everything will depend upon whether the management team is professional, whether it really understands this market."

At a recent board meeting the creation of a Sugar Division was once again postponed. Chengchi University professor Huang Shao-heng, who advocates the breakup of TSC, says that since a breakup is not a politically feasible choice, the next question is how to go about it. He asks, "Who will take over the huge assets of a TSC seeking to privatize? After an era when the KMT party enjoyed certain economic privileges as a result of being the party in power, will we now see a future where the ruling party will once again enjoy these same privileges and become the specially designated entity that will benefit from TSC assets?"

The transformation of TSC has raised the important issue of social justice, and also revealed its complexity.

When the TSC Sugar Mall first began test operations in Jente Rural Township, the new and beautiful shopping center and the thickly planted fields of sugarcane faced each other across the county road. The TSC filling stations and natural gas stations at the side of the cane fields rose into the evening twilight sky. Such a scene is silent testimony to what TSC has come to stand for today-a colossus that has boldly moved from agricultural processing into the manufacturing, logistics and service industries.

Huge billboards in English crowd the road along the sugarcane fields, loudly advertising the TSC Sugar Mall-yet they soar majestically into the air. Can TSC escape the thinking of the agricultural era and re-embrace the market in a completely new guise? There is still a long road to travel.