Weathering the Storm:Taiwanese Entrepreneurs in Thailand

Over the past four years, the financial crisis and sluggish economy have left a lingering fear in Thailand. In Bangkok's busiest and most affluent neighborhoods one sees scores of half-built high-rise buildings and unfinished highways. Signs explain that their construction has been "interrupted indefinitely."

By pursuing a strategy of "bucking the trend," the Oishi Group not only survived the recession but achieved remarkably fast growth with bridal portrait studios, restaurants, and bakeries.

The current situation

Fong Wei-fong, manager of the Thai-Taiwan Business Association (TTBA), points out that while most Taiwanese manufacturers are in the export business and stand to gain from a depreciated baht, in a sluggish economy they also suffer from declining orders. This is why half the Taiwanese companies whose main business is domestic are gone.

Thailand, a country 14 times the size of Taiwan, has traditionally been the first stop for Taiwanese investors in southeast Asia. According to TTBA historical records, as part of its southern drive in the 1940s Japan sent many Taiwanese to Thailand. After the war, many of them remained there. During the 1960s, Thailand began to support Taiwan's light industry and hired skilled Taiwanese professionals from the textile, garments, plastics processing, footwear, and food industries. Many of them later started their own businesses, often with considerable success, and quite a few of them were appointed heads of Chinese family associations. When the Taiwan government launched its "Go South" policy in the 1990s, large numbers of Taiwanese businesspeople flocked to Thailand with big sums of investment capital.

Taiwan is Thailand's third largest source of foreign investment. Approximately 120,000 entrepreneurs and more than 4000 businesses from Taiwan are currently active in Thailand, mainly in textiles, shoe manufacturing, computers, plastics, and other manufacturing industries. Taiwan's total investment in Thailand exceeds US$10.4 billion, closely trailing Japan's and the United States'.

Most Taiwanese businesses in Thailand stood tall during the financial crisis and economic recession. Export companies even succeeded in turning a profit by playing on exchange-rate differences. Chan Chuan-shui, deputy-director of the TTBA, puts it in a nutshell: "The survivors are all very resourceful." Companies in every sector, including the computer, metal-working, food, tourism, and service industries, found ways to stay in business.

Cal-Comp Electronics, a Taiwanese company that manufactures electronic components for fax machines, telephones, computer printers, modems, cell phones, and satellite-receiver systems, is a case in point. Sales Director Francis Fang observes that the financial crisis did not adversely affect Cal-Comp Electronics, because 90% of its products are for export.

Cal-Comp Electronics' Sales Director Frank Fang recounts that his company started out 12 years ago by buying a former biscuits factory and now has 6 plants and 6,000 employees.

Caught in a storm

In 1989, Cal-Comp Electronics bought a factory building that had originally been used to make biscuits and began investing in manufacturing operations in Thailand. Today Cal-Comp has six factories and employs 6000 people in the country. Last year, it exported 30 billion baht worth of goods. In January of this year it was officially listed on the Thai stock exchange.

Alphacast Co., Ltd., specializing in precision molding, also did well during the financial crisis. Alphacast began operations 13 years ago and now boasts a factory area of 120,000 square feet, a workforce of 1000, and an annual turnover exceeding 800 million baht. According to Huang Wen-i, chairman of the board, the financial crisis was a windfall for his company. Although corporate assets were reduced, profits grew by 40 to 50% annually. Moreover, after the financial crisis staff turnover declined substantially, which was also case of "getting good out of a misfortune."

Food & Drinks, which was first listed on the stock market seven years ago and once boasted an excellent working-capital position, is a classic victim of the Asian financial crisis. Having spent substantial sums in plant and equipment expansion projects, in 1997 the company lost 500 million baht in foreign currency. Fortunately, within two years it achieved a remarkable turnaround from loss to profit.

Food & Drinks produces fruit juice, bamboo shoots, eggplants and other canned vegetables, as well as processed meats, seasonings, and other products. Managing director Ronnie Lee has been living in Thailand for 32 years. Rather modestly, Lee says that Food & Drinks is a tiny company in the stock market. It posts an annual turnover of more than US$20 million. Because Food & Drinks is the only manufacturer in Thailand with the technology to sterilize its bottled products, it does not face a direct competitor. During the past two years, food seasonings have been the company's biggest seller. Fortunately, during the worst of the recession, Food & Drinks developed a new canned baby-corn product, which it succeeded in marketing to every Thai home. Food & Drinks currently supplies 85% of the Thai canned baby-corn market and 10% of the world market.

The tourism industry is in excellent shape and has not been affected by the financial crisis and economic recession. Lungpao Travel and Trading Co., Ltd., runs Thailand's biggest vacation resort in Pattaya. Chairman Chou Liang-pao explains that Thailand's highly developed tourism industry (9-12 million visits per year) helped Thailand survive the financial crisis and that the economic recession did not have a big impact on it.

Chou is a former investor in China's Hainan Island, where, by his own account, he was "routed." Says Chou, "I am a victim of empty Chinese assurances that 'Everything is fine, we can take care of it.'" Chou thought that investing in China would be easy because of a shared language with Taiwan, but he underestimated the significant practical problems of doing business there.

"Compared to more developed Southeast Asian countries, mainland China still offers plenty of space and opportunities for doing business, but there's no guarantee of success. Many see rich pickings, but cannot reach them," quips Chou.

By pursuing a strategy of "bucking the trend," the Oishi Group not only survived the recession but achieved remarkably fast growth with bridal portrait studios, restaurants, and bakeries.

The Oishi Group bucks the trend

During the financial crisis, robust export companies stood firm, but some companies had to fight very hard to keep their business going. A rather special example is the Oishi Group, which pulled through thanks to its strategy of "bucking the trend." In fact, Oishi experienced its fastest growth during the financial crisis. CEO Chiu Yuwh-chin recalls, "We were growing so fast that it was hard to keep track of where we were opening new stores."

The Oishi Group succeeded by means of an encirclement and occupation strategy. Chiu Yuwh-chin observes that as a recession deepens, business opportunities multiply, because goods and packaging become cheaper, and people are only too ready to sell the best business addresses. Recessions are ideal opportunities to go against a trend.

The Oishi Group, which many call an "upstart," owns 19 bridal portrait studios, six Japanese restaurants, seven Japanese noodle shops, and two coffee houses in Bangkok. Chiu Yuwh-chin started out as a bridal-portrait photographer himself. At first he considered starting a bridal portrait business either in China or Thailand. He chose Thailand not only because of its large population and the gentle nature of its people, but also because the language presented a big challenge: "I figured that the language problem made the threshold for entering the Thai market pretty high, and the likelihood of future competition pretty low." Seven years later, Chiu can pride himself on having built what locals call "the wedding street": Thonglo Soi 55, an alley off Sukhumvit Road.

Still, in a country where most people don't even earn US$2000 a year, the 30-40,000 baht wedding gowns go for is a veritable fortune. "In this business, everything hinges on what value you put on a wedding gown," explains Chiu. Running a bridal salon in Thailand is different in every respect from Taiwan, starting with make-up and design. In Taiwan people prefer a natural style, while in Thailand bridal salons offer a feeling of luxury and draw a good number of movie stars and famous personalities who come for wedding and family photos.

Having scored it big in the wedding-photography business, a little over two years ago Chiu Yuwh-chin branched out into the restaurant business, and opened Japanese, Chinese, and Thai buffet restaurants. Oishi quickly became a household word, opened six restaurants, and achieved a turnover of 80 million baht in one month. Chiu Yuwh-chin is currently planning to spread beyond Bangkok to Chiang Mai and Pattaya.

Oishi's noodle shops and bakeries have also done brisk business and actually thrived during the recession. Earlier this year, Chiu hired a master baker from Taiwan and began to sell moon cakes traditionally eaten during the Mid-Autumn Festival. In a stroke of marketing genius, Oishi combined traditional moon cakes with the fashionable concept of astrology. Eating "zodiac moon cakes" is said to ward off calamities and turn bad luck into good fortune.

(opposite page) Signs and posters on every wall urging workers on to do their best are a striking feature of the Thai industrial landscape. Throughout the 120,000 square feet of the Alphacast plant, there are signs to educate and encourage the workforce.

Asia's Switzerland

Oishi has made a big splash in Thailand with its success. Food & Drinks has also done remarkably well. Modern Dyestuffs and Pigments Co. is hard at work to obtain an ISO 14000 certification and Lungpao Travel and Trading is opening more spa resorts. In light of the success of Taiwanese businesses in Thailand, which are already diverse and are branching out even further, the Thai investment scene can certainly be said to have its advantages.

Thailand has always had stable foreign relations. Other than a war with neighboring Burma several hundred years ago, it has been a relatively peaceful country, which is undoubtedly why it is popularly known as "Asia's Switzerland." Besides its political stability, Thailand offers investors rich natural beauty and resources and no earthquakes, typhoons, or other natural disasters. It is also a country of devout Buddhists known for their gentle nature and a positive outlook on life. Anti-Chinese prejudice and hostility to Chinese businesspeople is unknown in Thailand.

What's more, Thai labor costs are very competitive. In Bangkok, for example, the minimum wage is 165 baht per day (between three and four U.S. dollars, depending on the exchange rate). Land costs are also low.

To promote foreign investment, earlier this year the Board of Investment of Thailand (BOI) introduced a "single window" to simplify administrative procedures to obtain visas, set up factories, and bring qualified professionals into the country.

Thailand and Taiwan do not have formal diplomatic relations, but they have come together in a big and active organization: the Thai-Taiwan Business Association. The TTBA not only maintains close relations with the Thai government and various local associations, but is also one of the 30 members of the Thai Chamber of Commerce's board of directors.

The TTBA currently has 14 branches throughout Thailand. The aim is not only to meet regularly and make business contacts, but also to extend friendship and give something back to the local community.

In celebration of King Bhumibol Adulyadej's 73rd birthday, in January of this year the TTBA and the Bangkok City Government organized a "Thai-Taiwanese Charity Bazaar" in the city's Benchasiri Park. Taiwanese businesspeople donated all sorts of quality products and gave their own proceeds to the Chaipattana Foundation, a royal charity. ROC flags on display in the park and a welcome address by the mayor of Bangkok amply demonstrated the influence of the Taiwanese business community in Thailand.

A second homeland

Frank J.K. Chen, Director of the Information Division of the Taipei Economic and Cultural Office (TECO) in Thailand, says that Taiwanese businesspeople are well respected in their host country: "Although Taiwan and Thailand do not have diplomatic relations, thanks to the efforts of Taiwanese entrepreneurs, the Thai government cannot ignore our influence."

Huang Hsien-yung, TECO representative in Thailand, remarks that since Taiwan and Thailand broke off diplomatic relations in 1975, political ties have naturally weakened, but trade and investment have not been adversely affected. The two countries have signed a bilateral aviation agreement, an investment-protection agreement, and a bilateral tax-reduction agreement. In collaboration with the Royal Project Foundation, Taiwan has also sent a team of agricultural scientists to northern Thailand to assist hill-tribe farmers in planting profitable fruit and vegetable crops instead of opium poppies. Launched 13 years ago, this project has not only reaped a rich harvest, but it has also cemented a bond of friendship between Taiwan and King Bhumibol Adulyadej.

Close contacts between Taiwan and Thailand extend to other areas as well. There are 91 scheduled flights a week between the two countries. Last year, Thailand received between 550,000 and 600,000 visits from Taiwan. Up to 140,000 Thai laborers work in Taiwan.

Chou Liang-pao, Chairman of Lungpao Travel and Trading, began investing in the Thai tourist and travel industry 16 years ago and believes that Thailand could become a second homeland to the Taiwanese. It is a stable and tolerant country only a three-hour flight from Taiwan. Thanks to satellite technology Taiwanese expats can watch TV from back home and feel as if they had not even left Taiwan. Moreover, in recent years the Thai government has encouraged senior citizens to immigrate. If you are 55 or older and have 800,000 baht in personal savings, you are eligible for a "senior-citizen visa."

Raising standards

Although Thailand offers plenty of business opportunities, its strict laws and regulations, particularly those governing tax administration, place tight restrictions on foreign businessmen. Fong Wei-fong, Manager of the TTBA, notes that his association often has to raise tax questions with the Thai government. Although Thai laws and regulations (including labor-standards laws, transportation regulations, and tax laws) are of a high standard, they are often not implemented rigorously. All too often businesspeople have to grease palms to get things done.

Another major problem encountered by Taiwanese entrepreneurs is the dearth of qualified technical personnel. Francis Fang explains that because technical education is neither sufficiently advanced nor widely available in Thailand, many Taiwanese companies hire professionals from Taiwan and mainland China.

Taiwanese entrepreneurs are taking a "wait and see strategy" to deal with the Thai workforce. One thing immediately strikes anyone who visits a Thai factory: on almost every wall there are motivational signs and posters in Chinese, English, and Thai. Richard Wu, President of Modern Dyestuffs and Pigments Co. points out that Thai workers lack a sense of initiative: if you give them more than one task at a time, they muddle things up, and if you fail to keep close tabs on their work, they drag their feet. Wu has brought back a moral-character education course from Taiwan. Every month he picks a topic to teach his workers and raise their general standard.

Alphacast Co. has also introduced a "morning staff meeting" system. Every morning, managers spend 10 minutes educating the work-force, reviewing the previous day's production output and quality, and speaking to employees about the corporate strategy and philosophy.

Cal-Comp Electronics, a major manufacturer, has set up a "Quality University" to encourage workers to pursue further education and training in their spare time. Those who achieve a certain level can expect to be promoted. Cal-Comp also runs a "Morning Training" program: every morning before workers report to the assembly line, 15 minutes are devoted to going over the previous day's mistakes and discussing how to avoid similar ones that day. Cal-Comp also hopes to reduce the risk of errors by simplifying technological processes and computerizing operations. Frank Fang believes that if Thai workers follow regulations in everything they do, it will prove easy to monitor and control production processes. Whenever a mistake occurs, its source will be easy to track down.

No place in the world offers a perfect investment environment. The ability to turn a crisis into an opportunity and a disadvantage into an advantage depends on making the best use of different industries, trends, and market needs. Taiwanese entrepreneurial performance during the financial storm in Thailand deserves everyone's admiration.