The purpose of strategic alliances in the domestic market is a matter that must be cleared up first.
Uniting for defense: Naturally, the primary reason for entrepreneurs to form an alliance is the presence of "an important enemy to attack." The problem is just that, in today's world of global competition, no matter whether our businesses are concerned primarily with distribution in the home or the overseas markets, they are all faced with the same pressures of international competition. Many of the people who initiate alliances thus point their finger at Japan and South Korea as being their solid opponents, and stir up the feelings of their fellow adversaries so as to form an alliance of opposition.
Wu Te-chuan, managing director of Lelon Electronics Corp., feels that, "We are still fighting amongst ourselves in front of our greatest adversaries!" He plans to start up an electrolytic capacitor alliance. Steve Chao, deputy director of the Visual Information Technology Division of the Industrial Technology Research Institute and associate director of its high definition television program, stresses that an alliance in his area has to have both grand and long-term ambitions. However, the most direct objective is to "help those domestic electrical appliance manufacturers who have been beaten into retreat by the Japanese to renew their market share."
Planning to advise domestic small and medium-sized enterprises next year on how to speed up their alliance making, Shih Yung-yu, deputy department head of the Chinese National Federation of Industries takes preserves as an example: Around 80 percent of Japan's preserves come from Taiwan and it is reasonable to say that Taiwan's businessmen have enough capital to seize the upper hand. Unfortunately, they have not united and the whole industry is still letting the Japanese take control and make ever increasing demands.
Of course, every business that takes part in an alliance has its own strategic considerations, but the long-term prospects of Taiwan's overall industry are still the most important consideration for all. Johnson Cheng of the lighting alliance once got more than 40 manufacturers and businesses to go as a group to Canton's Huitung area to prepare a special processing district. All the plans were finished when, at the eleventh hour, considerations arose that, "If we do this, then we will be taking away half the strength of Taiwan's lighting industry . . . After a few years on the mainland, all the technology will be absorbed by the mainlanders and they will take the lead." The brakes were applied.
Of course, businessmen today tend to ultimately go off and set up on the mainland, and Johnson Cheng cannot avoid wondering whether his doubts were well founded or not. But he still maintains that, no matter whether you go or stay, "The aim of the alliance is to raise the competitive strength of our domestic industry and not just to make survival easier and give up on any of our principles."
Buying and selling together--what's the problem? Then there is the fact that alliances of domestic manufacturing industries tend to emphasize research and development, while there are too few cases of alliances looking at procurement and distribution.
Of course, industrial upgrading is a pressing priority and the needs of traditional midstream industries in this respect are not that difficult to meet; all that is needed for results is investment. Moreover, to encourage research and development, the government has been very generous with its subsidies to this kind of alliance, and they also have the vast Industrial Technology Research Institute to provide support. The level of difficulties faced by such alliances is not very high and their results can be foreseen, which is naturally a great attraction to industrialists.
Regarding alliances aiming at procurement and distribution, they face a plethora of problems. "The scale of each company is different and their methods of cost accounting are different," says Jonny Kuo, president of K.S. Brotherbox electronics company. "If I buy a thousand and you buy a hundred, and we pay the same price, what is fair about that?" he asks. Then again, it might be discovered when the procurements are returned that the use of one particular item is excellent for producing a hot seller, then those who originally did not make an advanced order will try to cut in on the market and grab the said items. The result will naturally be disappointment and dissolution.
As for shared distribution, no matter whether it is a question of fixing prices together or sharing the burden of distribution costs, both can be very problematic.
Looking at the cutthroat price competition faced by an alliance of makers of the first generation of notebook computers, Sid Wang, manager of the marketing division of the Computer Planning and Marketing Department of the Industrial Technology Research Institute, points out that the fixing of prices by Taiwan's manufacturers is led by costs. He explains that "You just need the competition to price their goods at a minimal fraction above our costs and you can make sales." Moreover, every company has its own method of cost accounting, meaning that the risks appear of setting prices as low as half of what is a reasonable level.
Japanese businesses, on the other hand, set their prices according to the direction of the market. There is a general consensus on asking how to fix prices so as to maintain order in the market. Those who break this principle and bring disruption will have sanctions imposed by the guild and be forced out of the market. Of course this is of no benefit to the consumers.
Distributing as a set without conflicts: Jonny Kuo points out that reaching price agreements might not be difficult in the domestic market, but for the short-lived products of the computer export market, where prices change every three months, "If you want to wait for an agreement before you buy, three months will have already passed!" He also candidly says that Taiwan's businesses have a particular attitude of "not caring whether they make a lot or not very much, so long as they get the cash in their hands early on, which is probably due to the chaotic conditions of life in China over the millennia. The Chinese have a particularly acute lack of any feeling of security!"
The present desire to have distributive alliances that can find products of high quality but little possibility of product displacement is just a kind of short cut for businesses. For example, a few years ago the Yicheng hand-tools enterprise in Nantou made an alliance with eight manufacturers of hammers, pliers and various other tools. The products were designed to make up a complete set which was sold with excellent results.
After failing to penetrate the market of the European Community, Jonny Kuo wanted to attack the Japanese market by trying the well-tested Japanese method of "mother hen carrying her chicks," whereby one large factory takes the lead with smaller ones coming in vertically as a body to open up the market. He soon discovered that large domestic businesses are not only unwilling to help smaller ones but, on the contrary, they want to swallow them up. This has made him change to using the distributive system of the shops affiliated to the lighting alliance as a lead to achieve market penetration.
No need for compromise--just "leadership": The lack of leaders is another obstruction for domestic alliances. Taiwan has many medium- and small-scale enterprises, and those of their managers who go abroad love to play up the appearance of being the boss; they are all in the "gaffers class" and have money to spend, which results in nobody wanting to follow anybody else. Jonny Kuo points out that in an alliance everybody is also afraid of taking responsibility for its performance, while they are also preoccupied with looking after their own affairs. Nobody is willing to stick out their neck and become the leader. According to Johnson Cheng, alliance members all call themselves "compromisers," and when somebody comes up with an opinion there is always a large group in opposition, complaining that "taking part in an alliance, spending your own money is a trifle, but wasting time is really a shame!"
Philip Wang, director general of the Industrial Development Bureau of the Ministry of Economic Affairs, also says that those who take on leadership responsibilities for alliances overseas are often such people as retired entrepreneurs from the industry concerned, impartial accountants and professional managers who have prestige and far-reaching contacts in business circles. Apart from having the time to do the job, what is most important is that they can take an independent position in any disputes. If such people can take the lead role in planning and carrying responsibility, then the others will listen to their orders, might save themselves a lot of fruitless arguments and will raise the rate of success of their alliance.
Of course, if the leaders want to take responsibility then they should have powers, including the right to impose such penalties as might be included in the agreement of the alliance. Shih Yen-shiang, director general of the Medium and Small Business Administration of the Ministry of Economic Affairs, points out that most people in the early days of an alliance stress good will, mutual trust and feel that penalties create too many "wounded feelings." However, he also says, "Not everyone has good intentions. On the contrary, if they do not conform they can pull out at any time. Why inflict a punishment on yourself?"
Penalties apart, when those businesses which have not entered the alliance encroach on its advantages then the fellow businesses in that industry's guild should use their strength to impose sanctions. Overseas guilds have a lot of power. When a guild member engages in behavior such as piracy, counterfeiting or price-cutting, these can all be controlled. Johnson Cheng says with some passion that although Taiwan's guilds are "the most numerous in the world," they are both small and fragmented and are thus of little use.
Alliances must become institution alized: It must also be said that Taiwan's domestic alliances have only just started up and another obstruction they face is the lack of an overall cooperative environment, including the idea of having regulations and their institutionalization.
"Many people think it is in the nature of the Chinese race not to be able to unite, but I am vehemently opposed to such thinking," insists Shih Yen-shiang. Domestic enterprises do have enough of the right spirit to have a division of labor. When there is a contract stipulating a speedy exchange of goods, for example, components manufacturers will always help by speeding up their work. If there is some unfortunate withdrawal of goods, then everybody will share the losses.
It must also be said that there are 6.5 million small and medium-sized Japanese enterprises, and if you take the relative size of populations into account, they are more concentrated than are Taiwan's and on roughly the same level as Germany's. Shih Yen-shiang laments, "It is all too obvious that 'wanting to have a low but independent position rather than being under the control of others' is just human nature." The only problem is that the small chickens belonging to other people always arrive in well-ordered groups, and our small chickens just cannot keep up.
Why is this so? "Lack of coordinated laws and regulations is the largest reason," says Shih Yen- shiang. Looking at the arbitration councils formed by Japanese small and medium-sized businesses, their government has clearly regulated that any organization of more than four enterprises can enjoy favorable loans, tax breaks and other such benefits. The rate at which solo organizations receive government subsidies is very small by comparison. At present, Japan has 47,000 such councils, precisely because the government has used such measures.
On the other hand, our word "alliances," although it is very trendy, has from start to finish remained an ideal on the level of discussion only, whereas Japan's arbitration councils are formal organizations which can be flexibly divided and united as needs dictate. Moreover, cases of successful American strategic alliances that have divided and united as they need, have mostly been between medium- and large-scale enterprises and are thus not suitable models for our domestic medium- and small-scale businesses.
The model for alliances has not been fixed, their purposes are not clear cut and it is not known who can coordinate their rules and regulations. Moreover, some of the existing rules are not only of no help to the businesses taking part in alliances, but can even become obstacles.
For example, there is a law on cooperation that says only natural people can establish cooperative organizations and not corporate personalities. Of course this can prevent them from becoming trusts, but it also rules out the possibility to raise loans from the banks, which is a big influence.
Apart from this, the new law on fair trading contains the demand that all cooperative organizations between enterprises must first report to the authorities. Yet alliances must be based on the flexibility to divide and unite as they need and sometimes they are engaged in confidential operations that should not be exposed to public consideration. The fair trade law aside, fixing rules for cooperation between enterprises is an urgent task.
[Picture Caption]
Sharing costs and lowering risks--a corporate alliance is like a "strategic alliance." (drawing by Tsai Chih-pen)
Sharing costs and lowering risks--a corporate alliance is like a "strategic alliance." （drawing by Tsai Chih-pen）
