Japanese companies see Taiwan as bridge to China

November 10, 2013 6:30 pm

Japanese companies see Taiwan as bridge to China

By Sarah Mishkin in Taipei

When Japanese e-commerce company Rakuten decided to expand overseas, it looked first to Taiwan, whose close ties with Tokyo have long made it attractive to Japanese companies eager to escape slow growth at home. “You know how bad the economy has been in Japan – it has only recovered recently,” said Ejiri Yuichi, Rakuten Taiwan’s chief executive, of an economy that has been struggling to restart inflation after years of overall meagre growth. With real wages largely flat, “especially in the service industry, it has indeed been a difficult time”, he said.Rakuten’s experience in Taiwan – after some false steps, the shopping site launched in 2008 became a big success – helped put it on a path for international growth. It has since become one of the world’s biggest e-commerce groups, with sites from France to Malaysia, including a stake in the popular social network Pinterest.

The path taken by Rakuten is one chosen by more and more Japanese companies, who see the nearby island of 23m people as an accessible escape from Japan and a potential bridge to China. Recent troubles in relations between China and Japan have added to this trend.

Even as Shinzo Abe, Japan’s prime minister, tries to stimulate consumption and investment at home, a record number of Japanese companies are turning to Taiwan to expand.

More than 600 Japanese businesses invested in Taiwan in 2012, a historical high and up 40 per cent on the previous year, according to Taiwanese government statistics. Nearly 500 Japanese companies invested in Taiwan in the nine months to the end of September, many of them small service groups such as restaurants.

For those companies, Taiwan has attractions that cannot be easily found elsewhere.

Unlike China and South Korea, which bear bitter memories of Japanese attacks in the wars of the last century, Taiwan was a favoured colony of Tokyo’s for the 50 years before the end of the second world war. Japan and Taiwan’s commercial links were reinforced by their subsequent development as electronics producers.

Taiwan’s close business ties with mainland China – where anti-Japanese sentiment following disputes over islands in the East China Sea turned into violent riots last year targeting Japanese-owned businesses – also help. “With the current tension between China and Japan, Japanese companies are afraid to enter the Chinese market,” said Mikio Higashiyama, head of the Japan Chamber of Commerce in Taiwan and local chairman for trading company Mitsui & Co. “Japanese small and medium companies . . . can’t really do business freely because there are lots of restrictions, and things in China can be really complicated.”

China is Taiwan’s largest trade partner, accounting for about 40 per cent of all Taiwan’s exports. With linguistic and cultural barriers relatively low, hundreds of thousands of Taiwanese have experience living and working on the mainland, doing everything from managing factories in Chengdu to running restaurants in Shanghai. Political tensions remain, as Beijing claims sovereignty over Taipei, but are less volatile than in the past.

“We have had to hire more people than we expected,” said Wang Ling-Jie, the Taiwanese general manager of a Japanese technology group that recently opened a new office in Taiwan to handle its sales in China. For some companies, Taiwan also works as a test market for the mainland, said Mr Higashiyama, allowing them, for example to see how best they can adapt menus for Chinese tastes.

But Taiwan is no panacea for Japanese companies in search of easy returns. Its economy is not growing much faster than Japan’s, registering lower than expected growth of 1.58 per cent last quarter.

The market in big cities such as the capital Taipei is also highly competitive. Many small incoming entrepreneurs have found business “not very successful, not very miserable, just so-so”, said Kenji Okuda, a Taipei-based partner with PwC who advises Japanese companies. The lure of southeast Asia, where consumption is rising but costs remain low, is also strong. Some larger industrial groups have moved to invest there instead of Taiwan.

For some, however, a “so-so” business in Taiwan is better than the alternative at home in Japan.

Yasutoshi Azuma runs a tiny boutique and café in downtown Taipei. In his native Osaka, he says, working with wholesale distributors for the ceramics and homewares he sells would have been nearly impossible, as they already have distribution deals locked up in most regions.

Taiwan can be bureaucratic at times, but the market in his niche is less crowded than at home, and his costs for everything from utilities to salaries are far lower. In Japan, the 30-year-old said, “it is hard to set up a new small shop . . . there are too many already.”