A three-pronged strategy to breakthrough Taiwan's "suffocating" economy

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Amid economic disruption in 2013, there seems to be a light of hope. Yet it is obscure, creating a “suffocating” atmosphere in Taiwan society. All business leaders are pondering an important question: “How to navigate their business in the right direction and breakthrough to achieve growth?”

This year PwC Taiwan again conducted its survey of Taiwan-based CEOs, including a questionnaire survey of 105 Taiwan-listed companies and in-depth interviews with the leaders of the top 12 local companies, to understand about their strategic visions and top business-related concerns.

The report reveals that 46% of local CEOs expect a similar weak economic outlook in 2013 as last year. Most agree that “expect the unexpected” has become a mantra among corporate leaders. The prospect of continuing economic volatility was the biggest threat to business growth prospects according to 89% of CEOs. But 50% were very confident about their growth prospects over the next 12 months, higher than the 36% rate in PwC’s corresponding global CEO survey. This suggest that Taiwan’s business leaders are more confident about growth prospects than their counterparts around the world.

The comparatively higher level of confidence among Taiwanese business leaders can be explained with reference to the external and internal environments.

Regarding the internal environment, local business leaders believe their companies need to become more resilient and also identify potential growth opportunities, such as new product and service development, manufacturing process optimization, business model innovation, and so on.

CEOs realize that companies will have no time to develop key technologies if they continue to position themselves as original equipment manufacturers (OEMs). Many Taiwanese companies follow the OEM business model and for years have faced competition on production capacity and pricing in their industries. Their businesses have been in decline since the financial crisis.

But every crisis presents an opportunity. Since 2008, large-scale manufacturers have re-thought their OEM and brand strategies and initiated reorganization plans, including the spin-off of OEM business units, the development of own brands, and the exploration of innovative business models.

Regarding the external environment, 75% of the respondents consider China to be the most important country for their business growth prospects over the next 12 months, and the second and third top destinations are the United States (47%) and Japan (25%), respectively Taiwan’s corporate leaders continue to intensely focus on the Chinese market. Large-scale OEMs with clear division of labor still need to cater to client demand and use China’s labor and services. Furthermore, China is gradually transforming itself from a manufacturing- and export-oriented market to one focused on domestic demand and imports as a result of its 12th Five Year Plan. Thus, the world’s largest market offers new business opportunities for OEMs. It is also a key market in the eyes of brand marketers when it comes to overseas positioning and business model innovation.

Regarding growth opportunities, 58% of the interviewed companies believe that market cultivation, both domestically and overseas, was the most important focus for their business, while 37% considered new product and service development to the major growth opportunity. In this context, businesses in Taiwan are adopting three common approaches to breakthrough and achieve growth:

  1. Target pockets of opportunity. Taiwanese companies primarily focus on the Taiwan, China and Southeast Asian markets to build their own brands and control end-channels to better understand market dynamics. To identify client and market needs, these Taiwanese companies are creating new business models and adding other services to extend their value chain.
  2. Focus on the customer. Taiwan business leaders value their customers. They invest in talent to focus on providing localized and differentiated services, and also establish key technologies and strengthen their R&D capacity based on their customers’ needs or competitive strategies.
  3. Improve operational effectiveness. Taiwan business leaders believe that streamlined operations and focused management are key to their core corporate competence. In terms of product, they implement a “subtraction” initiative by reducing costs, spending money only when necessary and pursuing process innovation. In terms of organizational operations, they abide by regulations and implement comprehensive risk management by considering possible types of risk—legal, ethical, reputational and tax. At the same time, they emphasize staff training and competitive salary increases to ensure the proper implementation of operational policies.

In addition to the above three approaches, Taiwan business leaders recognize that building trustworthy relationships with all their stakeholders is a pre-requisite for a sustainable enterprise. This means forming partnerships with upstream suppliers, downstream buyers and others; building a quality working environment for staff; creating value for customers to activate positive interactions; being accountable to shareholders and society by strengthening corporate governance, and pursuing sustainable development by giving back to society and the environment.

A healthy and competitive enterprise will grow and thrive in a stable, friendly, and effective business environment. This year’s Taiwan CEO survey shows business leaders wish the government can establish an open, effective, transparent and friendly business environment to enhance international competitiveness and have a forward-looking approach. They also hope the government can create new possibilities for Taiwan’s economy by establishing fair and effective policies in the areas of information management, taxation, labour, environmental protection and investment.

In conclusion, most business leaders in Taiwan are optimistic and confident about thriving in the disruptive economic environment in 2013. With China rapidly transforming from the world’s factory to being the world’s market, it will continue to be the number one destination for investment considering the large domestic demand generated by its immense population base. Taiwan businesses are well placed to capitalize on this trend given geographical and cultural advantages.

Facing economic uncertainty, businesses need to develop new approaches—targeting pockets of opportunity, concentrating on the customer, and improving operational effectiveness. They need to be agile and responsive to threats emerging from uncertainty, and hence develop adaptive capacity for the long run. Also the government may deliberate about how to establish a fair and effective environment to foster business growth and to break through the suffocated economy.

(This is a translation of an excerpt from the Chinese booklet, Dealing with Disruption—Business Breakthrough and Growth, published in conjunction with the release of PwC’s 2013 Taiwan CEO Survey.)