Understanding Taiwan

Cultural intelligence is key to achieving sustainable business outcomes. Being able to read cultural clues and respond appropriately helps develop relationships, communicate effectively and build trust. While cultural and communication norms are changing as virtual modes of engagement increase, core cultural values remain an important factor in business. Not understanding the particularities of doing business in Taiwan may lead to missed opportunities, delays and lost engagements.

Communication

Many Taiwanese people speak both English and Mandarin, especially in and around major cities. Taiwanese people tend to be somewhat formal, particularly in professional settings.

Usually, greetings involve a slight bow of the head, although handshakes are common when greeting close acquaintances or colleagues. It is a sign of respect to greet the oldest person in a group first. Taiwanese people consider it polite to use formal titles when greeting someone for the first time. Listening actively, being interested in the views of others, and showing empathy and respect are important factors to building understanding and trust.

In business environments, it is generally best to wait to be introduced to new acquaintances rather than introduce oneself. Business cards are usually exchanged after formal introductions. To show respect, use both hands to accept the card and take time to examine it before putting it away. In business discussions, Taiwanese people tend to proceed carefully and will often remain silent instead of openly voicing disagreement.

With the increasing use of digital communications, instant messaging platforms are widely used for business communications. In Taiwan, LINE is the most popular messaging app.

LINE

LINE is a ‘super app’ that provides instant messaging, video conferencing, file sharing and mobile payments. Having a LINE account is beneficial for business and personal communications in Taiwan. Many Western-owned messaging apps such as WhatsApp, which are commonly used for business communications in other parts of Asia, are less prevalent in Taiwan. Business contacts will often ask to connect on LINE via a digital business card.

Navigating culture in business – the importance of core cultural values

Relationships

Personal relationships are an integral part of doing business in Taiwan. Taiwanese people value long standing relationships and loyalty over short-term interactions. Business meetings are usually structured but may continue beyond their scheduled end time until a natural conclusion is reached.

Due to the importance of personal relationships, it is customary to engage in small talk prior to beginning business negotiations, particularly in informal settings. Food is a very important part of Taiwanese culture and sharing meals with business contacts is an important way to develop networks and deepen relationships.

Hierarchy

Understanding the influence of hierarchy on team dynamics, decision making, leadership styles and information flow is essential to successfully navigating Taiwan’s business environment. Taiwan has great respect for hierarchy, often defaulting to older members of a team to make decisions. However, younger generations are more likely to value individualism and freedom of choice over traditional hierarchical structures.

The importance of partnerships

Successfully navigating Taiwan’s business environment necessitates an understanding of the market and key stakeholders. It can be helpful to engage with local experts when conducting business in Taiwan.

Building a partnership requires having relationships that can facilitate introductions. A strong network of contacts is a starting point for productive partnerships. After identifying a potential partner, due diligence is essential. This involves an understanding of a company’s customers and clients, their reach across Taiwan, available support for product localisation and in-market reputation. It is vital to conduct reference checks and evaluate risks before starting any local partnerships.

Harmony is very important to building strong partnerships in Taiwan. Cooperation is valued much more highly than individual achievement and is essential to maintaining ongoing relationships. Additionally, it is beneficial for Australian businesses to keep in mind that business experience in mainland China does not always transfer to Taiwan, where customs, laws and regulations tend to be quite different.

The strength of a local partnership brings multiple benefits across phases of a commercial operation, from procurement and contracting to gaining credit. Importantly, a local partner can often assist with bureaucratic requirements, including company and product-specific registration processes. Building a long-term and sustainable partnership takes time and patience. Austrade can help identify potential partners in Taiwan (details can be found in Section 5.2).

Forming a partnership requires strong networks that can lead to introductions. For a more detailed understanding of business culture, business etiquette and building long term and sustainable partnerships to deliver strong business outcomes visit the Asialink Business Academy.

Taiwan offers significant opportunities for informed and well-prepared Australian businesses. However, doing business in any new market can involve a range of uncertainties. These should be identified and mitigated as much as practicable – and carefully managed once business operations are established.

Risk factors in Taiwan

Economic – including the potential for default (sovereign risk), fiscal, monetary and exchange rate risk.

Taiwan’s economic outlook is very stable, with an AA rating from Fitch Ratings and AA+ from S&P. This reflects Taiwan’s stable banking sector, relatively high-income levels and well-developed foreign exchange markets.

The New Taiwan Dollar (NTD) is largely stable. The Taiwan Central Bank manages exchange rates through a market-based float system with limited regulatory interference.

Potential mitigations for foreign exchange risk include forward contracts, foreign currency options and utilising foreign bank accounts and loans to manage currency inflows and outflows. Seek advice on the level of currency risk and potential mitigations.

Political – including the potential for political instability and restrictive policies.

Taiwan ranks 3^rd out of 137 jurisdictions on BTI’s Political Transformation Index. Locally, Taiwan has stable democratic institutions and well protected civil liberties. Domestic policymaking is largely guided by one of Taiwan’s largest parties, KMT or the DPP. The two parties occupy different positions on relations with China, presenting some uncertainty around economic opportunities and trade relations. While the political system is relatively stable, Australian businesses operating in Taiwan should be sensitive to changes in the political environment and understand potential risks.

Consider performing political risk due diligence for any major investments and be mindful of political affiliations of potential partners. For significant investments, political risk insurance may provide potential mitigation.

Corruption – including the potential for bribery, embezzlement and conflicts of interest.

On the Transparency International Corruption Perceptions Index, Taiwan ranks 24^th out of 180 jurisdictions. Like other advanced markets, Taiwan has implemented anti-corruption institutions and programs to improve transparency and reduce business risk. Large-scale corruption is relatively rare, and most cases are swiftly prosecuted. However, smaller bribes are not unheard of and are much less closely monitored by the Taiwanese authorities.

You should familiarise yourself with Australia’s foreign corruption and bribery legislation and ensure you have a robust anti-corruption strategy.

Regulatory – including the potential for regulations that increase the cost of doing business, reduce the attractiveness of an investment or change the competitive landscape.

Taiwan ranks 5^th out of 184 jurisdictions on Heritage International’s Index of Economic Freedom. Taiwan maintains robust institutions and an open business environment. Strong legal protections and well-developed property rights support enterprise development throughout the market. Accounting standards and regulatory practices are consistent with international norms, making it a relatively easy place to conduct business overseas.

A trusted local partner can help you understand, navigate and secure regulatory processes.

Intellectual property (IP) – including the potential for weak or underdeveloped IP protections and enforcement mechanisms.

The U.S. Chamber of Commerce’s International IP Index ranks Taiwan 20^th out of 55 jurisdictions. Taiwan’s IP framework supports organisations in quickly certifying new assets and provides high levels of technical assistance. Taiwan has also had a dedicated court to litigate IP disputes since 2008.

Registration for patents, trademarks and copyrights can help mitigate IP risk. Continual product development and brand updates can deter counterfeiting. There are also technology solutions such as RFID tags and QR codes to authenticate products.

Geopolitical – including the potential for trade relationships, security partnerships and territorial disputes to impact business activities.

Taiwan’s business environment is shaped by its relationship with China and other regional ties. China has a stated ambition to reunify Taiwan with the mainland and is using military, economic and diplomatic pressure to advance that goal. Cross-strait tensions have risen as China has escalated its rhetoric and military activities. Taiwan’s trade arrangements face risks driven by global geopolitical tensions and uncertainty. Although Taiwan is a member of some international organisations, it faces constraints in these settings due to China’s ability to restrict its participation in multilateral proceedings.

Boards and leadership teams should familiarise themselves with geopolitical issues that may impact your business and, if relevant, develop plans in response to potential scenarios. You may also wish to seek external advice.

Supply chain – including the quality of infrastructure, levels of corruption, corporate governance, supply chain visibility and timeliness.

FM Global’s Resilience Index ranks Taiwan 50^th out of 130 jurisdictions. As a global leader in semiconductor manufacturing, Taiwan sits at the heart of global supply chains. Taiwan is an export-led economy that also imports many of its manufacturing inputs, including energy, leaving it vulnerable to external shocks and disruptions. Risks in Taiwan’s supply chains may arise in conjunction with geopolitical challenges, particularly in the Taiwan Strait and should be monitored closely.

Advice from a local partner can help to navigate a novel logistics environment to ensure you are able to take full advantage of Taiwan’s sophisticated environment while mitigating the risks of disruption.

Climate – including the potential for extreme weather events and rising sea levels to impact trade routes, supply chains and infrastructure.

Due to its geography, Taiwan is vulnerable to the risks of climate change. In particular, changing regional storm patterns increase the risk of water scarcity, severe typhoons and coastal flooding, all of which pose significant threats to manufacturing capabilities and supply chains. Although Taiwan is investing heavily in renewable energy and energy security, the island is still largely powered by fossil fuels.

Identifying and mitigating climate change risks–including their socioeconomic consequences–should be embedded in all elements of your strategy and operating model.

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