Red tape and a lack of capital are restricting the growth of Taiwan's Internet companies and if the government doesn't act soon, these companies risk being bought out by foreign competitors, warns one market player in the industry.
The government needs to reduce the regulations that prohibit local Internet businesses from going public, or it will risk seeing these firms snapped up by foreign companies or rich consortia, said Curtis Wu (吳世廷), general manager of CurioBox Interactive Marketing Co Ltd.
"Without having the capital market to back them up, local Internet companies will be taken over by wealthy consortia, especially foreign Internet companies," said Wu.
"[That's] because foreign companies can secure money by listing in their countries. Having money in their pockets, they can come and buy us," said Wu, citing the recent purchase AsiaAD.com by the US-based Doubleclick.com, a leading advertising solution company.
Government regulations require companies to have been in business -- and turning a profit -- for at least two years if they wish to trade on the over-the-counter market (OTC).
The profitability requirement is a lethal hurdle as no Internet company in Taiwan has broken even so far, although profits have been improving in recent years. Such stringent requirements also hurt the companies' efforts to expand overseas. "Take Taiwan's Yam and the US' Yahoo as examples. Both started around the same time. Now, Yahoo has become a worldwide company but Yam is still a local Internet company," said Wu.
Even worse, says Wu, is that the biggest foreign predators would be China-invested Internet companies.
Although the government prohibits companies with Chinese investors from buying local firms, businesses could register in a third country. Wu said China.com recently purchased Taiwan's ricesalad.com through a subsidiary.
Wu says the best solution is for local Internet companies to go public on foreign stock exchanges, especially NASDAQ, where the listing requirements are more lenient.
Yet it's still not easy for Taiwanese companies to be successfully in listing on NASDAQ. Because of the small size of the Taiwan market, it's difficult to convince foreign investors of a company's profitability.
"Without being able to list on local and foreign bourses easily, local Internet companies are doomed to be taken over by foreign ones," said Wu.
According to Jardine Fleming Taiwan Securities, the quickest way for local Internet companies to go public in Taiwan is to push the government to include the sector on the list of high-technology industries, thus bypassing the profitability requirements.
However, "that's not easy either," said an official at the securities' underwriting department.
"As an emerging industry, it is subject to direct government supervision authority under the Ministry of Transportation and Communications, which doesn't have the experience of handling such cases, so that it will take time as well," the official said.
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