Wed, Feb 16, 2000 page18

• A lucrative opportunity

  INVESTING IN CHINA Taiwanese firms, especially those that make daily necessities, are poised to do well as China further opens its market to the world

  • By Cybil Chou / STAFF REPORTER
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  As China further liberalizes its markets in anticipation of its WTO entry this year, veteran Taiwanese businessmen view the country as a lucrative opportunity.

  Lu Tieh-wu (盧鐵吾), president of Bridge Information Group of China (??國宏橋資訊企業集1?, is one such businessman. Lu also heads up the Dalian Association of Enterprises for Investment of Taiwan (?j3s台商投資企業協會), a group of Taiwanese businessmen in northeastern China.

  Lu spoke with Taipei Times staff reporter Cybil Chou about his experiences doing business in China and the opportunities and risks in investing there.

  

  Lu Tieh-wu, president of Bridge Information Group of China and the Dalian Association of Enterprises for Investment of Taiwan, said that traditional manufacturers that rely heavily on efficient supply chains will find it difficult to operate in China. However, firms that make daily necessities could do well.

  PHOTO: CHEN CHENG-CHANG, TAIPEI TIMES

  Taipei Times: Why did you decide to set up business in Dalian?

  Lu: I set up my (hardware and software) system integration designs and Internet business in Dalian in 1995, after 15 years of operations in Illinois (United States). The decision was principally to test the waters.

  We initially invested about US$5 million and we expect for the first time to make a profit of US$500,000 this year in our Dalian operation. We've expanded from a 10-person office to more than 100 people over the past four years.

  TT: Do you see major barriers in doing business in northeastern China?

  Lu: We have not confronted major problems. But various legal disputes in Dalian -- as well as in the rest of China -- between Taiwanese companies and their Chinese employees have been frequently reported, due to mutual distrust or their lacking knowledge of the laws.

  Chinese employees show less commitment to Taiwanese-owned firms. For example, a real estate businessman recently reported to us about his legal suit against his Chinese executive officer. The officer allegedly took company assets.

  Another case, which is common in other cities too, involves a Taiwanese firm using the name of a Chinese employee to invest in retailing businesses, which is now forbidden by foreign investment rules. As a result, the Chinese employee transferred the company assets to his own account under his own name.

  Chinese staff may be concerned more with short-term benefits for themselves rather than staying loyal and developing their long-term career plans.

  Despite this fact, Taiwanese firms need to rely on locally-hired staff, since this region is geographically further from Taiwan and Taiwanese employees may be reluctant to live there, due to the cold weather.

  TT: What are some of the investments in Dalian Taiwanese firms have made? What do you see as the major attractions or setbacks of the northeastern region?

  Lu: Currently there are more than 700 registered Taiwanese companies in Dalian, among the more than 50,000 firms in all of China. A large percentage of them are manufacturers in some traditional industries which provide for China's domestic consumption, such as wood, poultry and food; they take advantage of the abundant lands, agricultural products and forestry and laborers. A few others run real estate businesses or restaurants.

  A large percentage of companies in the Dalian region are large state-run enterprises, such as iron or forestry businesses, with few of them manufacturing daily necessities. Therefore, small or medium-sized Taiwanese firms in traditional manufacturing, which heavily rely on efficient supply chains, will find it difficult to operate their business there, compared to those running businesses in central or southern China.

  Additionally, since the manufacturing of daily necessities in the region is low, the high demand for such products from its more than 200 million people provides a large market for Taiwanese firms.

  I think they can manufacture such products in central and southern China for consumption in the markets in Dongbei (northeastern China), so long as the quality of your product is assured. The per capita income in this region is above average compared to all of China.

  TT: Can you cite examples of successful investment cases in Dalian?

  Lu: Taiwan-based Greatwall Enterprise Company Ltd (?j|赤曮陞禶~股份|3--?膝q), which runs chicken farms, has become China's largest domestic animal firm. The company has set up 14 factories in this region, along with future manufacturing expansion plans in the south.

  By cooperating with contracted local domestic animal raisers in this region, the company can slash labor costs and reduce operation risks.

  TT: What do you think will be the potential business opportunities for Taiwanese investors after China enters WTO?

  Lu: After China's entry into the WTO, its GDP is expected to grow 3 percent, creating more than 10 million employment opportunities, which will also boost the retailing market.

  China's textile and home electrical appliances will see the most significant export boost as a lifting of its export quotas is expected.

  China's retailing industry is unsophisticated in terms of its management and marketing. Taiwan's success in international marketing in this field should be its strength in competing in China.

  TT: What about the telecommunications market and the World Wide Web?

  Lu: China's telecommunications market, particularly in the mobile phone market, will be a lucrative one, as mobile phone users in China is estimated to increase from 40 million to 100 million within three years, and the sales of mobile phones has reached 20 billion yuan annually.

  In addition, China's Internet users are estimated to boom from the current 4 million users to 30 million in three years.

  Taiwanese investors should carefully study investment incentives provided by various governments before jumping into the market.

  Dongguan, Shenzhen and Suchou are the regions where hardware manufacturers congregate. Meanwhile, Xian and Wuhan are good for developing software manufacturing, in terms of luring talented laborers with lower labor costs.
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