Taipei Times: What impact will Taiwan's WTO entry have on the country's retail sector and President Chain Stores (
James Hsieh (謝健南): The Taiwanese government has been quite open to commercial activities and foreign businesses have long been allowed to enter this market without special requirements. Foreign companies don't have to seek a local partner to operate in Taiwan but they do need to do so in compliance with mainland regulations.
While the domestic retail market is bound to face foreign competition after entry, we are not really worried about it, given our experience over the last 22 years running 2,893 stores in Taiwan. So I don't think there will be any impact on commercial activities or retail business following the nation's WTO entry.
PHOTO: CHEN CHENG-CHANG, TAIPEI TIMES
On the other hand, entry does allow local retailers to diversify their supply of both commodities and raw materials. Following WTO entry, President Chain Store can introduce commodities from a wider range of countries.
TT: Will President Chain Store import products that were processed in China?
Hsieh: China's agricultural products are still prohibited from entering Taiwan market, despite the fact that many of those products were processed by Taiwan businesses in China. Using China's lower labor and land costs, they are able to produce goods for only one-third or a quarter of the cost compared to Taiwan.
It is my understanding that the prices of China-made instant noodles to be distributed in Taiwan are much lower than those processed in Taiwan. Therefore, if China-made products are allowed to enter Taiwan's market, it seems likely to trigger a price war among local instant noodle makers. Consumers stand to benefit the most.
TT: So you're implying that President Chain Store may import goods that were produced by affiliates of the President Group (統一集團) in China?
Hsieh: We are studying the idea as we have manufacturing sites on both sides of the Taiwan Strait. It's easy to market these China-made goods domestically through our convenience-store network. There is no doubt that it would have a big impact on our domestic manufacturing. But business is business. Companies need to consider what their real competitive advantage is and reallocate resources accordingly.
TT: When will US-based 7-Eleven announce itsdecision on franchises in China? What are the odds President will stand out from the competition to win the bid?
Hsieh: The US-based 7-Eleven is scheduled to complete a reevaluation of the China market in the first quarter of next year. Ahead of that, we have no idea whether we will win the bid or not. But we are confident in ourselves, especially with more than 20 years of business experience in Taiwan. Take Japan, where only some 8,400 7-Eleven stores exist for a population of more than 120 million. In Taiwan we have set up more than 2,800 stores to serve the nation's 22 million people.
Compared to other competitors, I'd say we are also good at shifting our business strategy to adapt to market changes, including selling more fresh food and products under our brand name to increase profit margins. Actually, the Chinese government also favors us and is quite aware of where our competitive advantages are. But so far we don't know what decision 7-Eleven is going to make. (Hong Kong-based Dairy Farm International Holdings Ltd and 7-Eleven Japan Co are competing with President Chain Store for China rights. Dairy Farm already operates 7-Eleven stores in Guangdong, China.)
TT: How do you view China's market and is it a good time to join that market?
Hsieh: China is a vast market and views differ across industries on when to enter that market. No one can say precisely when the right time is. But take our previous experience of opening stores in Taiwan as an example. It is possible to operate a business in the red in the early years. Japan's Lawson Inc has a joint venture with Hualian Group Corp of China to develop convenience-store operations in Shanghai for five years. But Lawson is still reporting losses.
On the other hand, with a population of 1.3 billion in China, I think the US' 7-Eleven may consider dividing that huge market into separate regions for different franchisees. In our proposal, we requested the franchise rights for the whole Chinese market. We would run the business region by region, if we get the bid.
Frankly speaking, the convenience store concept is viable for only a few Chinese cities such as Shanghai, Beijing and Guangzhou for the time being. To make the business model work, it usually demands large infrastructure investments in logistics, franchise outlet management and distribution systems. Therefore, if we were able to tap the Chinese market, we'd prefer to develop the business city by city.
TT: If you win the bid, do you want to develop the 7-Eleven franchise in China on your own or team with other retailers?
Hsieh: That will be up to Chinese government regulators. Some people think after China's WTO entry, the requirement for foreign businesses to find local partners will be gradually eased over the next three years. But that's only a guess and China's government may make some adjustments. We will abide by China's regulations when we join that market but in the long run we hope to develop the 7-Eleven franchise in China on our own.
TT: During the current economic downturn, companies have been turning their focus on internal enhancement and are wary about new investments. This doesn't seem to be the case with you.
Hsieh: No. On top of a keen interest in developing the Chinese market, we have also made investments in Indonesia, the Philippines, Thailand and Vietnam. For example, we have signed an agreement with Philippine Seven Corp which allows us to take up a 50.4 percent stake in the Philippines' chain of convenience stores. Currently, Philippine Seven operates more than 150 7-Eleven stores around the country.
Basically, we seek to invest in places where labor costs are lower and raw materials are cheaper. This is a principle followed by manufacturers all over the world. In this respect, China will gradually become a world factory with its rich resources and abundant manpower.
Now we are actively looking for investment opportunities. We hope to lock in a business which will help make us a fortune over the next 10 or 20 years -- similar to how President Chain Store is viewed as the "golden goose" of Uni-President Enterprises Co (統一企業).
TT: President Chain Store started offering the "Takkyubin" (
Hsieh: In October last year, President Chain Store and Tamato Transport Corp -- the largest delivery-service company in Japan -- signed an agreement for the company to operate in Taiwan beginning last April. The new company picks up parcels and packages for delivery through the nationwide network of 7-Eleven stores.
In fact, Chairman Kao Ching-yuan (高清愿) of Uni-President Enterprises said that President should invest in businesses that will change the lifestyle or the way people live in Taiwan. The introduction of convenience chain stores to Taiwan by President some 20 years ago has greatly changed people's lives here. And it is the same reason that we hope the new delivery services will change people's habits regarding giving gifts and purchasing goods. After several months of operation, we saw stable growth in the delivery-services business with the fleet of trucks expanding from 73 to 500.
TT: Experts say companies' weaknesses are exposed and they are more prone to mistakes during a slowdown. What are your thoughts?
Hsieh: It's easy to tell what shape a company is in when the economy slides. Customers can also easily distinguish which companies have better service. Most people think that President Chain Store is making money through investments in individual [convenience chain] stores when in fact we are profiting from our management know-how.
However, companies in Taiwan like to chase trends. They tend to rush to offer products or services that imitate the competition, with the result being that companies have no real competitive advantage. These companies don't survive for long because they are focused on quick money-making and don't invest in personnel training and a business strategy.
TT: Speaking of business strategy, how has President Chain Store responded to the economic downturn?
Hsieh: With demand down, we need to rethink our entire strategy, including store locations and operational costs. Indeed we have closed some unprofitable stores that were either located in bad locations or with unfeasible rental costs. We were cautious when launching new stores in the past and are even more so now because we don't want to misinterpret current market conditions.
We still plan to open new stores every month this year, but we are not going to focus on new store openings to lead sales growth. While some store closures were related to the downturn, some were also associated with the new schedule of employees taking two days-off every week. Since Taiwan adopted the two day-off system last year, our shop sales in commercial areas in major cities around Taiwan have been falling, down between 20 percent and 30 percent. Yet sales in the suburban areas or near tourist attractions were higher than before. We're still adjusting our business strategy as far as store locations go while we continue to close some stores, including those damaged by the heavy floodwaters brought on by Typhoon Nari in September.
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