In recent years, several international fast-food and restaurant chains in Taiwan have changed ownership due to their operations encountering difficulties. In 2009, it was Kentucky Fried Chicken, last year it was TGI Friday’s and Burger King, and now McDonald’s is looking to transfer its local business to a franchising operator.
The company said that this move is part of a shift of its global strategy, but it is well-known that the fast-food chain has not been doing well in Taiwan.
The nation’s first McDonald’s opened in 1984, during the years of economic wonder; by 1997, it had 200 stores, on average opening a new store each month. However, since 2000, its fortunes have gradually waned.
McDonald’s performance has been influenced by many factors, but on inspection the change is not a matter of managerial neglect, it is the impact of three China-related factors.
The first factor is the massive outflow of Taiwanese businesses after 2000. Thousands of companies, in the high-tech industry in particular, have moved their production lines to China, resulting in today’s low growth, low wages, low consumption and high unemployment, in Taiwan the so-called “depressed NT$22,000” economy, which has caused averages wages to drop to the level of 15 years ago.
During McDonald’s expansionist years from 1984 to 1997, between 50 percent and 51 percent of business income was distributed to employees. By 2013, that had dropped to 44.65 percent. In particular, a large part of the 20-to-30 age group is making as little as NT$22,000 per month, and the 30-to-40 age group is not doing much better.
These two age groups make up McDonald’s main customer base. Incomes among the company’s main customer base have suffered from the impact of Taiwanese companies’ relocation to China. As their incomes have shrunk, they have returned to roadside food stalls, so regardless of how much McDonald’s changes, it cannot win back these consumers.
The second factor is the Taiwanese managers and workers who remain in China. The relocation of Taiwanese businesses to China has brought with it from 1 million to 2 million mid-level managers and technicians — and their families. This number is expanding as Taiwanese investment in China increase. The loss of this group contributes to profit losses.
The third factor is that China is overflowing with inferior and counterfeit products. Some Taiwanese businesspeople who have spent a long time in China have adopted these habits they bring back to Taiwan bad practices such as the use of tainted oil products and toxic starch. This has had a negative impact on McDonald’s and other food chains.
Sharp increases in the cost of shop space and increasing labor and health insurance costs have also added to the company’s problems.
McDonald’s business in Taiwan over the past 30 years has gone hand-in-hand with the economy, from the economic miracle and independent prosperity to the marginalization that has followed closer ties with China.
In recent months, Beijing has put forward its “One Belt, One Road” strategy, a Fujian Province free-trade area and a new Taiwan compatriot permit in an attempt to further strengthen its economic influence over Taiwan.
If the current and future governments continue to be obsessed with the idea of increasing cross-strait economic exchanges, the problems McDonald’s faces — and those of other such companies — will only continue and become increasingly severe.
Huang Tien-lin is former president and chairman of First Commercial Bank and a former Presidential Office adviser.
Translated by Perry Svensson
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