Taiwanese Exporters Look for Gold In BRICs

Taiwan's continued economic development is becoming ever more focused on emerging markets, which absorbed 70% of the island's exports last year. And, among the emerging economies, the so-called BRIC countries-Brazil, Russia, India, and China-are becoming increasingly important.

According to figures from the Taiwan External Trade Development Council (TAITRA), a Taiwanese quasi-governmental trade-promotion organization, China accounted for US$64 billion worth of Taiwan's exports in 2004, representing 36.7% of the island's total overseas sales.

TAITRA statistics show that Taiwan's exports to India soared 39% last year to US$1.07 billion, shipments to Russia surged 42% to US$429 million, and sales to Brazil skyrocketed 57.6% to US$715.6 million.

"Relative to our exports to emerging markets," comments Peter Huang, executive director of TAITRA's Marketing Development Department, "our exports to the industrially advanced economies, including the European Union, the United States, and Japan, have fallen." The export increase is fueled by the rapid growth of the emerging economies, he explains, which boosts the consumption of all kinds of products.

The executive director notes that Taiwan's exports to emerging markets consist mostly of intermediate goods such as components and parts for machines and information-technology products. Intermediate products, he reports, replaced end-market products as Taiwan's largest export category last year.

"These rising markets share several common features," Huang says, "including huge markets with great potential, high rates of economic growth after being freed from control, and cost and technological advantages in some industries. But these markets also hide risks, including weak regulations for foreign investment, the possibility of foreign exchange losses, unfamiliar local customs, and unusual business models."

Expansion in Emerging Markets

TAITRA has opened offices to help Taiwanese businesses promote sales in these major emerging markets; it now operates offices in Beijing, Shanghai, Moscow, New Delhi, and somewhere in Brazil. In addition, Huang promises, "We will open more locations in some of these rising markets as part of our plan to boost our overseas outlets from 35 to 40 this year."

The council has worked out different promotion strategies depending on the varying conditions in these markets. "In general," Huang says, "we have a similar strategy for Russia, Brazil, and India, but a different one for mainland China."

Although mainland China has become Taiwan's largest export market and great numbers of Taiwanese manufacturers have relocated to the mainland in pursuit of low production costs and a share of the vast market there, Taiwan's government is trying to cool down the "mainland fever" in response to the rising political hostility between the two sides of the Taiwan Strait. However, Huang reports, "We're asked to carry out promotions in the mainland in an appropriate fashion, showing that the private sector can do much more than the government can there."

At best, Huang goes on, TAITRA's offices in China can persuade the international procurement offices (IPOs) of multinational enterprises there to buy products from Taiwan, and can organize Taiwanese suppliers to promote their products at major trade shows in China. "The common language and racial origins between Taiwan and the mainland make our access to the mainland's market much easier," Huang stresses.

TAITRA has more room to help Taiwanese businesspeople expand markets in the other three BRIC countries, but those countries present their own challenges. Taiwanese companies are generally unfamiliar with the investment climates in those countries, and their industrial structures are different from Taiwan's, so few Taiwanese companies have invested there. This makes it harder, Huang notes, to use investment as a means of promoting exports to those markets as TAITRA does in Southeast Asia and other areas.

Last year TAITRA organized 10 Taiwanese groups for participation in Indian trade shows focusing on such industries as computer software, textiles, hardware and building materials, and medicines. For the Indians, Huang points out, connections are more important than regulations. Taiwanese companies began investing there only recently, and their total amount of investment in India is still not very large. Taiwan chalked up a surplus of US$210 million in trade with India in 2004.

Different Structure

No Taiwanese company has yet set up a factory in Russia, according to Huang, who explains, "That's because Russia's industrial structure is different from Taiwan's. Russia is rich in natural resources, and they make up the foundation of its industrial structure." Imports of one of those resources-crude oil-left Taiwan with a deficit in trade with Russia last year.

Brazil offers good export opportunities for Taiwan's machinery and auto parts, since it has well-developed auto and machinery industries. However, Huang cautions, "Foreign consumer products have little chance to break into the Brazilian market, because of the protective import measures imposed there." Last year, Taiwan suffered a deficit of US$615.5 million in trade with Brazil.

The BRIC markets have particularly strong potential for Taiwan's woodworking-machinery makers, says Bill Hung of the Taiwan Woodworking Machinery Association.

"Most of our woodworking machinery suppliers have been deploying in China for a long time, and have secured steady sources of orders," Hung reports. For example, his own company, Boarke Machine Co., has been operating in the mainland for 16 years.

Hung's association has booked 60 booths at a Russian woodworking-machinery show in Russia in each of the past few years. Woodworking-machinery makers have been doing well there, he notes: "Russian buyers turned away from European suppliers to Taiwanese companies after the euro appreciated around 40% against the U.S. dollar in recent years. Relative to the euro, the New Taiwan dollar has risen only moderately in value, making our machines more competitive than European-made products. And in Russia, the rising discomfort index has prompted Russian buyers as well to look for sources of less-expensive supplies."

However, Hung cautions, the Russian market poses two risks for foreign companies: high tariffs, and wild mafia gangs. "If you do business with Russian buyers," he urges, "make sure that you get cash on delivery."

The association used to book around 50 or 60 booths at an Indian trade show, but last year the booking hit a record 160 booths. Taiwan's exports of woodworking machinery to that market are still insignificant, but Hung believes that they will grow rapidly. But there are risks in India too, he notes: high taxes and, again, difficulty in collecting bills.

Brazilian Obstacles

There is little chance that Brazil will become a major market for Taiwan's woodworking machinery in the near future, Hung comments, because of its long distance from Taiwan, the instability of its currency, its close ties to Europe, and its unfamiliar language, Portuguese.

Hung's organization has not yet organized any trade missions to Brazil, but he is planning to apply to the Ministry of Economic Affairs (MOEA) for a subsidy to finance a trip to investigate the business environment in that country.

For the Taiwan Hand Tool Manufacturers' Association (THTMA), the biggest success in the four BRIC countries has been scored in Russia. The association's chairman, Charlie Hsieh, claims that the island's hand-tool suppliers have won 80% of Russia's total orders for imported hand tools. "In the past," he exclaims, "Russian buyers bought their tools from German suppliers through Polish and Czech traders. Their procurement costs were rather high since the sources were monopolized by just a few distributors. Now, they can skip the middleman and get less expensive but high-quality tools from us."

Hsieh organized his members to participate in a Russian show six years ago. That was the beginning; and today, he reports, "We participate in three trade shows there a year, and last year 100 of our members displayed their latest products in Russia."

The association also began organizing missions to participate in Indian trade shows three years ago, and some success has been achieved there. A delegation to a trade show in mainland China was mounted for the first time last year; Hsieh is not eager to promote the mainland Chinese market too intensively, however, because he feels that the mainland has the most uncertainties of all the BRIC economies. "The safest way for us to develop the market in mainland China," he says, "is to team up with trade associations there."

In Brazil, Hsieh plans to develop the market in accordance with the Taiwan government's foreign policy and hopes to organize a trade mission to that country next year.

Hsieh has drawn up a strategy for the members of his association to compete with the big international suppliers in emerging markets, since, he says, "We cannot yet compete very well with the big players in major markets, but we can approach them from peripheral markets." His own company, he reports, has made good profits this way.