Management in Taiwan

1
Management in Taiwan

• Week 4

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Culture-organisational background

• Taiwans economic development export orientated
  industrialisation driven by many SMEs
• Sometimes expanding into guanxiqiye
• Numazaki puts down rise of Laoban to unfriendly
  political context
• Political stability of 1950s 1970s created by
  martial law
• Led to state/society mistrust
• Laoban avoided markets dominated by government
• Went into production sales of petty consumer
  goods

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Characteristics of Laoban

• Independence
• Diversification of business contacts
• Subcontracting networks among SMEs very highly
  developed
• Risk taking
• In low-skilled and labour-intensive
  export-oriented markets entrance barriers are
• usually very low
• Moneymaking
• Motivation is pure profit seeking

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Characteristics of Laoban

• Family assets over corporate capital
• Tend not to reinvest profits to enhance their
  firms capital but to enlarge their families
  assets
• Partnership
• Not loss of independence
• Opportunity to control partnership
• Easy exit
• Effective means to maximise profits
• Spreads risk
• Guanxi
• Skillful and effective use of personal networks
• Organisational innovation not technological
  innovation

5
Family structure

• Chinese family (Jia)
• Lies at core of laoban business structures
• Sub-branches fang
• Each sub-branch can run a business generate
  profits which it owns
• Private branch money (sifangqian)
• Sub units are economically autonomous

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Inter-fang partnerships
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Effectiveness of structure

• The Chinese personal network functions as an
  effective organization of economic cooperation
  and as an alternative to modern markets
• There is a fundamental difference between the
  economic networks in Chinese society and the
  markets in advanced capitalist economies
• Chinese economic networks are not legally
  institutionalized and hence under no government
  control
• There is no state guarantee for participants in
  rotating credit associations or private business
  partnerships
• The only insurance participants can hope for is
  personal trust (xingyong)

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Positioning of Taiwanese Management

• Yeh (1992) places Taiwanese management practice
  between American Japanese practice
• American similarities
• Horizontal specialisation
• Importance of technical education in recruiting
  employees
• Japanese similarities
• Importance of past performance
• Seniority in promotion
• Preference for those related to current employees
• Quality circle social activities

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Guanxiqiye

• Guanxiqiye business groups
• Legally independent
• Not operating in isolation
• Have institutionalised relationships
• Work coherently as a unit

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Development of guanxiqiye

• Chung (2001) studied 150 groups
• Institutional factors
• Laws in 1960s 1970s gave tax holidays to new
  establishments
• Incentive to set up new businesses rather than
  expand existing
• Most groups formed in period up to 1974
• Cultural factors
• Equal inheritance pattern of family property

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Inherent management problems

• Management ethics
• Pseudo-harmony
• Seeks to avoid responsibility conflict of
  interest with profitability
• Householder management
• Dictatorial self-serving
• Therefore needs to be radical managerial change
• Develop ethical leadership

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Inherent management problems

• Can SMEs undertake restructuring of management
  processes?
• Fu et al (2001) investigated the viability of BPR
  (Business Process Re-engineering) in a Taiwanese
  company (Chengyang)
• Highly centralised management system
• Manager responsible for
• Production
• Sales
• Marketing
• Internal structural problems presented as
• Low efficiency
• Reduced profitability

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Pre-BPR structure
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Problems Solutions

• Perceived problems
• Poor salary and benefits structure
• Employee loyalty was low
• Low internal management efficiency
• Lack of an auditing system
• Implementation
• Stage 1 - system establishment and
• education
• Stage 2 - organizational adjustment
• Stage 3 - transformation of the enterprise

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Post-BPR structure
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Implications for management

• Establishment of applicable management system
• Transparent information
• Participation of top management
• Everyone is manager
• Importance of empowerment

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Internationalisation of Taiwanese firms

• Shive (1995)
• 2 fold approach to internationalisation
• SMEs go to China/ASEAN Pacrim
• Large companies go to west/US
• Officially 1st Taiwanese outward investment
• 1959 100,000 investment in Malaysian cement
  plant
• 1960s FDI outflows 800,000 pa
• 1970s FDI outflows 5.17m
• 1980s - FDI outflows 306m
• 83.7 annual growth 1981 1991

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Reasons pre 1980

• Secure raw materials
• Pursue profits by supplying host country markets
• (up to 1985 Taiwan government highly
  protectionist)
• Facilitate exports
• Access to technology

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Post 1980

• Increase in investment in Mainland China
• Many more investments in China than ASEAN
  countries
• But average investment 1m to 6m in ASEAN
• Dominated by SMEs
• Switch from being supplier of non-durables to
  source of materials
• Semi-finished products
• Equipment
• Also regional centre for IT
• 2 way flows
• ASEAN ?Taiwan?China

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Responses to 1997

• Effects of 97 on firms surveyed were uneven
• Major strategic effects
• Reduction of costs
• Putting more value-added on products
• Developing new products
• Relocating some production to China SE Asia
• Shift of orientation from manufacturing to
  service
• More use of professional managers
• Concentration on core business
• Outsourcing use of casual labour

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Cost reduction

• Chiou et al (2002)
• Consider cost reduction strategies in 102
  Taiwanese IT-related OEM enterprises
• Specifically tested postponement strategies
• IT industry high product values
• Short product life cycles
• High demands for customisation

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Leading edge production

• Taiwan IT industry 3rd after Japan US in
  outputs
• Strategically positions in partnerships in global
  supply chain
• Study showed extensive use of postponement
  strategies
• Which could be paradigm for other manufacturers
  in the industry

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Production plus

• Chien (2002)
• Adds rapid response capabilities flexibility to
  cost reduction
• Looks at Mitac TSMC (Taiwan Semiconductor
  Manufacturing Co)
• Both companies have moved from stand-alone OEM
  manufacturers
• To providers of integrated service packages
  encompassing value-chain functions beyond just
  manufacturing
• Adopted service functions
• Support functions
• Prototyping design

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Typical Taiwanese corporate growth

• Size international spread
• Mostly small , between 19861991, about 90 of
  Taiwanese projects in Southeast Asia were
  estimated to be undertaken by SMEs
• Sim Pandian (2003) studied internationalisation
  strategies in 6 Taiwanese SMEs

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Sim Pandian actors

• 6 companies were in electronics textiles
• 4 firms have manufacturing operations in
• China and another country
• 1 firm had four overseas locations (China,
  Thailand, United Kingdom, and Mexico)
• The largest textile firm had eight (Asian
  countries and Canada)

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Sim Pandian findings

• Motives
• The motivations for the textiles firms were the
  search overseas for low cost bases and quotas for
  textile exports
• 1 textile firm set up a factory in Mexico to
  position itself for strategic advantage in the
  NAFTA market
• Given Mexicos proximity to the U.S., its
  preferential system of tariffs for exports to the
  U.S. and the lack of quota restrictions, this
  location maximised firms competitive position

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Sim Pandian findings

• Entry strategies
• Case firms exhibit a preference for joint
  ventures, which is similar to the behaviour of
  other MNEs from developing countries
• The internationalization strategies of Taiwanese
  firms were founded on cost-based competencies and
  other location-based advantages
• But brought together by an extensive web of
  ethnic networks and aided by government
  encouragement and institutional framework
• Firms are extending beyond their current
  competitive advantages to those which capitalise
  on differentiation benefits, such as technology,
  innovative product features and value

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Reverse Leveraging

• When MNCs from OECD countries globalize to less
  developed countries
• Motivation is (usually) to leverage
• Cheap labour
• Land
• Raw materials and
• Access local markets
• To maintain growth competitiveness

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Reverse Leveraging

• Tsai (2002) notes
• the MNC often needs to bring its local
  constituencies in the host countries up to a
  level which is minimally compatible with the
  MNCs operating systems and quality requirements
• The outcome is
• companies in the host countries who work for the
  MNC have an opportunity to learn and grow, and to
  acquire (global) assets they could otherwise
  scarcely attain with indigenous resources
• These assets include capital, global marketing,
  technological and managerial know-how and
  advanced human resources

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Playing MNCs at their own game

• In the long term, this leverage reverse leverage
  process gives rise to a cycle where the original
  leveraging MNCs inadvertently help develop new
  competing MNCs that leverage on others
• J Nash Equities May 1997 wrote
• Macronix International is bringing Chinese
  engineers trained in the United States back home
  where their skills in product design mixed with
  Taiwan's manufacturing expertise make for a
  winning combination
• Reverse Brain Drain part of reverse
  leveraging concept