Potential U.S. Business Opportunities
under Taiwan’s New Southbound Policy
(Arlington, Virginia, July 24, 2017)
Editorial by Lotta Danielsson – Global Taiwan Brief
Taiwan President Tsai Ing-wen approved the policy guidelines for her New Southbound Policy Promotion Plan in August 2016 as a key component of an extensive and comprehensive strategy to diversify and stimulate the Taiwan economy and to reduce the island’s economic dependence on China. This is not the first time that Taiwan has attempted a “Go South” policy. It may be the most ambitious, however, with a scope that expands beyond trade, commerce, and investments to emphasize people-to-people relationships.
In announcing its adoption of the plan, Taiwan’s Executive Yuan laid out several broad goals for the initiative, including promoting economic collaboration, conducting talent exchanges, sharing business resources, and forging regional links through soft power and cultural exchanges. The New Southbound Policy (NSP) covers a total of 18 nations in Southeast Asia, South Asia, and the Pacific. During the current early stages of the policy, six of those nations—Thailand, Indonesia, Vietnam, Malaysia, the Philippines, and India—are considered top priorities.
Given political tensions and the complicated cross-Strait situation—as well as the softening Chinese economy—diversification away from China is likely a smart strategy both for Taiwan’s economy and for Taiwan’s businesses, and there are always new opportunities in expanding and developing new markets. Many of the NSP countries are developing economies that are experiencing rapid economic growth, while others are developed economies with robust and well-regulated markets. This provides Taiwan businesses with a multitude of investment and other opportunities for development, collaboration, and resource sharing in a variety of business environments. The talent exchange initiatives pursued under the NSP could also offer Taiwan companies a way to raise their competitiveness by offering expanded access to the regional workforce. This would allow them to capitalize on outside expertise and provide a new pool of well-educated workers, as well as to counteract Taiwan’s aging population and current “brain drain” to the United States, China, and Southeast Asia.
For US companies, there are unquestionably opportunities for expanding their operations in Asia through partnerships with Taiwan businesses. The US business community has shown interest in developing their operations in countries like Vietnam, Indonesia, the Philippines, and India, which are all covered under the NSP. Many US businesses also have a trust relationship with Taiwan that comes from long and successful association, and this could carry over into partnerships in other parts of the region. In particular, Taiwan’s state-owned companies could be attractive partners for US businesses. President Tsai has encouraged such companies to take the lead in implementing NSP initiatives. As priorities for the Taiwan government—and with such SOEs at the forefront of the NSP push—cooperation with US businesses could provide risk management opportunities for both sides. Joint cooperation and clustering with US companies in countries covered under the NSP could mean, for example, that Taiwan companies provide access to capital and access to the supply chain, while US companies provide expanded management competencies and business integration services.
John Deng (鄧振中), Taiwan’s Minister without Portfolio overseeing implementation of the NSP, has said that the Taiwan government will focus its efforts on four key areas: talent development, health care & biotech, agriculture, and startups. Many US companies have competencies in these sectors. In particular, the US business community could play an important role in encouraging startups and fostering entrepreneurship–both focus areas for the Taiwan government–by building on proven abilities for innovation and agility. Agriculture and food production, along with agricultural machinery, are also areas where US companies are already working closely with their Taiwan counterparts, creating potential synergies for additional investments.
In addition to cooperation in the focus areas identified by the Taiwan government, there are also opportunities in other sectors. Technology, along with advanced materials and smart machinery, already has robust US-Taiwan collaborations in place, while also representing sectors where several NSP countries are increasing their development efforts. For example, NSP nations such as Singapore, Thailand, and Malaysia are already attempting to position the Internet of Things (IoT) as an important component of their future economic strategy. Meanwhile, IoT is a core competency for several US and Taiwan businesses. Sectors such as automotive parts, plastics, pharmaceuticals and medical devices, infrastructure development, and logistics could also serve as important vectors for joint US-Taiwan business success in the region.
While the Taiwan government has taken several concrete steps already to realize its vision, after less than a year it is still quite early in the NSP effort. If Taiwan can make terms and conditions attractive for US businesses, they are more likely to participate in the various related initiatives. This will require Taiwan to educate US businesses so that they can develop a good understanding of the opportunities presented by the policy. Taiwan has long been marketed to US companies as a “Portal to China,” a strategy that has been fairly successful, but it will likely take some additional work to make US companies see the value of Taiwan as a key entry point to the NSP region.
To accomplish this, Taiwan could look to the success that Singapore has had, developing its reputation as a stepping stone to Asia. Singapore was already seen as great place to do business, and they added additional market opening and reform as a precursor to joining the Trans Pacific Partnership (TPP). The Taiwan government has already taken steps in the right direction by reducing red tape for work permits, taxes, and residency requirements for foreign white collar workers. But to make a triangular business relationship between the United States, Taiwan, and the NSP countries successful, Taiwan needs to continue making regulatory and policy changes that improve transparency and simplify business procedures.
The New Southbound Policy, a way for Taiwan to diversify away from economic dependence on China, has the potential to provide additional opportunities for US and Taiwan businesses to cooperate in sectors ranging from agriculture to IoT. The Taiwan government can help the process along by increasing transparency and improving conditions for US companies interested in Taiwan as a portal to the region.