Is Taiwan a good place to invest in businesses?
At Meet Taipei, Taiwan News sat down with Edgar Chiu (邱彥錡), co-founder and managing partner at SparkLabs Taipei, for an extensive and exclusive interview. This is part of a multipart series on the startup scene.
The first is Insights on the startup space with Meet Taipei's Kyle Chen, the second is Accelerating success: SparkLabs Taipei’s Edgar Chiu.
Today, in the Qiqi area of Taichung’s Xitun District, scores of shiny new apartment buildings sit largely empty while investors pour in to build yet more in the newly hot Beitun District’s now open redevelopment zones. The stock market has been booming in recent years.
Both have been attracting considerable capital, but once upon a time, starting or investing in businesses directly was what built Taiwan’s economic miracle and the rising salaries that came with it.
For some, that dream is still alive. SparkLabs' Edgar Chiu has seen it from every side, having been COO of a startup that got bought out by South Korean giant Naver. Also, as head of SparkLabs Taipei, he has been involved in investing in and mentoring more than 40 startups. He shared some insights with Taiwan News.
So, is Taiwan still a good place for investing in businesses? Unsurprisingly, Chiu is generally positive about Taiwan’s opportunities in this space but is also candid about some of the local challenges. The people, the culture, the talent, the existing manufacturing base, capital availability, and even the geography are mostly positives and present many opportunities.
There remain some cultural and institutional challenges, however. Chiu describes the overall ecosystem this way: "I always say ‘it takes a village to raise a child.’ It’s not just a slogan, it’s actually more meaningful.
The village idea
"Government, venture capitalists, big companies, and little startups need to work together. A lot of them try to crack the whole ecosystem by partnering up with just one player, but I don’t think so.
"Everyone needs to work together, so when startups grow big enough they expand outside of Taiwan, they get investment from venture capitalists. They start to grow big, they might become a big company, so people start to work with them, and they get so huge they become big companies — and that is where the social welfare comes from, and the government will have a role in doing that.
"So, I highly encourage the Taiwan government to seed more startups, and that’s not the way we used to have it done. So we need to have more seeds to grow big enough to have more big trees eventually."
Some of the aspects of this ecosystem and the “village” idea work in Taiwan’s favor. For most businesses, choosing the right location is key.
Chiu notes the advantages for incoming investment: “Geographic-wise, Taiwan is the best gateway or test for those Western countries to get into Asia, or at least northeast Asian countries like Japan or Korea, or to go to Southeast Asia. So it is actually the best spot for a lot of nations to expand their business to other places.”
It’s not just the physical geography, either. The location provides other benefits, as Chiu adds: “We need somewhere that is viable and has less impact from international trade wars or something, so they need a stable, secure R&D center or data team, and they are based in Taiwan.”
With Taiwan’s legal protections and stable workforce, there are other advantages, as Chiu cites in one example: “In software, a lot of companies don’t want their data exposed. So their software, a lot of it comes from Taiwan. Because if they go through China or the U.S., they’ve got the risk of being exposed. So that is an opportunity for Taiwanese companies.”
Taiwan also has plenty of access to capital. Chiu points out: “We’ve got the manufacturing. You can see there are a lot of corporate investors actively investing not just in Taiwan but globally, including Wistron, Foxconn, a lot of the devices, like the phone we are holding right now, whether it is Android or iPhone, and you also get the chips from TSMC or UMC.
"And they are using capital to expand outside of Taiwan as well. So that’s not just opportunities for Taiwan companies but also the companies outside of Taiwan.”
However, he also finds the mentality of potential corporate investors conservative and hopes they will think more outside the box. He identifies the problem for corporates this way: “You need to do something outside of your main focus, and that will be new investment, outside investment because you never know where the next trend will be coming from.
"In aggregate, I say you can stick with 90% on your main industry or main focus or main domain, but you need to start to look out to scout for the new opportunities. But those employees, they are not hired by training, by how you look for new businesses or new opportunities.”
He also points out there are some regulatory problems: “There are some obstacles for VCs (venture capitalists) to invest in Taiwanese companies because of some of the restrictions.” How a company is structured can impact how and in what way money can be invested, especially in dealing with overseas investors, where sometimes an overseas holding company is called for.
People matter most
What about the people? Chiu is again largely bullish, but with some caveats. Crucially for future development, he noted: “There is a lot of original innovation in Taiwan.”
However, sometimes this innovation is directed in a very specific direction: “So, we can do good in manufacturing, once we can give you the specs and can really easily pick the solutions for specific problems. But are there any problems where there is no limitation and you want to scout or find one problem to solve it?”
His point is that it’s in the problem-solving space for many people or multiple clients where the big money is, not just in solving specific technical problems on the client-by-client basis which Taiwan is famous for.
As Chiu notes: “For most of the Taiwanese mentality, that will be a more system-integrated mentality — we try to too specifically customize for specific companies. You have to avoid risk in one single company, and have to scale up.”
He further expands on the mix of traits common in Taiwan: “Taiwan is reliable. And we are also loyal. And also cost-effective, which I don’t want to say so, but that is the truth. So I always say that the Taiwanese mentality is more about how we bottom-up or mark up from the cost side, but not from the opportunity side.
"From the opportunity side, if we fill this opportunity we can find more companies or invest in more startups, then we can actually step up.” This is another barrier to building opportunity: “Because most Taiwanese, they are shy, they don’t know how to present themselves, so they lose these opportunities.”
In commenting specifically on the software industry, he fleshed out why Taiwanese make excellent team players: “Software engineers are something the whole world is looking for. In the U.S., whenever there are startups that raise more capital, their engineers will just rotate.
"So, it’s hard for them to find engineers that can be dedicated to a specific company for more than two or three years. But in Taiwan, because of our working ethic, and also our loyalty, a lot of engineers are willing to stay in one company to find more challenges.
"I think that is a characteristic of being Taiwanese. So that is why a lot of U.S. companies are building their headquarters or R&D centers in Taiwan, including Ring and Nest. They are U.S. companies, but their engineering teams are in Taiwan. And there are more to come.”
In speaking on the topic of startups and the government’s role in the startup ecosystem, Chiu underscores some problems: “The problem is the whole government system, they are using annual budgets and also KPI-driven (key performance indicator) targets. For seedlings, it is hard to see the results in a year. And it’s hard for us to change the topics by year.
Five years ago there was IoT (internet of things), then came AI (artificial intelligence), then blockchain, and recently 5G — this is all too large, it’s not going to incubate and mature within a year.” He identifies a better approach: “We need to plan, do more mid-term and long-term thinking. So instead of one year, it should be three years or five years.”
Some of the government institutions designed to help Taiwanese businesses are not very helpful, according to Chiu: “So we’ve got a lot of Taiwan entities outside of Taiwan, like TAITRA (Taiwan External Trade Development Council), and ITRI (Industrial Technology Research Institute).
"These entities outside of Taiwan, they’re local, right, they’ve got the opportunities. They’ve got the resources that they can take back to Taiwan, and our startups can catch those kinds of opportunities. But right now, this channel, this path is not really functioning.”