Environmental Technologies Industries
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Market Plans

Taiwan Environmental Export Market Plan
Chapter 9 - How U.S. Firms can Position Themselves in the Market

Taiwan is a large and important market for environmental equipment and services in Asia. It has improved its regulatory structures more than many other countries in the region. It is also a market that has patterned its regulations largely on those of the United States. While older generation decisionmakers who grew up during the Japanese era tend to be more comfortable with Japanese technologies, many younger decisionmakers returning from U.S. colleges and universities have a predisposition to buy American. In approaching the Taiwanese environmental market, many U.S. firms have interpreted the market size, regulatory development, and cultural links to the United States as signs that success will be immediate.

General Guidance for Strategic Entry
A foreign environmental firm, having reviewed some promising project opportunities and after making the decision to attempt to penetrate the Taiwan market, faces challenging but by no means insurmountable hurdles. While many foreign environmental firms have been frustrated and have failed in Taiwan, a healthy number have prospered. Those that have been successful have, by and large, adapted to local business practices. While maintaining their own technical and business standards, they have developed an understanding of Taiwanese business practices and have responded to them.

Critical Success Factors
Below are some basic guidelines for working critical success factors into a Taiwanese market entry strategy.

1. Begin market development well in advance. Information gathering and relationship building must begin well in advance of a project tender opening. Foreign firms can significantly increase their chances of success if they begin early tracking of projects. The Japanese have accomplished this quite effectively and earn their way in by offering valuable advice.
2. Network extensively and open multiple lines of communication. Regardless of the level of participation targeted, it is essential to invest in extensive networking and in opening multiple lines of communication. Chinese business culture thrives on flexibility, and the language itself is full of ambiguity. In contrast, U.S. business practice is relatively direct and straightforward. A U.S. businessperson may leave a meeting grasping a “bottom line” which the Chinese side feels was only one of a range of possibilities considered. Chinese communication is subtle, and the Chinese prefer to release information in bits and fragments, letting the listener draw his or her own conclusions. In general, the Chinese language itself is more vague in meaning than English, and a phrase or comment is open to several interpretations. The only way to work within this system is to discuss a project with as many interested or involved parties as possible.
3. Select business partners for sound business reasons. Taiwan's market is more open than the markets of many other Asian countries. Protective import duties have been virtually eliminated, and there are few limitations on local content or requirements for minimum shareholding. Therefore, foreign firms operating in Taiwan are free to set up business and form partnerships based on good business sense. Increasingly, businesses are established in Taiwan as a strategic entry point into the markets of greater China and those of the Association of Southeast Asian Nations.

While much is made of a “presence” in Asia, effective and credible presence can only be achieved by the development of successful business. An impressive office and staff is secondary to sound business plans and action. An essential element of the strategy is to have a company representative aggressively networking and constantly sifting through the maze of changing market information. This role may possibly be filled by a regional company representative traveling part-time to Taiwan, especially if the target market is only the private sector. Brown & Root obtained its $100 million contract with the China Petrochemical Corporation for water treatment by effectively marketing for three years out of its Malaysia office.

For firms without the resources to develop a presence in Taiwan, success in the Taiwanese market requires an appropriate local partner. While foreign firms can theoretically bid on public tenders and can win contracts from major firms on the island, a local guide to the market working on behalf of the U.S. firm is practically essential. Scores of agents, distributors, consulting engineers, and manufacturers can serve as a partner to environmental technology and service providers in Taiwan. The right partner will know the market niche to explore, will have key contacts in industry and government related to this niche, and will regularly monitor these contacts for information on developing projects and opportunities. Many larger companies or particular industries will have a circle of agents or engineering firms that regularly supply technologies and services. A truly connected representative will be able to demonstrate these capabilities.

A local partner will be a valuable source of information from both official government channels and unofficial sources in the industry. The partner will be able to understand the challenges and problems facing a project, and will be able to work to bundle technologies into bids and increase the chance for success. A local agent will be able to identify who is drafting the specifications to a project and develop a strategy for offering technical assistance. This approach has been successfully used by a number of Japanese companies.

Phases of Entry
Taiwan is an expensive and complex market to enter; therefore, phasing of entry is important. By setting clear objectives and understanding one's current standing in preproject development, it is possible to select resources appropriate to each step of the process.

The appropriate phasing of resources depends upon the firm's ultimate business objectives. In general, there are two types of firms that succeed in Taiwan. The first are those that pursue the opportunistic sale of a product, service, or technology license without much consideration given to development of a market presence. In this case, resources are minimized and the shortest path to a sale is taken, usually through someone with good connections with the prospective client. The second type of successful firm is focused on building a permanent presence, based on products and services that are increasingly localized. This firm represents a large investment, and the return is expected to be gained through building a sustained business, not short-term sales.

Both firms should focus on getting the right kinds of help at the appropriate stage of their entry. For the first type of firm, the challenge is to develop a broad base of information early, at minimum cost, so as not to be dependent on the inflated promises of a single agent. In the exploratory stage, the key is to uncover the real market needs and determine product or service fit. It may be advisable to use consultants at this phase to obtain an impartial assessment of market opportunities and if possible, obtain direct feedback from industry players. As the firm progresses into market development and sales, the hurdles become customer demands for price concessions and uncompensated services. Local representatives then need to be trained to be able to deal with such situations in a manner acceptable to the vendor company.

For the second type of firm, the entry process is magnified, more expensive, and more critical. Casual alliances with agents should be avoided as they can cause problems later.

During the initial phase of market entry, a company official, charged with Taiwan responsibilities, should visit Taiwan with some regularity to steadily broaden a contact base with relevant private firms and government agencies. Once the company's business objectives are clarified and specific projects are identified, it is time to start a search for specific partners in each area of interest. At this point, it is advisable to invest in qualified independent counsel to ensure that the entry strategy is sound and the potential partners reputable.

As the business develops, a local office with a trained local staff and direct involvement from the home office must be opened. This requires full-time on-site supervision and direct control of key project segments. Technology transfer must be fully supported, and it cannot be assumed that the related know-how, project management skills, or quality control procedures exist.

As this report has already emphasized, it is essential to start business development well in advance of project tendering. In the early stages of market entry, business potential may seem large and near at hand. However, delays are inevitable, and it is vital to maintain a reliable presence in the market once started. Therefore, initial representation must be affordable and sustainable.

In the early stages of projects, it is often not easy to get clear answers on start-up questions or clear commitments on participation. Therefore, initial representation must be capable of quality communications in both Chinese and English, and be able to interpret cultural nuances. Usually, this requires a combination of dedicated company representatives located either in the United States or Taiwan and local support people in a strong committed relationship. Such an arrangement enables the company to develop a Taiwan business sense within its area of interest.

Specific Guidance by Business Objective
Different strategies must be adopted depending on business objectives. The following observations on entry strategy are specific to three subcategories: vendor, subcontractor, and prime contractor.

Guidance for Equipment Vendors
Taiwan relies heavily on equipment imports because of manufacturers’ low production rate. To secure business, foreign equipment vendors typically either enlist the services of an agent and remain remote from the market or set up their own office with expatriate staff. The following discussion briefly examines the pitfalls of both and suggests some alternatives.

Taiwan has always been a relatively open market, and the Chinese have a strong desire to run their own businesses. In the past, a proliferation of local agents, representatives, and distributors eagerly signed up foreign companies. Because much business was done through personal connections, and the Taiwan market was considered too small to justify a more focused effort by the foreign vendor, this “general agent” approach worked fine.

The current market, however, demands increasing levels of technical knowledge and service with equipment sales. Agents who have collected a diverse group of suppliers and rely on their relationships are falling from favor. Environmental equipment is now frequently represented by engineering, consulting, or contracting firms. While this raises concern over conflicts of interest, the assumption has been that projects have been awarded on the basis of personal relationships rather than technical merit. However, the problem from the vendor's perspective is that such an “engineering agent” is only going to actively promote equipment for projects the agent's company is designing or consulting for.

The alternative to appointing a general agent is establishing an expatriate-staffed office. However, the typical cost for a Taipei office with one expatriate branch manager and a minimal staff of eight locals can run up to $1 million annually, not an inexpensive undertaking. Nor is it a certain road to success. The culture shock and disorientation of a manager not familiar with the market, and the time required to establish a network, means that the home office should not count on getting much of a return during the first 12 to 24 months. Country-sponsored trade offices can accelerate the process and provide some good orientation and introduce a supportive network, but daily operation will depend heavily on hiring the right local staff and learning to motivate and communicate with them. Because the market is diverse and individual customer firms are apt to be small, it is likely that even after setting up a direct office, distributors will still be needed.

The recommended approach is to build professional manufacturing representation capacity via a specialized distributor, an approach that could evolve to a direct company presence should sales warrant it. It is advisable to provide training to key members of the representative firm, if possible at the vendor's home office. Such training should cover technical issues related to equipment sales and services, as well as basic selling and product presentation techniques. By further developing the representative firm through training and by maintaining close communications, the vendor will build a committed and dedicated local presence without incurring the expense and uncertainty of establishing a local office.

Services: Guidance for Subcontractors
For small U.S. firms with limited resources to dedicate to the Taiwan market, subcontracting can be an excellent entry strategy. These firms should identify a small local engineering design and/or construction firm with a good reputation, efficient operations, and an openness to sharing the benefits of long-term cooperation.

For larger firms, or smaller ones with niche expertise, who are intent on establishing a committed presence in Taiwan, subcontracting opportunities should be considered on a case-by-case basis. Such opportunities should not be viewed as the only tool for market entry, but as one tool in a well-equipped shop. The distinction is that the main value of establishing a presence in Taiwan comes from having multiple channels of information.

Services: Guidance for Prime Contractors
An important recommendation for prospective prime contractors is to phase in resources. The key to phasing is to understand where the project really is in the project life cycle and to have a realistic assessment of what the prime contractor's net share of the result of business development activities should be.

Phasing is especially important because of the long lead time in project development. Especially for large projects, the work starts long before the bid is made. The bidding process is seldom straightforward and is often delayed. Project initiation is also frequently delayed by difficulties in obtaining land access and by bureaucratic miscommunication.

Complicating phasing even more is the importance of having “presence” and sustaining commitment once started. Traditional Chinese will only believe what they can see. Although younger engineers are willing to study model projects and prototypes overseas, older decisionmakers value a visible track record in Taiwan.

To overcome this attitude, the qualified prime contractor with no Taiwanese experience can either build credibility by working initially in a subcontractor capacity, or by proposing for a problem a whole system solution that can be demonstrated by experience in another country. A team or consortium, preferably including some local participation, would propose to take responsibility for delivering and operating the whole system. The objective would be to demonstrate successful new technology. The Taiwan side is keenly aware of the training and technology transfer potential of this approach.

Typical Bidding Procedures for Public Projects

1. Bidder Qualification. All government-funded projects are tendered through open bids. To qualify, bidders usually have to meet a set of criteria, based upon past related project experience or licensing arrangements. For a foreign company, past related project experience is the most common requirement. Most if not all government projects require that a foreign bidder be teamed with a local company; this requirement addresses the Taiwan Government's interest that technical know-how be transferred to local firms.
2. Development of Project Specification. For all govern-ment projects, an engineering consultant will be responsible for drafting the project's specifications from the detailed design/specification drafting stage to the proposal review stage. These consultants are key players in the tendering process, and thus it is very important for a prospective bidder to develop a relationship with them from the early stages. In fact, it is almost essential to make contact and develop a relationship with the government's consultant to win contracts or subcontracts in Taiwan. This should be kept in mind when selecting a local company as a partner.
3. Tendering Call and Bid Submission. Based on the project specifications, request for proposal or tender are issued. For each bid, two proposals are submitted, one for technical review and one for cost review.

Three separate bids must be submitted for the tendering process to legally proceed. If three separate bidders cannot be found, interested bidders will form dummy partnerships and submit fixed bids. To ensure that the fixed bids are thrown out, the dummy partnership will submit proposals with conspicuous technical discrepancies to the specifications, or with high quotes.
4. Review of Bids. Bids receive two reviews: technical and cost. These reviews are performed separately, with the technical occurring fist. If a bid does not pass the technical review, it is thrown out and will not be considered in the cost review. If no bids pass the technical review, a re-bid is called. A re-bid may also be called if all the price quotes are above the government's set budget limit.

Project Financing

In the past seven years, Taiwan has experienced massive growth in infrastructure-related projects, all of which were funded and managed by the government. Privatization, in the guise of build-own-operate and build-own-transfer schemes, has been planned for many years but has only recently been implemented. The government has learned firsthand from existing projects about problems related to budgeting, procurement, project management, and operation and maintenance and hopes that privatization will reduce some of these burdens. Given the continuing downsizing of government and its reduced financing abilities, a trend toward increased privatization is expected. In terms of environmental protection, privatization is most advanced for municipal solid waste incinerators. Privatization of municipal wastewater treatment and industrial waste treatment is also being considered.

Financial Assistance for Small- and Medium-Sized Companies
In addition to receiving tax breaks (all imported environmental equipment is duty free), Taiwan companies are eligible for financial assistance for the purchase of environmental equipment. Focusing especially on small- and medium-sized companies, the Ministry of Economic Affairs' International Development Bureau (IDB) will provide low-interest financing for up to 60 percent of the total equipment costs. In addition to financial assistance, IDB provides the related technical support at little or no cost, depending on the companies’ capabilities and the project size.

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