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Taiwan says 'go India' but cos don't

There are plenty of reasons why Taiwan companies are wary about their government's exhortations to invest in India.
None | By Reuters, Taipei
UPDATED ON MAR 31, 2006 05:53 PM IST

It may be the world's second most populous country and have an economy growing at 8 per cent a year, but there are plenty of reasons why Taiwan companies are wary about their government's exhortations to invest in India.

Cultural differences, restrictions on foreign investment, poor infrastructure and government inefficiency mean India has a long way to go before it can come close to rivalling China as the favourite place to invest for Taiwan firms.

But ties between Taiwan and China have been tense under the administration of pro-independence Taiwan President Chen Shui-bian, who plans to tighten the rules on major investments in China and make firms jump through more hoops to get approval.

In some ways, India seems like a natural alternative.

"India is a virgin market and the potential is huge. It's like going into China a decade ago when everything is just happening," Wang Tsu-ching, president of ETR Electronics Co, said from Taichung city in central Taiwan.

"The biggest pull in India for us is the growing middle class buying up things like televisions," said Wang, whose firm makes capacitors and light-emitting diodes used in home appliances.

Taiwan firms such as Acer Inc, the world's number four computer vendor, electronic parts maker Hon Hai Precision Industry Co and computer gear and mobile phone company BenQ Corp have poured $160 million into India, a sum likely to rise several times over in coming years.

The Taiwan government has also touted other markets in central Europe and Latin America, but India is a particular focus as commercial ties with Asia's third-largest economy increase.

Bilateral trade rose 25 per cent to $2.44 billion in 2005. India was Taiwan's 19th largest export destination and ranked 28th as a source of imports, Finance Ministry data shows.

The sums are small compared with China, Taiwan's top trading partner. Bilateral trade was a whopping $64 billion in 2005. To date, Taiwan has invested $48 billion in China by official data, though analysts say the figure could be as high as $100 billion.

To give its initiative a push, the government is sending a delegation to India in May to explore opportunities in car components, technology, food, textiles, pharmaceuticals, tourism and venture capital.

"India is a potentially huge market in terms of its population, size and economic growth. It's comparable to China," said Lee Hong-liang, a section chief from the investment department under the Economics Ministry.

"Currently trade is still quite limited between Taiwan and India and hence there is a lot of room for growth," Lee said.

Pros and cons

India's economy is forecast to have expanded 8.1 per cent in the year to March 2006, after growing by more than 7 per cent in the past two years.

Out of its population of more than a billion people, some 300 million now earn enough to be called middle class, potential customers for the goods that Taiwan produces.

For its part, India is keen to kickstart the manufacturing of high-end electronics and boost its share in gross domestic product, where services contribute almost 50 per cent.

For now, though, most Taiwan firms prefer to set up distribution companies in India and leave production in China, mainly because unit labour costs are cheaper.

A common language and culture, to say nothing of geographical proximity, add to the attractions of China. About a million Taiwan people live on the mainland, half of them in Shanghai alone.

But political worries about India may also be affecting investment thinking.

India's economic reforms, including opening up the insurance and retail sectors to foreigners, have encountered setbacks as the government faces opposition from its communist allies.

"We won't be setting up production facilities in India in the near future due to difficulties in management and a lack of infrastructure," said an executive from one company that has investments in India.

"Tax issues are also quite complex as it varies from place to place," said the executive, who declined to be identified.

Some analysts say the government's latest push to go to India might have the same limited success as its "go south" strategy 13 years ago to encourage companies to invest in southeast Asia.

"Taiwan businessmen are very savvy. The government can try and urge them to invest in certain places, but ultimately, it's market forces that determine their decisions," said Tzong-shian Yu, director of the Chinese Institute of Economics and Business.

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