Taiwan’s Tech Image: Digital Nation or Competition Killer?

Taiwan’s Tech Image: Digital Nation or Competition Killer?
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What you need to know

The Tsai government risks being known internationally as a tech ‘competition killer,' just as it tries to reposition the country as a ‘digital nation.’

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“We respectfully request that further action on these competition-killing proposals be halted,” Michael Beckerman, president of the United States Internet Association, wrote in a letter to Taiwan President Tsai Ing-wen (蔡英文) this month.

The letter was prompted by the regulatory quagmire surrounding the world’s biggest ridesharing service and one of the best-known Silicon Valley startups, Uber, which continues to dominate headlines in Taiwan for the wrong reasons.

A suite of measures by officials, including meteoric proposed fines and a call to block access to the Uber application from mobile app stores, amounts to an “unprecedented targeting of a leading technology company and would effectively shut down ridesharing in Taiwan,” Beckerman says.

While the association’s letter focused on Uber and ridesharing, it easily could have been written about popular apartment-sharing business Airbnb, which remains illegal in Taiwan. And as Beckerman suggests, the regulatory minefield faced by new technology companies in Taiwan directly conflicts with the government’s stated vision of “becoming a digital nation and smart island.”

The Tsai-led government, which took office in May, sees startups and companies working on new technologies as a key part of its platform to ultimately transform Taiwan’s industry away from manufacturing.

As part of its “new economic model,” it has a "Asian Silicon Valley Development Plan" and plans to focus on four key industries, namely, smart machinery, green energy, biotech and pharmaceuticals, and national defense. The eight-year “Asian Silicon Valley” plan has two key objectives: promoting innovation and research and development for devices and applications of the internet of things (IoT); and, upgrading the country’s startup and entrepreneurship ecosystem. The plan will be measured against two key metrics: boosting Taiwan’s share in the global IoT market from 3.8 percent last year to 5 percent by 2025; and growing 100 successful companies, either local startups enjoying successful exits or R&D centers set up by large corporations.

To improve Taiwan’s competitive advantage, the government has pledged to fix a plethora of legacy issues: adjusting financial regulations around business establishment and management; simplifying procedures for foreign companies to invest in Taiwan; loosening regulations for hiring foreign talent; and, tax incentives for angel investors, among them.

But Taiwan is not alone in its desires in this space. As David Sutton recently wrote in The Diplomat, while the potential payoffs could be huge for Taiwan, it is just one of several countries in Asia competing to be the region’s innovation powerhouse.

“Taiwan is entering a crowded field; South Korea, China, and Japan are all regional competitors of IOT innovation,” Sutton, a research analyst at the NATO Association of Canada, said. “Taiwan also has a smaller population than its regional rivals and a small domestic market, and is not a member of the UN, which shuts it out of many trade and financial agreements.”

Moreover, as Taipei-based Bloomberg columnist Tim Culpan recently noted, there's a lot to suggest 2017 may be the year of Southeast Asian startup, “with big names from 500 Startups Management Co. to Google Inc. talking up the region.”

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'Orthogonal issues'

Uber, which has already amassed at least NT$150 million (US$4.7 million) in fines in Taiwan, is now staring down the barrel of a proposed new law that could be hit with a NT$25 million (US$784,000) fine for a single law breach.

Interestingly, Taiwan’s “digital minister” Audrey Tang (唐鳳) – a cabinet-level minister without portfolio with responsibility for the digital economy and open government – does not appear concerned that the controversy surrounding companies like Uber and Airbnb will dissuade people from engaging with the country’s startup scene.

“I think this issue is orthogonal to early-round funding of Taiwan startups,” she told The News Lens.

A visiting Uber advisor recently commented, "To be saying you want to be the Silicon Valley of Asia, and potentially pushing out other countries’ innovative companies, is not the right message."

Tang suggests that the name of the government’s project may have been misconstrued.

“To me, the ‘Asia Silicon Valley’ plan is about linking with Asia and connecting to the Silicon Valley; it's not about becoming the Silicon Valley of Asia,” she said.

Still, it is difficult to reconcile Tang’s view with the message from Uber, and from the U.S. Internet Association, that the Uber saga is doing damage – in addition to Uber and Airbnb, the organization’s members include Facebook, Google, Twitter and LinkedIn.

Commenting on the government’s proposed regulatory treatment of Uber, Beckerman says, “If these proposals move forward in their current form, we fear this will only give Taiwan a black-eye by drawing up a blueprint regarding how to most effectively protect monopolies and cartels from the consumer-oriented power of the internet.”

Uber's Taiwan general manager Gu Li-kai (顧立楷) in an interview with ICRT, outlined the risk of what would happen if the government is not able to create the type of environment for these startups to thrive and to compete with each other.

Gu said when Uber first entered the market three years ago, he was “super excited” to see Uber make Taiwan one of its early priority markets.

“Typically we see bigger U.S. technology companies take a little bit of time before they enter the Taiwan market,” he says.

Now, given the ongoing, very public, battles the company is having with regulators, he is less optimistic about the future of Taiwan’s startup ecosystem.

“I’m afraid that it is possible that these companies might decide to take their talents to other markets where they feel like it has potentially a more friendly environment,” he says. “I really feel like we are at a crossroads right now in terms of the overall development of the industry.”

In June, before she had been appointed to the Cabinet, Tang said Taiwan had “solved the Uber problem” via a new online open government forum process. She also commented at the time, “I see Uber as an epidemic of the mind. You don’t negotiate with a virus. All you can do is inoculate people: by deliberation, thinking deeply together to develop your immunity to their PR agenda. When you think about something very deeply together you’re immune.”

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Photo Credit: Reuters/達志影像
Taiwan president-elect Tsai Ing-wen reacts next to former finance minister Lin Chuan (L), during a news conference announcing Lin as premier, in Taipei, Taiwan March 15, 2016.
A question of exposure

Away from the clouds of controversy shrouding Uber, Taiwan’s fledgling startup scene is making strides. While investments are still small compared to other markets, the numbers are tracking in the right direction.

In March, the National Development Council said 29 Taiwanese start-ups had received investments of more than US$450 million in total in 2015, up from US$160 million a year earlier. Some of the start-ups to receive funding in recent years include, Pinkoi, VMFive, BoniO, MoBagel, TutorABC and Gogoro. In 2015, about three quarters of the 19 venture investments made in Taiwanese startups last year went to “Series A” funding of newcomers, Forbes reported in March. Taiwan Startup Stadium (TSS) is a government funded startup hub, launched in May 2015, focused on internationalizing the Taiwan tech startup ecosystem. In the past 18 months, it has referred more than 10 startups into global accelerators, more than five into funding investments and educated more than 130 on how to expand offshore, according to its manager Anita Huang (黃蕙雯).

Thomas Debass is the U.S. State Department’s acting special representative for global partnerships. He was in Taiwan last month meeting with officials, “digital minister” Tang, Kuomintang (KMT) legislator Jason Hsu (許毓仁) and a number of local entrepreneurs.

In an interview with The News Lens in Taipei, Debass said the key challenge for Taiwan’s startup sector may be “exposure.”

Debass says he has been “awed” by the talent in Taiwan, the “zeal” Taiwanese have for innovation, and impressed by the “desire” on the part of officials to facilitate the sector’s growth. As Taiwan looks to develop its startup sector it is in a good position to build on its “very deep” experience in technology hardware, he says. Many economies don’t have such a “robust” technology background to leverage.

Further, Debass was surprised to learn during his visit that annual licensing of U.S. intellectual property exports to unaffiliated Taiwan firms is already valued at about US$5 billion.

“That is huge,” he says, adding that it shows the strength of the connection between economies of Taiwan and the United Sates.

However, tech players in the U.S. “might not have an informed opinion of what Taiwan can offer,” he says.

“I think changing this perception can go a long way in deepening that relationship.”

Debass also noted there could be reasons for potential investors to be cautious about dipping their toes in the Taiwan market. For instance, Taiwan law restricts companies to be profitable for two years before an initial public offering of shares (IPO) on a local stock exchange.

Debass did not name a particular company or investment firm. He said it was possible to “stipulate” that venture capitalists would be put off from investing under the current regulations as having a “clear and visible” path for investors to exit was an important feature of the U.S.’ startup ecosystem.

“IPO is always the promised land,” he says. “Imagine Amazon; Amazon would have never gone public if that was the case.”

Commenting on the role of government funding in the startup sector in Taiwan, Debass suggests that rather than provide direct funding it should at look at creating incentives to unlock private capital.

“This is not a place where you have a lack of capital in the private sector.”

Taipei 101
Photo Credit: Antonio Tajuelo @ Flickr CC By 2.0
International destination

Part of the stated goal of the Asian Silicon Valley platform is to better connect Taiwanese startups with international players.

However, some tech sector insiders, including Legislator Hsu – who before joining the KMT worked for Silicon Valley startups and founded TEDxTaipei – say that to internationalize Taiwan’s tech ecosystem, the government must relax capital and sales revenue requirements, which make it difficult on smaller players to hire foreigners.

“I come from the startup community,” Hsu told TNL in November. “I have experienced similar difficulties and challenges when I’ve tried to raise capital or hire foreign workers.”

Taiwan’s cumbersome immigration controls – understood to have been a hangover from fears around overseas workers taking the jobs of locals – are under review.

Debass noted the benefits of immigration to the startup sector had been a “huge asset” for the U.S., and why Taiwanese should not fear an influx of workers from offshore.

“Diversity brings a tremendous amount of ideas, experiences and fresh thinking,” he says. “Most of the big companies that you know of in America have been co-founded or founded by immigrants or children of immigrants.”

According to a 2012 report by the entrepreneurship-focused Kaufman Foundation in the U.S., more than half of all companies founded in Silicon Valley by 2005 were founded by immigrants – this number had since declined to 44 percent in 2012. Forbes noted last year that among the top companies in Silicon Valley – based on market capitalization – 30 percent were run by an immigrant. That included Google’s Indian-born Chief Executive Sundar Pichai and Israeli-born Oracle Chief Executive Safra Catz.

Editor: Olivia Yang