2012vol.42No.04 by AmCham Taipei

IN e TeA Re DU le po ST com rt o RY Se n FO cto CU r S

THE AMERICAN CHAMBER OF COMMERCE IN TAIPEI

Taiwan Business

Topics

Modernizing the Airport 桃園機場重新出發

TAIWAN BUSINESS TOPICS April 2012 | Vol. 42 | Issue 4 中華郵政北台字第號執照登記為雜誌交寄 5000 4_2012_Cover.indd 1

NT$150

April 2012 | Vol. 42 | Issue 4 www.amcham.com.tw

ISSUE SPONSOR

2012/4/27 6:50:41 AM

CONTENTS NEWS AND VIEWS

6 Editorial a p ril 2 0 1 2

The Need for Urban Renewal

vOlumE 42, N umbEr 4 一○一年四月號

推動都更仍有必要

7 Taiwan Briefs Publisher

Andrea Wu

By Jane Rickards

發行人

11 Issues

吳王小珍

Editor-in-Chief

Art Director/

Encouraging Over-the-Counter Drugs; Too Many Product Standards for Textiles and Footwear; USTR’s Latest List of Trade Concerns

總編輯

Don Shapiro

沙蕩美術主任 /

Production Coordinator

Katia Chen Staff Writer

Jane Rickards

後製統籌

陳國梅採訪編輯

鼓勵非處方藥品；紡織品與製鞋標準亟需整合；美國貿易代表署公布年度國家貿易評估

李可珍

Manager, Publications Sales & Marketing 廣告行銷經理

Irene Tsao

曹玉佳

Translation

Zep Hu

By Don Shapiro

翻譯

胡立宗

COVER SECTION

15 Modernizing the Airport American Chamber of Commerce in Taipei 129 MinSheng East Road, Section 3, 7F, Suite 706, Taipei 10596, Taiwan P.O. Box 17-277, Taipei, 10419 Taiwan Tel: 2718-8226 Fax: 2718-8182 e-mail: amcham@amcham.com.tw website: http://www.amcham.com.tw 名稱：台北市美國商會工商雜誌發行所：台北市美國商會臺北市10596民生東路三段129號七樓706室電話：2718-8226 傳真：2718-8182 Taiwan Business TOPICS is a publication of the American Chamber of Commerce in Taipei, ROC. Contents are independent of and do not necessarily reflect the views of the Officers, Board of Governors, Supervisors or members. © Copyright 2012 by the American Chamber of Commerce in Taipei, ROC. All rights reserved. Permission to reprint original material must be requested in writing from AmCham. Production done in-house, Printing by Farn Mei Printing Co., Ltd. 登記字號：台誌第一零九六九號印刷所：帆美印刷股份有限公司經銷商：台灣英文雜誌社台北市105敦化北路222巷19之1號1樓發行日期：中華民國一○一年四月中華郵政北台字第5000號執照登記為雜誌交寄 ISSN 1818-1961

OFFICERS: Chairman/ Bill Wiseman Vice Chairmen/ William E. Bryson / David Pacey Treasurer: Carl Wegner Secretary/ William J. Farrell 2011-2012 Governors: William E. Bryson, William Farrell, Christine Jih, Steven Lee, Neal Stovicek, Carl Wegner, Bill Wiseman. 2012-2013 Governors: Richard Chang, Sean Chao, Michael Chu, Varaporn Dhamcharee, Revital Golan, David Pacey, Lee Wood, Ken Wu. 2012 Supervisors: Douglas Klein, Richard Lin, Catherine Teng, Fupei Wang, Jon Wang. COMMITTEES: Agro-Chemical/ Melody Wang; Asset Management/ Christine Jih, Winnie Yu; Banking/ Victor Kuan; Capital Markets/ Jane Hwang, Jimin Kao, C.P. Liu; Chemical Manufacturers/ David Price; CSR/ Lume Liao, Fupei Wang; Education & Training/ Robert Lin, William Zyzo; Greater China Business/ Helen Chou, Stephen Tan; Human Resources/ Richard Lin, Seraphim Mar; Infrastructure/ L.C. Chen, Paul Lee; Insurance/ Mark O’Dell, Dan Ting, Lee Wood; Intellectual Property & Licensing/ Jason Chen, Peter Dernbach, Jeffrey Harris, Scott Meikle; Manufacturing/ Thomas Fan; Marketing & Distribution/ Christopher Fay, Wei Hsiang, Gordon Stewart; Medical Devices/ Nelson Hsu, Daniel Yu; Pharmaceutical/ David Lin, Edgard Olaizola, Jun Hong Park; Private Equity/ William Bryson, Steve Okun; Real Estate/ Tony Chao; Retail/ Prudence Jang, Douglas Klein; Sustainable Development/ Kenny Jeng, Davis Lin; Tax/ Cheli Liaw, Jenny Lin, Josephine Peng; Technology/ Revital Golan, R.C. Liang, John Ryan, Jeanne Wang; Telecommunications & Media/ Thomas Ee, Joanne Tsai, Ken Wu; Trade/ Stephen Tan; Transportation/ Michael Chu; Travel & Tourism/ Pauline Leung, David Pacey.

桃園機場重新出發 By Jane Rickards 撰文／李可珍

After years of decline, the Taiwan Taoyaun International Airport is undergoing a thorough facelift and expansion at Terminal 1, plus an overhaul of its runways. Bidding will begin soon for construction of a new Terminal 3, and the MRT airport link is due to be operational next year. The government hopes these improvements will enable the facility to become a major regional hub, particularly as a transit and transfer point for traffic between North America and inland cities in China. 經過三十多年的使用，台灣桃園國際機場終於開始翻新第一航廈與重鋪兩條跑道。另外，第三航廈的工程招標即將開始，機場捷運明年也將啟用。政府希望前述工作能讓桃機改頭換面，爭取區域樞紐地位，甚至成為北美與中國內陸間不可或缺的轉機要點。

24 Whatever Happened to the Taoyuan Aerotropolis? INTERVIEW

25 Ford’s Perspective on the Asian Car Market

Dave Schoch, chairman and CEO of Ford Greater China, sat down with TOPICS during a recent visit to Taiwan. By Timothy Ferry

TAIWAN BUSINESS

28 Perspectives on Private Equity

The right investment partner can help open new vistas for a company seeking to upgrade. By Don Shapiro

taiwan business topics • april 2012

4 Contents.indd 4

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apri l 2012 • Volume 42 n umbe r 4

iSSuE SpONSOr

WHY TAIWAN MATTERS

33 Crucial Role in the Security of Asia

Taiwan’s strategic geographical position gives the island immense importance for maintenance of the U.S. presence in the Asia-Pacific. By June Teufel Dreyer

iNDuSTrY

CuS

Finding the right Technology: a report on the Telecom Sector

38 A Bridge to Nowhere? By Alan Patterson

41 Looking Beyond WiMAX By Timothy Ferry

44 Commentary: the Importance of Spectrum Management By Jason T. Wang

CHAMBER EVENTS

49 Hsieh Nien Fan 2012

CORRECTION In the article “New Opportunities to Partner with Fulbright” in the Issues column of the March issue, an incorrect contact email address was given for William Vocke. The correct address is wvocke@fulbright.org.tw .

taiwan business topics • april 2012

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The Need for Urban Renewal

ne of the biggest news items of the past month in Taiwan was the questionable razing of two houses in Taipei’s Shilin District – over the objections of the owners and with the protection of a phalanx of police officers – as part of an urban renewal project. The incident caused an outpouring of public indignation, as the property had been the home of the Wang family for generations and the demolition was apparently conducted without a proper permit. Mayor Hau Long-bin’s later expression of regret did little to quell the criticism. Clearly, proper procedures to safeguard the rights of property-owners were not followed in this case, but it would only compound the misfortune if this experience were allowed to set back the overall progress of urban renewal in Taiwan. The need for redevelopment in the major cities, especially Taipei, is evident from a number of perspectives. One is the high price of real estate, which is putting home ownership beyond the means of many people and causing others to commute from far out in the suburbs, exacerbating transportation and energy problems. Given the unavailability of vacant land in the cities, urban renewal is the best option for increasing the housing supply and lowering the prices in more central locations. In addition, Taipei is filled with poorly constructed residential buildings erected hastily about four decades ago to accommodate the influx of migrants from rural areas. These aging structures are mainly walk-ups, unsuitable for this society’s increasingly aged population, and the materials and methods employed in the

construction make them less safe against fire and earthquakes than their newer counterparts. Built mostly without benefit of an architect’s designs, these cement boxes also detract from the city’s attractiveness – and contrast sharply with the visual appeal of most of the more modern structures. What has held up the pace of urban renewal in Taiwan so far has been the lack of a sufficiently fair and efficient governmentmonitored system for putting projects together and ensuring that they can be carried out. Such a system needs to simultaneously look after the rights and interests of the developer, of home-owners in favor of redevelopment, and of home-owners who oppose it. When nearly all of the property-holders on a site have agreed to the terms offered by the developer, an arbitration mechanism should be in place to rule judiciously on the claims of the hold-outs without the case dragging on for months or years. The rights of the minority deserve to be protected, but so do those of the large majority (usually 80% agreement is required) who have committed to the project and need to be able to plan their lives with some certainty. Only after all legal procedures have been completed, of course, should any demolition work proceed. The Wang family incident was a tragedy that should not be allowed to be repeated, but it should not cast a pall over the concept of urban renewal in general. For Taipei to reach its potential as a vibrant, attractive, international metropolis, as well as one with an adequate supply of high-quality, affordable housing, urban redevelopment is a must.

推動都更仍有必要

台

北市「文林苑都更案」三月強

人潮不僅造成交通壅塞、也形成能源浪

三方權益，意即開發商、支持都更計畫

制拆除王家透天厝，儘管住戶

費。鑑於市區空地難求，都更即為增加

住戶，以及反對都更者的權利與利益。

表明不願參加都市更新計畫，

房屋供應、降低市區房價的最佳手段。

一旦絕大多數現住戶同意都更，仲裁機

但仍不敵優勢警力的重重包圍。輿論抨

此外，台北地區1970年代前後趕工興

制必須儘速處理反對者的訴求，避免全

擊與民意反彈的主因，除了王家歷代世

建大量建築工程品質粗略的住宅，以因

案長期拖延。少數反對者的權益必須保

居北市士林，也包括公權力介入的正當

應鄉村湧入的求職人口。多數老舊公寓

障，但多數同意者（通常必須達到占建

性。市長郝龍斌稍後雖表示「遺憾」，

靠樓梯上下，不利台北日漸增加的老年

案的80%）也必須確定進度以規劃未來

亦無助於平息民怨。

人口，而其建築材料與工法的防火耐震

安排。當然，在所有法律手段已經窮盡

文林苑一案中，居民權益顯然未獲

程度亦低於新式建築。當時的公寓許多

之後，才能動工拆屋。

適切保障；然而，如果此一負面案例導

未經專業的建築設計與規劃，如今這些

王家的案例誠然不幸，民意也不樂見

致台灣都市更新計畫停擺，無疑將造成

水泥樓群也造成雜亂無章的都市景觀，

類似案例一再重演，但個案不應該影響

更大的負面效應。從許多方面來看，國

與其後多數新穎建物形成強烈對比。

整體都更。因為對台北來說，要想成為

內大城都亟待更新，特別是台北市。舉

台灣都市更新腳步遲緩的原因，在

朝氣蓬勃、魅力無窮、全球匯萃的大都

例來說，房價居高不下導致許多人無力

於政府欠缺公平有效機制，以鼓勵都更

會，同時具備高品質、買得起的住宅，

購屋，其中不少人只好越搬越遠，通勤

並確保計畫執行。此一機制必須能兼顧

都市更新確為必要手段。

taiwan business topics • april 2012

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— BY do n sh ap i ro —

Economic Indicators

MACROEONOMICS ELECTRICTY, FUEL PRICES TO RISE Amid a slow and fragile global recovery and worries about the European sovereign debt crisis, two new factors popped up in Taiwan’s macroeconomic soup-mix in the form of hikes to gasoline and electricity prices. In early April, the government allowed gasoline prices to rise by an average of 10.7% by removing previous subsidies. Then it was announced that the state-owned Taiwan Power Co. (Taipower) will hike electricity prices in mid-May to offset the company’s reported US$4.48 billion in losses since 2008 that resulted mainly from increased fuel costs. Electricity prices for industrial use will rise 35%, for commercial operations by 30%, and for households by 16.9%. Although the new policy will raise the cost of doing business and heighten the risk of inflation, it was widely agreed that existing rates were unrealistically low. Two local economic research institutes subsequently slashed their economic growth forecasts for 2012. The semi-official Chung-hua Institution for Economic Research (CIER) in mid-April put GDP growth for 2012 Taiwan stock exchange index & value

THE RED LINE SHOWS CHANGES IN TURNOVER AND THE SHADED AREA CHANGES IN THE TAIEX INDEX.

8500

185

8250

170

8000

155

7750

140

7500

125

7250

110

7000

6750

6500

6250

March chart source: TwSE

Current Account Balance (2012 Q4) 12.10 Foreign Trade Balance (Jan.-Mar.) 5.66 New export orders (Mar.) 38.37 Foreign Exchange Reserves (end Mar.) 393.87 Unemployment (Feb.) 4.25% Overnight Interest Rate (Apr. 5) 0.45% Economic Growth Rate (2012 Q1) p 1.19% Annual Change in Industrial Output (Mar.) -3.42% Annual Change in Industrial Output (Jan.-Mar.) 1.31% Annual Change in Consumer Price Index (Feb.) 0.25% Annual Change in Consumer Price Index (Jan.-Feb.) 1.31% NOTE: P=preliminary

at 3.55%, down from an earlier forecast of 4.07%, mainly due to the fuel and electricity price hikes’ impact in increasing production costs, dampening private consumption, and raising the consumer price index (CPI) for the year to 1.93%, from an earlier forecast of 1.48%. CIER President Wu Chung-shu noted, however, that as headline inflation is due to these oneoff adjustments, the economy is not currently under significant inflationary pressure. It should also be noted that inflationary increases of under 2% are considered relatively mild. The Taiwan Institute of Economic Research (TIER) also decreased its economic growth forecast for this year to 3.48% from an earlier 3.96%. It also adjusted its inflation forecast to 1.98%, from an earlier 1.46%, citing rising uncertainties about consumer prices and weaker-than-expected global economic momentum. Meanwhile, the International Monetary Fund in its latest World Economic Outlook report forecasts that Taiwan’s economy will grow by 3.6% this year and strengthen to 4.7% next year. Analysts are divided as to whether the Central Bank will respond by tightening monetary policy when it meets in June. Exports, at US$26.34 billion in

Year Earlier 9.44 4.55 38.99 392.63 4.29% 0.29% 6.62% 14.64% 1.33% 1.11%

SOURCES: MOEA, DGBAS, CBC, BOFT

March, were down by 3.2% over the same month of last year (although they increased compared with February), while the US$23.99 billion in imports represented a 5.8% decline from the year before. The trade surplus came to US$2.63 billion. Exports to Europe, at 11.6%, showed the greatest slump year-on-year, the Ministry of Finance said, reflecting economic uncertainties there and the austerity measures that are sapping demand. Export orders, a sign of things to come in the next several months, at US$38.4 billion were also down 1.58% year on year, the Ministry of Economic Affairs said, as global demand for high-tech electronics recovers slowly.

CROSS-STRAIT SEMI-OFFICIAL OFFICES TO BE SET UP IN CHINA Ta i w a n ’s g o v e r n m e n t - s p o n sored (but nominally private) tradepromotion organization, the Taiwan External Trade Development Council (TAITRA), has applied to set up offices in Beijing and Shanghai following adjustments completed in mid-April to relevant Taiwanese laws. The offices would be the

Unit: NT D billion

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first from a Taiwan governmentrelated institution to be located in China. TAITRA said it is likely to apply to set up trade offices in other m a i n l a n d c i t i e s s u c h a s Wu h a n , Guangzhou, Dalian, Qingdao, and Chengdu, while a Chinese counterpart organization is expected to open an office in Taiwan this year. The establishment of reciprocal representative trade offices in the form of non-profit organizations was one of the provisions in the Economic Cooperation Framework Agreement (ECFA) signed by Taiwan and China in 2010. Experts said that while the move is significant, TAITRA has limited scope and this arrangement does not amount to an exchange of representative offices having diplomatic and consular functions. In a separate development, the Mainland Affairs Council announced that the first permanent official representative offices in Hong Kong and Macau will be formally opened in mid-May.

SIX CHINESE CITIES ADDED FOR INDIVIDUAL TOURISM Beijing is broadening the ability of individual Chinese travelers to come to Taiwan, allowing residents of six more Chinese cities to qualify to visit the island without being part of a tour group starting in late April. In addition, Taiwan's ceiling on the daily entry of individual Chinese travelers was raised from 500 to 1,000. The cities added were Tianjin, Chongqing, Nanjing, Guangzhou, Hangzhou, and Chengdu, while Jinan, Xian, Fuzhou, and Shenzhen reportedly are likely to be included by the end of the year. Previously the program was open only to residents of Xiamen, Beijing, and Shanghai. Chinese tourism has become an important driver of Taiwan’s economy since tour groups first began arriving in 2008. Chinese tourists brought an estimated US$2 billion into the economy in 2010.

STOP THOSE BULLDOZERS — Demonstrators protest the city government's move to raze two houses in Shilin over the property-owner's objections. . photo : cna

TURBULENCE IN CCP UNLIKELY TO HAVE CROSS-STRAIT IMPACT The political turmoil in the Chinese Communist Party (CCP) surrounding high-level politician Bo Xilai, who was brought down by a scandal involving the mysterious death of a British businessman, may be rocking China and fascinating the world, but it is considered unlikely to have any marked effect on cross-Strait relations. Bo, now under investigation for violating party discipline, has been stripped of his positions as Communist Party chief in Chongqing and member of the elite 25-member Politburo, while his wife is under investigation for the Englishman’s murder. Analysts say it is the most serious Chinese political disruption since the 1989 Tiananmen Square massacre, and the timing is especially sensitive as the CCP faces a leadership transition this fall. Fan Liqing, a spokesperson for Beijing’s Taiwan Affairs Office, reassured Taiwanese

reporters that the investment environment in Chongqing will remain unchanged. In recent years, Chongqing has seen a large influx of Taiwanese investors, as companies like Acer and Hon Hai locate there in search of cheaper land and labor. Lin Chongp i n , a C h i n a e x p e r t a t Ta m k a n g University, was quoted by the Taipei Times as saying that Bo’s downfall, along with other factors, could cause the Beijing leadership to be more patient with Taiwan. Lin, a former vice minister of the Mainland Affairs Council, said that China’s relatively tough foreign relations stance adopted since 2009 could have been a reaction to internal political instability.

DOMESTIC FORCED EVICTION OF FAMILY SPARKS URBAN RENEWAL DEBATE The dramatic forced eviction of a

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family surnamed Wang from their two ancestral homes in the Shilin district of Taipei in late March has triggered an emotional debate how urban renewal should be carried out. At the heart of the debate is a law stating that if a certain proportion of the property owners on a given site (75% or 80%, depending on the type of project) give their consent to an urban renewal project, a construction firm can ask the government to demolish the buildings even if a minority of the owners still do not agree. The Wangs refused to leave the two-story houses that they had lived in for several generations to make way for a 15-story highrise construction, causing the Taipei city government to send bulldozers to raze the structures, with some 1,000 police officers dispatched to keep 300 protesters at bay. Questions were also raised as to whether the city government had followed proper legal procedures in ordering the demoli-

tion. Amid public outrage, the Taipei city government has appointed a panel to review the Urban Renewal Act, with the results to be presented to the Ministry of Interior in May.

I N T E R N AT I O N A L MA COMPLETES HIS FIRST VISIT TO AFRICAN ALLIES On his first visit to Africa – a 12-day high-profile tour that took him to allies Burkina Faso, Gambia and Swaziland – President Ma Yingjeou found himself engaged in several athletic contests with his hosts among African leaders. Ma visited hospitals in Burkina Faso and offered the nation one million Euros (US$1.32 million) – in addition to the 600,000 Euros previously pledged – to help with its refugee crisis caused by a coup d’etat in neighboring Mali. He then went on to Gambia, where he

donated US$3 million to help with a food crisis, and also led a victorious team of Taiwan officials in a soccer penalty-kick contest. In Swaziland, Ma jogged and did push-ups with King Mswati III, after which Ma contributed US$300,000 worth of notebook computers. The leaders of the three countries all hosted state banquets for Ma and accorded him the full pomp and pageantry reserved for heads of states. Ma said the African leaders had also promised to help Taiwan in its efforts to gain more international space, especially in its bid to become a long-term member of the World Health Organization. Taiwan has long been sharing its development experience with these countries in the fields of agriculture, medicine, and solar power.

MA MAKES FIRST-EVER STOPOVER IN INDIA On his way to Africa, Ma also

WHAT JET LAG? — President Ma Ying-jeou demonstrates his diplomatic fitness as he joins the king of Swaziland in a bout of push-ups.

photo : courtesy of presidential office

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Samsung and other rivals are soon to unroll their new models. HTC’s CEO Peter Chou forecast a rebound for the company, but noted that starting this year the United States would no longer be HTC’s largest market.

HTC PROFITS AND MARKET SHARE TAKE A TUMBLE

The Executive Yuan in late April accepted a proposal from the Ministry of Finance to impose a capitalgains tax on securities transactions starting next year, but in order not to drive away foreign investors, overseas investors without offices and direct business operations in Taiwan will be exempt. The plan, which still needs legislative approval and is likely to be challenged by some lawmakers, would levy a 15-20% tax on individual investors who earn more than NT$4 million annually from stock trades, the Executive Yuan said in a statement, but individuals would not be taxed on gains made from trading in futures. In addition, investors holding stocks for three years or more would be taxed based on only 50% of their gains. Local institutional investors earning in excess of NT$500,000 would face a 12-15% tax, while the existing securities transaction tax of 0.3% would remain unchanged.

CAPITAL GAINS TAX PROPOSED, EXEMPTING FOREIGN INVESTORS

Taiwan’s HTC, which rose from relative obscurity to become Asia’s second-largest smartphone maker within a decade, in early April reported a 70% drop in first-quarter profits to US$152 million, coming after a 26% decline in the final quarter of last year, amid stiff competition from global giants Apple and Samsung Electronics. The company, which came to prominence after its handsets adopted Google’s Android operating system much earlier than other players, also saw its revenues last quarter drop 35% from a year earlier. In April, HTC launched a new series of handset models called the “HTC One,” which the company will help boost its market standing. The new models allow the user to snap four pictures in one second, while simultaneously making videos. But industry observers say HTC does not have much time to regain its market share, as

TAIWAN'S JANUARY-march TRADE FIGURES (YEAR ON YEAR COMPARISON)

HK/China

ASEAN

Japan

2011

TOTAL

2012

6.6 7.3

Europe 7.3 7.9

U.S.

2011

2012

2011

2012

Imports

65.2 70.8

2011

2012

69.2 73.8

11.4

7.7 13

2012

7.6 12.1

2011

4.1

13.6

China Development Financial Holdings will acquire KGI Securities in a cash-and-stock deal worth NT$54.6 billion (US$1.85 billion), it was announced in early April. China Development, which has been moving from a background in private equity into a role in investment banking, said the deal involves a share swap scheme, under which each KGI share may be exchanged for 1.2 China Development Financial common shares plus NT$5.5 in cash. The Financial Supervisory Commission in late April gave the green light to

the deal, while Fitch Ratings said the move may spur more consolidation in Taiwan’s brokerage industry. The transaction is expected to give the two firms a combined market share in the securities business of 9.5%, second only to Yuanta Polaris Securities, which has around 15%.

4.4

KGI SECURITIES SOLD IN US$1.85 BILLION DEAL

5.6 7.5

BUSINESS

27.3

became the first serving Taiwanese president to set foot in India when his aircraft made a refueling stop in Mumbai. The diplomatic breakthrough reflected the increased economic activity between Taiwan and India, and the two governments’ interest in further deepening ties. The two-hour refueling stop in the Indian city formerly known as Bombay was not announced to the media until the plane was already airborne. Despite the secrecy, presumably designed to avoid efforts by China to block the transit stop, Beijing’s response when the news came out was relatively mute, a reflection of warmer crossStrait ties. At the Mumbai airport, Ma was greeted in the VIP lounge by Taiwan's representative to India Philip Ong as well as Maharashtra state government officials. He did not meet any Indian central government officials. “Transit diplomacy” is often used by Taiwanese leaders to step up ties with countries that do not accord diplomatic recognition to Taiwan. A stopover does not have the status of a formal visit, which China would object to.

6.8 8.1

30.2

10.1

10.7

Exports

2011

2012

Unit: US$BN Source: BOFT

taiwan business topics • april 2012

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Issues

Encouraging Over-the-Counter Drugs Promoting more self-care would relieve the national health program of some of its burden.

or relatively risk-free drugs to be available in pharmacies on an over-the-counter (OTC) basis rather than by prescription is a great convenience for consumers, saving them the time and cost of visits to the doctor. It is also helpful for the national healthcare system in relieving some of the burden on the resources of hospitals and clinics. Although no such research has been done in Taiwan, a recent study in the United States found that “on average every dollar spent by consumers on OTC medicines saves $6-7 for the U.S. healthcare system as a whole.” As a result, the U.S. Food and Drug Administration (USFDA) is looking at the feasibility of expanding the number of drugs available as non-prescription products, and in the United Kingdom even certain statins for cholesterol control have been classified as OTC. Considering the aging nature of the population and the financial strain on Taiwan’s National Health Insurance program, members of the pharmaceutical industry have been urging Taiwan to follow the international trend of increased reliance on OTC products for ailments suitable for patient self-care. Currently, the major categories of OTC drugs are analgesics (for relieving headaches and other pain), cough and cold remedies, vitamins and other supplements, and products for gastro-intestinal discomfort and motion sickness. Industry representatives suggest that such other products be added to the list as non-sedating antihistamines for allergic conditions and the 400-mg dosage of the painkiller ibuprofen (at present only the 200-mg version is available OTC, but pharmacists tend to recommend 400-mg for even moderate pain). In addition, some current OTC products could be considered for reclassification to the General Sales List (GSL), enabling them to be sold not only at drugstores but also in supermarkets, convenience stores, and mass-merchandise outlets like hypermarts. If this change were to include mild painkillers, it would be a boon to consumers – for example, to those experiencing a severe toothache or headache in the middle of the night when drugstores are closed and the only current option is going to a hospital and paying the high cost of emergency-room treatment. Once prescription drugs are reclassified as OTC, the Bureau of National Health Insurance (BNHI) would still have the option of maintaining their coverage for reimbursement under the national healthcare program. It currently reimburses health-providers for the use of an estimated NT$2.2 billion worth of OTC items a year. But BNHI is likely to face pressure in future to reduce costs by delisting OTC products such as cold remedies. The move would undoubtedly bring complaints from some patients, but in fact the cost to the consumer of buying the product in a drugstore would not be much different from obtaining it from a hospital after savings of time and transportation are factored in.

鼓勵非處方藥品推廣自我照護幫助減少健保負擔

低

風險藥物如果能以非處方藥（O T C）的形式在藥局供應，不必非得到醫院拿處方簽，應會讓消費者方便許多，因為既省時、又免負擔掛號費。此一作法同時有助全民健保財務狀況，降低醫療院所的給付負擔。台灣雖然沒有相關研究，但美國近期一項調查發現，「消費者每購買一美元的O T C藥品，平均能替醫療體系省下六至七美元」。因此，美國食品藥物管理局（F D A）正研究是否能夠擴大O T C涵蓋範圍。而英國也已允許特定種類的降膽固醇藥「斯達汀（statin）」為非處方藥。台灣社會持續高齡化，加上健保財務緊繃，製藥產業代表發出呼籲，期待政府跟上國際潮流，放寬自我照護藥品的管制。目前而言，非處方藥的主要類別包括：頭痛等的止痛藥、咳嗽與感冒藥、維他命與膳食補充劑，以及腸胃藥與暈車藥。業界代表認為，應該納入的其他產品包括：過敏用的無鎮靜作用之抗組織胺藥劑，以及400毫克的止痛藥「普羅芬（ibuprofen）」。目前藥房只能出售200毫克的普羅芬，但就算是中度疼痛，藥師往往也建議使用400毫克劑量。此外，一些常用的指示藥品應考量轉類為乙類成藥 (GSL) ，除了藥房，也能在超商、便利商店，以及量販店等大型連鎖通路銷售。如果常用的止痛藥能夠納入乙類成藥，將是消費者的一大福音，因為半夜藥局關門時牙痛或頭痛的人將不必花更多錢去醫院看急診或辛苦等到隔天早上。當處方藥轉類為指示藥品時，衛生署中央健康保險局仍可將這些藥品納入健保給付。健保每年給付OTC藥物費用約為新台幣22億元。但健保局未來很可能迫於財務壓力而不再給付感冒藥等指

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Issues Self-care through OTC products is seen as increasingly suitable for Taiwan consumers, given the higher level of education and sophistication in the society. A generation ago, patients relied almost entirely on physicians’ advice regarding healthcare, but many people now actively inform themselves by reading health-related articles, both online and off. In the past, manufacturers considering applying for reclassification of a product from prescription drug to OTC found that the procedure and conditions governing such a shift were not well defined. The Taiwan FDA could encourage more such applications by clearly laying out the requirements. —– By Don Shapiro

示藥品；一旦如此，必然引發部分病患的不滿。但事實上，消費者到藥房購買類似藥品的開銷並不會高過自醫院取藥，因為省下了時間與交通費用。台灣消費者已經越來越適合以OTC藥品進行自我照護，因為教育水準夠高，社會也越趨成熟。上一代的台灣人多半依賴醫生使用藥品，但現在的民眾多數都會透過網路或書籍吸收醫療保健資訊。以過去經驗，製藥商申請處方藥轉類為非處方藥，常會面臨規定及程序不清的問題。衛生署食品藥物管理局如能更加清楚地列出要求事項，可鼓勵更多藥品申請轉類為非處方藥。

—撰文／沙蕩

Too Many Product Standards for Textiles and Footwear A Hong Kong-based organization hopes to gradually bring more order to the industry.

he proliferation of different standards in the global textile and footwear industries has placed an increasingly heavy compliance burden on manufacturers, retailers, and distributors. A recent presentation in Taipei sponsored by the Taiwan Textile Federation introduced the efforts of the Hong Kong-based Global Apparel, Footwear and Textile Initiative (GAFTI) to gradually bring more order to the marketplace. The briefing was given by GAFTI board member Andre Leroy, who is also chairman of AmCham Hong Kong’s Apparel & Footwear Committee and marketing director of Modern Testing Services. GAFTI operates three subcommittees, devoted to product safety, social compliance, and environmental sustainability respectively. Regarding product safety issues, Leroy said that there are currently 14 conflicting standards in the world covering such chemicals as nickel, azo dyes, formaldehyde, lead, and phthalates. The situation may soon grow even more complicated, as 28 states in the United States are currently considering legislation governing toxic substances in textiles. Recognizing the difficulty of getting different government and non-government organizations to agree to harmonize existing conflicting standards, GAFTI at this stage is focusing 1) on creating new standards and testing methodology for items currently without standards, and 2) improving the consistency of testing of existing standards. Its working group on lead, for example, found a 33% variation in test results among different labs. By refining and unifying calibration methods, it has been able to reduce the discrepancy to 22% and is working to lower the gap still further so as to lessen the need for costly retesting. A similar process is underway for cadmium, and it will later be extended to other chemicals. 12

紡織品與製鞋標準亟需整合香港GAFTI組織企盼逐步統合產業標準

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球紡織品與製鞋產業的尺寸規格太過龐雜，已使生產廠、零售商與經銷商越來越頭大。台灣紡織業拓展會稍早在台北舉辦的會議中，香港「全球成衣鞋類及紡織品提案」（GAFTI）的董事Andre Leroy在簡報時指出， GAFTI計畫逐步推動產業標準的整合工作。Leroy 除了負責現代技術有限公司的市場行銷業務，亦兼任香港美國商會服裝與鞋類委員會主席。 GAFTI現有三個委員會，負責領域分別為產品安全、社會責任、環境永續。Leroy以產品安全為例指出，鎳、偶氮染料、甲醛、鉛、鄰苯二甲酸等化學物品，世界各地共有14種相互衝突的管理規範。狀況未來還可能更為複雜，因為美國有28 個州正計畫立法規範紡織品的有毒物質。鑑於難以獲得各國與非政府組織同意整合現有標準，GAFTI現階段的目標包括：一，為尚未建立產業標準的商品品項創造新的標準與檢測方法；

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Issues In terms of social compliance, such as requirements for factories to maintain safe and healthful working conditions, limit excessive overtime, and avoid the hiring of under-age labor, Leroy said the global industry is currently spending US$2 billion on enforcement, because each brand is setting its own standards and conducting its own auditing. Some staff members at textile mills spend nearly half their time each year making arrangements for and accompanying visiting auditing teams. GAFTI hopes to bring about a more centralized auditing process with uniform standards and documentation requirements. It views the development of a training and accreditation system for auditors and factory personnel as a vital part of that effort. Currently the qualifications of some of the auditors are doubtful, said Leroy, and there needs to be a way of disqualifying and blacklisting corrupt auditors who take bribes in exchange for ignoring abuses. The Taipei presentation was designed to spur greater interest in participating in GAFTI’s activities among both multinational and domestic companies. Bringing order out of the current chaos will be a long process, said Leroy, but it’s one that the industry has no choice but to undertake. —– By Don Shapiro

二，增進現有標準之檢測的一致性。舉例來說， GAFTI的鉛化物工作小組發現，不同實驗室的檢測結果差距可達33%。藉由改進與整合校準方式，小組已經使差距縮小至22%，未來也將繼續努力，以避免重複檢測所形成的浪費。GAFTI也已對鎘化物進行類似工作，未來也將擴展至其他化學物質。社會責任方面推動的計畫則包括：廠方必須維持安全健康的工作環境、限制過度加班，以及避免雇用未成年勞工。Leroy表示，全球紡織成衣業者落實上述規範所需經費總額約為20億美元，因為每家廠商自有一套管理標準與監督機制。部分紡織廠員工每年有近半的時間在為督察小組安排行程與陪同參觀。 GAFTI希望建立更為一致的監督機制，採行相同標準與文書格式，而發展督察與工廠人員的訓練及認證制度將是關鍵的一步。Leroy說，目前一部分督察員的資格可能有問題，而未來也必須建立退場機制，淘汰收受賄賂、包庇過失的人員。 GAFTI代表特別來台簡報，主要在鼓勵跨國與台灣廠商加入。Leroy強調，從目前的一團混亂中建立新的遊戲規則必然需要很長時間，但這卻是業界發展不得不然的必經之路。

—撰文／沙蕩

USTR’s Latest List of Trade Concerns

美國貿易代表署公布年度國家貿易評估

The agency annually reports on the status of issues with its major trading partners, including Taiwan.

內容指出與台灣等主要貿易伙伴的貿易障礙

he Taiwan section of the 2012 National Trade Estimates Report on Foreign Trade Barriers recently released by the Office of the U.S. Trade Representative (USTR) is instructive as a compendium of the current issues in the bilateral economic relationship as seen from Washington. Many of the items cited are familiar to AmCham members and other readers of this publication, including: • Intellectual property protection. While noting that Taiwan generally provides effective IPR protection and enforcement, the report mentions such continuing problem areas as “infringement of copyrighted material on the Internet; illegal textbook copying on university campuses and by nearby businesses; inadequate protection for the packaging, configuration, and outward appearance of products (trade dress); end-user piracy of software; signal theft of cable TV; trade secret theft and misappropriation; continued availability of counterfeit pharmaceuticals in Taiwan,” and the importation of counterfeit products from China. • Banking services. USTR refers to industry concerns about Financial Supervisory Commission (FSC) plans to require foreign subsidiary banks to surrender their branch licenses

美

國貿易代表署最近公布關於外國貿易障礙的國家貿易評估，其中關於台灣的章節足以反映美國關切的雙邊議題。而許多議題對台北市美國商會會員與TOPICS雜誌的讀者應不陌生： • 智慧財產權保障：評估報告指出，雖然台灣整體而言已有有效智財權保障與執法，但部分問題仍然存在，包括網路著作權侵權行為，大學與附近商家的教科書翻印，產品包裝配置外觀的保護不足，軟體最終使用者的侵權作法，有線電視私接現象，營業秘密竊盜與佔用，仿冒藥品持續存在，以及來自中國的仿冒品。 • 銀行服務：報告引述業界對行政院金融監督管理委員會兩項作法的擔憂，即外國銀行分行必須繳回分行營業執照，以及消費金融服務必須於國內設立資料處理中心。報告指出，「外銀抱怨金管會在此事的決策不夠透明，也不符國際慣例」。 • 證券服務：報告指出，金管會採取多項行政措施，限制資產管理公司所設境外基金。

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Issues and to establish stand-alone onshore data centers for their consumer banking units. “Foreign banks have complained about the nontransparent nature of the FSC decision-making on this issue and such new requirements’ variance with international practice,” the report says. • Securities services. The report notes that the FSC has adopted several administrative measures to restrict offshore funds established by asset management firms. • Pay television. After citing restrictions holding foreign investment in pay-television services to a 20% equity share for direct investment and 60% for combined direct plus indirect investment, the report notes that proposed amendments to the Cable, Radio and Television Law are expected to ease those restrictions. • Telecommunications. USTR mentions the problems Taiwan has faced (reported on in the Industry Focus in this issue) in promoting Wi-MAX services, and says that the National Communications Commission “has been ineffective in integrating telecommunications and broadcasting regulations, causing Taiwan’s telecommunications industry to fall behind in an era of digital convergence.” • Pharmaceuticals. The report cites industry recommendations for reforming the National Health Insurance system, including implementing a Drug Expenditure Target program to improve the stability and predictability of reimbursement rates, improving the reimbursement pricing for innovative drugs, and maintaining a reasonable differential in the pricing of original and generic drugs. • Medical Devices. Like the pharmaceutical manufacturers, the medical device industry has proposed suspending the Price Volume Survey mechanism and its subsequent price cuts, arguing that it “lacks transparency and does not reduce budgetary waste as intended.” • Beef and Pork. USTR said the “United States is deeply concerned about Taiwan’s trade practices affecting U.S. meat exports, including beef.” Those issues are discussed in more detail in another recently released USTR report focused specifically on agricultural matters. The document also goes into some issues that are less familiar to most AmCham members, including: • Rice. The United States “continues to engage Taiwan” about filling past shortfalls of about 70,000 metric tons in the agreedupon volume of imports of U.S. rice and about the impact of its ceiling price mechanism on the tendering process. • Distilled Spirits. The United States and other trading partners have expressed concern about the 2010 lowering of tax rates on “cooking rice wine,” and have asked for measures to ensure that domestic mijiu does not compete with, or substitute for, imported alcoholic beverages. • Tariffs. “U.S. industry continues to request that Taiwan lower tariffs on many goods, including large motorcycles,” the report states. Assuming resolution of the ongoing beef-import controversy and the resumption of trade talks under the bilateral Trade and Investment Framework Agreement (TIFA), it is likely that many of the issues raised in the report would be on the U.S. side’s agenda requests. —– By Don Shapiro

•

付費電視：報告表示，台灣限制外資直接持股不得超過20%，直、間接總持股不得超過 60%，不過有線廣播電視法修正案可望取消相關限制。 • 電信產業：報告提及台灣在推廣WiMAX服務上遭遇的問題（本期雜誌有專文報導），以及國家通訊傳播委員會未能有效整合電信廣播法規，導致台灣電信業在數位匯流發展中屈於弱勢。 • 製藥：報告引述，相關業者建議重整全民健保體質，包括落實藥品支出目標制度以提昇給付價格的穩定度與可預測性，修改新藥的給付制度，以及維持原廠藥與學名藥之間的合理價差。 • 醫療器材：如同製藥產業，醫材業者也希望暫停藥價調查與其後的給付刪減，因為此一作法欠缺透明度，也無法達成撙節開支的原意。 • 牛肉與豬肉：報告表示，美國高度關切台灣對美國牛肉等肉品進口的貿易措施，而相關議題在另一份農業專案報告中深入探討。商會會員較不熟悉的議題包括： • 稻米：美國持續對台溝通，以補足實際進口與配額數量間的7萬公噸差距，並化解稻米標購進口的價格上限機制所產生的影響。 • 蒸餾酒：美國與其他貿易伙伴關切台灣2010 年調降料理米酒稅率的作法，並要求台灣採取措施確保國內米酒不至影響進口酒類。 • 關稅：報告指出，美國廠商持續要求台灣降低多項產品的關稅，包括重型機車。美國牛肉進口台灣的問題若能解決，美台貿易暨投資架構協定下的談判或將恢復，該評估報告所提到的許多問題應會成為美方爭取的重點。

—撰文／沙蕩

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Cover story

AIRPORT

Modernizing the Airport 桃園機場重新出發 BY JANE RICKARDS

撰文／李可珍

photo : courtesy of norihiko Dan anD associates

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Cover story

W photo : courtesy of Norihiko Dan and Associates

經過三十多年的使用，台灣桃園國際機場終於開始翻新第一航廈與重鋪兩條跑道。另外，第三航廈的工程招標即將開始，機場捷運明年也將啟用。政府希望前述工作能讓桃機改頭換面，爭取區域樞紐地位，甚至成為北美與中國內陸間不可或缺的轉機要點。

hen it first opened in 1979, the Taiwan Taoyuan International Airport (then known as the Chiang Kai-shek International Airport) was considered one of the most advanced and fashionable in Asia. One of the “Ten Big Construction Projects” initiated by President Chiang Ching-kuo to modernize Taiwan’s infrastructure, the facility took over the role of main entry point into Taiwan from the outmoded and cramped Songshan Airport that now serves domestic and cross-Strait flights. Over the past decades, however, the Taoyuan Airport failed to keep pace with the dynamic pace of development in the Asian region, which now boasts many of the world’s top airports. Although Taiwan is a global star in the world’s information and communications technology (ICT) industry, critics have argued that the airport’s frumpy appearance and antiquated facilities do nothing to reflect this achievement to business travelers. “At this stage, it is probably one of the most rundown airports in Asia,” says Vivian Lo, general manager for Taiwan and Korea at Cathay Pacific Airways, summing up the feelings of many of those interviewed from the airline and tourism sectors. “This really does not match Taiwan’s image.” As tourism, driven by the influx of

1979

年啟用時，中正國際機場（現改為台灣桃園國際機場）曾是亞洲最先進與新穎的機場之一。身為蔣經國總統任內的「十大建設」之一，桃園機場取代松山機場成為台灣對外重要門戶。然而，其後數十年間，桃園機場跟不上亞洲民航的發展腳步，落後於許多城市的頂尖機場。批評者認為，台灣身為資通訊產業（ICT）重鎮，桃機陳舊的外觀與硬體實在無法反映產業活力。國泰航空台灣暨韓國區總經理羅穎怡說，「目前而言，桃機大概是亞洲最落後的機場之一」，「跟台灣的形象落差太大」。羅穎怡的看法也是許多航空與旅遊業受訪者的心聲。每年百萬中國觀光客帶動下，觀光旅遊占台灣經濟的比例越來越高，機場升級的必要性也越來越迫切。因此，為將桃園機場打造成中國與東亞的交通樞紐，政府推動多項硬

photo : courtesy of Norihiko Dan and Associates

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AIRPORT

millions of Chinese visitors per year, becomes a more significant driver of the island’s economic growth, the need for a top-notch airport has recently taken on added importance. In response, the government has come up with an ambitious vision for the airport to become a new gateway to China and an East Asian hub. Several projects have been launched to improve the airport’s physical plant in stages, with the aim of gradually bringing it up to the highest international infrastructure standards. These projects

include renovation of the 33-year-old Terminal 1, scheduled to be completed by the end of this year; an overhaul of the existing runways and construction of a Mass Rapid Transit link to Taipei’s outer suburbs, both to be completed sometime in 2013; and the building of a new Terminal 3, to be operational by 2018. “We are in a position to make the Taoyuan Airport a gateway to mainland China from around the world – not only for long-haul flights across the Pacific, but also from East Asia,” says Samuel

Lin, president and CEO of the Taoyuan International Airport Corp. Ltd. (TIAC), the state-run company established in November 2010 to take over the operation of the airport. One of the airport’s chief advantages, explains Yeh Kuang-shih, Deputy Minister of Transportation and Communications, is its central geographical location. The average flying time to the other main airports in Asia, for example, is 2.55 hours, the shortest for any airport in the region. Raymond Chang, general

When the first terminal opened in 1979, it was one of the most modern in Asia, but it has since been eclipsed by many new airports around the region. photo : TAOYUAN INTERNATIONAL AIRPORT CORP.

體環境改善計畫，以使桃機逐步趕上國際頂級水平。其中包括使用33年的第一航廈訂於年底完成翻新，現有跑道重鋪及機場捷運將於2013年達成，而旅客量更大的第三航廈則可望2018年啟用。桃園國際機場公司總經理林鵬良表示，「我們希望桃機成為全球進出中國的門戶，不只是橫跨太平洋的航班，還有東亞各國的客源」。交通部政務次長葉匡時表示，桃園機場的主要優點之一便是地理位置。桃機至其他亞洲主要機場的平均飛行時間為2.55小時，低於區域內所有機場。達美航空台灣區總經理張建仁則認為，桃機整建完成後，可成為東南亞與北美航班的最佳燃油補充航點。葉匡時證實東南亞國家的航空公司確實曾經表達，希望將桃機當成加油機場。一項外界忽略但其實深具意義的發展是，由於兩岸直航快速發展，台灣的航班已經可以通達43個中國城市，超過香港的40個航點。上海與北京的機場未來可能更加擁塞，中國西北與西部的居民經由台灣前

往美國與加拿大可能還更加便利。此外，交通部次長葉匡時認為，東南亞或北美前往重慶、成都或武漢等內陸城市的旅客，「將會發現台灣是個不錯的轉機地點」。直飛中國內陸都市的國際航班相對稀少，形成台灣發展的市場利基。葉匡時表示，台灣要完全發揮航運潛力，「我們仍須增加兩岸連結」，以及擴大全球宣傳，因為國際旅客與旅行社現在都將香港當成往來中國的轉運點。為了積極搶佔中國快速成長的海外旅遊市場，台灣必須說服中國放寬居民赴台旅行證件的限制，特別是對僅僅在台轉機的旅客。當被問到，南韓仁川國際機場與新加坡樟宜機場已經躋身國際一流，台灣如何才能抗衡強勢對手時，交通部的葉匡時承認競爭確實激烈，但亞洲航空市場成長快速，一定會有足夠空間供台灣發展。交通部曾經引述波音公司2010年的數據指出，亞太地區的航空運輸年增6.9%，高於全球平均的4.9%。葉匡時也認為，桃機必須與其他航站發展伙伴關係，特別是中國

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Cover story manager for Taiwan at Delta Airlines, adds that it is potentially the best refueling stop for planes flying between Southeast Asia and North America, once the airport’s infrastructure is modernized. Yeh confirms that some airlines from Southeast Asian nations have expressed interest in using the airport as a refueling point. What is less well known but even more significant is that cross-Strait direct aviation links have developed to the point where more Chinese cities (43) can be reached by air from Taiwan than from Hong Kong (around 40, according to the Hong Kong airport website). With the increasing congestion at the Shanghai and Beijing airports, Chinese travelers from northwestern and western mainland cities might find it much more convenient to transit through Taiwan on their way to the United States and Canada. In addition, says Yeh, travelers from Southeast Asia or North America heading for inland Chinese destinations such as Chongqing, Chengdu, or Wuhan will find that “Taiwan offers a good place to transfer flights.” Direct international flights to those interior cities tend to be rather infrequent, providing Taiwan with a market niche. Yeh notes that for Taiwan to take full advantage of this potential, “we need to further increase connections between

Taiwan and China,” and to engage in more promotion, since international travelers and travel agents now tend to think of Hong Kong as the gateway to China. To be able to fully tap into the rapidly growing outbound travel market in China, Taiwan would also need to obtain Beijing’s agreement to liberalize its policy on issuing travel documents to its citizens for travel to Taiwan, particularly when the purpose is merely to transit or transfer en route to another destination. Asked how Taiwan will be able to photo : courtesy of Norihiko Dan and Associates

西北地區。交通部的葉匡時表示，除了開發轉機客源，拓展貨運同樣重要。轉運中心的另外一個要件是桃機週邊的商旅設施，例如桃園航空城，也必須提供多元的轉機度假方案，吸引商務旅客在台灣多玩幾天。

拓展兩岸旅遊台灣2008年開放中國觀光客後，至去年11月已有 292萬人次訪台，大幅提振觀光產業。民航技術供應商台灣亞瑪迪斯的總經理劉家輝說，中國海外觀光的快速成長已使台灣的全球能見度更高，特別是經常出國的旅客，這些經濟條件較佳的族群，可能已去過泰國普吉島五次，想換換口味。台灣近來常被列為國際觀光忽略的潛力地點，例如澳洲人報2010年的評比，以及美國新聞網站msnbc.com在2012年的調查。另一個可喜的現象是，部分航空公司首度將桃園機場納入定期航點。香港航空三月開始降落桃機，荷蘭 18

compete against such other Asian hubs as Korea’s Incheon International Airport and Singapore’s Changi Airport that are considered to be among the world’s best, Yeh concedes that the competition is tough, but sees Asian air transportation as growing so rapidly that there will be sufficient demand for Taiwan to claim part of the pie. The Ministry of Transportation and Communications (MOTC) cites 2010 data from Boeing showing annual growth in aviation traffic of 6.9% in the Asia-Pacific, compared with the

皇家航空在取消台北直飛阿姆斯特丹的直飛班機之後決定恢復，印尼航空也計畫五月重新降落桃機。桃園機場公司另一項工作是提升旅客滿意度。具體目標是在三年內躋身「機場服務品質評比」（ASQ）的前十名。評比是由國際機場協會（A C I）每年編纂，被視為業界重要指標之一。評比主要指標包括報到與海關等候時間、行李推車可用數量、與市區間的交通服務等等。交通部的葉匡時表示，桃機目前的排名多半在20至30名。而仁川機場2011年已是第七度拿下榜首，其後為樟宜與北京首都國際機場。桃園機場改善計畫的第一步是耗資新台幣30億元整建第一航廈。一航廈過於老舊的問題，反映在近年層出不窮的管線與屋頂漏水現象。預定年底前完成的改建工程是由日本建築師團紀彥設計，以類似翅膀的斜頂象徵中國傳統屋頂。新的航廈除了提高屋頂以增加空間感，並將保險與其他營業櫃台由地面層移往三樓，增加可用空間。從大面積窗戶往外看，可一覽週邊景致。改建後的一航廈可增加13,000平方公尺的樓

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world average of 4.9%. Yeh also stresses the importance of developing cooperative alliances with other airports, especially those in some cities in northwestern China. Besides increasing transfer and transit traffic, the vice minister says the hub vision will also be achieved by expanding the number of cargo flights and developing business attractions around the airport (see the following story on the Taoyuan Aerotropolis), as well as by offering holiday stopover packages to

try to attract business travelers to extend their trip to take a bit of vacation in Taiwan.

Booming cross-Strait tourism Since Taiwan opened up to Chinese tourists in 2008 through last November, 2.92 million Chinese visitors had visited the island, boosting the tourism industry enormously. Daver Lau, general manager of Amadeus, an airport technology company, says the boom in Chinese

photo : ??

地板面積，使總面積達200,000平方公尺，年度旅客量可由現在的1200萬人次增加至1500萬人次，與二航廈合計可達3200萬人次。不過，第一航廈改建卻造成許多困擾。國泰航空的羅穎怡說，出入口一改再改，常讓旅客搞不清楚。不過，施工黑暗期即將過去，北側入境大廳與報到櫃台預定六月初步完成，南面與其餘櫃台則訂於十一月底完成。國泰的羅穎怡說，改建工程早就該做了，以國泰航空的櫃台來說，在完成改建後，「看起來好多了，富有現代感」。達美的張建仁則持保留態度，認為建築本身還是太老舊，最好還是拆掉重蓋。桃機公司的林鵬良表示，雖然負責遠程航線的第二航廈相對較新，2000年部份開放、2005年全部開放，但相關的改善工作還是持續在做，例如兩個航廈都將換成新的標示系統。林鵬良說，「我們是以香港國際機場為指標」。

tourism has helped to raise Taiwan’s profile around the world as a tourist destination, particularly with “discretionary travelers” – well-heeled types who, for example, may have been to Phuket five times and are looking for something new. Recently Taiwan has been frequently featured high up on lists of underrated international tourist destinations, such as those compiled in 2010 by The Australian newspaper and in 2012 by the news website msnbc.com in the United States. Another encouraging sign is that some additional airlines have recently put Taoyuan Airport on their route schedules. Hong Kong Airlines started service to the airport in March, KLM has resumed direct flights to Amsterdam after a break of many years, and the Indonesian airline Garuda is also scheduled to resume flying to Taoyuan in May after a long period of interruption. Raising the quality of the passenger experience at the airport is another of TIAC’s goals. Specifically, Taiwan Taoyuan International Airport has set the objective of being ranked within the next three years among the top 10 in the Airline Service Quality (ASQ) report, an industry benchmark produced annually by the Airports Council International. Key performance indicators include the check-in and immigration waiting times, baggage cart availability, transport service

翻新機場跑道桃園機場另一項重大計畫是新台幣百億的跑道重鋪工程，工程顧問包括荷蘭空港顧問公司與亞新工程顧問公司。北側跑道工程已經啟動，南側跑道招標作業會從八月開始，整個計畫預計2014年完工。除了重鋪工程，南側跑道也規畫由寬60公尺加寬至75公尺，長3,350公尺延長至3,800公尺，降落導引與其他設備也將更新。整修完畢後，桃機將可首度提供雙層、四引擎的廣體客機空中巴士A380起降。國泰航空的羅穎怡預估，延宕已久的南側跑道翻修工程大概得花上一年，「之前狀況很糟，只是尚未真正影響飛航安全」。她說，「在任何國家，關閉跑道超過一個月都很罕見」，而長時間只有單一跑道勢必影響機場運作。羅穎怡的另一個擔憂則是，飛機拖行的距離增加可能增加輪胎磨耗或破損。關於上述問題，桃機公司的林鵬良回應，跑道翻修將會分段進行，因此單一跑道起降運作的時間將不超

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Cover story into the city, and so on. Currently, the airport is usually ranked between 20 and 30, says Yeh, while by comparison the ASQ report in 2011 rated Incheon International Airport as the best in the world for the seventh year running, with Changi Airport coming in second, and Beijing Capital International Airport third. The first step the airport has taken toward reaching this goal is the NT$3 billion (US$100 million) renovation project at Terminal 1, where the roof was sometimes known to spring leaks on rainy days. Remodeling of the interior is due to be finished by the end of this year. The design is by Japanese architect Norihiko Dan, who also designed the beautiful Sun Moon Lake Administration Office for the Tourism Bureau, and features graceful sloping roofs reminiscent of a traditional Chinese cottage. The design elevates the interior ceilings to create a sense of greater spaciousness, and that feeling is enhanced by moving the travel insurance and other business kiosks from the ground floor entrance area to the third floor. Looking out through the terminal’s large windows, passengers will enjoy impressive views of the building’s surroundings. In all, 13,000 square meters of additional space will be added to Terminal 1, bringing the total floor area to 200,000 square meters. The annual passenger capacity

will be increased to 15 million, up from the current 12 million, bringing the entire airport’s passenger capacity to 32 million a year. While the renovations have been taking place, however, significant disruptions have occurred at Terminal 1. Cathay Pacific’s Lo notes the confusion caused for travelers by the frequent changes in the layout for entry and exit. But the work should be finished soon. The north expansion of the arrival hall and new check-on counters are expected to be partially completed by June, while the south expansion and the remaining counters are to be done by the end of November. The changes are “much welcome and much overdue,” Lo says. Referring to Cathay Pacific’s counters, which are already completely renovated, she says: “It does look much better – more contemporary and modern.” Delta’s Chang is more skeptical, saying that because the building is still far too old, he would have preferred to see an entirely new terminal constructed. TIAC’s Lin says that although Terminal 2, which mainly handles long-haul flights, is newer – it did not begin partial operations until 2000 and went into full operation in 2005 – it will also undergo improvements, such as a new signage system that will be introduced in both

過六個月。他也指出，成田國際機場等地也曾經經歷過單一跑道的時期，而拖行距離應不至影響飛機輪胎壽命。至於航空旅遊業者都認為極為重要的機場捷運，交通部的葉匡時表示工程進度順利，2013年將通車至三重，2015年則到台北車站。機場捷運在第一、二航廈與高速鐵路桃園站都會設站。國泰航空的羅穎怡分析，雖然第一航廈與機場捷運都很必要，但更為關鍵的是第三航廈的設計與管理。三航廈初估約需新台幣600億元，但不包括 224,000平方公尺的入出境大廳。另外，桃機公司曾表示將會引進國際頂尖設計團隊。三航廈位於二航廈停車場以西，主體建物的樓地板面積達421,000平方公尺；獨立的65,000平方公尺將供辦公、會議、商店、餐飲、休閒、展覽使用。三航廈每年客運量可達4300萬人次，使桃園機場的總量達7500萬人次。交通部的葉匡時表示，總體顧問契約的招標資訊 20

existing terminals. “We’ve been using the Hong Kong airport as a benchmark for this,” says Lin.

Overhauling the runways Another major project is the planned overhaul to the airport's two runways at a budgeted cost of around NT$ 10 billion. The general consultant is a consortium consisting of Netherlands Airport Consultants (NACO) and Taiwan’s Moh &Associates. Work on the north runway has started, and the tendering process for the south runway is expected to begin around August, with the entire project to be completed in 2014. Besides repaving, the overhaul of the south runway involves increasing the width from 60 to 75 meters and the length from 3,350 to 3,800 meters. Landing instruments and other equipment will also be updated, enabling both of the airport’s runways to accommodate the double-decker, wide-body, four-engine Airbus A380 for the first time. Cathay's Lo estimates the “long overdue” overhaul of the south runway will take a year to complete, as “the condition was pretty bad, but it hadn't compromised safety – yet.” She adds that “it is very rare for any country to close down a runway for more than a month,” and that availability of only one runway for

預定上半年公告，其後三個月內可望簽約。設計的國際競圖與建築施工招標將在2013年進行，預計 2014年動工後可在四年內完工。雖然投標廠商的名稱必須保密，但葉匡時證實，在去年的意見徵詢（RFI）後，至少有十家美國、歐洲、亞洲企業表達意願。與台北市美國商會保持聯絡以瞭解第三航廈招標進度的美國業者透露，此一建案是目前全球市場最具吸引力的機場建築案之一。桃機公司的林鵬良特別強調第三航廈的國際性質，例如招標文件將同時公布中英文版。他說，國內法雖然沒有要求各語言版本同步公告，但此一作法符合台灣加入世界貿易組織政府採購協定時的承諾。此外，桃機公司也不希望語言形成障礙，或被批評為變相保護國內廠商。他說，「我們一定會提供公平競爭的環境」。華眾營造工程公司董事長兼執行長、美國商會基礎建設委員會共同主席李雨朴表示，他對第三航廈的國際參與程度非常樂觀。亞瑪迪斯的劉家輝同樣

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such a long period is likely to cause a lot of operational constraints for the airport. Another of Lo’s concerns is that the increased towing of aircraft may cause additional wear and tear on the tires. Asked about these points, TIAC’s Lin responds that the runway overhaul will be carried out in stages, so that singlerunway operations will not last longer than six months. He also notes that other airports such as Japan’s Narita International Airport have gone through periods of single-runway operations, and that damage to airplane tires from towing was not a problem. With regard to the MRT link to the airport – a project that those in the aviation and tourism industries consider absolutely vital – construction has been proceeding smoothly and the system is due to open as far as Sanchong in 2013 and to reach Taipei Main Station by 2015, Yeh says. There will be stops in each airport terminal and at the Taoyuan High Speed Rail station. While improvements to Terminal 1 and an airport MRT are needed urgently, Cathay’s Lo says, the real key to the Taoyuan airport’s future is the proposed third terminal – including how well it is designed and managed. The project budget is NT$60 billion (US$2 billion), not including the cost of a 224,000 square-meter satellite concourse, and the

airport authorities say that top international talent will be engaged to design the structure. Located to the west of the Terminal 2 car park, the Terminal 3 complex will also include a 65,000 square-meter office building housing some corporate headquarters, meeting rooms, shops, restaurants, recreational facilities, and exhibition space. The terminal itself will have floor space of 421,000 square meters, and its capacity of 43 million passengers a year will eventually raise the airport’s total annual capacity to 75 million passengers. Tender information for a general consultancy contract is scheduled to be released this spring, and the airport hopes to sign a contract within three months, Yeh says. Then an international design competition and tender for the architectural contract will take place in 2013, with construction set to begin in 2014 and take four years to complete. Although the names of potential bidders for the general consultancy contract is confidential, Yeh confirms that following a Request for Information seminar last year, at least 10 American, European, and Asian companies have expressed interest in the project. U.S. companies who have been in touch with AmCham Taipei about the prospective Terminal 3 tender say it is currently one of the most attractive new airport projects in the global market.

樂觀認為，三航廈是難得的機會，可以從零開始設計與興建大型建築。達美航空的張建仁與國泰航空的羅穎怡認為，現有兩個航廈已經飽和，民航業者很難再擴大營運。但他們說，雖然第三航廈勢在必行，但航空業者目前仍未獲得營運決策所需的必要資訊。針對三航廈的空間利用，張建仁說他認為一切都還只是紙上談兵，「到底是只給國籍航空使用，或是外國業者也可利用，我們到現在都還不確定」。

重整桃機軟實力關於機場的整體發展，交通部的葉匡時說他希望第三條跑道能在十年內啟用，以確保桃園機場的亞洲樞紐地位。他並強調，除了改善硬體，桃園更需要加緊強化軟體面，以使營運更有效率、旅客更為舒適便利。改善管理效能的計畫之一是引進全新的營運管理中心，比照香港機場與達拉斯－沃斯堡國

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CEO Lin of TIAC stresses the international character of the tender. All bid documents will be prepared in both Chinese and English, with both versions released simultaneously, for example. Although this step is not mandatory under domestic law, Lin says, it is required under Taiwan’s commitment to the World Trade Organization’s Agreement on Government Procurement. In addition, TIAC does not want a lack of Chinese-language skills to be a barrier to participation or to give unfair advantage to local companies whose personnel read Chinese fluently. “We’re committed to providing an environment of equal competition,” says Lin. Paul Lee, president and CEO of Global Construction International and co-chair of AmCham’s Infrastructure Committee, says he is very optimistic about the prospect of attracting global talent to take part in the Terminal 3 project. Equally enthusiastic, Lau of Amadeus says the Terminal 3 project provides a rare “chance to start from scratch” in envisioning how a major facility should be designed and built. Airline executives Chang and Lo note that the congestion at the existing two terminals makes it difficult for carriers to expand there. While a third terminal is needed, they say, so far the industry stakeholders have not been given enough

際機場，整合五個獨立的管理中心。旅客滿意度較低的項目之一是，行李提領等候時間比先進國家的機場要長。桃機公司的林鵬良表示，平均等候時間還算符合國際標準的14至35分鐘，但位於地下室的行李處理設施的確運作較慢。合理的推測是，第三航廈的設計應會考量此一問題。雖然桃園機場已經設有自助報到裝置，供僅有隨身行李的旅客快速報到，但部分人士認為，桃機公司的腳步還可以再快一點，引進更多自助服務，例如自助式行李標籤系統，或是部分澳洲機場已經採用的近距無線通訊（NFC），方便旅客以手機自助報到。亞瑪迪斯的劉家輝認為，「桃機要成為全球前十的機場，整體基礎設施，特別是資訊科技面，是必須特別留心的地方」。其他人則建議桃園機場增加軟實力，或者說是如何讓旅客在機場留下愉快回憶。國泰航空的羅穎怡認為，改善免稅商店區也許可以使桃機更具吸引

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Cover story information for them to start to make business decisions about the future. “I think the plan is still up in the air,” says Chang about the use of space at Terminal 3. “Is it limited to national carriers or open to all international carriers? We still don’t know.”

Looking at the “software” As for the airport’s overall future, Yeh says he hopes a third runway can be completed in 10 years’ time to help Taiwan Taoyuan secure its position as an Asian hub. And besides all the hardware improvements, he emphasizes the need for the airport to work on “software” elements to make its operations more efficient and more comfortable and convenient for passengers. One of the plans to improve management efficiency involves setting up a new operational control center, modeled on systems in use at the Hong Kong and Dallas/Fort Worth international airports, integrating five existing separate centers for different functions. Among the shortcomings that passengers perceive regarding the current airport operation is the relatively long wait at the luggage carousels compared with other airports in advanced countries. Lin notes that the current average waiting time is within the international industry standard of 14-35 minutes, but concedes that the underground location of the baggage-handling facilities at the existing terminals is responsible for adding a few minutes to the process. Presumably, this problem will be considered in devising the layout for Terminal 3. Although the airport already has auto-

mated check-in facilities to enable passengers with only carry-on baggage to avoid long waits at the counter, some observers stress that TIAC needs to move faster to incorporate more self-service technology, including self-tagging luggage systems at electronic kiosks. It might also consider the Near Field Communication technology that some Australian airports are experimenting with to allow passengers to check in simply by swiping their mobile phones against an electronic reader. “For Taiwan to be among the top 10 airports in the world, the overall infrastructure, especially on the IT side, is something they have to look at,” says Lau of Amadeus. Others recommend that the airport increase what they call its “soft power,” or how the time spent in the airport can be made into a pleasurable experience. Lo of Cathay Pacific suggests that improving the duty-free facilities could help put Taiwan on the tourism map. “A lot of successful international airports have good duty-free shopping experiences,” she notes. “For example, Incheon has the biggest LV (Louis Vuitton) duty-free shop in the world. It gives business travelers a way to make good use of their time.” As another example of “soft power,” the airport has already adopted a new theme – “the start of a journey to Chinese culture and a gate to Taiwan’s special features”– to guide its branding activities. A Hakka culture shop and Pili Puppets exhibition in the controlled area reportedly have proved popular with travelers. Another aim of TIAC is to increase the numbers of new airlines serving the airport, Yeh says. He notes that

力。她說，「許多成功的國際機場都有良好的免稅購物服務」，「例如仁川機場有全球最大的LV免稅店，可以讓商務旅客充分利用等候時間」。另一個軟實力的例子是，桃機已經採用新的宣傳主題，強調中華文化之旅、台灣特色之門。管制區內的客家藝品店與霹靂布袋戲展據說非常受旅客歡迎。交通部的葉匡時說，桃機公司的另一項任務是吸引更多航空公司設點。但他也坦承，民航業者增加航線的意願，往往取決總體經濟，而非單一機場能夠左右。不過，目前的有利趨勢是亞洲低價航空正快速發展，例如南韓的真航空（Jin Air）與德威航空（T'way Airlines）。亞瑪迪斯的劉家輝認為，雖然現在只有 22

an airline’s willingness to add a new route is often based on macroeconomic factors that are beyond the airport’s direct control. One current significant trend that could influence this development is the growing market in Asia for low-cost carriers such as Korea’s Jin Air and T’way Airlines. Lau of Amadeus notes that despite the limited numbers of bargain airlines now flying to Taiwan (they include Malaysia’s AirAsia and Singapore’s Tiger Airways), industry watchers consider that Taiwan has great potential for development in this sector, and that an increase in such lowcost flights could dramatically boost the passenger volume. Once air tickets drop to a certain price level, people who never previously considered traveling abroad would suddenly want to. “That’s the promise of the low-cost carriers,” Lau says. “The third terminal hopefully will be ready in time to take these increased travelers.” TIAC’s Lin says that to encourage more budget airlines to fly to Taiwan, the airport plans to offer different landing fees for peak and offpeak hours after the runway overhaul is completed in another two years. Industry executives interviewed for this report generally praised the government’s vision for revitalizing the airport, but expressed concern that the implementation process has been too slow. Vice Minister Yeh admits that the progress has been slower than expected. For a project of this size, “you need a lot of coordination among different (central government) agencies and also with the local government,” he explains. “You need to reach a consensus and that can be a bit tough.”

馬來西亞的亞洲航空（AirAsia）與新加坡的老虎航空（Tiger Airways）等少數廉價航空經營台灣航線，但產業專家認為台灣很有潛力，而且廉價航班的增加可忘大幅提升旅客量。如果票價跌至特定水準之下，原本根本不想出國的人很可能突然改變心意。劉家輝說，「這就是低價航空的魅力」，「而第三航廈或許能夠趕上熱潮」。桃機公司的林鵬良表示，為鼓勵廉價航空進駐台灣，桃機計畫在跑道翻修完成後，區分尖峰與離峰時段的落地費。受訪的民航業主管雖然普遍肯定政府重振桃園機場的企圖心，但仍擔憂執行步調太過緩慢。交通部的葉匡時承認進度比預期要慢。但他說，「對於如此大型

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AIRPORT

The new look for Terminal 1 was designed by Japanese architect Nirohiko Dan, whose work on the Tourism Bureau's Sun Moon Lake Administration Office has been widely praised. photo : TAOYUAN INTERNATIONAL AIRPORT CORP.

Some, including Global Construction’s Lee, consider that part of the problem is the bureaucratic mentality of many of the personnel working for TIAC. The state-owned company, which has been given responsibility for the planning, construction and operation of the entire Airport Park area (including the airport and a free trade zone), has been in existence for only a year and a half. Most of its employees were formerly civil servants on the staff of the Civil Aeronautics Administration, which previously ran the airport. The motivation for “corporatizing” the administrative agency was to enable it to become more efficient and respond more quickly to market changes.

Lee applauds that objective, but says that so far “the results are not that obvious,” since “you see pockets of improvement, but not overall.” Because the corporation is still state-owned, he surmises, it could be difficult even for an open-minded CEO such as Lin to change its culture very rapidly. Lee suggests that the best solution would be privatize the corporation, in line with what has been a growing global trend in airport management. The model could involve either total private ownership or a hybrid that combines government shareholding with investment from private equity firms or even a listing on the Taiwan Stock Exchange. In either case, he suggests, privatization would improve corporate

的計畫，不只中央部會間必須整合，中央與地方也需要協調」，「規劃要取得共識，得花點時間」。華眾的李雨朴等部分人士認為，問題一部分來自桃機公司很多成員還是改不了官僚心態。桃機2010年 11月公司化至今不過一年半時間，多數員工來自交通部民用航空局。仍是國營體質的桃機公司，接手機場與自由貿易區的計畫、興建與運作，可能還需要一段時間才能達成當初公司化時的目標，即提高經營效率、快速回應市場。華眾的李雨朴雖然肯定政策目標，但認為「現在還看不到太顯著的成果」，因為「改善的都是局部，而非整體」。而他認為，因為桃機公司還是國營，因此

governance and enhance the airport’s competitiveness vis-à-vis its counterparts around the world. The Beijing Capital International Airport Co., which is majority-owned by a Chinese state-run company, is listed on Hong Kong’s stock market, he notes. “If Communists in Beijing can do this, then why can’t we do it in Taiwan?” Lee asks. At present, the answer is that Taiwan law requires the entity operating the airport to be 100% owned by the Taiwan government. But at some point in the future, the Legislative Yuan may decide to revisit that requirement in the interest of injecting greater energy and professionalism into the airport business.

就算引進心態開放的林鵬良等人，大概也很難在短期內改變內部文化。李雨朴認為，真正的解決之道是，比照越來越多國家的作法，讓桃機公司民營化。作法包括股權全部釋出，或是引進民間資本部分持股，甚至是在證交所掛牌上市。他認為，不管是哪一種作法，應該都能改善企業治理、強化桃機的國際競爭力。華眾的李雨朴表示，北京首都機場公司雖是國營企業，但仍在香港掛牌，「如果北京的共產黨都可以，為什麼台灣不行？」目前的障礙之一是法令要求機場必須百分之百公有。但也許未來立法院會考慮修法，為桃園機場注入更多活力與專業作風。

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Whatever Happened to the Taoyuan Aerotropolis?

few years ago, government officials spoke frequently and enthusiastically about the Taoyuan Aerotropolis project, a vision of an airport city extending over some 6,150-hectares (nearly 24 square miles). Depicted as featuring thriving logistics and aviation-technology businesses surrounding and supporting the Taiwan Taoyuan International Airport, the concept was touted during the global financial crisis as an ideal infrastructure project to stimulate the thenailing economy. After all, the airport – with its throughput of 1.76-million metric tons of cargo per year, is the fourteenth busiest airfreight hub in the world (a few notches ahead of Beijing, but still well behind Hong Kong at number one), as shown in a 2010 survey conducted by the Airports Council International. In addition, fast-growing Taoyuan County is home to two million people and one-third of Taiwan’s leading manufacturers, including some of its global ICT stars and 70% of the island’s logistics companies, according to the Taoyuan Aerotropolis Corp. established by the Taoyuan County government. And at just under three hours, the Taiwan Taoyuan International Airport has the shortest average flying time to other international airports in Asia, and the airport is located close to the Port of Taipei the and High Speed Rail line, making the surrounding area a good base for connections to China and other Asian markets. But after several years of discussion, the Aerotropolis plan is still waiting for take-off. Implementing the plan has become bogged down in thorny land-acquisition and zoning issues, say officials involved. Yeh Kuang-shih, deputy minister of the Ministry of Transportation and Communications (MOTC), notes that the overall concept has been approved by the Executive Yuan but that the landacquisition process has been slow. “We’re still planning for how much land we need,” Yeh adds. “Then this needs go through the administrative process and further approval by the Executive Yuan. We’re still in the planning stages as to how to implement this project.” Some private-sector observers say that as the airport will be the main driver of economic activity in the Aerotropolis, the government is correct in putting the Aerotropolis plan on the backburner for the time being 24

so as to give priority to improvements in airport facilities, particularly the renovations to Terminal 1 and the runways. “Until they sort out these most important steps, they’re constrained in what they can do,” says Vivian Lo, Cathay Pacific’s general manager for Taiwan and Korea. Officials liken the Aerotropolis to an egg. The “yolk,” an Airport Park managed by the MOTC and the Taoyuan International Airport Corp. (TIAC), will include the airport itself plus the surrounding land at around 1,770 hectares and a free trade zone of around 330 hectares. “The egg yolk is smaller, but it brings all the nutrition and the dynamics,” says Samuel Lin, TIAC’s president and CEO. Current planning calls for the “yolk” to include air cargo and warehousing facilities, as well as shops, restaurants, meeting rooms, and office space inside the passenger-terminal complexes. The free trade zone would contain additional warehousing, a logistics center, and other businesses related to air cargo. A portion of the zone would be allocated to a Flower Exhibition Center and an international trading platform for flower growers. The government is looking for investors for all the projects, Yeh says, and wants to attract the most innovative industries. Jimmy Liu, general manager of the Taoyuan Aerotropolis Corp., which is taking charge of the “egg white” section of the plan, says that his part of the project must wait for land acquisition for the “yolk” to be completed, a process that is estimated to require another three to five years. “The real issue for us is that the central government and the MOTC need to take care of their portion before the county government can jump in,” he says. “We’re looking at 10 years from now for future development.” Eventually the “egg white” portion is expected to take up more than 4,000 hectares (15.5 square miles), Liu says, probably to include a 750-hectare aviation industry zone, 490-hectare trade exhibition hall, 1,385-hectare area for aviation-related industries, 360-hectare coastal recreational area, 525-hectare area for high-quality agriculture, and a 685-hectare quality residential district. Activities in the aviation industrial zone could include precision machinery, international

aviation research and development, education and training, with some of these activities possibly also overlapping into the Airport Park or “yolk.” TIAC’s Lin says the airport’s growing demand for aircraft maintenance facilities could also provide opportunities for industrial operations making spare parts and aviation equipment. The coastal recreational zone might include tourist villas, shopping malls, and an eco-water park, and the agricultural area might specialize in organic farming. Liu also envisions the “egg white” as containing a 4-5 hectare medical tourism park and a 300-400 hectare cultural village that he describes as a “Little Tokyo,” a holiday place for Japanese looking to get away from the earthquake and tsunami devastation in Japan’s north. In addition, Liu says he welcomes logistics and cultural innovation industries, including movies and digital content. An artists’ village is also being considered. But acquiring land has been a headache. Existing government-owned land in the “egg white,” Liu says, includes 22 hectares around the Taoyuan High Speed Rail Station that belong to the MOTC and are earmarked for commercial development of such projects as hotels, shopping centers, and international exhibition facilities. The government also owns other pockets of land in this area, such as a site of more than 200 hectares belonging to the Civil Aeronautics Administration that is currently sitting idle. The Taoyuan Aerotropolis Corp. would like to have the title to that plot transferred to its ownership, but that has not yet occurred. The most difficult challenge, however, is negotiating to take over land now in the hands of private owners. Besides going through a long legal process, Liu says, the corporation must provide them with land of equivalent value in another location. For the “egg white” part of the project, extensive coordination is required among the MOTC, the Ministry of Economic Affairs, and the Taoyuan County government – a process that participants describe as arduous and time-consuming. Although bringing the Aerotropolis concept to reality is difficult, Liu notes that a number of international investors have expressed interest in pursuing development projects when the time is ripe. Among them are companies from Singapore, Korea, Japan, and the United States, including the Simon Property Group of Indianapolis, which describes itself as the “largest real estate company in the world.” — By Jane Rickards

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i n t e r v i e w

Ford’s Perspective on the Asian Car Market Dave Schoch, chairman and CEO of Ford Greater China, sat down with tOPiCS during a recent visit to Taiwan.

he Ford Motor Co. took a number of painful steps since the economic downturn in 2008 to avoid bankruptcy. It shed nameplates, shuttered factories, and and cut over 15,000 jobs to save the company from the government bailouts needed to rescue fellow U.S. automakers GM and Chrysler. Agonizing though the process was, the company that emerged from the restructuring is leaner, more focused, and heavily committed to growth and investment. The results of the restructuring continue to be seen, as the company has registered 10 straight quarters of profitability and has managed to reduce its debt from a high of US$25 billion to just over US$13 billion. David Schoch, the newly appointed head of Ford’s Greater China division, played a senior role in these restructuring efforts around the world. As CFO for Ford’s European, APAC, and North American divisions, Schoch had to oversee cutbacks to help save the business. Now, in his current role, he is managing what Ford hopes will be its next big source of growth. After years of relative neglect of the Asian region, where only 15% of its cars are currently sold, the company aims to expand heavily in China and across the AsiaPacific. Just weeks after opening its second plant in Chongqing, Ford has

announced plans for two more factories, in Hangzhou and Chongqing. Ford plans on doubling production capacity in China to 1.2 million vehicles annually by 2015, signs of a broad push into a slowing but still strong Asian market. And while Ford’s shares of the China and India auto markets remain small, no single player dominates these markets and sales are robust across the region. Schoch recently visited Taiwan to help announce the introduction of four new models to the domestic market. Last month, Ford Lio Ho, the local joint venture, began assembling its popular Fiesta compact cars at the company’s plant in Jungli, Taoyuan County, which also produces the Escape light SUV. Two other popular models assembled at the plant, the Focus and Mondeo (called the Fusion in the United States), have been refurbished for the 2013 model year. Ford is also planning to import the legendary Mustang muscle car into Taiwan for the first time, starting in the third quarter of this year. Ford entered Taiwan 40 years ago with the inking of a 70-30 joint venture with the Lio Ho industrial group. Despite this long presence, however, the company currently has less than a 6% share of a market overwhelmingly dominated by Japanese brands, particularly Toyota. Ford Lio Ho employs some 1,500 workers and salaried staff.

Its plant has the capacity to produce 100,000 units annually, but last year turned out less than a quarter of that number, at just over 22,000. In an interview with Taiwan Business TOPICS contributing writer Timothy Ferry, Dave Schoch discussed what led him to the helm of Greater China, what Ford is doing to increase manufacturing efficiencies and profits across the globe and what’s next for the automaker in Asia. After a long career at Ford with a number of international postings, what led you to accept another demanding position overseas? It was the attraction of accelerating the growth of Ford in Asia. After 34 years with the company, I thought this would be a great way to take all of my skills and experiences to come back into this area and accelerate the growth of the business in China and Taiwan. Let’s face it, we don’t have the presence here that we have elsewhere around the world. Historically, we’ve been a little more conservative in our expansion in China. Now is the chance to really accelerate growth. When you think about other areas where I’ve been, we had to restructure and reduce capacity. That’s hard work and it’s not pleasant. I was part of a team that had helped turn around taiwan business topics • april 2012

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interview

North America, where we’re making good progress – we’re not done yet, but we’re making good progress. I thought: where else can I make use of my talents – to grow the business, not shrink the business? What brings you to Taiwan today? Ford is celebrating our 40th anniversary with some very good partners – the Lio Ho group. They’ve been outstanding partners for the last four decades. They’re very astute businessmen and bring a lot of business acumen to the joint venture. We have a very transparent, open, and supportive relationship and I say that because I knew them in my prior position as CFO for Asia Pacific – so this is basically getting reacquainted. It’s been a very, very successful joint venture over the years. What changes has Ford made and how will these changes help in expanding the China market? When Alan Mulally (Ford Global CEO) came to Ford in 2006, he put together the “One Ford Plan” that’s been really the thrust of our efforts. Several years ago the company said we’re going to go to a global cycle plan with global products. No longer will each business unit be developing its own products. That helps to leverage economies of scale, allowing us to accel-

erate product growth in markets where we typically haven’t been able to grow much. Having product cycle on a global platform will help Ford move faster in the Asia Pacific. Had the regional business units been more independent in the past? In 1904, going way back, Henry Ford went global – to Canada. Those were baby steps of course – he went right across from Detroit – but it was international. Then he went to Brazil in 1917 or 1918, then South Africa in 1924. For Henry, his whole mission in life was to put the world on wheels. When he founded the company, he already had this vision of going global. What happened after that was though he established a global presence, each regional business unit pretty much grew up on its own, with different processes and different processes. Going back just a decade, the products we had in Europe were totally indigenous to Europe, and the products we had in North American were pretty much indigenous to North America. We didn’t cross-ship, which meant we weren’t cost competitive. For example, we had three different Rangers. Completely different platforms, but all called Ranger and all half-ton pickups. We had the Ranger that was developed in South America,

Dave Schoch, second from left, together with other Ford executives and a Mustang at the recent product introduction ceremony. Photo : ford

the Ranger developed in Thailand for the Asia market, and we had a Ranger developed in North America. Just think about that – the same product primarily serving the same function with basically the same intent, but with different platforms, different powertrains, engineered three different times around the globe. You can’t survive in a global environment with three distinct engineering platforms. What other changes did Ford make under the One Ford Plan? If you think about the past decade, we had Ford, we had Lincoln, we had Mercury, we had Jaguar, we had Aston Martin, we had Land Rover, we had Volvo, and we had a 34% share of Mazda. Alan (Mulally) stepped back and said, “How can we concentrate and do justice to all of these brands?” And it was at that point that the economy started turning down and we started losing a lot of money. So we set our sights on selling Aston Martin, Jaguar/Land Rover, and Volvo, we discontinued Mercury, and we sold off most of our interest in Mazda. What are the market forces that make common product platforms viable? What’s happened over time is that consumers’ tastes have also converged with the sharp increase of Internet use. People around the world see global, world-class products, and they say: ‘I want that.’ So we’ve seen a convergence of tastes that has allowed these global platforms to be the basis for our strategy. Does the One Ford Plan allow for customizing vehicles to suit local needs and wants? Probably 80% of our platform is common, giving the engineers in the local markets roughly another 15-20% to meet local needs, local wants, and local customer expectations. For instance, in Taiwan, customers like a lot of “brightwork” – a lot of chrome fixtures. Chinese consumers at least initially liked more legroom in the rear seats. We need to cater to that.

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How does Ford identify common elements in its product design? The way the process works is that in the very up-front stages of product development we gather market information. For instance, in developing the Focus, we got product input from Taiwan, from China, from Europe, the U.S., Canada. Now obviously you’re constantly making tradeoffs – you can’t be all things to all people. But the fundamentals of the platform are sound – leveraging the engineering wants with the volumes associated with global business. For the Focus platform, we’re going to be over 2 million units this year around the world. So we’re taking that platform and leveraging it globally for a substantial reduction in investment. What common elements have you identified? We’ve identified four pillars on which we base our whole product strategy. They are quality, green, safe, and smart. As we thought about going global and what we wanted to stand for around the globe, these are the four pillars we thought every customer would be able to relate to and to value. Quality is the price of entry into the market. All customers around the world want a vehicle that they perceive has value and high quality, and that is going to last and give them value for their money. That’s reflected in residual values which affect the total cost of ownership. We also know that fuel economy is very important to customers. As the price of gasoline continues to rise, it’s becoming even more important. CO 2 emissions are also very important, and we’re trying to reduce emissions from our vehicles. Unfortunately, you’ve got some cities like Beijing and Shanghai and Chongqing where the amount of pollution is very high. We need to do something about it. And of course we want our customers to feel safe in our cars. What does Ford mean by “Smart”? “Smart” is all about technology, not just advanced technology in the power-

train and transmissions and the ride and handling – which Ford has – but also the customer interface. When customers get into a car, they want to continue to be linked to the outside world just as they are with their iPhones. We saw that in the U.S. – obviously in English – but as we expand around the world, one of the things we need to do is to expand into different languages. U.S. car makers have suffered from a reputation for dubious quality over the past few decades. How has this affected Ford’s brand image? Japanese car makers entered the U.S. with a lot of fanfare but a lack of quality, and it really dragged them down. One day they woke up and realized how much quality means to a customer, and they dramatically improved their quality and shot right by domestic manufacturers. They understood how the customer perceives quality. We get it at Ford. We took our eye off the ball on quality, I think, and it showed. Our residual values fell, our brand image fell. But if you look at Ford quality over the past four or five years, there’s been a steady trend of improvement. What are some ways that Ford is reducing the environmental impact of its cars? We spent a lot of time and attention on our powertrain strategy. Throughout the world we’re in the process of introducing the Ecoboost engine, a smaller engine with higher output. On average, it will reduce our fuel consumption by around 20% and reduce our CO2 emissions by around 15%. The other thing on the green front is advanced technology powertrains such as hybrid electric, plug-in hybrid electric, and battery electric vehicles. Now, we're at an inflection point. There’s a lot of technology, but frankly we don’t

know which technology is actually going to win out. We’re going to give the customers choice. We’re not going to make the call and tell the customers what they want, but here again the One Ford Plan is paying off, as the company is able to offer a variety of powertrains on a single platform. For instance, the Focus. You can get the Focus in the U.S. in petrol, in Europe it’s petrol and diesel, and we’ve also designed it so the Focus can be a regular hybrid, a plug-in hybrid, or a battery electric. What are the prospects for electric and hybrid vehicles in the global and Asia-Pacific markets? The EV market is still very young and fragile, to some extent. There are a lot of people who want to go green, but frankly when they see the price tag it puts them off, because there aren’t enough economies of scale yet around pure electric to make it viable. All governments are pushing electric, but the markets really haven’t developed yet. Electric vehicles require an infrastructure. You’ve got to be able to plug the vehicles in. In big cities, you can’t have extension cords coming out of high-rise apartment buildings. The infrastructure is going to have to develop along with the battery technology. What we’re finding is that there’s a larger market for hybrid vehicles, and Ford hybrid vehicles are doing very, very well. But think about where the electric market was five years ago. It didn’t really exist. With all the technology investment that’s gone into it, somebody’s going to figure out the solution to the infrastructure problem some day. That’s why you’ve got to stay in the game – we want to make sure we’re there and on the leading edge. We’ve got the vehicles, we’ve got technology, and we’ve got the ability to bring electric vehicles if we find the market is there. taiwan business topics • april 2012

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TAIWAN busINess

Perspectives on Private Equity The right investment partner can help open new vistas for a company seeking to upgrade. Cow sheds at China's Modern Dairy

BY DON SHAPIRO

n 2007, Lee Hou-teng, founder and then-chairman of the Fusheng Industrial Co., a leading manufacturer of both air compressors and golf club heads, took what is still an unusual step for a Taiwanese entrepreneur. He entered into an arrangement for a foreign private equity (PE) firm – in this case, Los Angeles-based Oaktree Capital Management – to take a major equity position in his company. The transaction, valued at just under US$1 billion, took the company private and left the Lee family with a 51.8% stake – and Oaktree with the remainder – in a holding company set up to own Fusheng. In Taiwan, PE has sometimes been portrayed in an unfavorable light by the media, and government officials on occasion have appeared to regard PE investors with some suspicion as opportunists if not speculators. But the Fusheng case and others illustrate the advantages of a PE connection for an already successful company that needs some additional outside support to boost itself to a higher level of global competitiveness. It must also be a company whose executives have an open-minded mentality and the ambition to pursue excellence. “In this competitive world, you cannot stop thinking of ways to get ahead,” Lee was quoted as saying in a Forbes magazine profile of Fusheng published two years before the Oaktree deal. His willingness at times to take an unconventional approach to business was then already evident. Fusheng was founded in 1953, and for its first quarter-century it concentrated only on the manufacture of various types of industrial air compressors, eventually growing to become the number-one company in the field in both Taiwan and China. But in 1978, offered the opportunity to take over the plant and equipment of a failed precision-casting company that specialized in making golf club heads, Lee diversified into a totally different industry. Fusheng’s Sporting Goods Division developed into the world’s largest manufacturer of golf club heads, 28

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serving as an OEM supplier to nearly all of the major international brands, including Callaway, Ping, TaylorMade, Titleist, Wilson, and others. In 2001, Lee diversified yet again, establishing an Electronics Division to make IC lead frames for the semiconductor industry. The group – the three divisions were reorganized in 2010 into the three separate companies of Fusheng Industrial, Fusheng Precision, and Fusheng Electronics – last year had total revenue of NT$31.4 billion (slightly over US$1 billion). Lee’s readiness to expand internationally through mergers and acquisitions (M&A) is another attribute that set him apart from the typical Taiwan industrialist. In 2003, Fusheng acquired the Plant Air Package (PAP) Division of Elliott Turbomachinery in Pennsylvania, turning it into the FS-Elliott Co. to make centrifugal air and gas compressors; in 2004, it purchased the non-golf assets of the Coastcast Corp. near Los Angeles to establish FS Precision Tech to make automotive, medical, and aerospace components; and in 2005, it acquired Curtis-Toledo and established FS-Curtis in St. Louis to make reciprocating and rotary-screw air compressors. In addition, the company built plants in such other markets as China and Vietnam, and it welcomed investment from foreign institutional investors. How did partnering with a PE firm come to be another of the “ways to get ahead” that Lee turned to? Fusheng executives ascribe it to yuanfen – the Chinese concept, translatable as “predestined affinity,” that is often applied to the fate that drew married couples together. Among the foreign institutional investors holding a stake in Fusheng was Lombard Asian Private Investment, which took a seat on the Fusheng board and filled it with managing director William Kerins. Lee and Kerins developed a relationship of mutual trust and respect, and when Kerins moved over to Oaktree a few years later, he proposed that Fusheng and Oaktree could benefit

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from working together. After studying the idea, Lee agreed and the deal was struck. Lee Hou-teng is now 83 years old and retired, and the chairmanship has passed to his son Lee Liang-chen. Overseas on a business trip when contacted by Taiwan Business TOPICS, the younger Lee asked Vice President C.S. Hsiao to represent him in talking about how the PE partnership has worked out. “Oaktree hasn’t stationed anyone here in the day-to-day operation,” Hsiao explained. “The involvement has been at the board level. They analyze the figures in our monthly report and then ask questions and give advice for improvement. If we’ve overlooked something in the figures that deserves attention, like inventory control or accounts receivable or the cost structure, they’ll give us a reminder. It’s very helpful.” Oaktree has also introduced more powerful Enterprise Resource Planning systems to permit faster data collection and analysis. Fusheng also looks to Oaktree for guidance in identifying targets for M&A and in following through with due diligence and, if it reaches that stage, negotiations. “They have a lot of experience with the M&A process,” says Hsiao. “They’re very good at assessing an industry and a company.” Fusheng is interested in making further acquisitions in both the air compressor and golf club head industries. For air compressors, it considers that it already has a strong position in Asia, but wishes to grow in the United States and Europe. “Although we have two factories in the U.S., the market share there is still low, and we have very little presence in Europe,” notes Hsiao. The value of a deal would be largely in acquiring the target’s brand name and sales and distribution network. In the industrial air compressor industry, it is important to be near the customer in order to provide after-sales service. For the golf side of the business, acquisitions would help increase market share in an industry that has seen rather flat growth in recent years. Although no acquisitions for either air compressors or golf club have been finalized since Fusheng’s tie-up with Oaktree, Hsiao says the PE firm’s assistance has been invaluable in the evaluation and negotiation process – and he notes that some promising cases are still pending. With Fusheng planning on adding new overseas operations in future through M&A, the group is also conscious of the need to recruit more international talent to provide market knowledge and strategic thinking, and to assure good communications between the Taiwan headquarters and its subsidiaries abroad, especially those in the United States and Europe. Hsiao says personnel recruitment is another area where Oaktree has made an important contribution.

Investment mostly low-key Like the Fusheng case, most of the PE investment in Taiwan has been low-key and non-controversial. For example, the website of TPG (formerly called the Texas Pacific Group) lists Taiwan investments – in the Formosa International Hotels Corp. (owner of the Regent Taipei and worldwide Regent brand) and Taishin Financial Holdings – that have elicited

私募基金面面觀覓得合適投資伙伴，開創企業轉型新局撰文／沙蕩

復

盛集團創辦人與董事長李後藤在2007年做了一個台灣企業間仍屬罕見的決定，將此一製造空氣壓縮機與高爾夫球桿頭的領導企業的多數股權賣給總部位於美國洛杉磯的私募基金橡樹資產管理公司。橡樹在台成立勇德國際以併購復盛，李後藤家族之後持有51.8%股份，橡樹公司則占其餘股份。此筆約10億美元的交易案後，復盛自台灣證券交易所下市。在台灣，媒體常以負面形象報導私募基金，政府官員偶爾帶著懷疑眼光看待私募基金，認為對方無意深耕台灣企業，只想投機，賺到就走。但復盛的案例顯示，一家成功企業需要外援以進一步提升國際競爭力時，私募基金仍然能夠扮演積極角色。同時，企業主管也必須有開放心態，以及追求卓越的意志。李後藤2005年接受富比世雜誌訪問時表示，「國際市場競爭激烈，必須隨時思考如何領先超前」。他勇於採取超脫傳統作法的想法，在當時已經顯露無遺。復盛創立於1953年，前25年專注於製造工業用空壓機，逐漸成為台灣與中國最大的廠商。不過在1978年，復盛承接良盛工業，跨足精密鑄造高爾夫球桿頭此一全新領域。復盛的運動器材事業部後來成為全球最大的球桿頭製造廠，為幾乎所有的主要品牌OEM代工，客戶包括Callaway、Ping、 TaylorMade、Titleist、 Wilson等。2001年，復盛成立電子事業部，再度擴張至半導體業的IC導線架。復盛2010 年改組後將運動器材事業部轉入復盛應用科技，電子事業部併入復盛精密工業，機械事業部則留在復盛母公司。復盛集團2011年營收為新台幣314億元（約十億美元）。李後藤願意透過併購擴張國際版圖也是他不同於典型台灣企業家的地方。2003年，復盛購入美國賓州易利達（Elliott Turbomachinery）的離心式空氣壓縮機（PAP）部門，成立FS-Elliott公司。2004年，復盛取得加州Coastcast Corp.的鈦合金鑄造核心技術，設立復盛精密科技以製造汽車、醫療、航太元件。2005年，復盛合併Curtis-Toledo Inc.，於聖路易成立FS-Curtis公司以製造往復式與螺旋式空壓機。除了美國市場，復盛也在中國與越南設廠，並歡迎外國機構投資者的參與。但與私募基金結盟如何成為李後藤另一個領先對手的契機？復盛高層以「緣份」形容兩者的合作。復盛的外國機構投資者之一是隆霸亞洲投資公司（Lombard Asian Private Investment），而隆霸在復盛的一席董事由 William Kerins出任。Kerins與李後藤發展出互信互重的情誼，因此幾年後Kerins轉往橡樹公司時，他提議復盛與橡樹合作以共蒙其利。李後藤在研究後同意股權轉移案。李後藤現在已經83歲，並將董事長一職交給兒子李亮 taiwan business topics • april 2012

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little public comment. In the financial sector, aside from the TPG holding in Taishin, other PE firms with minority stakes in Taiwan banks include Carlyle in Ta Chong Bank, and both GE Capital and SAC Capital in Cosmos Bank, while the Longreach Group is reportedly looking to sell its 51% interest in EnTie Commercial Bank. In addition, PE consortiums have controlling interests in such international companies with Taiwan operations as Nielsen and Toys “R” Us. Where PE’s involvement in Taiwan has tended to arouse controversy has been in certain high-tech companies that the government was reluctant to see delisted from the stock exchange, and in the heavily regulated cable-TV business, where media reports sometimes questioned whether sufficient investment was being made in upgrading systems for digitalization. In the tech sector, a US$5.5 billion deal for Carlyle to buy Advanced Semiconductor Engineering Inc. (ASE), the world's largest chip packaging and testing company, fell through in 2007 – nominally over price differences, but also after long delays in the regulatory approval process. Last year, the government blocked a US$1.6 billion buy-out offer to take over electronics-component maker Yageo Corp. by the company’s chairman along with Kohlberg Kravis Roberts (KKR). The regulator expressed doubts about the fairness to minority shareholders of the bid price of NT$16 a share, a 14% premium on the market price at the time (the stock is now trading at NT$8.37 a share), even though more than 70% of the shareholders had approved the bid. In the cable-TV sector, until recently the three largest Multiple Service Operators (MSOs) were all controlled by PE firms: kbro by Carlyle, China Network Solutions by MBK Partners, and Taiwan Broadband Communications by the Macquarie group of Australia. An August 2010 article in Taiwan Business TOPICS refuted allegations in the domestic media by citing data from the three companies demonstrating the substantial increase in capital expenditure and digital penetration that occurred after they were invested in by the PE firms – as well as the faster pace of upgrading compared with their domestically owned counterparts. Carlyle puts kbro’s investment in digitalization of its network systems at roughly NT$7 billion (US$233 million) between 2008 and 2011, when the PE firm sold the bulk of its stake to a domestic group. The U.S. firm notes its additional contributions to kbro’s growth through recruiting senior executives, strengthening the management and operations, raising service quality, and helping to consolidate the various small-sized cable-TV system providers. If Taiwanese have tended to think of PE as focused mainly on telecom, tech, and finance, another case besides Fusheng that demonstrates how wide the actual scope can be is that of Modern Dairy in China’s Anhui Province. A recent Wall Street Journal report detailed how Modern Dairy – with the support of KKR – has succeeded since 2007 to grow into the largest dairy farming business in China, helping not only to meet the country’s fast-growing demand for fresh milk but also ensuring that the milk supply is safe and high in quality. KKR brought in industry experts from abroad and guided 30

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箴。TOPICS聯絡採訪李亮箴時，他正在國外洽公路上，因此要求副總經理蕭家適代為說明，為何復盛與橡樹的合作可以成功。蕭家適表示，「橡樹並未介入日常運作，參與層面僅限董事會議」，「他們分析月報數據，然後提問並建議改善方向」，「如果我們忽略了需要注意的事情，例如庫存管理、應收帳款或成本結構，他們會提醒我們」，「幫助真的很大」。橡樹也引進更為有效的企業資源規劃系統以提高資料搜集與分析速度。復盛也依賴橡樹尋求適合併購的對象，以及過程中的實地查核與談判。蕭家適表示，「他們對併購很有經驗，也擅於評估產業與企業」。復盛仍有興趣收購空壓機與球桿頭相關企業。對於空壓機，復盛認為自己在亞洲雖然已有堅實基礎，但美國與歐洲仍應加強。蕭家適表示，「雖然我們在美國有兩個廠，但市占率仍低，歐洲也沒有什麼知名度」。併購的價值多數來自於取得對方的品牌與通路。而就空壓機來說，最重要的是離客戶越近越好，以便於提供售後服務。至於球桿頭部分，購併將有利增加市占率，以突破近年來成長有限的全球格局。雖然復盛與橡樹聯手後，尚未實際完成併購案，但蕭家適表示橡樹的協助對評估與談判非常重要，而一些很有機會的案子也仍在進行。復盛一方面計畫以購併擴大海外營運，另一方面也瞭解，必須召募國際人才以增加市場瞭解度與策略深度，以及應該維持台灣總部與海外分支的良好溝通，特別是美國與歐洲的單位。蕭家適表示，人才招募也是橡樹貢獻良多之處。

多數投資維持低調如同復盛案，多數私募基金投資台灣企業時都很低調、避免爭議。例如，TPG資產管理公司在台投資很少引起議論，之前的案例包括晶華國際酒店集團（擁有台北晶華酒店與全球各地的晶華酒店）與台新金融控股。金融業除了TPG之外，其他一些私募基金也持有國內銀行的少數股權，如凱雷集團（Carlyle Group）入股大眾銀行、奇異融資（GE Capital）與SAC Capital持有萬泰銀行，不過隆力（Long-reach Group）據傳試圖賣出安泰銀行51%的股份。此外，私募基金合資案還主導部分在台營運的跨國業者，如尼爾森公司（Nielsen）與玩具反斗城（Toys "R" Us）。私募基金引起爭議的領域多半是高科技業與有線電視，原因之一是政府不願科技廠下市，而有線電視管制嚴格，媒體報導又常質疑私募基金是否願意提供足夠資金以裝置數位電視系統。就科技業而言，凱雷原本有意以55億美元購買全球最大的晶片封側廠日月光，但卻在2007年功虧一簣。究其主因，表面上是因為價錢談不攏，但行政審核程序延宕也難辭其咎。2011年，國巨董事長陳泰銘與私募基金KKR聯手，計畫以16億美元收購陳泰銘一手創立的被動元件供應商國巨，但在政府反對下無疾而終。雖然超過七成的股東支持收購案，但當時官方表示購價每股新台幣16元，僅14%的溢價不夠公允。目前國巨股價每股大約新台幣8.37元。有線電視三大多重服務業者（MSO）直到最近都還是全由私募基金控制，即凱雷的凱擘、安博凱（MBK Partners）的中嘉網路、澳洲麥格理集團（Macquarie）的台灣寬頻通訊。TOPICS在2010年八月的報導指出，

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Modern Dairy in expanding its herd by importing large numbers of dairy cows from Uruguay. “We said to the management, ‘let’s develop a dream together,’” says KKR Asia member Julian Juul Wolhardt. “We co-developed a business plan that was much larger than what the management originally contemplated and started implementing it together. The company today is seven times the original size.” Globally, KKR in recent years has also been emphasizing its commitment to addressing environmental, social and governance (ESG) issues in its investments. It has developed a Green Portfolio Program in partnership with the Environmental Defense Fund, for example, which it calculates has prevented 810,000 metric tons of greenhouse gas emissions, reduced waste by 2.2 million tons, and saved 300 million liters of water since its inception in 2008. The company has found that responsible investing is both the right thing to do and smart business.

Adding value is the key PE executives note that their business is all about enhancing the value of the companies in which they invest. Whether relying on the annual earnings from the enterprise or the sales proceeds when they eventually exit, the PE investors’ profitability will increase if they can contribute to making the company more efficient and more competitive. The aim is not quick profits from buying and selling. At KKR, for example, the average investment period is five to seven years, and the firm estimates that 75% of its revenue comes from the growth of the companies invested in. Sometimes the process of improving a company is best served by delisting it. “Part of the reason for privatizing a company is to facilitate its restructuring and repositioning,” explains Julian Juul Wolhardt. “It’s hard to do that in the public limelight when the stock price fluctuates every day.” Frequently companies that were delisted will be relisted after the restructuring is completed. In the ASE and Yageo cases, uneasiness on the part of the regulators about the proposed delisting is believed to be one reason why the investments did not go through. C.Y. Huang, chairman of the Taiwan Mergers & Acquisitions and Private Equity Council (MAPE), calls that concern about delisting short-sighted, as investor concerns about their ability to exercise an exit strategy will deter them from entering the market in the first place. He urges the government to set and abide by clear and consistent standards for approving investment cases, noting that after the Yageo application was rejected, an official explained that fulfilling the legal requirements is but the “minimum condition.” Since no one is now sure what the actual requirements are, he says, law firms have become reluctant to render an opinion to clients about their chances for investment approval. Overall, notes KKR’s Wolhardt, the environment in Taiwan has not been as conducive for PE as it might be. “Taiwan has an excellent capital market, liquid banking system, good legal system, and management teams that have proven themselves

A Fusheng air compressor and golf club heads.

三家私募基金入主後，資本支出與數位化比例已較併購前明顯增加，升級的腳步也比以往要快。凱雷出售凱擘股權後估計，2008年至2011年間，對凱擘的數位系統投資約新台幣70億元。凱雷自認對凱擘的貢獻還包括召募高階主管、強化管理營運、提升服務品質，以及整合小型有線電視系統業者。台灣人可能以為私募基金只在乎電信、科技或金融業，但中國安徽現代牧業集團一案足以顯示投資範圍其實遠超出想像。華爾街日報稍早曾報導，現代牧業在KKR於2007年投資後，已經成為中國最大的酪農業者，同時不僅滿足中國日益增加的鮮奶需求，還能確保奶品的安全與品質。KKR除了自海外召募專家，並導引現代牧業自烏拉圭進口大批奶牛已擴大產能。 KKR亞洲區合夥人華裕能表示，「我們跟公司管理階層說：『一起打造夢想吧』，然後我們與他們一起發展出遠比他們原先預期要大的經營計畫，並且一起推動這個計畫。如今公司規模是原來的七倍大」。 KKR近年的全球營運更重視環境、社會、治理等企業責任。KKR與環境保護基金合作的綠色配置方案，自2008年以來估計消除了81萬公噸的溫室氣體，減少 220萬公噸廢棄物，以及節省3億公升的水。K K R表示，負責任的投資不僅是該做的事、也是企業發展的明智選擇。

關鍵是價值提升私募基金主管認為，他們的目標就是提升對象企業的價值。不論是靠企業每年賺錢，或是基金出售股權時的所得，私募基金的獲利多寡取決於他們能否使對象更有效率與競爭力。目標不是短線買賣操作的快速獲利。以KKR為例，平均投資期是五至七年，而營收的75%來自投資對象的成長。有些時候，下市是最有利企業改造的選項。KKR亞洲區的華裕能表示，「公司不上市的理由在於有助重整與調整發展重心」，「如果大家都盯著瞧，隨時關注股價每天是漲或跌，就不易進行重整」。下市公司通常會在重整完成後再度上市。日月光與國巨的案例中，主管機關不樂見股票下市據信是最後交易告吹的原因之一。台灣併購與私募股權協會理事長黃齊元認為反對下市是眼光短淺，因為如果投資者擔心最後無法全身而退，當初根本就不會考慮股權交易。他呼籲政府建立並遵守清楚、一致的併購規範標準，因為國巨案遭到否決後，一名官員竟然表示，滿足法律要求只是最低標準。他說，既然無從得知真正的標準何在，法律事務所開始對購併核准機會大小的評估有些保留。 taiwan business topics • april 2012

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to be globally competitive,” he says. “It has all the right ingredients and it just needs to bring them all together.” Meanwhile, other countries in the region such as China and Indonesia are scrambling to catch the attention of PE investors. “Taiwan is competing with other potential destinations for foreign investment, as all economies compete with one another,” says Steven R. Okun, KKR’s director for public affairs Asia Pacific and co-chair of AmCham Taipei’s newly formed Private Equity Committee. “When a regional fund is created, the money will go somewhere. Taiwan could be getting a larger share of that investment.”

KKR的華裕能說，台灣的環境整體來說並不有利於私募基金運作。他說，「台灣具備良好資本市場，流動性高的銀行體系，優質法律制度，以及國際級管理團隊」，「可惜的是，單獨來看各項條件都好，卻欠東風把所有條件整合起來」。與此同時，中國、印尼等區域內國家正積極吸引私募基金。KKR亞太區公共事務主管、台北市美國商會新設私募基金委員會共同主席歐斯文說，「各國都在相互競爭，台灣也必須跟亞太其他對手競爭，吸引外資」，「一個區域性的基金創立後，資金要有去處，台灣要捉住機會爭取更多投資」。

Some Fundamentals

rivate equity (PE) is defined as investors and funds that make investments directly into private companies or conduct buyouts of public companies that result in their delisting from a stock exchange. There is no one model for how involved the PE investor may be in the company operations. At one extreme, a very well-managed company that needs only additional capital may be basically left alone. At the other extreme, the PE firm may take over the running of a target with poor management. But most often, the approach is somewhere in the middle. “The object is to take a good company and work in partnership to make it even better, for example by bringing in international best practices first-hand and helping with such other things as strategizing, M&A, market access, or whatever

it is the company wants,” says Steven R. Okun, KKR’s director of public affairs Asia Pacific. For the numerous Taiwan enterprises that are family-owned or still family-dominated, PE investors can provide expertise and operational teams to work in partnership with the companies on corporate governance, succession, and globalization. Unlike venture capital (VC), which typically targets startup or early-stage companies considered to have good growth potential, PE funds most often invest during the growth stage of an established company when it needs capital to support expansion. C.Y. Huang, chairman of the Taiwan Mergers & Acquisitions and Private Equity Council (MAPE) notes, however, that PE investment could in fact occur at any stage of a company’s development – even when it is in decline, for

私募基金的定義是，投資者與基金直接投資未上市企業，或購併上市公司後使其自證券交易所下市。私募基金如何參與對象企業的營運並沒有一定模式。最佳狀況下，一家管理非常良好的公司，可能只是需要額外資金挹注，因此私募基金可能不介入營運。最糟狀況下，私募基金可能接手管理狀況極差的投資對象。但多數狀況下，作法會介於兩個極端之間。KKR亞太區公共事務主管歐斯文說，「私募基金的目標是取得不錯的公司，與公司管理階層合作，進一步改善公司，方法包括直接引進國際間最佳實務作法，以及協助擬定策略、併購其他企業、取得市場通路、或是視公司所需提供必要協助」。對於台灣許多家族擁有或主導的企業，私募基金可以給企業專業意見、協助組成營運團隊，在公司治理、新人接班、國際拓展等方面提供協助。私募基金與創業投資基金不同，私募基金的投資對 32

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私募基金如何運作 example, to help turn it around or forge consolidation with others in its industry. Another frequent distinction is the propensity of venture capitalists to focus on high-tech cases, while PE may also show interest in consumer-product or other non-tech companies. In addition, the scale of the project generally differs; VC investments tend to be in the US$1 million to US$5 million range, whereas PE cases are rarely below US$10 million and may exceed US$100 million in large buyout cases. Huang says that some of the many VC firms in Taiwan aspire to develop into PE funds, but that at present only one domestic company – the China Development Industrial Bank, a wholly owned subsidiary of the China Development Financial Holding Co. – deserves to be counted as private equity.

象是已經站穩腳步、但需要資本以擴張版圖的企業，而創投基金主要鎖定新創或初露頭角、但具有發展潛力的公司。不過，台灣併購與私募股權協會理事長黃齊元強調，私募基金的投資行動可能發生在對象企業的任何發展階段，甚至是營運已經走下坡後，私募基金也可能介入以扭轉局勢、或尋求適合的合併對象。另一個明顯的差異是，創投基金偏好高科技業，但私募基金仍會涉足消費產品或其他非科技產業。此外，兩者的投資規模也非常不同，創投基金個案總額多在100 萬美元至500萬美元間，私募基金出手很少低於1000萬美元，某些大型購併甚至可能超過1億美元。黃齊元表示，雖然台灣部分創投基金希望轉型為私募基金，但目前只有一家本土公司稱得上是私募基金，即中華開發金融控股百分之百持有的中華開發工業銀行。

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WHY TAIWAN MAT TERS

Crucial Role in the Security of Asia Taiwan’s strategic geographical position gives the island immense importance for maintenance of the U.S. presence in the Asia-Pacific. This is the third article in a series.

photo : Ap

BY JUNE TEUFEL DREYER

he pivot toward Asia announced in the Obama a d m i n i s t r a t i o n ’s s t r a t e g i c guidelines this January states that the United States will maintain a global presence emphasizing the Asia-Pacific and the Middle East. The document pledged to emphasize America’s existing alliances while expanding networks of cooperation with emerging partners throughout the Asia-Pacific region to secure common interests. China’s emergence as a regional power would, it said, have the potential to affect the U.S. economy and security in a variety of ways. Although the two nations have a strong stake in peace and stability in East Asia, the growth of China’s military power will have to be accompanied by greater clarity of strategic intentions. The document’s carefully chosen words notwithstanding, it was clear to all, including Beijing, that the focus of rebalancing is concern about China’s recent assertiveness in the area. After the PRC’s National People’s Congress passed a law in 1992 unilaterally annexing all the disputed areas in the South China and East China seas, including Taiwan, there were flutters of anxiety in the region. When no actions ensued, these anxieties abated. In recent years, however, state media have made

frequent references to the so-called “cow’s tongue” or “nine-dotted line” map of claims encompassing the entire area. Assertions by Chinese officials – sometimes made in formal contexts, at other times not, and in varying tones of ambiguity and specificity – that Beijing regards the area within the nine-dotted lines as “core interests” that other nations must not contest have become more prevalent. Among many examples, when U.S. Secretary of State Hillary Rodham Clinton suggested in 2010 to the Asian Regional Forum (ARF) of the Association of Southeast Asian States (ASEAN) that freedom of navigation on the South China Sea is a national interest of the United States, as is the peaceful resolution of disputes therein, Chinese Foreign Minister Yang Jiechi stormed out of the room. Upon returning, he accused Washington of plotting against China and announced to the members of ASEAN that “China is a big country and other countries are small countries, and that’s just a fact.” Beijing has forbidden Vietnamese fishermen to enter waters claimed by their government; the Philippine government has been warned not to issue drilling licenses in waters that Manila regards as under its sovereignty.

Nor is Beijing’s new assertiveness aimed only at small countries. The Chinese ambassador told an Indian journalist to “shut up” after he inquired about a map showing a territory claimed by the PRC as part of China. Japan also felt Foreign Minister Yang’s wrath when he angrily exited a meeting after his Japanese counterpart raised the issue of China’s nuclear arsenal, and Tokyo faces an even greater problem with regard to disputed sovereignty over areas containing rich oil and gas reserves. U.S. naval vessels have been harassed in international waters by Chinese ships on several occasions, and several incidents have occurred that seem deliberately calculated to show disrespect for the United States, such as the unannounced test of the J-20 stealth fighter during then-Defense Secretary Robert Gates’s visit to Beijing in 2011. American military leaders note that their PRC counterparts have been increasingly assertive in meetings both private and public. The PRC’s double-digit increases in defense appropriations that began in 1989 – at the same time as other countries were drastically reducing their expenditures in response to the dismemberment of the Soviet Union, and despite the fact that taiwan business topics • april 2012

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the country faces no external threat – have raised questions about the PRC’s motivations for such heavy military spending. For these reasons, as well as the region’s growing economic importance, the pivot – or as it is sometimes referred to, the “refocus” on the AsiaPacific – seems prudent. Taiwan plays an important part in this scenario, though almost certainly not as an active partner. For some time, American analysts seemed unconcerned about the PRC’s buildup. Given Beijing’s strong commitment to irredentism and the rising tide of nationalism in China, they reasoned, attempts to absorb Taiwan by means peaceful or forcible were inevitable. The U.S. Defense Department’s annual report on the PRC’s military power concentrated on assessing the shifting military balance between the two sides. Presumably, some seemed to think, Beijing would be satisfied with this “re”-unification and settle down to become a responsible international stakeholder.

incorporated. After the “unsinkable aircraft carrier” is in its possession, China would utilize Sanya and Taiwan as its “two eyes.” Whereas foreign defense planners see what they refer to as the first island chain – stretching from Okinawa through Taiwan, then curving down to the waters off Vietnam – as a protection against PRC expansionism, Chinese strategists view the islands as a geopolitical barrier to development of their country’s naval power. Given Taiwan’s position as the midpoint of the island chain, its “recovery” would allow the People’s Liberation Army Navy (PLAN) to sever the chain and break out of what Chinese strategists call the “near seas.” Taiwan is described as an impediment that poses a serious hidden threat to the PRC,

serving as a critical link in the American hegemon’s scheme to encircle and contain China. Once Beijing holds Taiwan, its fleet and naval aviation units could use bases there to enter the Pacific, making the island the PLAN’s entry point to the “far seas.” Sea and air assets could easily reach Japan and the Philippines. One PRC planner envisions the Chinese mainland and Taiwan as a T-shaped configuration that would partially encircle and protect the PRC’s periphery. Others depict the island as a platform from which to attack American assets in the Pacific and extend beyond the second island chain, variously described as stretching from Japan to Guam or from the Aleutians to Papua New Guinea, with the U.S. terri-

New focus emerges Within the last several years, the tone of the reports has begun to shift, acknowledging that the amount and kinds of military equipment being procured, and the training exercises being conducted, bespeak grander plans. Stealth bombers, advanced missiles with over-the-horizon capabilities, a new naval base at Sanya in Hainan, a variety of new submarines, and plans for an aircraft carrier are but a few examples. Neighboring countries, linking these developments with the increasingly assertive statements on core interests mentioned above, became uneasy. Periodic Chinese assurances of unquestioned freedom of navigation in the areas have been interspersed with sporadic incidents of interdiction of just such freedom of navigation. Chinese military journals (which do not appear to be on the reading lists of U.S. decision-makers subscribing to the theory that the PRC will evolve into a responsible stakeholder) candidly discuss strategists’ plans after Taiwan is 34

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tory of Guam as its center. The image of Taiwan as the central link in an iron chain restricting the reach of the Chinese navy may not be accurate. As pointed out by Naval War College analysts Toshi Yoshihara and James Holmes, the PLAN has a number of other options for breaking out of the near seas, of which the Luzon Strait is the most prominent. However valid their contention is, it is outweighed by the fact that the Chinese have convinced themselves of Taiwan’s crucial importance in their breakout strategy. Moreover, the Luzon Strait lies directly south of Taiwan, and was a valuable part of the Japanese invasion route in World War II. On the same day as the attack on Pearl Harbor, Japan – then in possession of Taiwan – sent its ships through the channel en route to conquer the Philippines. So too could a PLAN that has bases in Taiwan. Being able to interdict the Luzon Strait, a busy route for ships transiting from American to Asian ports as well as a conduit for undersea trans-Pacific communications cables, would have ominous implications for the security of these nations as well. Manila has been feeling pressure from the Chinese since the mid-1990s, when it discovered PRC construction activities on Mischief Reef. Initially, this construction took the form of enclosures on stilts that were erected when the monsoon season prevented the Philippine navy from patrolling the area. Since the reef lies inside the Philippines’ Exclusive Economic Zone, Manila issued a protest as soon as the structures were discovered. Beijing dismissed the demarche, saying that the structures were simply for the protection of its fishermen, but as the work included radar installations, Filipino President Fidel Ramos, a former army general, expressed skepticism. More structures appeared in the following years, and China now controls the area. Perhaps no country has evinced more public concern about Chinese expansion than Japan. Were China to assume control over Taiwan, the PRC’s territorial waters would abut Japanese territory. Its westernmost island, Yonaguni, is only 68 miles from Taiwan,

which is directly visible from parts of it on a clear day. While the PRC does not claim sovereignty over Yonaguni, in the near term Japan faces a far more contentious dispute over the islands it calls the Senkaku, known to the Chinese as the Diaoyu and to Taiwan, which also claims them, as the Diaoyutai. Beijing did not raise the matter of ownership until an exploratory study in the late 1960s reported that oil and gas reserves had been discovered in the area. In 1972, then-premier Zhou Enlai agreed to postpone discussion of the disposition of the islands as part of the normalization negotiations then taking place, although incidents continued to occur from time to time. In September 2010, the issue was brought to a head when the captain of a Chinese fishing boat, either drunk or acting on orders from Beijing, rammed not one but two Japanese coast guard vessels that had been trying to escort him out of waters off the islands. The Chinese foreign ministry protested the arrest of the captain, saying that since the islands are Chinese territory, its fishing fleet had every right to be there. When Japan announced its intention to try the captain for damages, Beijing responded that it would cease exports of rare earths – vital to the Japanese automotive industry – to Japan. It also subjected Japanese imports to excruciatingly slow customs inspection procedures and cancelled or postponed meetings and cultural exchanges. The captain was released, returning home to a hero’s welcome, and China announced that henceforth its ships would patrol the contested area. As in the case of the Philippines, creeping invasion or “salami tactics” may be triumphing.

Degree of U.S. commitment Although the reasons for a re-focus of attention on the Asia-Pacific are clear, considerable skepticism exists on how firmly the Obama administration or any of its successors are committed to the defense of the region. The U.S. defense budget has been cut, with the promise of more reductions to come,

in order to avert financial collapse. At the same time, there is no easy exit from more than a decade of wars in the Middle East, and a high probability that new sources of conflict will erupt there that the United States cannot escape involvement in. Some observers dismiss the administration’s pivot as a ploy to attract votes for the upcoming presidential election; others point out that economic shortfalls preclude the implementation of the pivot regardless of the sincerity of the president’s intentions. To address the mismatch between intentions and funding, the administration plans to reach out to allies. Although no names were mentioned in the document that announced the refocus, Australia, India, Vietnam, and Japan are likely partners. Australia will host 2,500 U.S. marines, with Washington and Canberra discussing greater access to Australian ports for the American navy. Vietnam has sought Washington’s help: the U.S. and Vietnamese navies now conduct joint naval exercises. Japan is especially vulnerable to Chinese maritime expansion, since the majority of its Middle Eastern oil imports must pass through waterways that could be interdicted by a hostile PLAN. Ensuring adequate petroleum reserves has always been crucial to Japan’s energy needs, but became all the more so in the wake of the revulsion against nuclear power caused by the meltdown at the Fukushima reactors in March 2011. The Japanese military continues to be hamstrung by Article Nine of its constitution, which eschews the right to use force or the threat of force to settle international disputes. The government’s position has been that although Japan, as a sovereign state, has the right to collective self-defense, it chooses not to exercise that right. Repeated attempts to revise Article Nine have failed, but Tokyo’s increased willingness to participate in international peacekeeping operations and collective security arrangements, including military exercises with other countries’ forces, indicates that what cannot be formally changed may nonetheless be coming about in practice. taiwan business topics • april 2012

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COMING DOWN — Supplies dropped by a C-130 cargo plane are about to land at Hsinchu Air Force Base during the annual Han Kung military exercises. photo : AP /Chiang Ying -ying

Additionally, a number of AsiaPacific states have been reaching out to one another to discuss security needs. Philippine President Benigno Aquino III flew first to Tokyo and then to Washington last fall to discuss how to counter the PRC’s creeping expansion. India and Japan have also conducted talks on the subject, as have Vietnam and Singapore with several of the aforementioned states. With the exception of Japan, their defense budgets have been rising. Taiwan occupies an anomalous place in such a configuration. Paradoxically, its improved relations with China and diminished defense spending have enabled the PLA to devote more attention to the PRC’s regional and global concerns. Taiwan-based defense analysts do not believe that Washington will publicly ask for Taipei’s help in the Asian security network it hopes to set up. Beijing, which has already expressed concern over the pivot, would become still more alarmed were the Obama administration to formally request Taiwan’s participation, fearing that it constituted one more step to solidify the country’s continued independence. Moreover, since the current Taiwan government has been at pains to establish good relations with the 36

PRC, Taipei would be reluctant to consent. However, a State Department source responded to a query on the subject by pointing out that U.S.-Taiwan military-to-military and other strategic cooperative arrangements were already so comprehensive and multi-faceted that Taiwan “is already in there.” Although political considerations may preclude Taiwan’s overt participation in the Obama administration’s rebalancing toward Asia, it could still contribute to the initiative in various ways. For example, by allowing the United States to have access to the data collected by its new long-range early warning radar on Leshan, collective defense efforts would be enhanced over an area well beyond the PRC’s east coast provinces. Used in concert with sensors in Okinawa and the Philippines, this equipment would constitute an electronic cordon that would complement space and airborne capabilities. If Taiwan’s Ministry of National Defense plans to move ahead with the development of indigenous submarines, as it recently hinted, their presence would further complicate Chinese plans. A few caveats are in order. There have been allegations that Washington, under pressure from Beijing, has placed obstacles in the way of both the func-

tioning of the radar and the further development of the submarines. Should the Obama administration allow itself to be swayed by this pressure, it will in effect be tying its own hands in the rebalancing effort. The same is true of Washington’s response to demands from Okinawans that the American military remove its facilities from the province. Finally, all the nations that have expressed concern about Beijing’s more assertive posture have important trade relations with the PRC that they will be reluctant to jeopardize by participating in any configuration that the Chinese government might construe as a coalition against it. With Chinese sources making clear that absorption of Taiwan is not the end goal of an irredentist agenda but the initial step in a plan to dominate the East China and South China Seas, any plan to stabilize the Asia-Pacific region has to ensure that Taiwan does not fall into Beijing’s ambit. Given its crucial geographic location as well as its democratic government, the defense of Taiwan is too important to be left to the Taiwanese alone. — June Teufel Dreyer is professor of political science at the University of Miami, Florida.

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A Report on the Telecom Sector

Finding the Right Technology

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A Bridge to Nowhere? The government’s aim to build a domestic industry around WiMAX wireless technology seems to be falling short of expectations. BY ALAN PATTERSON

IN THIS SURVEY

• A Bridge to Nowhere?

p38

• Looking Beyond WiMAX

p41

• Commentary: the Importance of Spectrum Management p44

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he feasibility of the Taiwan government’s strategy of trying to bootstrap the domestic tech industry into a world leader based on a technology for high-speed wireless networking k n o w n a s Wi M A X ( f o r Wo r l d wide Interoperability for Microwave Access) appears to be increasingly in doubt. A bridge from today’s 3G (third generation) mobile technology to higher speed 4G services, WiMAX can enable faster transfers of voice, data, and videos on devices such as cell phones, laptops, and tablet computers. The problem is that after the government launched its WiMAX project in 2005, another mobile networking technology known as TD-LTE (time division duplex longterm evolution) started to overtake WiMAX in global markets. Besides the expenditure of limited tax revenue on an initiative that may not pay off, the WiMAX project may in fact have hurt the local tech industry by steering it in the wrong direction, according to analysts. “The Taiwan government should have reconsidered and challenged the commitment towards WiMAX two years ago, because channeling their resources towards WiMAX would not only compromise the profitability

of their mobile operators but cripple the competitiveness of their export sector,” says Serene Chan, an analyst with the market research firm of Frost & Sullivan. “LTE is not just a better choice, it is the only choice for Taiwan. A number of mobile carriers around the world have deployed or are in the process of deploying LTE in their countries. This includes populous markets like the USA, China, India, and Japan.” The major carriers that have selected LTE include AT&T and Verizon in the United States, Vodafone in Europe, China Mobile on the mainland, and NTT DoCoMo in Japan. Sprint, also in the United States, last year announced that it would shift from WiMAX to LTE; the cost of the switch has been estimated at anywhere between US$4 billion and US$10 billion. Rethink Technology Research indicates that the cost of abandoning WiMAX for LTE may be coming down, however, as equipment suppliers are able to offer dual-mode platforms to enable two networks to be used in parallel during the transition. “ W i t h 5 7 l i v e LT E c o m m e rcial networks and counting in 32 countries around the globe by midMarch 2012, LTE has proven that it is ready for business and is rapidly

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A Report on the Telecom Sector

becoming the platform for growth for mobile broadband,” says Susan Welsh de Grimaldo, an analyst with research firm Strategy Analytics. “The technology has performed remarkably well and become a key part of the competitive mobile landscape in markets like the U.S., South Korea, and Japan.” To be sure, WiMAX currently has deployments in 150 nations around the world, nearly five times more than LTE, yet the places that have adopted WiMAX the most quickly are generally developing nations that haven’t invested in advanced telecommunications infrastructures.“WiMAX is still rapidly growing in Pakistan and Bangladesh,” says Cheng Sheng-Ching, executive secretary of the Committee of Communications Industry Development (CoCID) under Taiwan’s Ministry of Economic Affairs (MOEA). “WiMAX is still on target to reach the forecast that by 2011 there will be over 1 billion people across the world within WiMAX coverage.” T h e b i r t h o f Ta i w a n ’s W i M A X industry started nearly seven years ago with strong support from the government. In December 2005, the government kicked off its Mobile Taiwan or M-Taiwan Project, a four-year program with a total budget worth the equivalent of US$212 million. Under the project, the government set a target of NT$130 billion (US$4.4 billion) worth of production of WiMAX-related equipment in Taiwan by 2013. Still, just a year away from 2013, Taiwan is likely to reach less than half of the target, achieving only NT$60 billion in revenue during 2012, according to a statement released this January by Taiwan’s Industrial Development Bureau (IDB). The global WiMAX business has had annual revenue growth in the singledigit range in recent years, far slower than the current growth of the LTE business, analysts say. Ta i w a n e x p e c t e d t h e W i M A X project to give the island’s tech industry – characterized by low-profit contract manufacturers that are suppliers to some of the world’s leading tech brands such as Apple, Hewlett-Packard, and Dell – a chance to lead the world in a new business that would boost corporate profits at home. This year, Taiwan has the rather

dubious honor of being the world’s largest supplier of WiMAX equipment at the same time as the world’s largest telecom markets are moving to the LTE standard. “Taiwan has gained significant experience through WiMAX. We will use this knowledge to develop 4G and beyond,” says CoCID executive secretary Cheng. Still, Taiwan’s electronics manufacturers appear to be shifting their support away from WiMAX in favor of LTE. A website search of Taiwan’s leading smartphone maker HTC shows that the company made only one WiMAX phone for the Russian market in 2008. Since then, HTC has unveiled two LTE phones for Verizon and AT&T in the United States. “I don’t think WiMAX will be popular,” says Jasmine Chang, a product manager with Getac Technology, Taiwan’s largest maker of ruggedized laptop computers, which has chosen LTE for some of its latest models. “If the U.S. adopts LTE, it will become a global trend.” Taiwan’s largest chip designer, MediaTek, makes WiMAX chips as a member

of the local alliance, but the company is shifting development into LTE products. In July 2010, MediaTek signed an agreement with Japan’s largest phone operator, NTT DoCoMo, to develop LTE chips for Japan and global markets. Worldwide shipments of LTE-enabled mobile phones will soar from 6.8 million units last year to 67 million units this year under strong demand from phone service operators and handset vendors, according to a report from U.S.-based market research firm Strategy Analytics. Major countries driving the growth include the United States, Japan, and South Korea, because telecom operators in those nations such as Verizon Wireless, NTT DoCoMo, and SK Telecom are aggressively expanding their LTE networks, Strategy Analytics said. “The mobile industry is entering a breakout year for 4G LTE technology,” Strategy Analytics executive director Neil Mawston said in the report. “LTE has quickly become a high-growth, highvalue market that no operator, service developer, device vendor, or component

Global WiMAX Infrastructure Investments by Region, 2011

19%

52%

22%

Asia-Pacific

North America

Europe

Middle East/Africa

Latin America

SOURCE: Ministry of Economic Affairs

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maker can afford to ignore.” If Taiwan does not shift its focus from WiMAX to LTE, the island’s export competitiveness will suffer because global demand is shifting in that direction, said Frost & Sullivan analyst Chan.

Building from scratch Taiwan’s WiMAX alliance is crumbling, Chan adds. Taiwan focused the 2005 WiMAX project on creating from scratch an industry ecosystem of companies offering WiMAX components, equipment, software, and even telecommunications services based on the WiMAX standard. The project was expected to breathe new life into the domestic tech industry three decades after the Taiwan government helped to achieve an economic miracle on the island by helping to kickstart the island’s semiconductor industry, now one of the world’s biggest. The WiMAX project included the licensing of six WiMAX service operators in Taiwan, namely Far EasTone, Global Mobile, Vmax Telecom, Vee Telecom, Tatung InfoComm, and Fitel. But the operators have failed to reach profitability and their numbers have been shrinking. In September last year, Vee announced it would acquire 100% of rival Vmax for NT$1.45 billion to expand its coverage and customer base. The world’s biggest chipmaker, Intel, was one of the key investors in Vmax with an 18% stake worth NT$386 million that at the time of the investment put Vmax’s market valuation at NT$2.1 billion. Following that first acquisition, Vee bought Tatung InfoComm in the first quarter of this year for NT$150 million. Tatung InfoComm had been unprofitable since its establishment in 2007 because it was unable to reach economic scale, the parent Tatung Co. said in a press release in March this year. Taiwan’s experiment to make the island a key testbed for WiMAX service appears to have foundered, with only 133,067 WiMAX subscribers registered as of the end of 2011, according to Frost & Sullivan. Part of the problem has been a requirement limiting each operator to services in a particular region of Taiwan.

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The move to 4G will enable faster data transmission for cell phones and other devices.

No WiMAX service operator covers the entire island. Far EasTone, Taiwan’s third largest operator of mobile phone services and one of the WiMAX operators, declined to comment on the WiMAX business. With the inception of the WiMAX project, Taiwan also attracted large tech multinationals such as Intel, Motorola, and Alcatel-Lucent to join in an alliance with local hardware suppliers aimed at grabbing the lion’s share of the worldwide business. By April 2008, Intel said it would invest US$500 million in Taiwan during the following five years, with most of that amount targeted for the WiMAX sector. Yet by July 2010, Intel announced the closing of its WiMAX Program Office in Taipei. Intel last year sold its only major WiMAX investment in Taiwan, the stake in service provider Vmax. The work of the WiMAX Program Office was largely completed, Intel spokesman Nick Jacobs said in a report by trade publication PCWorld in July 2010. The office's closing was aimed at freeing up employees to take their WiMAX expertise to other product groups within Intel, Jacobs was quoted as saying. Other companies privately say

t h e Wi M A X p r o j e c t h a s b e e n d i s appointing. “We used to have a few WiMAX contracts,” says one industry insider in Taiwan who declined to be identified by name, and whose company stopped making WiMAX products several years ago. In June last year, U.S. market research firm Infonetics announced that sales of LTE equipment had caught up with WiMAX products. By the first quarter of last year, the two wireless technology segments each accounted for about US$500 million in sales globally, Infonetics said. At the time, no Taiwan manufacturers ranked among the major suppliers, while South Korea’s Samsung led as the top-selling WiMAX equipment maker, followed by China’s Huawei, Israel’s Alvarion, and U.S.-based Motorola, according to Infonetics. Now, Samsung has grown more interested in LTE. South Korea’s biggest company is competing to win an LTE contract from a leading carrier in India and expects the negotiations to conclude in the first half of this year, according to a Bloomberg News report. The company is also in discussions with Clearwire Corp. in the United States for a possible contract, the report said.

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A Report on the Telecom Sector

Last June, Samsung said it won an order from Japan’s KDDI Corp. to supply LTE equipment. The company was also among three vendors picked by Sprint Nextel Corp. of the United States in 2010 for a project worth as much as US$5 billion to upgrade networks. Before last year, Samsung’s focus had been on developing products using WiMAX technology.

The market for LTE equipment may grow 45% annually over the next five years, according to the Dell'Oro Group. The global wireless equipment market as a whole grew 15% in the third quarter of last year, with LTE-gear sales accounting for almost half the increase, according to the Redwood City, California-based researcher. Choosing the winners in technology

markets can be tough. The Taiwan government was successful decades ago when it funded R&D that later resulted in the creation of the island’s semiconductor industry. But now that the domestic tech sector has achieved sufficient scale to conduct its own R&D and product development, it may be time for the government to step aside and let private enterprise play the role of entrepreneur.

Looking Beyond WiMAX If LTE is the coming trend, how will Taiwan gear up to accommodate it?

BY TIMOTHY FERRY

his July, viewers in Taiwan may get the chance to see the opening ceremony of the London Olympics on any of three screens – TV, PC, or even mobile phone. Chung Hwa Telecom (CHT), the one-time government monopoly that is still Taiwan’s largest telecom provider (and owner of the rights to broadcast the Olympics in Taiwan), will be offering subscribers a new service called “Three Screens in the Cloud.” Developed in association with Ericsson, the service will enable subscribers to view the games through their MOD webTV, on the Internet, or on their handsets. Despite the unprecedented convenience that would provide for viewers, the National Communications Commission (NCC) initially didn’t grant its approval. According to Chung Hwa Telecom president Shaio-tung, the reason was that each service fell under a different set of regulations. MOD came under the fixed-line category, while mobile phones and the Internet are each governed by their own separate sets of rules. “When technology gets ahead of the regulations,” observes Chang, “there can be a problem.” This example points to the central underlying tension between the telecom

industry and its regulators. With technology changing so rapidly, the NCC may have trouble writing regulations or getting the law changed fast enough to keep up. In the case of CHT’s Three Screens in the Cloud, the NCC and CHT were eventually able to come to an agreement on how to offer and manage the service, and viewers will get the chance to see the Olympics as promised. Many industry insiders nevertheless still feel the domestic market is overly regulated. CHT’s president says there are “too many regulations, too many processes” that can slow down the adoption – and innovation – of new technologies. And with the rise of social networking sites and mobile technology – more smartphones were sold in 2010 than conventional mobile phones – regulators face increasing pressure as to how they monitor and nurture the technology ecosystem. The government has recently faced criticism for lagging in its development of a viable 4G mobile broadband system, for example. Taiwan’s 4G LTE network won’t be ready until 2016, leaving the island trailing early adopters in the United States and Europe. Yet, ironically, Taiwan is playing c a t c h - u p i n 4 G LT E b e c a u s e o f

its early adoption of rival 4G technology, WiMAX. In 2005, the legislature approved WiMAX development, spearheading investment in the new technology. But as the previous article in this section indicates, Taiwan’s efforts to be a technology leader actually led it into the dead-end that WiMAX appears to have become when the world changed direction towards LTE. According to Robert Wang, former head of Intel’s Taiwanese WiMAX operations and a government consultant on 4G technology, economic development and market regulation in the telecom sector fall under two different government organizations that may have contradictory policies. The Industrial Development Bureau (IDB) under the Ministry of Economic Affairs, for example, led the efforts to promote WiMAX through its M-Taiwan program. When the incubation stage ended, however, M-Taiwan was phased out and the NCC took over regulation of the WiMAX market. “The Taiwan WiMAX ecosystem moved to another phase, a commercial phase,” he says of the completion of the M-Taiwan program. “It’s not the government’s duty to continue babysitting the industry.”

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But the legacy of WiMAX doesn’t end there, and the difficulty in making decisions regarding the management of new technologies remains uncertain. As Wang explains, the radio spectrum is an invisible but essential – and finite – resource for the country. Like a natural resource, any number of competitors might be interested in making use of it, and the government’s role is to allocate spectrum wisely and fairly. Currently, WiMAX operators are using the 2.6gig/h bandwidth, which also happens to be the bandwidth that Taiwan’s TD-LTE technology (developed in China) will need to operate on. When the LTE network is ready in 2016, the licenses for WiMAX will still remain in use, leaving insufficient bandwidth for the new system. Several possible solutions have been suggested. First, the 1G and 2G systems currently occupying the 900meg/h and 1.0gig/h spectrums respectively will be retired in 2013, opening up those bandwidths for utilization by the new 4G system. But as Wang notes, that option would make Taiwan unique in the world in using these bandwidths for 4G. That would be less significant for the purely domestic businesses of fixed line, digital, and mobile services, exemplified by CHT and Taiwan Mobile. It would be problematic, however, for the export-driven ICT industry epitomized by the ultimate OEM maker, Hon Hai, which sees the domestic market as an excellent proving ground for export-related technology. Taiwan’s leadership in WiMAX and its dominance of the manufacturing of WiMAX-related hardware and solutions are clear signs of this symbiosis. For Taiwan to operate on a different standard from the rest of the world could lead to a serious gap in the global LTE industry between Taiwan and other innovation centers.

Equipment procurement Another consequence of moving to the either 900meg/h or 1.0gig/h is that it will complicate procurement for sophisticated hardware. The uniqueness of the bandwidth means equipment would need to be customized for the Taiwan market, and as Taiwan so far lacks the capability to

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“When technology gets ahead of the regulations, there can be a problem,” says CHT President Chang Shaio-tung. photo : CHT

produce the most advanced 4G LTE hardware, this solution will surely add to the costs of the buildup, says Wang. The U.S. standard for the LTE freq u e n c y i s 7 0 0 m e g / h , b u t Ta i w a n ’s military already occupies this range of the spectrum. Several international telecoms suppliers are advocating transfer of this bandwidth for LTE use, but others believe that this option is not really on the table. With the 2.6gig/h bandwidth now used by WiMAX thus the most viable option, industry insiders anxiously await the NCC’s decision on how to allocate it. Will the NCC call for a new auction of the licenses for this bandwidth, paving the way for the entrance of the big players in the market like CHT and Taiwan Mobile? Or will the NCC remain “technology neutral” and simply release whatever bandwidth licenses remain (reportedly two) and let the market decide who actually gets to operate in that range? The fate of the fledgling WiMAX industry hangs in the balance. Most of the operators have been involved for less than five years in an industry that generally sees profitability in year six, meaning a new bandwidth auction would leave them high and dry. If, however, the NCC doesn’t call for a new auction, they would be sitting on the digital equivalent of a

seam of gold. Each side has its own proponents and its own justifications. Wang argues that a new auction would violate the spirit of the millions of NT dollars invested into WiMAX and cut off these early adopters before they ever get a chance to become profitable. Also, it was the stated goal of the M-Taiwan project for WiMax to spread the market to more smaller players to stimulate innovation at a more local level. Neither CHT nor Taiwan Mobile has a WiMAX license, although the island’s number three network, Far EasTone, does. A new auction would result in the continuing dominance into 4G of the incumbent major telecoms. Executives at CHT concur that spectrum planning by the regulators needs to be more transparent and clear, and they make the case that a broadly considered “roadmap” for bandwidth allocation would help them in planning. Because the increasing demand for mobile broadband requires a larger spectrum, says Yang Wen-hao, managing director of CHT’s Wireless Communications laboratory, a “review of the regulations about spectrum planning” might be in order. He maintains that the number of licenses should not be increased, as “many firms might not be using the spectrum effectively and the bandwidth might be wasted.”

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A Report on the Telecom Sector

The decision will have major consequences, as the potential sums of money involved are huge. Most insiders agree that installing the transmitters and other hardware for the buildup to 4G LTE will cost around NT$20 billion (about US$670 million), but CHT executives emphasize that no one can be sure of the amount at this stage. They express hope that accumulated experience – this being the fourth generation of hardware upgrades – will help to contain costs.

Multinational players The potential benefit for equipment and technology suppliers is also high. Hardware and systems manufacturer Alcatel-Lucent is one such firm. The Paris-based multinational, parent company of the renowned R&D facility Bell Labs, is a global leader in innovation. Included on MIT Technology Review's 2012 Top-50 list of the “World's Most Innovative Companies,” Alcatel-Lucent is acclaimed for cutting-edge research. The company notes that its lightRadio™ “cuts power consumption and operating costs on wireless networks while delivering lightning fast Internet access.”

Other innovations sound like they are right out of a Star Trek episode, such as “photonic service engines” – chips designed specifically for fiberoptic systems. In a recent report, telecom market research firm Dell’Oro says that “AlcatelLucent is in LTE leading position and ranks as No. 2 LTE equipment provider worldwide.” Alcatel-Lucent hopes to continue to leverage that capability in Taiwan, where it has already been a significant presence for 39 years. Alcatel-Lucent is already hard at work on 4G in Taiwan, working alongside CHT to develop systems capable of meeting the 4G standard in delivering data to riders on the high-speed railway. The 4G standard, developed under the UN-affiliated International Te l e c o m m u n i c a t i o n s U n i o n ( I T U ) , stipulates that data transmission for stationary receivers and pedestrians should approach 1 Gbps and for high-speed mobility, 100Mbps. Alcatel-Lucent reports that tests performed on the highspeed train achieved “record speeds in FTP data transmission of 90Mbps in downlink and 34.2Mbps in uplink while the train was running at 281 Km/h, with smooth handovers between the base

stations.” Alcatel-Lucent’s country manager, Ken Wu, says the “overall result satisfied requirements for 4G.” Wu estimates that at least NT$10 billion in potential business will be generated by the ramp-up to 4G. Much of this business is likely to go to Taiwanese contract makers, but Alcatel-Lucent says that the most sophisticated hardware will most likely be built in the firm’s high-tech factories outside Paris. Sweden’s Ericsson is another major player. Operating in 180 countries and employing more than 100,000 people worldwide, the telecom giant is also hoping for a slice of Taiwan’s 4G pie. In email correspondence, the company says that a 4G LTE field trial was conducted in mid-2010 for Chunghwa Telecom Laboratories. The field trial included “demonstrations of indoor and outdoor mobility tests, and application services,” as well as CHT’s “in-house developed LTE Simulator.” The company says “the results of the trial displayed the outstanding performance” of LTE technology, “with high-speed transmission rates and minimal delay” and “outstanding performance in FTP high-speed data transmission.”

Retail outlets such as the those shown above for Vibo (left) and CHT are part of the 3G ecosystem. photos: timothy ferry

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Ericsson is also working on “highdefinition multimedia streaming, such as CHT’s MOD platform as well as the earlier-mentioned “Three Screens in the Cloud” Olympic broadcasts. The company currently employs more than 200 staff at Ericsson Taiwan, and last September Ericsson established an Interoperability Testing center in Taiwan, signifying its strong commitment to the market. Taiwan’s own home-grown research centers are also developing technologies related to the telecom industry. Taiwan’s famous public-private Industrial Technology Research Institute (ITRI) in Hsinchu has several labs dedicated to innovation in wireless and broadband technologies. They list on their website a number of projects, including bandwidth guaranteed switch technology for highdefinition video transmission and even institutional monitoring-and-care systems for those confined to nursing homes. One of the more intriguing innovations developed at ITRI is the Antennae and Photovoltaic Cell integration project. By integrating the functions of solar PV cell with the functions of a

high-gain, high-efficiency antennae, the project marries telecom technology to another industry Taiwan is promoting: green tech. ITRI notes a number of other achievements in integrating green technology with telecom. For example, it has developed high-performance cooling systems that help the massive servers needed for cloud computing stay cool in hot climates. Taiwan is also making big strides in its promise of providing high-speed Internet access to 80% of Taiwanese households by 2015. This multibillion NT-dollar project involves building out the fiber-optic cable network, installing more transmitters and other hardware. As Alcatel-Lucent’s Ken Wu says: a fiberoptic system “is like a highway. If your highway expands from three lanes to five lanes, it’s not only the highway but the ramps, the interchanges – they all need to be upgraded.” This major infrastructure project has also provided a number of opportunities for hardware and solutions providers both locally and abroad, and will guarantee users 100 Mbps. As for the 4G network, although competitors might not see eye to eye on a

number of issues, one thing they all seem able to agree on is pricing. The operators would vastly prefer tiered pricing over “all-you-can-eat” buffet pricing. Industry insiders complain that buffet pricing payment plans typical for the current 3G networks encourage wasteful data transmission, allowing a handful of heavy users to download excessive amounts of data at the same price as lighter users, who then experience slower speeds due to the data congestion. Alcatel-Lucent’s Wu says pay-as-you-go tiered pricing “will help the operators manage their networks much better because no on will waste the data.” No one knows exactly how the government will settle the bandwidth conflict between WiMAX and LTE, yet few seem terribly concerned. Alcatel-Lucent’s Wu says merely that he is encouraged that local officials are giving the issue of 4G connectivity the focus it deserves, and CHT president Chang expresses confidence in the wisdom of the regulators to resolve the issue before long, creating the viable system needed for Taiwan to develop a competitive “economy of digital resources.”

Commentary: the Importance of Spectrum Management BY JASON T. WANG

hy is radio frequency spectrum management important to the average citizen? From live traffic information on your in-vehicle GPS navigation unit to checking your email on your newsfeed on your mobile tablet, these wireless services are an integral part of our daily professional and personal lives. But as more services shift to the cloud and the need increases for clear radio frequencies to enable

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communications, spectrum – in classical economic terms – remains a fixed, inelastic supply. Like lanes on a highway, the amount of usable radio spectrum is finite. The assignment and reallocation of this collection of frequencies forms the cornerstone of today’s digital economy. Just as we demand effective governance of roads and highways from our government, the same should be true with respect

to spectrum management. Technology and services evolve quickly, and policy makers must stay up-to-date so they can enact polices that ensure long-term sector growth. Far too often, the esoteric nature of spectrum management makes it hard for average citizens to fathom, and they neglect to hold their governments accountable. Mobile carriers and device manufacturers are assigned specific frequencies by

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A Report on the Telecom Sector

governments, thus forming the backbone of the myriad network services and content that we enjoy on our smartphones, tablets and other devices. Apple’s Siri, a popular cloud-based “butler” service, for example, takes user-recorded commands and sends them from the user’s mobile phone to a cloud-based server for processing. The service is predicated on the availability of the wireless network to send and receive the data to your handset and a million others at any given moment. No network connectivity, no Siri. As consumers use more wireless services, the required bandwidth (and therefore the need for usable radio frequencies) consequently increases. Last year, according to Nielsen, the average American Android user consumed 582MBs per month. With smartphones, tablets, and other smart devices dominating the sale of wireless data services, the burden on the wireless service providers is increasing beyond the capacity of their existing networks. This trend is driving telecommunication carriers to shift from WCDMA to LTE, a more spectrum-efficient technology in that it allows faster wireless downloads than you would get on 3G. Mind you, the management of spectrum is not an easy task. Spectrum assignment and reallocation constantly occur because technology and services evolve quickly. Governments must therefore plan carefully and stay up to date on new technologies. But no process is perfect, and there are also competing interests. For example, some of the frequencies suitable for 4G are currently being assigned to military use around the world. A given frequency must be cleared before it can be re-used. Frequency bands are also grouped together with unused spectrum in between to act as a “guard band” to limit interference. Earlier this year, Lightsquared, a wireless service provider in the United States, ran afoul of the Federal Communications Commission when its transmission technology was found to interfere with satellite signals used by global positioning receivers. There is also the challenge of global coordination. The United Nations International Telecommunication Union (ITU)

has developed rules designed to ensure that the frequencies used to enable services in one part of the world can be enjoyed in other parts as well. Ensuring connectivity across the world creates the added benefit of achieving greater economies of scale. Companies like HTC can produce a single consumer handset that can be used in the United States, Europe, and Japan, for example. As demand for radio frequencies grows, however, such global coordination is becoming more challenging. Some of the LTE frequencies used in the United States and Europe, for instance, may not be the same as those used throughout Greater China. Most notably, a buyer of the third-generation iPad in the United States may not be able to use the LTE network in Asia because the frequency band assigned in Japan is different from that of the United States. Which brings us back to commercial considerations. Having insufficient spectrum can kill the commercial viability of a service, particularly in dense urban areas. Frequency reuse is a key network engineering strategy for mobile engineers. It is not unimaginable for a network to be overwhelmed during a national emergency, however, or when Jeremy Lin scores a basket. Around the world, carriers are making an aggressive bid to accumulate sufficient spectrum to feed the consumer’s need for wireless services and to enable the machine-to-machine communications revolution. Verizon is in the process of acquiring US$3.6 billion dollars worth of spectrum from a coalition of cable companies. Many U.S. carriers are also eying Clearwire’s mother lode of 160 mhz of spectrum. In parallel, the Taiwan carriers are eying the spectrum now controlled by the WiMAX operators as a future source of bandwidth to deliver LTE services. As mentioned above, when properly implemented, spectrum management forms the backbone of the digital economy. Governments charge a fee or hold auctions for the privilege of gaining the use of assigned frequency bands. During the last spectrum auction, the Taiwan government made respectable US$16 billion selling 3G licenses, so it behooves the government to reclaim

unused or under-utilized spectrum as quickly as possible to enable the spectrum to be used in the most beneficial way. The rapid elimination of analog services, and the development and promotion of spectrum-efficient technologies and services, is a key performance indicator of a government working in the public interest. The accumulated fees and auctions have and can continue generate billions of dollars that go straight into the national treasury. The availability of spectrum is also critical to the growth of the new media sector. Tablets such as the iPad and the Samsung Tab are a direct result of the convergence of the telecommunications and media sectors. These “thin-clients” depend on wireless connectivity to process and deliver content. This whole new category of computing has created jobs for material engineers, product planners, and chip designers working for Taiwan’s ODM companies both big and small. Whole new companies and divisions have been created to specialize in location and context-aware advertising. A Groupon offer for a consumer in Taipei must be different from what is offered in Tokyo or Hong Kong. This requirement necessitates not just real-time processing of a consumer’s location data but a sales force to create those local deals. Nearly 40 years have passed since Martin Cooper, the father of modern cellular services, made the first wireless voice call using a mobile phone the size of two bricks taped together. Whole new economies and jobs have been created utilizing that same radio frequency resource. The Taiwan market is an important testbed, manufacturer, and designer for a myriad of companies from multinationals like Apple to homegrown successes like HTC. By managing spectrum carefully, the government can create even more economic opportunities and generate even more national wealth. That is good for business and for you and me, the taxpayers.

— Jason T. Wang is managing director of Cypress River Advisors, a consultancy in the telecommunications field.

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Hills of Green, Veins of Gold

lmost every visitor to Taiwan spends a few days in Taipei, the island’s dynamic capital. Fewer make it to New Taipei City, the sprawling municipality that surrounds Taipei. This is a pity, as what locals call Xinbei (literally “new north”) has an abundance of natural and manmade attractions, including waterfalls, aboriginal villages, hot springs, tea plantations, 17th-century forts, and exquisite temples. One corner of New Taipei City is especially picturesque. The small adjacent towns of Jinguashi and Jiufen are celebrated not only for their meandering alleys and Taiwan-as-it-used-to-be atmosphere, but also for their stirring ocean views. These two towns, together with Shuinandong along this region’s dramatic coastline, are now regarded by many as a single entity called “Shuijinjiu” (the nickname, sometimes spelled Shueijinjiou in English, derives from the first syllable of each place name). Most visitors devote an entire day to the area, and more and more stay overnight in one of the homestays. By Taiwan’s balmy standards, the

climate in this part of the island is harsh. Rain falls throughout the year, the sun is often blocked by mist, and the settlements are exposed to strong gales. What is more, only a small percentage of the land is suitable for agriculture. Outsiders could be forgiven for asking why anyone would choose to live in such a hard-to-reach, windbattered region. The answer is simple: gold. During railway construction in the late 1880s, traces of this precious metal were found throughout northern Taiwan. In 1892, whole veins of gold-bearing quartz were discovered in the vicinity of Jiufen and Jinguashi. Until then, these two places had been inhabited by just a few tenacious homesteaders. Jiufen means “nine parcels,” said to be derived from the nine families that settled the hillside in the late 18th century. Merchants would prepare that many portions of salt and other commodities before lugging the goods up from what is now the bustling harbor city of Keelung. Like other gold-rush settlements around the world, Jiufen and Jinguashi

experienced an influx of both laborers and entrepreneurs. The towns took on a distinctive appearance, with the gabled roofs on many of the older wood-andbrick bungalows covered in tar paper and wired to nearby boulders to stop them from being blown away. Now that Jiufen is a favorite location for eating and shopping, and Jinguashi a leading destination for those interested in architecture and industrial history, it is hard to imagine that both settlements almost became ghost towns after mining ceased for good in the early 1980s. Jiufen’s economy began to recover after Taiwanese movie director Hou Hsiao-hsien shot his 1989 film A City of Sadness in the town. Many of those who saw this acclaimed movie were enamored by the town’s steep, narrow lanes. Coming to explore the sights, they ended up spreading the word about local delicacies such as taro rice balls and hongzao (red yeast) meatballs. Jiufen also has a good range of teahouses and restaurants, several of which offer delectable views in addition to fine cuisine.

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Before the opening in 2004 of the Gold Ecological Park (GEP), few tourists ventured beyond Jiufen to Jinguashi. Thanks to a fascinating combination of Japanese colonial-era buildings and industrial relics, the latter town is nowadays very much on the beaten path. Among the GEP's attractions are two museums. The Environmental Education Building explains phenomena such as the Yinyang Sea, a patch of ocean that gets its name from the yin and yang patterns created when yellow iron-bearing water mixes with the blue sea. The Gold Building is awash with impressive facts and figures, such as the area’s more than 600 kilometers of mine shafts and tunnels, with one of the latter located 132 meters below sea level. Visitors to the building also have the chance to touch a 220.3-kilogram gold bar. This ingot – said to be the world's largest – is worth almost US$13 million. Elsewhere in the park is a chalet built in 1922 during the Japanese colo-

nial period, to accommodate Prince Hirohito, later Emperor Showa, on his planned visit. The prince never arrived, but the chalet still stands, and the bilingual signs are a superb introduction to Japanese architectural and gardening concepts. In a park devoted to the history of mining, visitors should have the chance to go underground to experience for themselves the conditions in which the miners worked. In Jinguashi, the Benshan Fifth Tunnel fulfills that role. Visitors are issued hard hats as a precaution, but the 180-meter-long tunnel has been made completely safe. Inside, waxworks figures shovel, drill, scarf down rice lunchboxes, and – to make sure they do not smuggle out gold – submit to searches at the end of each shift. From the Benshan Fifth Tunnel, it is a short walk on stone steps up to one of the area’s most beguiling sites. What some signs call the “Gold Temple” is in fact a ruined Shinto shrine, perched on a ledge 417 meters above sea level. The views from here over the GEP and toward the sea make the exertion very worthwhile. In fact, many visitors are then tempted to hike all the way down to the ocean at Shuinandong. Those who do so will see a great deal more than vividly green hillsides and gray cliffs. Creeks here are discolored by chemicals leeched from the ground. At an especially photogenic spot known as the Golden Waterfall, frothy white water rushes over mineralstained rocks, which – depending on the light – appear khaki or golden brown. Also of interest are the massive Shuinandong Smelter and the three 2-kilometer-long pipes that snake their wa y from the s melter to the ridge above. The smelter was where copper ore was refined (after World

War II, copper was just as important to Jinguashi as gold). The pipes carried toxic fumes away from residential neighborhoods. Bus e s on fr e quent schedul es t o and from Keelung ply the main coast road, so those who walk down from Jinguashi need not retrace their steps. In fact, public transportation is recommended for seeing all parts of Shuijinjiu. The main road into Jiufen and Jinguashi is narrow and winding, and there are few parking spots in the towns themselves. Visitors are therefore advised to arrive on one of the regular direct buses from Keelung or downtown Taipei. Jinguashi-bound buses stop first in Jiufen, and many of the routes include a stop right outside the Ruifang Railway Station. Anyone intrigued by Shuijinjiu’s industrial heritage should consider adding the Houtong Coal-Mine Ecological Park to their itinerary. Houtong – just 4 kilometers from Jinguashi as the crow flies – is a tiny riverside town that has had only one industry in its history. The last coal mine here closed down in 1990, but much of the infrastructure remains in place. Bilingual leaflets available from the building directly in front of the train station show the way to the entrances of disused mines and to exhibition halls. For more information about Shuijinjiu, see the trilingual website maintained by the New Taipei City Government (www.ntpcsjj.tw), or call the Taiwan Tourism Bureau’s 24-hour Tourist Information Hotline (0800-011-765, free within Taiwan).

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A Memorable Hsieh Nien Fan

he ballroom of the Grand Hyatt Taipei was the scene for the 44th annual Hsieh Nien Fan, AmCham Taipei’s gala banquet to thank Taiwan government officials and other friends of the Chamber for their support over the past year. The more than 600 members and guests in attendance included some 90 government officials and leaders from the domestic business and academic communities. In welcoming the guests, AmCham Chairman Bill Wiseman alluded to the shared American and Taiwanese devotion to sports, congratulating Baltimore Orioles pitcher Chen Wei-yin on his success, and golfer Yani Tseng and New York Knicks sensation Jeremy Lin on being recognized by Time magazine as among the 100 most influential people in the world. President Ma Ying-jeou once again delivered the keynote address, then stayed for the dinner and to toast each table. The President’s speech emphasized five fundamental pillars that Taiwan must rely on to build up its global competitiveness and secure its economic future. These are trade liberalization, comprehensive restructuring of major industries, rationalization of utility rates, internationalization of the educational system, and attracting foreign talent to Taiwan’s labor pool in order to foster greater cultural diversity and spur creativity. To “achieve trade liberalization and the rewards that come with it,” the President said, “Taiwan must take the first step of shedding its protectionist mindset” and opening itself to the world. He reiterated the goal of joining in the process of regional economic integration, especially through the TransPacific Partnership (TPP). Also speaking was American Institute in Taiwan Director William A. Stanton, who urged Taiwan to follow the “four core principles” of furthering market liberalization, adopting regulatory standards based on scientific and international guidelines, reducing barriers to trade, and consulting with key industry players during the policy-making process. Among the other government dignitaries in attendance were National Security Council Secretary-General Victor Hu, Ministers of State Simon Chang and Yang Chiu-hsing, Foreign Minister Timothy Yang, Education Minister Chiang Weiling, Council of Agriculture Minister Chen Bao-ji, Mainland Affairs Minister Lai Shin-yuan, Economic Planning & Development Minister Yiin Chii-ming, numerous vice ministers, and several members of the Legislative Yuan. Attendees enjoyed a sumptuous meal featuring natural U.S. beef tenderloin, accompanied by Jacob’s Creek Chardonnay Pinot Noir Sparkling, Jacob’s Creek Chardonnay, Jacob’s Creek Shiraz Cabernet, and Royal Salute 21-Year-old Blended Scotch Whisky. Making the event possible was the generosity of the evening’s sponsors: Gold Sponsor Franklin Templeton Investments; Wine & Liquor Sponsor Royal Salute Scotch Whisky by Pernod Ricard; Executive Silver Sponsor Standard Chartered Bank; Silver Sponsors Air Products, Citi Bank, Corning, and HSBC; Bronze Sponsors 3M, Alcatel-Lucent, American Express, Baker & McKenzie, Dun & Bradstreet, Grand Hyatt, JTI, K&L Gates, Micron, and Tobacco Institute of the Republic of China; and General Sponsors Aon, Morgan Stanley, and Procter & Gamble.

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• Please make checks payable to: American Chamber of Commerce in Taipei • Please direct telegraphic transfers to: American Chamber of Commerce in Taipei • Acct. #: 018-1-093665-6 Standard Chartered Bank, Tunpei Branch (Please fax your transfer receipt to AmCham.)

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