2014 Business Climate Survey

Detailed Findings

2014 Business Climate Survey Summary of Results

Results of the online survey conducted in November and December 2013 by Independent Marketing & Research Limited on behalf of AmCham Taipei. Of the 423 voting representatives (mainly CEOs) from AmCham member companies who were invited to take part, 220 did so for a 52% response rate.

The sample covered a wide spectrum of companies by size of employment – from the very small to the very large. The primary business focus of more than 70% of the respondents is to supply goods or services to the Taiwan domestic market.

American Chamber of Commerce in Taipei Suite 706, Worldwide House 129 MinSheng East Road, Section 3, Taipei 10596, Taiwan Tel: +886-2-2718-8226 Fax: +886-2-2718-8182 www.amcham.com.tw

2014 Business Climate Survey

A good environment, but still in need of improvement Message from 2014 AmCham Chairman Thomas Fann

For its 2014 Business Climate Survey, AmCham Taipei invited the 423 voting representatives from our member companies (mainly the CEOs) to answer a series of questions about the investment environment in an online questionnaire. I would like to thank the 220 members who took the time to participate in the survey, as well as Gordon Stewart of Independent Marketing & Research for his professional assistance. The high response rate of 52% reflects members’ appreciation of the importance of this exercise. The results provide AmCham with valuable information to help shape its policies and advocacy positions to reflect the needs and interests of its membership more effectively. The findings are also useful reference for the Taiwan government in understanding the views of foreign investors as a guide in policymaking.

In general, the results of this survey were largely in line with those released each year since 2011. Respondents consider Taiwan to be a good place to do business, with an industrious and well-educated work force, and nearly all operations are profitable. Company executives are even more positive about the quality of life, rating Taiwan as a safe and friendly environment in which to live.

At the same time, the 2014 survey reflects heightened dissatisfaction with bureaucratic obstacles to healthy business operations.

More specifically, the respondents cited the need for greater consistency in regulatory interpretations, adherence to the rule of law, and transparency in the regulatory process. They also raised increased concern about the effect of political unrest on the economic climate.

In the survey, the AmCham business leaders expressed satisfaction with the Economic Cooperation Framework Agreement (ECFA) Taiwan has entered into with China, and described the cross-Strait services agreement now before the Legislative Yuan as a positive development for both sides. In addition, they urged the Taiwan and U.S. governments to conclude a Bilateral Investment Agreement, identifying a BIA as bringing distinct advantages for their businesses. And they strongly supported the stated intention of the Taiwan government to seek admission to the embryonic Trans-Pacific Partnership when the TPP is opened to a second round of membership.

AmCham was heartened by President Ma Ying-jeou’s 2014 New Year’s Day Address, which was devoted entirely to plans for revitalizing the economy, including the promotion of Free Economic Pilot Zones, the encouragement of startups, and steps to assure Taiwan’s integration in the regional and world economies. He recognized the importance of readying Taiwan for entry into the TPP, both as a means of spurring needed economic reform and to secure Taiwan’s place in the international trading community.

If these initiatives can be carried out expeditiously, I am confident that the 2015 Business Climate Survey will reflect a strong increase in optimism among foreign investors in Taiwan’s economic outlook and the prospects for their businesses.

Thomas Fann 2014 AmCham Taipei Chairman

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2014 Business Climate Survey

Executive 2014 Business Summary Climate Survey

Key Indicators

81% 74%

81%

72% 66% 65%

70%

69% 59%

63% 54%

52% 43%

56%

54%

48%

2010 2011 2012 2013 2014

Profitability

Forecast for Revenue & Profit Growth

Investment

5-Year Business Outlook

Major Takeaways • Although most (65%) AmCham companies taking the survey report that 2013 was very or relatively profitable, business conditions last year were not as good as in 2010-11.

• Most companies (63%) expect their revenue and profits to grow in the coming year, but that is fewer than the 69% last year or 81% for 2011.

• At 44%, the proportion expecting no change in their company’s level of investment in Taiwan in the coming year was the highest in the four years of the survey. Only 7%, the lowest figure over those four years, anticipate a substantial increase in investment this year.

• The level of optimism regarding Taiwan's five-year business outlook was statistically about the same as last year.

The 54% expressing optimism was just slightly less than the 56% last year, but well below the 71% of 2012 and 81% of 2011.

• “Governmental bureaucracy” was cited as the number-one factor impacting business operations, along with related factors such as “inconsistent regulatory interpretations” and “inconsistent application of the rule of law.”

• Increased concern was also shown over the level of political unrest in Taiwan. “Reducing political turmoil” was cited as a key thing the government could so to improve the business climate.

• In 2013, 43% of responding companies increased employment levels, and 41% expect to do so this year. Difficulty recruiting sufficient talent is seen as a problem, however.

• In general, Taiwan’s work force is viewed very favorably. The major shortcomings are the degree of creativity, initiative, and international mindedness.

• In terms of cross-Strait economic relations, ECFA continues to be seen has having a positive effect on Taiwan, and the China-Taiwan Services Agreement is regarded as a win-win proposition for both sides of the Strait.

• More than half (53%) of respondents see the lack of a Bilateral Investment Agreement between Taiwan and the U.S. as a disadvantage for their business, and urge the two governments to negotiate a BIA. • AmCham business leaders consider it important for Taiwan to join the Trans-Pacific Partnership. A full 83% of respondents urged Taiwan to seek TPP membership, and 63% expressed confidence that Taiwan can meet the pact’s high standards.

• The respondents were again highly positive about the living environment in Taiwan. The major defect cited is that Taiwan is insufficiently “English-friendly.”

2014 Business Climate Survey

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2014 Business Climate Survey

2013: Business still in low gear Around two-thirds of respondents said their companies were either “very profitable” (11%) or “relatively profitable” (54%) in 2013. Almost all of the rest merely broke even or were close to it. While few companies suffered large losses, business conditions remained inferior to 2010 and 2011, when respectively 74% and 72% of respondents said they were very or relatively profitable.

■ How would you characterize your Taiwan business' financial performance in 2013?

11% 10%

Very profitable

14%

21% 54% 56% 58% 53%

Relatively profitable

Break-even or Small profit/loss 1%

Relatively large loss

0% 1% 1% 0%

Very large loss

31%

24% 24%

34%

3% 3% 3% 2013

0

10

20

30

2012

40

2011

2010 60 %

50

2014 Forecast: Continued growth A total of 64% of respondents are expecting an increase in the level of both revenue and profits in the coming year – a slight drop from the 66% last year and the 68% in the 2012 survey, but far less than the 82% recorded in 2011. Most of the rest expect conditions to remain the same in 2014, rather than anticipating a decline in either revenue or profits.

■ What is your Taiwan business’ Revenue & Profits forecast for 2014 compared to 2013?

(Top responses only) 11% 13% 11%

Substantial growth in both Revenues & Profits

17%

Modest growth in both Revenues & Profits

46% 16%

Remain the same 6% 6%

Modest decline in both Revenues & Profits

6% 0

4

2014 Business Climate Survey

53% 53%

19%

8%

23%

10% 10

2014 20

54%

30

40

2012

2013 50

2011 60 %

Detailed 2014 Business Findings Climate Survey

Near-term Investment: Still sluggish Of the respondents, 44% – the highest proportion in the four years of the survey – expect no change in the coming year in their company’s level of investment in Taiwan, while 41% anticipate a slight increase and only 7% a substantial increase.

■ What is likely to happen to your entity’s level of investment in Taiwan over the next 12 months?

7%

Substantial increase

11% 10%

16%

Slight increase

41% 42%

33%

38%

No change 4%

Slight decrease

1% 2% 2% 3% 2% 1% 2% 1%

Substantial decrease Don't know/can't say

36% 6%

44%

13%

5%

2014

0

39% 41%

10

20

2013

30

2012

2011

40

50%

Looking forward five years This year only 54% of the business leaders say they are either “optimistic” or “slightly optimistic” about the fiveyear business, compared with 56% last year, 71% in 2012, and a high 81% in 2011. Those either “pessimistic” or “slightly pessimistic” came to 18%.

■ How would you describe your five-year business outlook for Taiwan?

17% 19%

Optimistic

28% 29% 37% 37%

Slightly optimistic

Neutral

22%

7% 14%

Slightly pessimistic

7%

26%

0

16%

10% 2014

10

52%

29%

4% 3% 1% 3%

Pessimistic

43%

20

30

40

2013 50

2012

2011 60

%

2014 Business Climate Survey

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2014 Business Climate Survey

What impacts their business?

“Governmental bureaucracy” ranked as the factor that respondents said had the biggest impact on their operations, followed by “inconsistent regulatory interpretations.” In the previous three surveys, the number-one item was consistently “changes in local demand,” reflecting the fact that most AmCham member companies focus chiefly on the Taiwan market.

In the 2013 survey, “governmental bureaucracy” was ranked third and in 2012 fourth. The change to the top place this year indicates that business leaders are viewing it as a growing problem.

Other adverse factors that were frequently cited were inconsistent application of the rule of law, inadequate or outdated laws, insufficient notice before changes to regulations or laws are introduced, differences between local and internationally accepted standards, and inadequate transparency.

■ Which of the following impact your operation in Taiwan, and how much of an impact do they have?

Top Ten Responses Overall 2014 2013 2012

2011

Issues

Ranking Ranking Ranking Ranking

6

1

3

4

2

Governmental bureaucracy

2

2

2

3

Inconsistent regulatory interpretation

3

1

1

1

Changes in local demand

4

New in 2014

Inconsistent application of the Rule of Law

5

4

Inadequate/out-dated laws

6

6

7

New in 2014

Differences between local and internationally accepted standards

8

9

10

10

Lack of transparency

9

5

3

4

Ability to recruit appropriate new personnel

10

8

8

9

Changes in employment expenses

6

5

New in 2013

2014 Business Climate Survey

Insufficient notice before changes to regulations or laws are introduced

Detailed 2014 Business Findings Climate Survey

What needs to be done The survey asked: “What are the main things the Taiwan and U.S. governments could so in the next 12 months to help business?”

■ Main things the authorities could do to help.

(Ranked in order)

Taiwan Government • Reduce political turmoil in Taiwan • Simplify government bureaucracy • Devise plan to stimulate local demand • Assure consistent application of the rule of law • Remove gap between local and internationally accepted standards

USA Government • Negotiate and sign a Bilateral Investment Agreement with Taiwan • Conduct TIFA talks annually with Taiwan • Reduce corporate tax rates • Reduce personal tax rates • Facilitate Cabinet-level visits to Taiwan.

• Reduce personal tax rates

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Detailed Findings

2014 Business Climate Survey

The major worries confronting business With regard to the major risks facing their operations in the months and years ahead, most respondents cited the threat of economic slowdowns, whether in Taiwan (61%), globally (58%), or in major overseas markets such as China (37%), the U.S. (34%), and Europe (25%).

Besides economic slowdowns, the number-one concern is “increased domestic political unrest” at an all-time high of 40% (it was only 22% last year). Among other major concerns are “increased governmental interference” and “lack of human resources.”

■ What are the major risks facing your entity in the coming years?

Economic slowdown in Taiwan

54%

61%

58%

64%

58%

Global economic slowdown 22%

Increased domestic political unrest

40%

32% 33%

Economic slowdown in Mainland China

37%

28%

Increased Governmental interference

28%

Lack of human resources Economic slowdown in US

27% 25%

Economic slowdown in Europe Rising domestic inflation Taiwan Dollar (TWD) depreciation Decreased exports

10% 12%

Taiwan Dollar (TWD) appreciation

0

34%

42% 41%

37% 39%

34% 35% 35% 36% 34%

41% 40%

35% 36%

18% 16% 20% 11% 15% 17% 22%

Rising Taiwan unemployment

Increased imports

20% 26% 19% 22% 18% 18% 24% 18% 18% 16% 15%

3% 2% 2% 2%

10

2014

20

72% 74% 69%

30

40

50

2013 60

2012 70

2011 80 %

Human Resources continues to be a big issue Deficiencies in the quantity and quality of available human resources are one of the higher risk factors seen as confronting Taiwan-based businesses in the future. We asked our corporate leaders about their impression of the quality of the available human capital in Taiwan.

■ How would you describe the quality of available Human Capital in Taiwan?* Hardworking Very trustworthy Extremely well educated Very loyal Easy to develop/train Highly productive High degree of EQ Easy to retain Well-rounded English-language skills Of 'World class' standard High creativity Great deal of initiative Easy to recruit -50

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2014 Business Climate Survey

0

50

100

150

200

* Net difference of positive scores minus negative scores

Employment trends 2014 Business Climate Survey

AmCham Taipei member companies are hiring

During 2013, 43% of the AmCham companies surveyed increased their personnel numbers, either substantially or slightly.

Another 39% reported no change. Interestingly, it was the larger companies (more than 500 full-time employees) who were most likely to increase their workforce. Member companies in the healthcare, hotel and restaurant, and retail sectors showed the most hiring activity.

â– 2013 Changes in Employment Level

7%

1%

36%

16%

No change 39% Increased slightly 36% Increased significantly 7%

39%

Decreased significantly 1% Decreased slightly 16%

In 2014, according to the survey results, 41% of the companies plan to increase their headcount. Again, it is the larger companies who express the intention to recruit more personnel. Companies in the legal services, management consulting, healthcare, and human-resource consulting sectors are the most likely to to say they will increase employment.

â– 2014 Intentions for Headcount 8%

1% 2% Remain the same 49% 39% 49%

Increase slightly 39% Increased significantly 2% Dont know/cant say 1% Decreased slightly 8% Decrease significantly 0%

2014 Business Climate Survey

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Cross-Strait economic relations

2014 Business Climate Survey

AmCham company executives still bullish on ECFA. The Economic Cooperation Framework Agreement (ECFA) between Taiwan and China continues to be viewed in a positive light. The proportion of respondents seeing it as having a “very positive” effect on Taiwan is 13%, the same as last year, while 54% see it has having “some positive” effect, down from 60% a year ago.

■ ECFA effect on my business 4% 5%

Very Positive Effect

9%

15%

40%

Some Positive Effect

38% 37%

Neither Positive nor Negative 2% 3%

Some Negative Effect

5%

1% 2% 1% 2%

Very Negative Effect

27%

Don't Know/Can't Say

44%

42% 41% 41%

7%

9% 10%

2014

7% 8% 0

10

20

2012

2013

30

2011

40

50

■ ECFA effect on Taiwan 13% 13%

Very Positive Effect

30%

40%

54%

Some Positive Effect

46% 11%

Neither Positive nor Negative

3% 4% 2% 5% 1% 1% 3% 2%

Some Negative Effect Very Negative Effect Don't Know/Can't Say

2% 0

11%

13%

9%

9% 9%

12%

10

2014 20

■ China-Taiwan Services Agreement The cross-Strait Services Agreement (already negotiated and currently being deliberated upon in the Legislative Yuan) is regarded as a win-win proposition. Asked whether the Agreement would be good for both Taiwan and China, 69% of respondents said yes.

10

2014 Business Climate Survey

60%

49%

30

2012

2013

40

Don’t know 17% No! 14% Yes! 69%

50

2011 60

2014 BIA/TPP Business Climate Survey

■ Effect on my business of a lack of a Bilateral Investment Agreement between Taiwan and the U.S.A. More than half of respondents see the lack of a Bilateral Investment Agreement between Taiwan and the U.S. as disadvantageous for their business. Among them, 9% see it as a major disadvantage.

9% 9% 8%

Major disadvantage

25%

Disadvantage 21%

Slight disadvantage

22%

18%

Not a disadvantage Don’t Know/Can’t Say 0

5

10

15

24%

21%

18%

29%

23%

25%

2013 2013 2012

27%

22%

20

25

30

■ Effect on Taiwan of a lack of a Bilateral Investment Agreement between Taiwan and the U.S.A. 19%

Major disadvantage

22% 22%

34%

Disadvantage

40%

17%

Slight disadvantage

11%

6% 6% 7%

Not a disadvantage Don’t Know/Can’t Say

10

2013 2013 2012

24%

16% 0

44%

20% 20

30

40

50

■ What should be Taiwan's position regarding the Trans-Pacific Partnership?

Is Taiwan capable of meeting the high standards required for membership into the TPP?

Should Taiwan pursue membership of the TPP? No! 2%

No! 13%

Don’t know 13%

Don’t know 15%

Yes! 65%

Yes! 80%

2014 Business Climate Survey

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2014 Business Climate Survey

Living in Taiwan

The respondents praise Taiwan as a safe, friendly place to live for themselves and their families.

The Top Benefits of living in Taiwan* 2014

2013

2012

2011

Benefits

1

1

1

2

Taiwanese people are extremely nice

2

2

2

1

My family feels safe in Taiwan

3

3

4

3

Taiwan is an easy country to live in

4

4

3

4

Taiwan provides quality Health/Medical/Dental services

5 7 6 5

Alternative transportation options are usable and provide options to driving my car (i.e., buses, bike lanes, taxis, trains, sidewalks).

6

6

7

7

Taiwan provides adequate shopping opportunities

7

5

5

6

Taiwan delivers reliable electricity.

8

9

9

8

Mobile telephone coverage is excellent

9

8

10

10

The postal service is excellent

But some aspects could be improved‌

The Least appreciated aspects of living in Taiwan* 2014

2013

2012

2011

1

1

1

2

3

3

3

Quality drinking water.

3

4

6

4

Banking and other financial services

4

7

5

4

Library services

5

2

2

1

Water runoff from storms is controlled and minimizes flooding

6

6

4

2

Quality youth activities

7

5

8

7

Sewer system in Taiwan works reliably

8

9

10

8

The standard of schooling

9

8

7

15

Safe, drivable street surfaces

New in 2012

Benefits 'English-friendly' environment

* Net difference of positive scores minus negative scores

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2014 Business Climate Survey