Feature Articles
Authors: Irsan Prawira Julius Jioe , Tzong-Ru Lee
Keywords: China and Inner Asia, Economic History, Economics, Political Science, Taiwan
How to Cite: Prawira Julius Jioe, I. & Lee, T. (2017) “Taiwan’s Small and Medium Enterprises (SMEs)”, Education About Asia. 22(1). doi: https://doi.org/10.65959/eaa.1436
This essay is a basic introduction to Taiwan’s vibrant small and medium enterprises (SMEs). In what follows, we define SMEs, provide an overview of their importance to Taiwan’s economy, explain SME organization and management, and share case studies of two successful SMEs. SMEs are businesses whose employees are below a certain limit. The European Union limits small enterprises to fifty people and medium-sized enterprises to 250 people. In contrast, Taiwan’s government separates SMEs into two categories based upon product types, available capital, and number of employees. Category 1 includes manufacturing, construction, mining, and quarrying with investment capital from shareholders of NTD (New Taiwan Dollars) $80 million (US $2.42 million) or less, with fewer than 200 employees, and Category 2 includes agriculture, forestry and fisheries, water, electricity and gas, commercial, transportation, warehousing and communications, finance, insurance and real estate, industrial and commercial services, or social and personal services industries, with sales revenues of NTD $100 million (US $3.03 million) in the last year and with less than 100 regular employees.1 Taiwan’s SMEs are unique within Asia in several important ways. Since Chiang Kai-shek relocated to Taiwan in 1949 and established the Republic of China, the central government has played an active role in industry. However, compared to Japan and the Republic of Korea, the government’s relations with industry have been more distant. The latter two nations spent much more time promoting and often guiding large private conglomerates than Taiwan. This resulted in an industrial structure in Taiwan characterized by a much more dominant SME sector.2 SMEs have continually been numerically both the largest number of business enterprises and the largest employers in Taiwan. Government statistics from 2015 indicate that the number of SMEs reached an all-time high of 1.38 million (well over 97 percent of total businesses nationwide) and employed 78 percent of the nation’s workforce.3 Taiwan SME owners have a well-deserved reputation as fiercely competitive entrepreneurs. SME owners frequently, although the situation is now changing, have been Taiwanese Chinese who came to the island before the mainlander Chinese who fled to Taiwan after the Communists' 1949 victory ending the civil war. SMEs produced low-value-added products for export such as Christmas tree lights, toys, and cheap appliances, and were contract employees for American and Japanese firms during the 1950s and 1960s. In ensuing decades, SME-produced products have expanded and now include substantially more high-value-added products and a variety of services. Current examples of goods and services produced by SMEs include mobile video systems, agricultural food additives, social media political consultancies, environmental planning services, and specialty consumer food-related products.4 Taiwan SMEs: Organization, Incentives, and Management Cultures Compared to large enterprises, the labor productivity of SMEs may not be as high. This is because while big corporations have long-term financially lucrative contract orders, SMEs often have limited funds and generally deal with production on a smaller scale. However, SMEs have inherent advantages compared to large companies, including more flexibility, a greater willingness to undertake new projects, and, sometimes, more competitive prices. These advantages are especially recognizable when these SMEs are clustered together in a small area like Taiwan, an island with a surface area of 35,779 square kilometers (13,814 square miles) located 180 kilometers (111 miles) east of the south-central China coast. There are approximately eighty well-known clusters of SMEs located in Taiwan in various places. Most of these clusters are made up of companies or businesses in the same field. For example, semiconductor industries are clustered together in industrial parks designated for manufacturing or science parks that focus on research and development. Each of the clusters produces products that allow Taiwanese workers to make a wide array of goods, ranging from textiles to electronic equipment. Generally within the clusters, companies are located within ten kilometers (approximately six miles) of each other. The close proximity of these companies ensures that most firms who manage to thrive in their field are effective businesses capable of competing internationally. It is also relatively easy to monitor the differences in manufacturing processes and compare the relative quality of products among related companies. This pushes up the quality of goods while at the same time lowering prices. Also, SMEs are generally quite competitive, which has helped Taiwan’s economy. One of the most obvious examples is SME tea production in Taiwan. Even a small area like Sun-Moon Lake has at least four brands of tea, and each of these tea enterprises has its own recipe and characteristics. Government and the media sometimes call SME clusters “hidden heroes” not only because they create cheap, high-quality goods and services, but also due to the fact that the clustering of similarly oriented businesses allows the recognition of exceptional businesses or enterprises. Furthermore, these recognitions are, more often than not, well-known to businesses producing the same goods but unknown to firms that are not in the same market. To put it another way, business-to-business (B2B) branding is extremely high due to these clusters. Because there is a limit to improving quality and lowering prices, SMEs develop various products in interesting ways. In order to attract more customers, SMEs rely heavily on innovative operations. An example of one such innovation in the tea business is bubble milk tea. Bubble milk tea originated in Taiwan, and variants of the product are now popular worldwide. Many SMEs are founded by people who have recently retired from other work, particularly from research and development departments in larger companies. As a result, many SME founders have skills and a certain mindset that lend themselves to constant product innovation. Former employees from larger companies who start or work in SMEs also have valuable work experience and oftentimes critical connections to investors. SMEs in Taiwan also have certain characteristics different from those in European and US enterprises, and in other Asian countries. Kishikawa Zenko’s Twenty-First-Century Management Strategy focuses on features common to Taiwan SMEs, including family-oriented management, high flexibility, risk-taking, and highly mobile employees. Many of Taiwan’s SME entrepreneurs are also influenced to some extent by Confucian-inspired cultural values such as filial piety, hard work, and loyalty to business associates and employees. SMEs in Taiwan are often family-oriented. It is common for people in Chinese-based cultures to hand over positions or property to their relatives instead of outsiders, regardless of family member capabilities. Foreigners seeking cooperative partnerships with SMEs are advised to form a good relationship with the owner and his or her family so that trade agreements and partnerships will proceed more smoothly, especially when one is considering longterm partnerships after a certain level of initial relationships is established. However, this form of management transfer carries obvious risks when succeeding family members may not be suitable leaders for the enterprise and can result in the business falling apart. In Western, and especially American, firms, managerial changes are typically not limited to the members of the business’s founding family. Taiwan SMEs greatly vary in size. Small enterprises in Taiwan can include microenterprises where the number of employees might only constitute a sole proprietor, or the firm might have up to 100 employees. As a result of the small number of employees, the amount of capital invested and the number of investors in the enterprise is not overly high. Although seemingly disadvantageous at first glance, the lack of accountability to multiple investors often means that it is easier for some SMEs to maneuver quickly to adjust to shifting consumer demand for goods and services. Thus, SMEs in Taiwan can quickly withdraw from a product and shift their focus toward another as demand changes. Most owners of SMEs are more than willing to take the risk that usually comes with attempting new innovations. Some of these innovations propel SMEs into various races to attract customers. The existence of such risk-taking SMEs is generally good for Taiwan’s economic development. However, these risk-taking attitudes also have their own disadvantages, such as a lack of long-term planning, which has brought many successful innovations to a halt after reaching a certain level of success.
