Taiwan plans to add subsidies, cut red tape to nurture startup companies, revitalise growth

PUBLISHED : Tuesday, 20 September, 2016, 8:18pm
UPDATED : Tuesday, 20 September, 2016, 10:45pm

Taiwan’s government plans to provide financial subsidies and cut red tape to make it easier for startup companies to set up shop, as it looks to new technology to revitalise growth and reduce its economic reliance on mainland China.

The National Development Council, a government agency responsible for charting the island economy’s growth, this month unveiled a blueprint for building what it calls the Asian Silicon Valley, an area near Taipei for technology companies to set up research labs and factories.

As much as US$358 million will be spent next year, with the area scheduled for initial use by 2023, the Council said.

“The government should create an environment that helps startups by loosening regulations and building connections to international talent, capital, technologies, and markets so that startups can more quickly get past death traps in their growth,” the Council told the South China Morning Post in a statement.

Taiwan’s government wants to chart a new growth path for the island’s economy -- which depends on computer chips and other technology products for the mainstay of overseas sales -- as exports declined every month for more than a year.

Tourism revenue has also been declining, after the Chinese government reduced the flow of mainland tourists to the island to apply pressure on the newly elected government of Tsai Ing-wen.

Urged by the business community, Taiwan’s policymakers are seeking ways to foster startups to help revitalise the economy, the seventh largest in Asia.

The government has already earmarked NT$1 billion (US$32 million) in subsidies in the five years through 2018 to welcome foreign talent and nurture local startups, the National Development Council said.

The Council last year awarded an NT$50 million grant to a private organisation called Taiwan Startup Stadium to offer training, work space and links to foreign capital to 130 companies.

Startups in Taiwan, or companies operating for fewer than five years, numbered 391,000 in 2010 and about 423,000 in 2014, the last year for which the government has done calculations.

As of 2014, the National Development Council had logged 940,000 firms of less than a year old. They made up about 7% of all companies in Taiwan, with total sales of NT$206.8 billion (HK$50 billion), or 1.75% of the total.

Simon Ko, co-founder of Taiwan-based 3D printer developer Flux, applied for government funds last year and received a grant to help him promote the two-year-old company overseas.

Flux reporting increasing sales last year, even if it hadn’t been profitable, said Ko, who’s 23 years old and runs a staff of 18.

The subsidy programme is working, he says, but Taiwanese firms need “more study” to scale quickly by selling overseas.

Access to markets beyond Taiwan’s population of 23 million people is often crucial to the survival and health of startup companies, people in the industry said.

Successful firms such as music streaming service KKBOX and SkyREC, a service that tracks consumer habits for retailers, have followings overseas.

The founders of many startup companies often fear leaving their families behind, or simply lack “imagination” when they’re considering the option to expand abroad, said Jeffrey Lin, the Taiwan Startup Stadium vice president of operations. People with business ideas in Taiwan also fear failure, a deterrent to starting companies, Lin said.

“Failure is taboo, not like in the United States where you can discuss it as something symbolic,” he said. “If you want to grow, you really can’t assume Taiwan is the only market.”

At the same time, the government aid programme is also challenged by difficulties of putting money on the right winner, as bureaucrats may not be trained to recognise startups that can grow, said Lin Tahan, CEO and co-founder of Founder-Backer.

“They want to give money but they pick people who don’t get things,” said Lin Tahan, whose firm helps startups do marketing and prepare for crowd funding. “The least (help) goes to digital content. They need a lot but they don’t get it. They give not to startups but to bigger companies.”

Taiwan has potential to produce above-average startups because the cost of talent is cheaper than other developed markets, because the island’s universities and tertiary institutions churn out plenty of engineers and skilled workers after 40 years as a hub for computer chips and technology products.

“We have a solid tech foundation and living is fine because costs are low,” Ko said. “If you live in Silicon Valley, you’ve got to drive around everywhere.”

Taiwanese people “work hard” as well, and the IPO market is “accommodating” for startups looking for capital, said Jamie Lin, founding partner of appWorks Ventures, a startup accelerator in Taipei. After graduating 275 companies over the past five years, he sees space for growth in Taiwan for e-commerce, gaming and digital marketing startups.

Taiwan’s government still needs laws more favourable to startups, he said. A common complaint is the complexity of registering a business. The Taiwan Startup Stadium VP calls Taiwan’s registration process “not the friendliest” but normally doable within three weeks.

“They’re doing something to help startups, which is good, but not doing enough to support the digital economy going forward,” Jamie Lin said. Taiwan, he said, needs a “ministry of digital economy” to update regulations “so they at least treat digital companies fairly compared to peers if not better than traditional companies.”