There are 700,000 businesses in Taiwan, each with a president and at least one general manager. This means that for every 15 people there is one "boss "—the Chinese term is lao pan (pronounced "lao-ban.")—and if one counts only the adult population over 25, then the ratio is one lao pan for every 8 persons.
Some observers have said that Chinese in Taiwan have the "lao pan syndrome;" everyone wants to be his (or her) own boss. To find out the psychology behind this attitude, as well as the social and economic reasons for it, Cecilia Chang, FCR's deputy editor-in-chief, interviewed three experts who are well-acquainted with local entrepreneurs and their key role in giving Taiwan economic vitality and innovative power: Dr. Jacob Y.H. Jou, associate professor and head of the Graduate School of Business Administration, Chung-yuan Christian University; Dr. Micky M.C. Chen, Deputy Director General of the Medium and Small Business Administration, Ministry of Economic Affairs; and Chris J.F. Lin, President of Excalibur Business Development and Consulting Inc. Excerpts follow:
FCR: To what extent do you think the "lao pan syndrome" in Taiwan has resulted from a popular idea among Chinese that they would rather have a low but independent position than hold a high position under the control of others?
Dr. Jacob Y.H. Jou: I don't think it really has too much to do with this concept. I would associate it instead with two other traditional Chinese ways of thinking: one is to bring honor to one's ancestors, the other is the deep-rooted strong family concept passed down through the generations.
To live forever under another's roof can hardly be credited as glorifying one's forebears. Therefore those who hold this kind of traditional Chinese idea are more inclined to become an independent unit instead of working for others.
Moreover, in any family-run firm, which is the most typical form of business in Taiwan, a non-family member can at best be promoted to the second highest position, usually the assistant general manager. Because non-family members in a business are not fully trusted and always considered "outsiders," their prospects for climbing very high are fairly dim. Consequently, people who are aggressive and have good business abilities will not be satisfied with this kind of situation. Once they learn all they can in a business owned by someone else-and establish good contacts they will open up their own competing firms and become lao pan, their own bosses.
FCR: Are there any other reasons for this sort of orientation toward doing business in Taiwan?
Jou: There are of course many factors that influence the formation of the lao pan syndrome and the flourishing growth of small-sized businesses. Historically, unlike in Japan where the family fortune is usually inherited by the eldest son, every child in a Chinese family is expected to get his or her share of the family wealth when the father dies. This tradition has naturally decreased the possibility for accumulation of wealth, and it has limited the expansion of small-sized businesses into large-scale enterprises. The Chinese saying that" A rich family never lasts over three generations" illustrates this fact.
Compared with other countries, people in our society generally show too much respect to those who hold titles such as Chairman of the Board or General Manager-much more than they deserve. By flaunting a series of dazzling titles on a name card, people are often treated as members of a special class in society, a segment that is characterized by wealth and power. Consequently, this idea helps stimulate many people to become a president or general manager themselves when the opportunity arises.
In the past, Chinese society has always held a mixed attitude toward rich people and so-called entrepreneurs. It has been critical, condescending, and even jealous. Only in the past ten years have you been able to hear university graduates say that they are envious of Wang Yung-ching, the plastics tycoon. And Huang Shih-huei, the chairman of the board of San Yang Industry Company Ltd., became known to the public only when he was listed as the ROC's number one individual taxpayer of 1987.
Our tax laws, related regulations, and lax enforcement by the tax agencies also discourage many small to medium-sized firms from expanding. By remaining small, they often have more access to such advantages as concealing profits or other ways of avoiding taxes than do large-scale enterprises. Thus, many small-scale businesses, in order to avoid attracting too much attention, prefer to expand by adding small-sized associated businesses instead of enlarging the scale of one enterprise. The availability of start-up capital through both government funds and private loans has also provided important initial support for entrepreneurs.
In the past, the sense of uncertainty about Taiwan's political prospects has helped constrain entrepreneurs from mapping out long-term plans. Any forward-looking enterprise should make a development plan. It's very common for businesses in Japan to make 10-year plans, and each company certainly has a concrete five-year plan. But according to a recent study I made based on interviews of over 40 local entrepreneurs, the vast majority of businesses here do not make development plans. Even large-scale enterprises for the most part only make 10-year plans. It's no wonder that small and medium-sized firms focus their attention on short-term money-making adventures. This also explains why it's true that even though there are so many rich people in Taiwan, very few of them are qualified to be considered genuine entrepreneurs.
FCR: What impact have international franchise operations had on local entrepreneurs? Do fast-food operations like McDonald's, advertising agencies like Saatchi & Saatchi, and drug stores like Watson's bring changes to the way local lao pan do business?
Jou: A positive impact is already evident from the immediate imitation of Western-style operations by Chinese fast-food chains. In response to challenges from outlets like McDonald's, local stores now pay more attention to service and efficiency-and in particular to the maintenance of cleaner, healthier eating environments.
With regard to retail shops, however, the impact could be negative. I predict that unless the small convenience stores now nestling on every street corner unite together and organize something like a cooperative system, and adopt the procurement, marketing, and accounting policies of franchise operations, they will perish within five years, There is no way they can win in a war between organized and non-organized units.
But there is a possibility for survival. Good prospects for their continued existence lie in their creation of "uniqueness," especially when compared with cold, alienating environments like those found in 7-Eleven chain stores. If they can sell their products together with the warm human hearted ness that is most appreciated by the Chinese, then they may survive and even prosper.
FCR: We are aware that the government set up the Medium and Small Business Administration in January 1981 especially to render service and assistance to local businessmen. In your opinion, which areas should be emphasized by this sort of assistance program?
Jou: The top priority is to provide adequate and timely business information. Generally speaking, Taiwan's small and medium-sized businesses are extremely weak in the collection of the facts they need for their operations. They rely almost entirely on foreign buyers or competitors in the same trade, and these sources provide very limited information. Without up-to-date business intelligence, basic survival becomes a problem, not to mention any improvement in business or formulation of a solid developmental plan. The government should take greater responsibility in this area and immediately help local businessmen understand market changes both at home and abroad so they can make short- and long-range plans.
The government should also enhance the reeducation programs for managerial level personnel in order to instill new ideas, strengthen management capabilities, and enlarge intellectual horizons. Finally, the government should put more effort into the establishment of a central-satellite factory system, with small businesses feeding components to larger enterprises. By means of more teamwork, the competitiveness of small and medium-sized businesses could be greatly improved.
FCR: Statistics indicate that small and medium-sized businesses have played a key role in the creation of Taiwan's economic miracle, and many observers dub Taiwan as the "kingdom of entrepreneurs." Could you comment on how and why this has happened?
Dr. Micky M.C. Chen "Local entrepreneurs are aggressive. They know how to respond quickly to demands in the international marketplace. "
Mr. Micky M.C. Chen: Many factors have helped small and medium-sized businesses thrive in Taiwan. One of the most important is that local entrepreneurs are aggressive. They know how to respond quickly to demands in the international marketplace. After the Korean War, for example, they took advantage of our high-quality, diligent, law-abiding, and abundant labor force-and they entered the market at a time when both the U.S. and Japan were winding down their labor-intensive industries. They also adopted a wise strategy by importing mechanical equipment and spare parts from Japan, then assembling them into end products for export to the U.S. In coordination with large-scale U.S. and Japanese trading companies in the areas of technical cooperation and marketing, the early small-sized firms gradually gained good markets and developed their business strength.
The ROC's educational system has also been important. It has cultivated a hoard of outstanding engineers, managers, and skilled laborers. From the beginning, the support of a strong labor force, plus easy access to intellectual property and software, has enabled small firms to enjoy a competitive edge.
In more general economic terms, the government adhered to a pragmatic stand by following policies emphasizing import substitution and the promotion of exports in the early years of Taiwan's development, which provided considerable opportunities for the rise of small and medium-sized firms. Along with these policies, the government provided a sound infrastructure and shouldered many of the social costs that flowed from entrepreneurial enterprises.
Both the government and society have in fact provided strong incentives that encouraged people to establish their own businesses, including relatively easy access to various sources of financing. Cooperative bank loans, Medium Business Bank loans, and assistance rendered by the National Youth Commission were made available, supplementing private loans from relatives and friends.
Finally, the environment of competition and counterfeiting has put great pressures on small and medium-sized business, forcing them to continuously innovate and upgrade their products. It's easy to set up a small firm in Taiwan, but the elimination of inferior business per formers is also a very rapid process. This means the overall progress of small and medium-sized businesses is derived primarily from a highly competitive environment.
FCR: What are the most common characteristics of small and medium-sized businesses?
Chen: First of all, they are imbued with a fearless spirit —rather like "newborn calves which are not afraid of tigers." To this add ambition, creativity, innovation, and a great deal of experience derived from difficult situations.
The development of small and medium-sized businesses conjures up a scene described in a Chinese poem: "After a rainfall, the grass in the mountain grows abundantly. Along the river and around the valley it finds its lowly existence. Does it depend on an outside cultivating assistance? Heaven helps it, yet it resorts to itself for growth." Like grass, the vast majority of small and medium-sized businesses depend mainly on themselves for survival and growth.
Entrepreneurs are very tenacious and flexible, and they rarely give up easily. In some ways Taiwan's businessmen are like willow trees that bend in heavy winds but never break.
Finally, local businessmen have been adept at finding ways to survive in the international marketplace, often as a result of rapid response to market needs. In their process of self-development, they have become the world's largest exporters of shoes, umbrellas, electronic calculators, telephones, and computer terminals. As a result, "Made in Taiwan" items are known throughout the world.
FCR: Given the vast amount of change in Taiwan over the past year or so, do you see any major shifts in the lao pan attitude?
Mr. Chris J.F. Lin—In the business world, "when danger occurs, opportunity follows."
Mr. Chris J.F. Lin: Today's lao pan are facing a much more competitive environment, so they are spending more time expanding their business expertise. They are participating in various government and private consulting institution courses, which cover a wide range of modern enterprise management information. They have also begun concentrating more on improving their English in hopes of becoming more "internationalized" by being able to read foreign trade journals, follow international market reports, and through studying the foreign businesses that already have branches in Taiwan.
There are signs that people are trying to break away from the tradition of family-operated businesses. They are adopting a more professional form of operation, including using computers, hiring competent non-family members instead of relatives, and utilizing modern business management techniques.
FCR: As an experienced business analyst, do you find any difference between local lao pan and those in foreign countries?
Lin: Generally speaking, local lao pan are very ambitious and aggressive, but they are also deficient in having an adequate sense of precision and utilization of skills. They put too much emphasis on superficial values and are not fastidious enough about the pursuit of quality. They always think they have great business flexibility, but actually it's not nearly as great as it should be.
FCR: What do you think the prospects are for local lao pan as Taiwan restructures its economy?
Lin: I'm quite optimistic because many opportunities for business development and expansion still exist. We Chinese like to warn about being prepared for danger in times of peace. But I would rather say it's important to be prepared for peace in times of danger, because only when your existence is threatened by somebody else will you think about finding a way out. This is why the Chinese associate wei chi (crisis) with both "danger" and "opportunity." When danger occurs, opportunity follows. The way local restaurants have responded to fast-food chains like McDonald's is a good illustration.
I would like to borrow a formula frequently used by the Japanese: that is, "opportunity plus information is equivalent to creativity." This is the key to success. If you look carefully, you will see that there are in fact many opportunities just at an arm's distance. The question is whether you are able to grasp them or not.