Taiwan Turnaround: Are regulators killing innovation?

In part 4 and the finale of the Taiwan Turnaround series looking at how Taiwan’s internet tech scene is catching up, TechNode looks at the effects that regulations have had on the startup economy and how the government plans to be more accommodating. Read Part 1, Part 2 and Part 3.

In February 2017, Uber was forced to suspend its operations in Taiwan after the government deemed the ride offering app as breaching transportation laws and passed penalties of as high as TWD 25 million per infraction  (around $827,000) against unregistered drivers. While Uber is no stranger to run-ins with regulators, this fine was the highest the ride-hailing company had faced anywhere in the world.

“These developments directly threaten the interest of over a million Taiwanese citizens [who offer rides through Uber],” Uber Asia Pacific’s regional general manager Mike Brown wrote in an open letter to the authority. “They also send a clear message to would-be startups to steer clear of Taiwan, deterring both local entrepreneur and foreign investment.”

Taiwan is not alone. Governments all over the world are grappling with how best to regulate the internet sector. However, entrepreneurs and commentators in Taiwan are echoing Uber’s sentiments: the regulations need to encourage innovation, not kill it.

No go

Ivan Lin returned to Taiwan to start lifestyle e-commerce company Add Ons after working on the mainland for more than 15 years. When he was filling forms for a business operation license, Lin couldn’t find a right product category that described what his business was selling.

“Because e-commerce covers such a wide range of products, [the government staff] asked us: ‘why are you applying for so many product categories?’ ” Lin told TechNode in a phone interview. “[There is no] category for e-commerce, that’s why I have to apply for so many. In case you find out [I don’t have the right license].”

From the moment of being incorporated, internet startups in Taiwan have to navigate within commercial regulations that are not prepared for digital business models. More often than not, the government takes a heavy-handed approach instead of a laissez-faire attitude or amending the rules to be more friendly.

Another sharing economy concept, the bike rental, has also taken a hit in Taiwan. oBike, a Singaporean company, was the first to provide the Taiwan market with dockless rental bikes. However, oBike had not anticipated Taiwan’s strict parking rules. The company had tried to liaise with local governments about releasing the bikes into circulation but in July 2017, Xinbei city government outlawed the bikes from parking in 17 zones in the city.

“The Xinbei city government distributed a public notice that has portrayed the legal release of oBikes into circulation as illegal, creating a false impression that [oBike] has breached the rules. [oBike] will seek legal action,” a representative from the company said in a statement (in Chinese), as reported by Liberty Times Net.

Another obstacle oBike faces in the Taiwan market is the petrol-fuelled scooters that a large percentage of the population prefers using as their mode of transport. Some oBikes were towed away by local governments after people complained that the bikes were taking up the parking for scooters.

For fintech, regulation was relaxed slightly in 2015 with the passing of an electronics payments bill. However, third-party payments companies are required to have TWD 500 million in capital or roughly $16.5 million. With such a high obstacle to entry, the fintech industry has yet to take off on the island.

Attracting talent

Taiwan’s foreign workers visa program has also been criticized as restrictive. As mentioned previously in this series, Taiwan is facing a severe talent loss. Against this background, it is even more important that Taiwan is able to attract foreign talent and ensure a smooth process of being able to work in Taiwan legally.

Portions of Taiwan’s foreign worker visa regulation are a legacy from the 1980s when fast economic growth created a labor shortage. Laws were devised to attract foreign blue-collar workers. Provisions for employing foreign white-collar workers were also drafted but confined the work available to 11 categories such as professional or technical services, teaching, and creative arts. Work falling outside of these categories needs to be approved by the central authority. The laws also provided protection for local workers, stipulating that foreign workers must not be hired over locals.

In recent years, the government has streamlined the visa application process for some foreign workers and created a program called the Employment PASS, which is a four-in-one visa. However, it only applies to foreign professionals who are dispatched to Taiwan by foreign companies. Other workers will have to go through acquiring four different documents each with its own application process to be able to work legally in Taiwan: a work permit, an alien resident certificate, a multiple entry permit and a residence visa.

In a 2015 forum held by think tank Formosan Enterprise Institute, speakers described the difficulty of attracting foreign talent as a factor hindering Taiwan startup economy’s growth and criticized the work permit and visa application process as outdated and ineffectual.

Changing mindsets

Add Ons’ Ivan Lin thinks that the government is still operating with a mindset geared towards the original equipment manufacturing (or OEM) industry, which made significant contributions to Taiwan’s economic growth. However, this doesn’t work for the internet sector.

“I find that the government focuses on quantity. The semiconductor industry has been around for nearly 30 years and the government promoted it to drive GDP growth,” Lin told TechNode. “This industry is capital intensive. To build just one new factory would require dozens of billions [in TWD] of investments and it can deliver products numbering in the billions. Internet companies do not operate on that kind of scale and provide intangible services.”

He went on to say that the leadership ranks in the government are now older and are inured to the traditional way of doing things. They are more familiar with factories than apps. Lin thinks that this is a large reason why the innovation economy has not changed much for the past 20 years.

Then perhaps it is natural that the government’s current big plan for invigorating the innovation economy, the Asian Silicon Valley Development Plan (or ASVD), is still hardware focused as it aims to build an IoT industry in Taiwan. The other primary objective for the ASVD plan is to optimize Taiwan’s startup and entrepreneurship ecosystem. And adjusting laws and regulations is one of the tactics devised to achieve that goal.

As seen in the above slide from the ASVD Plan presentation, deregulation of overseas recruitment and retention is one action and deregulation of starting companies in universities is another. Whether these plans will be implemented remains to be seen.

Open for business

Uber Taiwan resumed operation in April 2017 after a two-month suspension. Following talks with transportation authorities, Uber has decided to partner with licensed rental car companies to offer rides in the newly launched UberTAXI app. The Taiwan market may have its challenges, but companies like Uber are determined to stay and are optimistic about its future, as Uber’s Asia Pacific regional general manager Mike Brown had written in the original open letter:

“We believe it’s time to turn the conversation away from innovation-blocking actions and towards smart regulations that unlock economic opportunities and consumer choice for all. It’s time to show the citizens of Taiwan and the innovators of the world that Asia’s Silicon Valley is open for business.”