The major reason why Taiwanese companies do not make regional investments in Japan is probably because they only have access to information on Tokyo and its surroundings, and do not have the option of selecting regional cities. Osaka is the second largest city after Tokyo, but local government sources say that the city is hardly a target for foreign direct investment. In fact, companies in Osaka must seek secondary investments from foreign companies in Tokyo. With this being the case in Osaka, it would be even more difficult for other regional cities to invite investments by foreign companies. The most effective way to attract the attention of Taiwanese companies to regional cities would be to publicize the advantages of regional cities through local government-sponsored investment PR seminars and other such events.
At the same time, however, it is not easy for local governments in Japan to obtain information on Taiwanese companies and determine the possibility of their investment in Japan. They should actively utilize the services of Interchange Association Japan (IAJ) and Taiwan's trade and economy organizations to gather information on the attitudes and needs of Taiwanese companies regarding investment in Japan, create opportunities to match Taiwanese companies with local companies, and hold exchanges between Taiwanese and Japanese companies more frequently. This may seem a roundabout approach to promoting regional investment, but is in fact the shortest way.
According to an analysis of the attitudes of Taiwanese companies regarding investment in Japan (*6), many feel that "corporate operating cost is high in Japan." However, since Taiwanese companies do not have information about cities other than Tokyo, they usually have no means for comparing costs in the first place. If the advantages of regional investment can be clarified by presenting a comparison of costs between regional cities and Tokyo, Taiwanese companies may find reason to focus on regional cities in Japan. Once Taiwanese companies invest in a certain region, they tend to engage in business over as long a term as possible, unlike many other foreign companies. This means that they make trustworthy partners to Japanese companies. Of the 12 major cases of acquisition by Taiwanese companies through direct investment in Japan prior to 2002, Taiwanese companies have sold or withdrawn from only 3 cases. These numbers clearly indicate that Taiwanese companies invest in Japan based on a long-term perspective (*7).
To Taiwanese companies, the advantages of investing in Japan are the increased profits and sophistication of their own technologies that can be expected from their entry into the Japanese market. In the case of the above-mentioned Siward Crystal Technology Co., Ltd., the company has not only acquired the high technical capabilities of Japanese companies by investing in Japan, but by gaining a base in Japan, it has been able to facilitate trade transactions and exchange settlements with its major Japanese customers and improve operational efficiency. By leveraging its location in Japan, Siward Crystal Technology has also actively acquired new customers and expanded sales channels in Japan, and has even begun to see improvements in its transactions with Korean companies. In the case of King Yuan Electronics Co., Ltd., the company announced, only six months of acquiring Aldete Corporation, that it already expects a non-operating profit from its investment in Japan, and that it can accrue profit dividends from Aldete, now its subsidiary, from this year (*8). Owing to the robust development and sales of Aldete's LSI testing solution software "test program automatic generation tool," King Yuan Electronics now receives orders from Japanese customers through Aldete, as another advantage of its investing in Japan.
The disadvantages of investing in Japan, on the other hand, include the difficult access to the Japanese market and Japan's complicated legal and accounting systems. In many cases, even if a Taiwanese president who is fluent in Japanese and Japanese practices explains Japan's tax laws and accounting practices to his head office in Taiwan, the head office is not easily convinced. According to aforementioned President Sen of Acer Inc., the greatest difficulty for companies selling home appliance products in Japan is the complicated process of laws, regulations and management practices related to the import and sales of home appliances. For instance, the enactment of the Home Appliance Recycling Law has placed a large burden on manufacturers in handling used home appliances. Since they cannot pass on the cost to their customers, manufacturers are finding it difficult to turn profits. Manufacturers are also required to file a certifying document each time they produce a new model. These complicated and cumbersome systems of documents and procedures pose obstacles to foreign companies' investment in Japan.
At the request of Taiwanese companies wishing to invest in Japan, Interchange Association Japan (IAJ) provides individual consultations on company establishment and tax issues at its Invest Japan Seminars. In many cases, Taiwanese companies are startled by the high tax rates in Japan (corporate tax, regional tax, etc.) and decide to reconsider their business and profit models they have designed for doing business in Japan. This type of worry is frequently seen among Taiwanese companies, says a manager of a major auditing firm that has abundant experience in supporting investment in Japan. Below are some specific examples.
Taiwanese companies generally seek consultation on the tax rates of corporate, residence and business taxes, the differences between private companies, branch offices and resident offices, the pro forma standard taxation system (a pro forma standard tax is imposed on branch offices whose parent company in Taiwan has a gross profit of 100 million yen or more), and on the transfer pricing tax system. The difference in the tax system between Taiwanese and Japanese companies is also a large issue that is preventing many Taiwanese companies from launching an investment in Japan. In consideration of the above, Taiwanese companies must establish a specific profit model for the Japanese market, and in fact, the majority of successful cases of investment in Japan are based on business models that take advantage of the characteristics of the Japanese market.
Due to the lack of a taxation agreement between Taiwan and Japan, Taiwanese companies are perplexed by the imposition of taxes on their resident officers in Japan. In many cases, individuals are required to pay tax in Japan, even while paying tax in Taiwan. Though they are exempted by submitting a tax certificate issued in Taiwan, many Japanese tax offices, especially those in regional cities, are not aware of this situation.
To establish a company in Japan, at least one of the promoters must be a resident of Japan. In many cases, this regulation is a large obstacle particularly to the start-up of a foreign SME. As illustrated by a Taiwanese company which was established recently in Kagoshima Prefecture, its reason for investing in Kagoshima was simply because "the promoter lives in Kagoshima." This trend is particularly conspicuous among Taiwanese companies. Because Taiwanese people value "trust"connections (mainly connections to the land and kinship)&qot; above all else when doing business, they are unlikely to make an independent investment in a regional city with which they are unfamiliar.
