1.

0 INTRODUCTION

Kao International

Kao was established by Mr. Tomiro Nagase as Western sundry goods dealer Nagase
Shoten (Book shop) in 1887, Tokyo, Japan. Kao main businesses are focus on beauty care,
human health care, fabric and home care. In additional, Kao Group has also operated their
chemical business for industry used.

Kao businesses are all over the world, the business focuses are in Asia, Europe, Africa,
North America and Latin America. In Asia the business are operate in Japan, China, Hong Kong,
Taiwan, Thailand, Malaysia, Singapore and Indonesia. Whereas the business focus in Europe and
Africa is in Finland, Denmark, Russia, Germany, Netherlands, UK, Belgium, Czech Republic,
France, Austria, Switzerland, Italy, Spain and South Africa. For business focus in North America
and Latin America is Canada, US and Mexico.

Kao mission is to enhance the satisfaction and enrichment of the lives of human being.
They are working to closest the consumers and customers in each market, and earning the respect
and trust of all stakeholders. Kao’s values are divided into three parts which is Yoki-Monozukuri
and Innovation and integrity.

Kao Taiwan

In 1964, Kao’s business expands to Taiwan. In 1966, Kao produced the first shampoo
powder in their newly build factory.

In 1991, Kao (Taiwan) Corporation was planning for the modern business and logistics
system. By the following year, the company changed to Kao (Taiwan) Corporation, and they
started the implementation of computer network to modern business and logistics systems. In
2001 until 2004, they bring in the EVA system and SAP system to their company.

1
Taiwan has experienced one of the world’s highest sustained economic growth rates over the
past three decades and Taiwan is home to several international business ports, with the shortest
average flying time to major cities. And Taiwan also offers competitive advantages with its free
trade ports, R&D and comprehensive processing services to attract the foreign investors.
(Retrieved from http://www.kao.com/jp/en/corp_imgs/corp_info/report00_008.pdf)

Taiwan

Taiwan is located in Eastern Asia, off the southeastern coast of China, at the western
edge of the Pacific Ocean, between Japan and the Philippines. Taiwan occupies a total area of
35,890 square kilometers which is a democracy country with 23 million people of population.
Taipei, Taiwan’s capital city has the most densely populated area in Taiwan’s territory.
(Retrieved from http://www.indexmundi.com/taiwan/population_growth_rate.html)

Due to the lack of natural resources, international trade has played a leading role in
Taiwan’s economic development. Reliance on family-owned private businesses and export-
oriented trade policies has made Taiwan have fastest-growing economies during the past three
decades, with a real growth rate averaging more than 8 percent annually over the time span. The
quick industrialization and rapid growth of Taiwan had make become one of the four
industrialized developed countries in Asia besides Singapore, Hong Kong & South Korea and
known as one of the “Four Asian Tigers”.

2
2.0 AREA OF INVESTIGATION

i.) Cultural Perspective

People with different cultural backgrounds will cultivate various work values. These work
values will have a critical impact on management operations and contributes directly to the
effectiveness of management (Hofstede, 1993). Researchers have found culturally based
differences in people’s values, attitudes and behavior can have dramatic effects on behavior at
work (Adler, 1991). Some of the ways in which cultures differ include patterns of decision-
making, respect of authority and accepted leadership styles. In general, national cultures can be
compared on the basis of how their members relate to each other, accomplish work, and respond
to change (Meen, 1995).

(a) Religion

The people of Taiwan enjoy complete freedom of religion, but most of the people are
followers of China's three religious traditions; Confucianism, Taoism, and Buddhism. Moreover,
Taiwan today has one of the most harmoniously religious societies in the world. Since Taiwan is
a multi religious country with people practicing many religions. This would mean Kao (Taiwan)
Corporation will have to hire employees fit to work from any religion and also respect those
belonging to all religious groups in order to avoid discrimination of the workforce. As an
successful multinational company, everyone in Taiwan regardless what religions they belongs to
are consider as target market for Kao (Taiwan) Corporation.

(b) Language
Taiwan is an unusually multilingual society. Mandarin as the official language and the
language of education is almost universally used and understood, while significant proportions of
the population speak Taiwanese Hokkien and Hakka. There will be a problem if can’t
communicate in Mandarin or Taiwanese Hokkien in Taiwan. So, Kao (Taiwan) Corporation
must adjust its communication program and design communication to include the languages used
by their customers. Besides that, Kao must be aware that foreign language may contain different
thinking patterns or indicate varying motivation on the part of prospective clients. Language is
one of the major concerns that every company needs to pay attention on to success in Taiwan.

3
So, Kao (Taiwan) Corporation have to convert their marketing message, product details and
sometimes even brand name into Chinese to reach the consumers effectively. The
communication programs that Kao (Taiwan) Corporation has developed are products information
on products label translated into Chinese and also created a Chinese official website
(www.kao.com/tw/) such as below.

(c) Aesthetics
Based on the research, Kao (Taiwan) Corporation did not dealing any aesthetics issues in
its operation at Taiwan.

(d) Education
There are over one hundred institutions of higher learning, which admit sixty thousand
students a year. Diversified and challenging educational environment has meant a highly skilled
and able work force, gifted entrepreneurs, and savvy businesspeople for the nation. Education
affects all aspects of the culture from economic development to consumer behavior. The literacy
rate of a country is a potent force in economic development and literacy has a profound effect on
marketing. For an example, it is much easier to communicate with a literate market for Kao
(Taiwan) Corporation, because the marketer has to depend on symbols and pictures to
advertising and communicate with the consumers in Taiwan.

4
(e) Manners and customs
Based on the research, Kao (Taiwan) Corporation did not dealing any manners and
customs issues in its operation at Taiwan.

(f) Values and attitudes

Kao (Taiwan) Corporation often conduct comprehensive surveys to understand local
consumers’ lifestyles, customs, product usage and attitudes in order to develop product that meet
local needs. For an example, Kao (Taiwan) Corporation found that Taiwanese like clean and
colourful things. Thus, Kao (Taiwan) Corporation developed a product with the concept of
colour with brightening clean such as below.

(g) Social Structure

Based on the research, Taiwanese is a collective and group-oriented. The good of the
group come first before their self interests. So, Kao (Taiwan) Corporation keep encouraging this
social structure to be practice in the organization by providing social training and team building
programs to their employees.

(Retrieved from http://www.everyculture.com/Sa-Th/Taiwan.html)

5
 ii.) Political Perspective

Taiwan’s government type is multiparty democracy. It is a system in which three or more

political parties have the capacity to gain control of government separately or coalition and
Taiwan is based on civil law system. The major political parties are Kuomintang (KMT or
Nationalist Party) and Democratic Progressive Party (DPP). Political systems and legal issues of
Taiwan is another important factor to business climate especially for Kao Corporation who wants
to expand its business to Taiwan. (Retrieved from http://www.state.gov/r/pa/ei/bgn/35855.htm)

In 2005, there were political issues came out between Taiwan and China such as China is
eager to incorporate Taiwan as part of China. But Taiwan has been separated from China since
1895, and the majority of the people who reside on Taiwan do not wish to reunite or be reunited.
Fortunately, the US security mediates in this misunderstanding and helped in the maintenance of
order between the two countries. With this, Taiwan's business forecast shows strength, thus
establishment of business in the country presents a low-risk. According to U.S. Business
Environment Risk Intelligence S.A. (BERI), Taiwan rated as the world's fourth lowest risk
country for investment in the latest business risk assessment rating in 2010 due to Taiwan signed
an Economic Cooperation Framework Agreement (ECFA) a free-trade deal with China recently
which ends its economic isolation and increases the chances for lasting peace. The other causes
of political risk such as corruption and increasing inflation rate in Taiwan.
(Retrieved from http://www.asiaone.com/Business/News/Story/A1Story20100527-218818.html)

The political risks face by Taiwan such as engaging poor relationship with China,
corruption, inflation, effectiveness of the government, interest rate policy, and etc. The threat of
conflict between Taiwan and China is becoming increasingly remote. While in term of
corruption, Taiwan is generally rated as being far freer of damaging corruption than most of its
regional peers. But based on World Bank's World Governance Indicators, there has been a
significant deterioration in control of corruption in recent years. Venality or corruption is
considered most common problem in Taiwan government. Thus, if foreign investors think
Taiwan's corruption levels are worsening, they may slow down their investment or choose not to
invest in Taiwan. (Retrieved from http://www.reuters.com/article/idUSSP3401620091103)

6
 The resulted of 2008 legislative elections and presidential elections have a major positive
impact on both the island’s political stability and economic attractions. Domestic political risks
have fallen sharply because the KMT’s large majority in the legislature has put it a stronger
position to pass and implement legislation more efficiently. According to AMB Country Risk
Report, the most recently elected president of Taiwan Ma Ying Jeou has pursued a closer
relationship with China. Furthermore, the government has privatized and deregulated much of
economic ties with China which would greatly improve Taiwan’s economic prospects. Thus, it
will bring a positive impact to KAO corporations. (Retrieved from
http://www3.ambest.com/ratings/cr/reports/Taiwan.pdf)

Taiwan follows the Civil Law system and the legal system had developed steadily in
Taiwan. Democratization was essential leading to rapid and dramatic improvements in the legal
system in Taiwan. But, democratization did not resolve all of the tensions and problems in the
legal system or in governance. As in all countries, the legal system remains a work in progress,
with rule of law an encouraging ideal to be struggled for if always imperfectly realized.

Taiwan prohibits or restricts foreign investment in certain sectors such as agricultural production,
chemical manufacturing, bus transportation, public utilities, and postal services. About 1% of
manufacturing industries and 5% of services industries have limits on foreign ownership in
Taiwan and Kao Corporation develops its consumer products business which involves in
manufacturing industries. According to Taiwan's Financial Supervisory Commission, Taiwan has
removed all restrictions on foreign ownership which was benefit to those foreign investment
companies such as Kao Corporation. (Retrieved from
http://www.businessweek.com/globalbiz/content/oct2008/gb20081015_358966.htm)

7
 iii.) Economical Perspective

Taiwan has a democracy with a mixed economy which posses a dynamic capitalist,
export-driven economy. Through decade of hard work on economic management, Taiwan has
transformed itself from an underdeveloped, agricultural island to an economic power that is a
leading producer of high-technology goods. In just 50 years, Taiwan had achieved rapid
economic growth, characterized by stable prices and equitable distribution of income. Its rapid
industrial advancement has earned the island recognition as one of the “Four Tiger” economies
of Asia which classify as emerging markets.

Taiwan has achieved rapid economic growth through a process of ‘industrialization’ and
‘westernization’ which has resulted in a major change in its social culture and economic
structures. The social trend toward ‘westernization’ led to a more ‘individualistic’ and ‘goals and
results’ orientation for Taiwan employees. Taiwan's economy is dependent mostly on its
industries. However, natural resources and agriculture too play a major role as most of these
commodities are either exported as raw materials or they are processed and exported. This heavy
dependence on exports makes the economy vulnerable to downturns in world demand. In 2009,
Taiwan's GDP fell by 2.5%, due primarily to a 20% year-on-year decline in exports.

Since the global financial crisis starting in 2008, Taiwan’s economy slumped into
recession and suffered more severely than other regional countries. As a result, the Taiwan
government faces a revenue shortfall largely attributable to failing corporate profits and all-time
high in unemployment rate which risen from 4.142% in 2008 to 6.4% in 2009.

Taiwan’s economic development has been so fast-paced that it can no longer compete as
a low-wage manufacturing center. Consequently, Taiwanese businesses more recently have
focused on high-value-added industries such as electronics and automotive products. In 2009,
Taiwan’s government is continually created more businesses, in order to provide more
employment and to strengthen its position against the global economic crisis. Taiwan's further
developments depend on its success to transform the nation into a service-oriented and high
technology economy.

8
 Due to occurrence of economic crisis, Kao (Taiwan) Corporation was strongly hit by the
global recession. Kao was unwilling to invest significant sums on new product development,
marketing, and distribution activities as a result of the uncertain economies climate. Therefore,
Kao launched new imported products during 2008 instead of taking the risk associated with
developing and introducing new products. In 2009, the global economy is gradually recovering.
But, Kao (Taiwan) Corporation was still slowdown in the business performance. Thus, Kao
(Taiwan) Corporation concentrated on sales price adjustments, cost reduction activities, cutbacks
in its expenditures, and also strengthens its business by strengthening its core brands.

9
 iv.) International Trade and Foreign Direct Investment (FDI) in Taiwan

Theories of international trade applied in Taiwan

Taiwan takes advantage in labor-intensive technology to the island as comparative

advantage theory. Taiwan has limited land and natural resources, but there was high population
which approximately 23,227,339 and well education among the citizens. Efficiency of resource
utilization leads to more productivity. (Retrieved from
http://www.trueknowledge.com/q/what_is_the_population_of_taiwan_in_2010)

In the 1960s, foreign investment in Taiwan helped introduce modern, labor-intensive

technology to the island, and Taiwan became a major exporter of labor-intensive products. In the
1980s, focus shifted toward increasingly sophisticated, capital-intensive and technology-
intensive products for export and toward developing the service sector which export technology-
intensive products to low-wage host countries such as China. Taiwan in the long run should
specialize in the business in which they enjoy comparative advantage and export the product
while it will import other products in which other countries have comparative advantage, if free
trade is allowed. (Retrieved from http://www.traveldocs.com/tw/economy.htm)

International trade pattern of Taiwan

The international trade pattern in Taiwan more based on Export due to Taiwan posses an
export-driven economy.

Taiwan's two major exports were electrical machinery and mechanical appliances. The gradual
upturn in Taiwan's exports of these products was due to the global recovery in high-tech
industries such as electronics and telecommunications. The major imports of Taiwan were
electrical machinery and parts. The primary objective of the Taiwan Development Plan was to
stimulate the growth of domestic output of essential industrial goods to reduce imports.

10
Patterns of FDI in Taiwan

Foreign direct investment may be classified as Inward or Outward. Inward FDI is a

typical form of investment of foreign capital occurs in local resources. Inward FDI may face
restrictions from factors like restraint on ownership and disparity in the performance standard.
Outward FDI is also referred to as “direct investment abroad” which is the local capital being
invested in some foreign resource.

The patterns of FDI in Taiwan including Greenfield investment, joint venture, contractual
joint venture, equity joint ventures, mergers, acquisitions, and etc. Green field investment is
refers to direct investment in new facilities or the expansion of existing facilities. Greenfield
investments are the primary target of a host nation’s promotional efforts because it can create
new production capacity and jobs, technology transfer, and can lead to linkages to the global
marketplace.

Joint venture is a strategic alliance or contractual agreement joining together two or more
companies for the purpose of executing a particular business undertaking and all parties agree to
share in the profits and losses of the business. For the Contractual Joint Venture, foreign partner
provides technology and the Taiwan entrepreneur provides land, labors, materials and etc.
Besides that, Equity Joint Ventures is the foreign partner is sharing of profits, losses and risks in
limited liability.

Mergers and acquisitions is refers to transfers of existing assets from local firms to
foreign firms takes place. The primary type of FDI which is Cross-border mergers occurs when
the assets and operation of firms from different countries are combined to establish a new legal
entity. Cross-border acquisitions occur when the control of assets and operations is transferred
from a local to a foreign company, with the local company becoming an affiliate of the foreign
company, but acquisitions provide no long term benefits to the local economy. (Retrieved from

http://www.moeaic.gov.tw/system_external/ctlr?PRO=LawsLoad&lang=1&id=31)

11
Reasons for FDI to occur in Taiwan

Foreign direct investment (FDI) plays an extraordinary and growing role in global
business. It can provide a firm with new markets and marketing channels, cheaper production
facilities, access to new technology, products, skills and financing. For a host country or the
foreign firm which receives the investment, it can provide a source of new technologies, capital,
processes, products, organizational technologies and management skills, and as such can provide
a strong impetus to economic development. The primary objective of Taiwan’s stance towards
FDI was initially to attract export-oriented investment based upon the competitiveness of its
highly educated and productive labor force. More recently, this objective has been modified to
focus on attracting FDI in increasingly technology-intensive areas and to encourage or promote
domestic technological spill-over.

Given the complexity of the global economy, there is numerous factors may influence a
company’s decision to undertake FDI. The factors affecting the FDI decision are supply factors,
demand factors, and political factors. The supply factors such as production costs, logistics,
availability of natural resources, and access to key technology. Company also may engage in FDI
to expand the market for their products. The demand factors that encourage FDI include
customer access, marketing advantages, customer mobility, and exploitation of competitive
advantages. Political factors may also enter into a company’s decision to undertake FDI.
Companies may invest in a foreign country to avoid trade barriers by the host country or to take
advantages of economic development incentives offered by the host government.

There are many reasons why many of foreign companies are choosing to invest in Taiwan
such as Taiwan has a total geographic area of 36,189 square kilometers, and it has few types of
natural resources such as small deposits of coal, natural gas, limestone, marble, and asbestos. It
become the vast investment market for the foreign company in past three decades is because of
export-oriented economy, well infrastructure, availability of natural resources, low labor cost and
educated labor in which the literacy of Taiwanese is 97.78% in 2008.

12
Types of FDI used by Kao in Taiwan

Foreign direct investment may be classified as Inward or Outward. Inward FDI is a

typical form of investment of foreign capital occurs in local resources. Inward FDI may face
restrictions from factors like restraint on ownership and disparity in the performance standard.
Outward FDI is also referred to as “direct investment abroad” which is the local capital being
invested in some foreign resource. Kao is considered as Inward FDI to Taiwan.

Based on the company history and profile, Kao expend their business to Taiwan
through joint ventures with Taiwanese in 1964 and name the company as Kao Taiwan. In
1966, Kao build a new chemical industry plant which name as Kao Chemicals and it is
considered as direct investment in Taiwan. In 1991, Kao (Taiwan) Corporation was
established with to the combination of Kao Taiwan and Kao Chemicals.

13
3.0 RECOMMENDATION

After we have gone deeply about Taiwan culture, now, we have suggested on certain
aspects of doing business in Taiwan. Since Taiwanese is tend to be more collectivism and group-
oriented, Kao (Taiwan) Corporation should encourage this cultural to be practice in the
organization such as provide social training and team building programs in order to build team
work and create harmonious between the employees. By this, Kao (Taiwan) Corporation can
increase efficiency in its production and relationship among the organizations.

Due to Kao is original from Japan, Kao (Taiwan) Corporation should provide Japanese
language education training to its employees in order to help employees to know other country
language. Kao (Taiwan) Corporation should provide education in English to the employees as
English has become increasingly important worldwide. The ability to communicate more
languages, especially English may become competitive advantages for Kao (Taiwan)
Corporation.

Kao (Taiwan) Corporation should develop its own innovative product based on adoption
on each Taiwan culture, improve existing product which more suit Taiwanese, and enhance the
company brand name by doing more advertising or promotion programs to compete with the
other potential competitors.

Based on the research, we found that Kao (Taiwan) Corporation still imports the some of
the material for production in Taiwan. This may increase the cost of production and also increase
the selling price. As a solution, Kao (Taiwan) Corporation can try to adopt the local material in
produce new production if there is available. Thus, the selling price will be more acceptable for
the consumers.

It is important to keep interact with consumers besides just offer better products or
promotion, Customer Relationship Management is very important to maintain a customer loyalty
to ensure them to have a preference towards Kao’s product rather than other competitor product.
For example, Kao can come out with a Campaign or Contest which can make consumers to
participate in is able to enhance the company image and creates an indelible memory to
customers.

14
 The general investment environment in which encompasses various considerations such
as the political stability, macroeconomic environment, and attitudes of Taiwan towards foreign
companies participation. So, Taiwan government should encourage the participation of the
private sector and increase the implementation of privatization programs to create more
opportunities for doing business in Taiwan.

Lastly, Taiwan government should continue work hard to increase their relationship with
China in order to continue working towards achieving a stable macroeconomic environment.
With better understanding on the political risk, Kao (Taiwan) Corporation is able to minimizing
the risk while doing business in Taiwan. According to the above, Kao Corporation must examine
each of the political risk and able to reduce the risk taken or see the opportunities arise from
those risks.

4.0 CONCLUSION

Based on our assignment, we understand that different countries have different cultures.
Thus, companies should learn how to better adapt into the foreign country’s culture and
understanding new cultures. As Kao is original from Japan, the business expansion to Taiwan in
1964 is difficult because of the different macro factors of countries, this is likely to be the reason
that Kao adapted joint venture with Taiwanese to enter Taiwan market beside financial problem.
After a few decades since Kao had enter to Taiwan market till now, Kao has successfully
penetrate throughout the Taiwan Market and become one of the famous brand amongst Taiwan
Market.

As a conclusion, it is important for a multinational company to analyses a country

background before enter to the market as different countries have different in term of culture,
policies and economical issues and those important measurement should taken into
consideration. Mutually-beneficial economic cooperation between countries and companies will
provide an even better future to the world economy.

15
References:

Adler, N. (1991). International Dimensions of Organizational Behavior, 2nd ed., PWS-Kent,

Boston.

AMB country risk report. (2009, August). Retrieved from

http://www3.ambest.com/ratings/cr/reports/Taiwan.pdf

Factbox – Five political risk to watch for Taiwan. (2009, November). Retrieved from
http://www.reuters.com/article/idUSSP3401620091103

Griffin, R.W. & Pustay, M.W. (2010). International Business (6th ed.). Upper Saddle River, New
Jersey: Pearson/Prentice Hall.

Growing marketing Taiwan (n.d.). Retrieved June 28, 2010, from

http://investtaiwan.nat.gov.tw/faq/faqDetail.jsp?MID=7&language=eng&GUID=107

Hofstede, G. (1993). ‘Cultural constraints in management theories’. The Academy of 19

Management Executive, Vol. 7, No. 1 pp. 81.

Invest in Taiwan (n.d.). Retrieved July 21, 2010, from

http://www.moeaic.gov.tw/system_external/ctlr?PRO=LawsLoad&lang=1&id=31

Kao’s company profile. (2009). Retrieved June 30, 2010, from

http://www.kao.com/jp/en/corp_imgs/corp_info/report00_008.pdf

16
Meen, W. (1995). ‘The intercultural values questionnaire’. Issues and Observations, Vol. 15, No.
1, pp. 10-11.

Population of Taiwan. (2010, July). Retrieved July 10, from

http://www.trueknowledge.com/q/what_is_the_population_of_taiwan_in_2010

Taiwan Economic (2010). Retrieved July 18, 2010, from

http://www.traveldocs.com/tw/economy.htm

Taiwan removes foreign ownership restrictions. (2008, October 15). Bloomberg Business Week.
Retrieved July 19, 2010, from
http://www.businessweek.com/globalbiz/content/oct2008/gb20081015_358966.htm

Taiwan’s history and culture (n.d.). Retrieved July 1, 2010 from

http://www.everyculture.com/Sa-Th/Taiwan.html

Taiwan overview – Location and size (n.d.). Retrieved June 30, 2010, from
http://www.nationsencyclopedia.com/economies/Asia-and-the-Pacific/Taiwan.html

Taiwan population growth rate. (2010, February). Retrieved June 30, 2010, from
http://www.indexmundi.com/taiwan/population_growth_rate.html

The China Post/Asia News Network. (2010.). Retrieved July 18, 2010, from
http://www.asiaone.com/Business/News/Story/A1Story20100527-218818.html

17