Taiwan seeks investment beyond chips, to strengthen ties with India

Before this calendar year closes, it is possible that the number of direct flights between Taiwan and India will expand from just a couple every week as of now. The long stopovers make business trips between the two nations a protracted exercise. This year, Taiwan has also decided to set up its third consular office in Mumbai as demand from the region grows, and the island-nation is keen to dispel the notion that for India it is only a bunch of world-class chip-making factories.

As Taiwan positions itself as a market for technology beyond semiconductors — in biologicals, in smart cities and even in defence — there is a dissonance in its industrial strategy. Asia’s ICT (information and communication technologies) powerhouse has begun to host a number of mega tech events post-Covid-19 where a large number of suppliers including from Germany and South Korea are turning up. But the number of buyers is limited. To woo these buyers from Asia and Africa, Taipei is working hard to draw interest from India.

Just as Israel, at the other end of Asia, is pushing India to absorb more than just defence-related products, such as its agro technological products, Taiwan is pushing for absorption of 5G, machine learning and artificial intelligence, electric vehicle technologies and, finally, data storage. The presence of Apple Inc vendors Foxconn and Pegatron located in the South is only the tip of the iceberg. The fact that a third vendor, Wistron, was forced to exit India after it faced problems with local employment norms points to some of the challenges for deeper economic ties.

In fact, the latest initiative to deepen economic ties may seem like deja vu given that India and Taiwan in this decade have announced plans more than once to tighten their investment partnership. Nearly 50 companies from Taiwan had shown up in the Smart Cities India event in New Delhi, in 2016. In 2023, at the corresponding Smart City Summit and Expo event at Taipei, there was no Indian company, and only a smattering of Indian officials.

For Taiwan the relative languishing of India’s Smart Cities Mission has been disappointing, after a flurry of initiatives in the years between 2015 and 2018. Latest India government data shows the spending under the Smart Cities Mission has been only Rs 35,261 crore till May 1, 2023, in the seven-year period. The mission was earlier expected to draw investments from the government and private sector of over Rs 1 trillion.

Yet Chen-Yu Lee, of the Taipei Computer Association, which represents over 80 per cent of the total production value of the nation’s ICT industry, struck a confident note. “There are a lot of technology products with which we are reaching out to India,” he said.

In the same vein Simon Lee, president, Taiwan Chamber of Commerce, has said recently that investments in India could rise by eight times from the less than $1 billion annually, at present.

Taiwan and India, of course, have good reason to gravitate towards each other. The island has most of its manufacturing bases in China, something it has now become most uncomfortable with as tensions with the mainland has become acute. India offers an alternative spot because of its historical tensions with China.

But beyond the semiconductor industry, which India is wooing assiduously, the island has a challenge reaching out to India. The two nations do not have a full-fledged diplomatic connect. Taiwan works through its Taipei Economic and Cultural Centers in the three Indian cities of New Delhi, Chennai and now Mumbai, while India operates the India Taipei Association offices. Both are staffed by career diplomats but cannot do official handholdings for the business entities from both sides. Unlike India’s older investment partners like the UK, Germany or the US, there are also no major business chambers present from either side to smooth the path of the two.

As a result, business risks of all types are borne entirely by the companies. There is hardly any banking, insurance and currency support from their home country, which is backed by diplomatic cover. An official from India's Ministry of External Affairs said “like Japanese business, Taiwanese companies also operate in droves abroad, but are much more concentrated”.

There is another pinprick. Taiwan is firmly established as a US ally and is not at all enthusiastic about any imminent international currency order beyond the US dollar. The New Taiwan dollar is firmly pegged to the greenback and the island avoids any transactions that even distantly reek of sanctions. For instance, in the recent Indian efforts to pay for Russian oil with Indian rupees, no Taiwan bank has offered to pick up the role of an intermediary.

So, trade and investment relations with India have to be entirely denominated in US dollars. Since there is no Indian bank with a presence in the island, counter-party trade among the banks from both sides have to use entities based mostly in Hong Kong, raising the cost of transactions.

Given these handicaps the 120-odd companies from Taiwan have begun to converge in India where the state governments can offer a strong level of political support to make up for the lack of similar diplomatic support from back home.

For instance, Pou Chen Group, which ranks as one of the largest manufacturers of footwear, has signed an agreement with the Tamil Nadu government in April this year. Group company High Glory Footwear will set up a $280-million plant in the state. In fact Tamil Nadu, through its assiduous cultivation of the Taiwanese companies, has become the go-to place for these companies. Not surprisingly, other than Tamil Nadu, the states favoured are Gujarat, Karnataka, Maharashtra, Andhra Pradesh and, of late, Noida in Uttar Pradesh.

This is visible. Two of the three Taiwanese suppliers of Apple supply chain like Foxconn and Pegatron are making waves only in the South. Not only has the new state government of Karnataka finally allotted land to Foxconn last week, it is also trying to woo Pegatron through the state’s joint venture investment vehicle, KDEM, a 51:49 ratio joint venture company between the industry and the state government.

Despite these challenges, the speed of business relations seems to have picked up of late. The opening of the visa centres and that of possibly more flights attest to that.

Taipei calling

• India recognised Taiwan only in 1995
• For decades, investments into each other was constrained to traditional products like footwear
• Taiwanese companies planning ‘decoupling’ the global supply chain from China mostly since 2022
• Taiwanese companies prefer strong commitment from state governments before making investment pitch
• Cumulative investment plans are estimated at over eight times the current level of $1 billion as of FY23