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Taiwan Is at a Crossroads. Here's Why Brands Should Care.

Tensions with Beijing have come into sharp focus ahead of Taiwan’s presidential election which takes place tomorrow. And there is a lot more at stake than first meets the eye.
A model in Douchanglee, Taipei’s 101 building, and a shopper in the city’s Ximending district | Collage by BoF
By
  • Casey Hall

TAIPEI — The sub-tropical city of Taipei is a relaxed metropolis, dense and highly-developed; a bastion of liberal values in a part of the world occupied by socially conservative neighbours and authoritarian regimes.

Its downtown streets are safe and friendly, populated by throngs of young office workers, students and shoppers. Home to an interesting array of retailers, from major chains of malls such as Eslite to cool concept stores that stock niche brands and provide spaces to sip cold-brewed coffee while quietly leafing through the pages of a book, Taipei is an affluent and busy city, but one where people prioritise comfort and quality of life.

"A lot of people think Taiwanese people don't have style, but they do care about things looking good," Elle Taiwan's Editor-in-Chief, Florence Lu, explains. "But if it's not comfortable, they won't consider it."

Some believe that this is simply a legacy of Taiwan’s laid-back island mentality; others say that craving comfort in everything, from eateries to fashion, stems from the territory’s uncomfortable geopolitical position — and the outlier status that accompanies it.

Valuable Market Tangled in Geopolitics

In this month’s presidential elections, due to be held January 11, the people of Taiwan confront once again the enduring question of whether their future lies with the rising might of Beijing, or on self-reliance with support from sympathetic but increasingly subdued Western powers who fear jeopardising their own relationships with the Chinese government.

Though the boom economic period of the 1980s and ‘90s are a fading memory for Taiwan’s people, the territory has remained particularly resilient in the face of geopolitical and macroeconomic headwinds impacting the region.

Incumbent president Tsai Ing-wen will be boosted by this economic buoyancy but there is frustration.

Taiwan recently posted 2.91 percent year-on-year GDP growth in the third quarter of 2019, bucking the sluggish trend of other trade-reliant Asian economies, such as Singapore, South Korea and Hong Kong. Taiwan’s growth in the July to September quarter beat analyst expectations and was higher than the 2.4 percent growth recorded in the second quarter of 2019.

On the eve of elections, incumbent president Tsai Ing-wen is being boosted by this economic buoyancy but there is frustration at slower-than-expected progress in increasing income levels. She has been leading in the polls, with her popularity surging since violent protests began to roil in neighbouring Hong Kong six months ago, a situation that has increased Taiwanese focus on the potential for interference from Beijing should they get too close.

As a member of the Democratic Progressive Party (DPP), Tsai is thought of as an anti-Beijing candidate and, since taking power in 2016, has not acknowledged the “One China” policy, which holds Taiwan to be part of China.

“Hong Kong people have showed us that ‘one country, two systems’ is definitely not feasible,” Tsai said in a televised New Year speech, referring to the political arrangement that guaranteed a level of autonomy to the former British colony following its return to China in 1997.

Tsai is up against Han Kuo-yu, who represents the Kuomingtang Party, which ruled Taiwan for decades before Tsai’s DPP party dethroned them to form a majority government for the first time in 2016. Han, the mayor of Kaohsiung, has comparatively conciliatory views toward Beijing.

Han is seen by many as the candidate who would maintain or extend the Economic Cooperation Framework Agreement (ECFA) which reduces tariffs and commercial barriers between Beijing and Taipei.  If Tsai defeats Han, business leaders will be concerned that a continued drift away from mainland China will hinder the ability of Taiwan to grow its industries, including fashion.

“Fashion has no boundaries; fashion is a global thing but I think it’s a challenge for the government because these days the Taiwan government doesn't like this area or that area and are putting a restriction on themselves. I think they need to overcome that way of thinking,” said Sophie Jiang, the Taiwanese owner of E&A Communications, a luxury PR firm with offices in Taipei, Shanghai, Beijing and Hong Kong.

It is into this environment that Taiwan’s Ministry of Culture has more assertively stepped in to promote domestic creative industries, including fashion. In October, the ministry, in conjunction with other government bodies, publisher Hearst Taiwan and powerful industry body, the Taiwan Textile Federation, held the second edition of Taipei Fashion Week.

The event is designed as a platform to promote local talent, with names that are already very familiar to the local (and to some extent, the international) market such as Shiatzy Chen, Douchanglee and Jamei Chen rubbing shoulders with up-and-comers Just in XX, UUIN and Fu Yue.

The real value of the Taiwanese fashion market can only be understood when it is not seen through the prism of its giant neighbour.

“Taiwan’s textile industry is performing very well and is renowned around the world, a lot of international brands, [including] Adidas and Lululemon, are manufacturing here. This part [of the industry] is totally at an international level, but on the other hand, for independent design brands from Taiwan, it’s very difficult,” Lu says.

Understated Rich Asians

The Taiwanese market is minuscule compared to that of mainland China. According to 2019 figures released by market research provider Euromonitor International, the retail value of the apparel sector in Taiwan was $8.37 billion while mainland China reached a staggering $334.15 billion. And that chasm is set to widen even further as the apparel sector’s year-on-year growth rate in the mainland is more than double that of Taiwan.

However, the real value of the Taiwanese fashion market can only be understood when it is not seen through the prism of its giant neighbour. The value of fashion products sold in Taiwan is more than four times higher than that in some wealthy Arab Gulf States such as Qatar — even though the latter gets a lot more attention from the global fashion industry.

It has been the stability of Taiwan's fashion market that has made it attractive enough for luxury brands to keep investing, particularly as Hong Kong's reputation as a hub for luxury shopping has taken a hit as a result of its continuing political unrest.

The island’s uber-wealthy consumers – discreet and under-the-radar though they may be – make Taiwan an important staging post for international luxury brands.

It may not have the Crazy Rich Asians reputation of Singapore, Hong Kong or Shanghai, but according to the 2019 Knight Frank Wealth Report, Taipei is actually ranked ninth in world cities for the highest number of ultra-high-net-worth individuals. And the ranks of the ultra-wealthy in Taipei have swollen 17 percent over the past five years, according to the report.

It has been the stability of Taiwan's fashion market that has made it attractive enough for luxury brands to keep investing.

"Brands like Gucci, Louis Vuitton and Chanel still have a steady growth [in Taiwan] but not a high percentage of growth," claims E&A's Sophie Jiang, who has been working with international luxury brands in Taiwan since the 1990s. Though she adds that the situation in Hong Kong has stimulated more domestic spend among Taiwanese consumers who would otherwise have travelled more frequently to Hong Kong in order to buy luxury goods.

“In general, Taiwan [is] still considered a stable market for the luxury market within Asia. But we cannot expect big growth in 2020,” Jiang explained. “The big challenge Taiwan’s market faces is that all luxury brands have the same group of VIP customers. If they want to attract the interest of this crowd, brands need strong exclusive and limited-edition items.”

The financial district of Xinyi in Taipei is home to one of the highest density of department stores and shopping malls in the world. Its jewel is the Taipei 101 tower, an urban landmark that houses luxury brands including Burberry, Bulgari, Louis Vuitton, Rolex, and Prada.

Department stores in Taipei’s Xinyi District currently generate sales of TWD 60 billion a year (around $2 billion),  according to Kai Chen of Taiwan Sotheby's International Realty. Many of these upmarket department stores were originally opened as branches of Japanese retail giants, including the market-leader Shin Kong Mitsukoshi, which has 16 locations across the island from Taoyuan in the north and Taichung in the central region to southern cities like Chiayi, Tainan and Kaohsiung.

Another concentration of wealth can be found in Taipei’s suburban enclave of Tianmu and nearby Yangmingshan, where expats and Taiwan’s “old money” have long favoured setting up house, making it another popular locale for high-end retail.

The Changing Face of Manufacturing

Over the past ten years, Taiwan has transformed itself from a maker of low-cost fabrics into a world leader in functionally advanced, high performance and eco-friendly textiles. According to Taiwan's Ministry of Economic Affairs, 70 percent of the world's outdoor sportswear – the largest application for functional textiles — is currently made using textiles from Taiwan. Taiwan has more than 4,300 textile manufacturers employing over 140,000 people, with a total production value of more than $13.5 billion.

70 percent of the world's outdoor sportswear is currently made using textiles from Taiwan.

In the same way that major electronics component makers such as Foxconn have long played a major role in mainland China’s manufacturing sector, some Taiwanese apparel and textiles factory owners have extensive business interests in the mainland.

This stronghold in performance textile manufacturing stands Taiwan’s industry in good stead when considering exports to mainland China, particularly as sportswear sectors see explosive growth in the mainland (global sportswear companies such as Nike reported growth of 20 percent in China last quarter, with Lululemon reporting a 70 percent jump in revenue in the first half of 2019 in the market).

But with the election in focus, the risk of an escalation in tensions between Beijing and Taipei means that the stakes are high across the business community.

Over the past two decades, many Taiwanese professionals were hired by Western brands to fill management and media roles to either launch or develop business on the mainland market. And while the priority today is for brands to hire, recruit and promote mainlanders to leadership roles, some Taiwanese fashion industry expats continue to work in Shanghai, Beijing and other cities on the Chinese mainland.

Stepping up the Competition

With a population of 23 million, Taiwan is a consumer market where domestic brands struggle to gain market share over big international competitors.

“Before we didn’t care so much because we had our own domestic market and we didn’t have the threat from China. Now design in China is booming, and they know how to promote themselves, [so] our government wants to push Taipei Fashion Week, which I think is a good first step,” Jiang says.

Before we didn't care so much because we had our own domestic market and we didn't have the threat from China.

Taiwanese brand Douchanglee, founded by Stephane Dou and Changlee Yugin in 1995, is one of the drawcards at Taipei Fashion Week, with an established hometown consumer base and the beginnings of international expansion with regular showings at Shanghai Fashion Week and the opening of a boutique in Canada.

In particular, Changlee Yugin says their brand sees opportunities in mainland China, where she says participating in Shanghai Fashion Week has shown them how “open” mainland consumers are to brands from Taiwan.

Indeed, it will need to be Taiwanese brands reaching out to the mainland as there remains a travel ban for individual travel on mainland citizens in place limiting the ability of traveling mainlanders to spend big in Taiwan. As long as president Tsai remains in charge, there is little hope of Beijing loosening this restriction.

Domestic spend for Taiwanese designers is also limited by market conditions. According to Vogue Taiwan's newly appointed Editor-in-Chief, Leslie Sun, the way the market in Taiwan has developed means that consumers "with a good amount of disposable income are going to go for the famous international brands and those without are going for the mass market Mujis and Uniqlos."

“Taiwanese designers really want to express themselves [but] their products don’t fall into the mass market. If you are trying to do something very edgy or cater to a niche market, it’s a matter of price point and people’s perception of value,” she added.

This can happen living in the shadow of much larger, trend-setting neighbour and, for Taiwan, mainland China is not the only example.

Japan has long been the go-to country for Taiwanese shoppers to adopt or adapt fashion trends (the island was a Japanese colony between 1895 and 1945), but in recent years, Korea's hallyu wave — encompassing K-Pop, soap operas, beauty and fashion trends — has swept its way into Taiwan's local fashion scene, as it has across much of Asia.

Even with the Beijing ban on individual tourists from the mainland market, Taiwan's tourism numbers overall continue to grow.

“There’s a lot of Korean influence in terms of what younger people shop for. A lot of select shops carry Korean brands, it used to be Japan but it’s now Korea,” Sun says. “There’s a little bit of a lack of confidence all around amongst the general public in our local talents, but also, I think, amongst our talents in themselves and their own potential.”

Even with the Beijing ban, Taiwan’s tourism numbers overall continue to grow. A record high of 11.84 million people visited the island in 2019, an increase of 7 percent over 2018. Particularly encouraging was the rise in arrivals from Japan and Korea, which saw increases of 10 and 20 percent, respectively, according to figures from Taiwan’s Tourism Bureau.

No matter the result of this weekend’s presidential election, Taiwan is likely to remain dependent largely on domestic spend to sustain its luxury market. And with the chances of a détente with the mainland slim under continued DPP rule, Taiwan’s fashion industry leaders will need to continue to work hard to engage with partners in mainland China while diversifying their interests and opportunities beyond the mainland.

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