The failures of most Taiwanese enterprises in China — and how to avoid them

But what characterizes a “Taiwanese-style” failure? After interviewing 20 Taiwanese entrepreneurs with investments in China, CommonWealth Magazine came to the conclusion that they all face five major risks of catastrophic failure, whether they be distributors, manufacturers, or well-known brands.

Landmine No. 1: Blind Expansion and Investment

Many successful companies have stepped on this landmine, and Taiwanese enterprises are no exception.

A case in point is Taiwan's home appliance maker Tsann Kuen Enterprise, which runs the 3C electronics retail chain.

In 2003 ambitious company founder and president Wu Tsann-kuen hired some 1,000 new employees for his planned expansion into China, where he intended to replicate his Taiwanese chain store success. Within half a year Tsann Kuen established 50 outlets, opening an average of two new stores per week. The pace of Tsann Kuen's expansion broke all records in Chinese business history, and the company soon became China's fourth largest electronics retailer.

But two years later the eye-catching bright yellow 3C shop signs had disappeared from China's streets, as the retail giant collapsed amid fierce competition. Tsann Kuen Enterprise general manager Yan Junjie, a driving force behind the 3C chain store expansion, acknowledged in an interview with CommonWealth Magazine in Zhangzhou, Jiangsu Province, that back then Tsann Kuen was “lost in space” - lost in its own massive nationwide expansion drive.

“The biggest market is probably also the biggest graveyard,” says Yan gravely, now that the venture is dead and buried.

Landmine No. 2: Delayed Upgrading and Transformation

Business writer Wu observes that last year China became the world's largest car market, and its production and marketing patterns are already established. This indicates that the country's industrial revolution is complete. The traditional business model, solely tailored to manufacturing, is set to be thrown out, Wu believes. Instead, domestic demand, which has begun to thrive regionally, will play a prominent role in driving economic growth.

This means that Taiwanese companies which want to stay in the Chinese market for the long run need to upgrade and transform now to adjust to the changing business environment.

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