Over the past decade, in response to the last global financial crisis, governments worldwide have joined forces to implement quantitative easing policies to stabilize the economic and financial environments. The scales of those recent QE policies are the largest of the past century. Nevertheless, economic growth in today’s world remains sluggish. According to the IMF, the world’s GDP growth for 2016 is estimated to be a mere 3.08%, the lowest since 2010. Although the IMF estimates that the average GDP growth will increase to 3.62% between 2017 and 2020, a myriad of uncertainties will add to the complexity and elusiveness of the global economy, such as imbalanced economic growth, rising trade protectionism and anti-globalization sentiment, aging populations, Industry 4.0 and the Internet of Things.
Economic growth is imbalanced the world over, especially in China, Europe, and Japan. After 20 years of rapid growth, China is now beset with over-capacity, burgeoning debt, and asset bubbles, and is therefore in need of adjustments to its economic structure. If China is to resume its position as the engine of global growth, it will face great challenges. Every step the Chinese government takes needs to be cautious, so as not to suffer a hard landing. In the Eurozone, the economy has begun to make a comeback, due to depreciation of the euro and the fact that exports have benefitted from quantitative easing policies. However, its outlook is still clouded by large debts and high unemployment rates. The United Kingdom’s withdrawal from the European Union and the massive influx of refugees from North Africa will also add to the uncertainty of the Eurozone’s future. In Japan, the government has been overburdened with debt and impaired by its aging population and prolonged economic slump. Prime Minister Shinzo Abe’s three arrows, his three-pronged approach to economic revitalization, have not proved as effective as expected. The IMF’s forecast of the country’s GDP growth for 2017 and 2018 is pessimistic, at 0.8% and 0.5% growth respectively.
The United States, on the contrary, is on the path of stable recovery. The Federal Reserve’s increase in interest rates in March strongly suggests the country is about to enter a cycle of interest hikes. Although adjusting interest rates is a proper step to take in an improving economy, there are underlying risks which should be considered. First, interest hikes will cause the appreciation of the US dollar, which will put debt-ridden and vulnerable emerging economies at a disadvantage. As such, the United States is likely to face a foreign debt crisis. Second, if the interest hikes induce capital flight from other countries, the US will inevitably have to adopt a tighter monetary policy, which will slow the pace of recovery and cause further imbalanced growth. Third, the country is laden with debt. According to a report published by the Department of the Treasury, as of March 2017, the country’s outstanding national debt has passed the ceiling of $18.9 trillion to reach $19.85 trillion, or 107% of its GDP, the highest since 1950. The Fed’s attempt to introduce interest hikes is likely to increase the country’s financial deficit, raising the specter of another financial cliff.
It is obvious that imbalanced growth within each economy has an adverse impact on the stable recovery of the global economy as a whole.
A wave of protectionist and anti-globalization populist sentiment has recently washed over the world. The Brexit referendum and the Trump victory, in particular, have fueled these sentiments and have had far-reaching impact. As the third largest economy in the world, the European Union signifies economic unity, removal of trade-barriers and globalization. The United Kingdom’s decision to leave the EU as its second largest economy not only means the loss of an important member, but effects significant changes to the 1948 GATT agreements on trade freedom (e.g. lowered tariff rates), non-discrimination principles (e.g. most favored nation and national treatment) and diversification. The impact of these changes is not limited to the economic and political systems of the European Union, but extends across the Atlantic to the United States.
Two days after being sworn in as the 45th president of the United States on January 20th, 2017, Donald Trump signed an executive order that formally withdrew the country from the Trans-Pacific Partnership (TPP), while planning to bring manufacturing jobs back to the country and imposing high tariffs on imports. This has raised global concerns about whether the country will once again adopt protectionist policies, which will inevitably affect a massive impact on global supply chains and, in turn, undermine global economic growth.
According to “World Population Prospects: The 2015 Revision” published by the United Nations, the percentage of the elderly population is climbing year by year due to low birth rates and increased average life expectancy. Predictions indicate that people aged 60 years or older will increase from 12.3% in 2015 to 21.5% by 2050.
The OECD’s “New Approaches to Economic Challenges” initiative points out that as populations continue to age, the shrinking workforce and decelerated growth of human capital will dampen global economic growth. In the future, GDP growth will rely more on the accumulation of technological expertise. This highlights the importance of fostering innovation and amassing knowledge-based capital. Knowledge-based industrial transformation and innovation policies are thus crucial.
However, shifting to knowledge-based growth is not easy. It requires the upgrading of human resources, guidance of industrial policies, support of fiscal and financial systems and entrepreneurship. And on top of that, it takes time to see and assess results.
A shrinking workforce caused by population aging can be offset by shifting to knowledge-based industries and formulating innovation policies. Among the best solutions are Industry 4.0 and the Internet of Things. The goal of Industry 4.0 is to build smart factories, but its true value lies in utilizing the Internet of Things, cloud services, and big data analysis to connect the supply chain to consumers, thereby building new business models to meet market demand. Related applications include smart manufacturing, the Internet of Vehicles, medical care services, financial services, retail, logistics, energy and smart homes. As one may guess, these are huge untapped opportunities. But with opportunities come a number of obstacles. First, it is essential to invest heavily in a more versatile workforce. However, people with different areas of expertise are hard to come by, and their knowledge and skillsets are difficult to develop in such a short time. Second, there is an apparent lack of common standards for different platforms and industrial ecosystems. Third, building partnerships is a challenge because of the difficulties in forming a cross-industrial operation model and estimating return on investment. Fourth, the maintenance cost for information security is sure to rise.
When a business is developing toward Industry 4.0 and the Internet of Things, they will likely encounter challenges in developing a versatile workforce, establishing cross-ecosystem standards, and building cross-industrial operation models. That is why, as of now, there are no substantial results to catalyze another wave of economic growth.
In addition to political and economic uncertainties worldwide, Taiwan faces a dilemma in choosing between growth and distribution on the one side, and between economic development and environmental protection on the other, as it makes its way toward full democracy. The island’s populism is as real as populism in the United States and United Kingdom. In fact, sustainable development is what companies are pursuing; to this end, they promote corporate governance in accordance with the law, develop business models, bring in reasonable profits and share them with the shareholders, employees, suppliers, consumers and the government in various ways. In fact, businesses play the role of striking a balance between growth and distribution as well as economic development and environmental protection. When populism trumps reason in Taiwan, we will not only lose the pivot around which social stability revolves, we will also miss opportunities for growth.
From the perspective of the Far Eastern Group (FEG), change is the only constant in business. Despite the challenges ahead, we know we will not falter, because we have overcome even more difficult times along with the Taiwanese people. For over 60 years, the Group has continued to flourish amidst challenge. Today, the Group includes a total of 245 companies. In addition to Taiwan and China, we have established operation sites in Japan, Southeast Asia, and North America. Moreover, we have built extensive partnerships with international companies, including INVISTA, DOW, DuPont, Mitsui, NTT DoCoMo, Freudenberg, DWS, Singtel and China Mobile, to collaborate in such areas as petrochemicals, textiles, retail, financial services and telecommunications.
To further penetrate the Chinese market, the Group has been establishing businesses and building networks across the strait since the 1990s. We have focused our investment in the North and Northeast China Economic Zone, Yangtze River Delta Economic Zone, Midstream Yangtze River Economic Zone and Chengdu-Chongqing Economic Zone, and have strategically targeted textile, cement, and retail industries that were crucial for China’s economic growth. So far, the petrochemical, textile and polyester businesses that constitute The Far Eastern Industries (Shanghai) have mobilized resources from Shanghai, Suzhou, and Wuxi to achieve vertical integration of the production process, upstream to downstream. Similar development can be seen in our cement business. A “T-shaped strategy” has been formed as a means to pool resources and achieve synergy among Sichuan Yadong Cement, Hubei Yadong Cement, Jiangxi Yadong Cement, and Yangzhou Yadong Cement, which are located along different segments of the Yangtze River. The Group’s annual production capacity of cement in Taiwan and China amounts to 40 million metric tons, making it among the top ten cement companies in China. On May 20, 2008, Asia Cement (China) Holdings Corporation went public in Hong Kong. Our department store business is known for our double brand strategy, namely, Pacific Sogo and Far Eastern Department Store; we have also been actively raising our profile in Dalian, Shanghai, as well as Chengdou and Chonging. Our telecommunications business FarEasTone continues to engage in strategic partnership with China Mobile, the largest telecom operator in the world, to inject new life into markets in Taiwan and China.
In view of rapid economic growth throughout Southeast Asia, Far Eastern New Century (FENC) established Far Eastern Apparel (Vietnam) in 2007 and launched a project to expand our investment there in 2016. Today, following Taiwan and China, Vietnam has become our third production base, in which we have achieved vertical integration by building a production line that runs from manufacturing synthetic fibers, producing yarn, knitting, dyeing and finishing to making ready-to-wear garments. In addition, in order to grasp the business opportunities surrounding green PET resins, FENC partnered with Ishisuka Glass Co. to establish Far Eastern Ishizuka Green PET Corporation as a joint venture in 2012, with the aim of using waste PET bottles as materials to manufacture recycled PET.
In order to spur another round of growth, we will adopt global and diverse development strategies, build flexible operation and management systems, enlarge our presence in Taiwan and China, and continue to expand into Southeast Asia. Thus, we will lay the bedrock upon which the Group will reach a new peak.
Originating in Shanghai, the Group resumed businesses in Taiwan in 1949. Over the past six decades, we have managed to stay ahead of the curve and make timely changes to our management strategies. That is how we have succeeded in developing from traditional to high-tech industries, and in being able to encompass both the manufacturing and service sectors. In the beginning, we focused solely on demand in Taiwan, but today, we have gone global and expanded our reach into China and Southeast Asia. Our businesses have grown steadily to cover petrochemical and energy, polyester and synthetic fiber, cement and building materials, retail and department stores, sea and land transportation, construction, hotels, financial services, communications and internet as well as philanthropic organizations. The assets of these ten businesses amount to NT$2.5 trillion, or US$81.8 billion. In addition, we have nine companies publicly listed in Taiwan or overseas, including Far Eastern New Century, Asia Cement Corporation, Far Eastern Department Store, Far Eastern International Bank, Oriental Union Chemical Corporation, U-Ming Marine Transport Corporation, Everest Textile Co., FarEasTone, and Asia Cement (China) Holdings Corporation.
To be better positioned in the future, our core development strategies include enlarging our global presence, strengthening R&D and innovation, achieving synergistic growth, as well as pursuing green development and sustainable growth. We will strive toward our goal of becoming a bellwether for the industry and creating new value for consumers, shareholders, employees, and society as a whole.
The business climate is ever-changing. We may not have all the answers to what the future has in store, but one thing I am certain will not change is that the Group will adhere to its core values of sincerity, diligence, thrift, prudence and innovation; we will proactively effect transformation. Change will come, but we will stay flexible and agile. We will adapt to new trends and keep abreast of the latest challenges. We will thus create new momentum for growth and make our Group a paradigm of the world’s first class enterprise.