Taiwan as Asia's launching pad?

FRANCESKA BANGA
Last updated 12:10 31/12/2013

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OPINION: Technology investment is having a purple patch. 

The likes of Xero, Pacific Edge and GeoOp are headline acts on the NZX. There have been listings of SLI Systems, Wynyard Group and Snakk Media. Non-listed tech companies - the likes of Orion Health, Fronde Systems and Zephyr Technology - are doing well.

The investment community is more bullish, fuelled by the general vigour. We have a healthy angel community investing around $30 million a year and with the goal of getting bigger. 

The venture capital community is picking up. Pioneer's $150 million fund is the biggest ever and the first follow-on fund from the initial cohort of venture capital funds. Tony Bishop's Pan Pacific Capital is now raising a US$40-80 million fund (NZ$47-95m) - the second follow-on fund.

But amid the pleasing activity we remain a long way from where we need to be. 

Two challenges facing innovation companies are access to expansion capital and distance to markets. One initiative, which has the potential to impact positively on both, came in the form of a recent visit to New Zealand by a delegation of Taiwanese venture capital fund managers.

Together these managers represented over a $1 billion of funds under management. They met with local counterparts, attended the venture capital industry's annual conference, and were introduced to a number of technology companies. They were hugely impressed at the potential for investment.

Why their visit has so much potential for New Zealand lies in Taiwan's unique mix of deep pools of capital, the scale and experience it has in venture capital investment and building large scale technology companies, and its proximity to and relationship with China.

We are the only developed economy with free trade agreements with both China and Taiwan. The large Asian economies will be driving the world's economic growth over the next century. Over the next 25 years, we must forge and build these relationships if we are going to benefit from Asia's growth.

Up until now, our record is not especially great. According to the TIN 100 index, Asia accounts for just 9 per cent of New Zealand's technology company exports. We can do much better. 

Taiwan might be one partner who could assist us.

While its population ranks 47th largest, Taiwan's capital reserves are the fifth highest in the world. It is oriented towards the USA and so, for an Asian economy, is relatively straightforward to engage with. They understand the Western outlook.  The business community often speak good English. It has a robust legal system offering similar levels of protection to investors and businesses that New Zealanders are comfortable with.

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Strategically, it occupies a central position in Asian supply chains. Its hi-tech economy is highly advanced. It is now developing its services-oriented sector. Its trade links with China are vast. The two economies' annual bilateral trade is as big as New Zealand's entire GDP, and has grown 30 percent in the last year alone.

While they know China intimately, the Taiwan venture capitalists were struck by the lack of understanding of the Chinese marketplace by the New Zealand companies they met. But they were equally struck by the potential for significant growth should New Zealand's expertise in producing world-leading food and health products be allied to Taiwan's expertise in shaping such products for the specific characteristics of the Chinese market.

One of the biggest opportunities is from combining New Zealand's expertise in quality food and beverage with key partners who understand consumer tastes in the young and sophisticated Asian market. A simple change in packaging and design can be enough to turn a product which falls flat with Chinese consumers into a success.

Developing relationships with partners with intimate knowledge of, access to, and networks throughout mainland China is vital. If those partners also have deep pools of capital to help New Zealand businesses grow, that is an added bonus.

We tend to have an all or nothing approach to offshore ownership. We need to be flexible - better owning 10 per cent of something huge, than 100 per cent of nothing.

Partnering with international investors retains an ownership stake here, helps create jobs, and enables us to benefit from the wealth created.

We share some common bonds with Taiwan. We are both islands which feel like a small brother to a much larger neighbour.  We are export dependent. Our economies are complementary. 

Taiwan excels at high-tech manufacturing and is developing its green-tech sector. New Zealand has world-leading research and technology in areas such as agri-tech. New Zealanders in business in Taiwan say they are good people to do business with - honest and straightforward.

International linkages are crucial for young New Zealand technology companies. Asia is a largely untapped market. The more help we can enlist to get there, the more quickly we will start seeing the benefits.

Franceska Banga is chief executive of the NZ Venture Investment Fund.

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