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Internet booming in Taiwan despite bureaucracies

A growing number of Web entrepreneurs in the country are faced with overcoming bureaucratic and legal tangles that stand in the way of their ambitions.

TAIPEI, Taiwan--Ching Hsiao is trying to make i-Invest into the "E*Trade of Taiwan," but unfortunately, one of the first steps involves making sure his office has a floor strong enough to hold a movie theater.

Ching, chief executive of a Taipei incubator called The Enovation Group, is part of a wave of entrepreneurs trying to shift Taiwan's base from manufacturing and hardware to software, e-commerce and Internet services.

But despite the Internet frenzy among the population, Ching and others in his situation are faced with overcoming bureaucratic and legal tangles that stand in the way of their ambitions.

For i-Invest, Enovation's first spinoff, one of the current problems is real estate. Although i-Invest customers trade stocks online, regulations dictate that customers can only open accounts in person. This means that to obtain any significant market share, i-Invest has to open offices nationwide.

Unfortunately for i-Invest, however, regulators will not permit mere storefront operations. Instead, each branch office has to sport a bank of approximately 50 monitors in the lobby tuned to trading, while the floor has to meet the same fire and safety standards as a movie theater. Everyone taking orders in the call center also has to be a registered broker.

"We'd love to do (registration) on the Internet or by mail," Ching said. "If they don't change the law, our hands are tied. I just need to have an information depot."

Added one Taipei-based investment banker: "Taiwan is almost as bureaucratic as China."

Welcome to the frontier. The shift to the Internet occurs at a time when Taiwan's economy is in the throes of a midlife crisis. Margins on hardware manufacturing, the backbone of the country's computer industry for years, are declining, according to several studies.

Both the Internet and software industries, however, are in the embryonic stage. Software companies were first allowed to go public in March 1999, said Pearl Sun, industry consultant for the Institute for Information Industry. Trend Micro, a publicly held Taiwanese software publisher, went public earlier, but through U.S. markets.

The relatively late entry into the public markets comes because regulators distrusted software companies, Sun and others said. Rather than own factories, software companies depend on patents, which made regulators skittish. Whole departments in Taiwan have also been known to job-hop to a competitor in unison, sources said.

Without the ability to dangle options in the face of engineers, "software companies had a difficult time attracting talent," Sun said.

Nonetheless, circumstances seem ripe for a change. The country is teeming with engineers who are readily versed in Net capitalism. Ching, for instance, studied at Purdue and Princeton and then worked in Silicon Valley for 13 years.

"You have to look at me as an American," he said. "A lot of people still don't understand me."

The venture capital industry is also growing rapidly. Acer, the godfather of Taiwan's IT industry, and United Microelectronics, a major semiconductor foundry, are investors in The Enovation Group. Commerce One, among other U.S. companies, struck a business-to-business alliance here recently.

"The big wave (of Internet interest) hit the island last summer because the Internet companies became visible on Nasdaq," Ching said. "PCs are in the home, but they are mostly used by youngsters, not 40-year-old parents."

Stock market fever
Part of the inspiration for i-Invest lay in Taiwan's addiction to the stock market. On average, each share of Taiwanese stock changes hands three times a year. "People don't play long-term here," Ching said.

On high-volume days, Taiwan is the third-largest stock market in the world, with $200 billion NT ($7 billion U.S.) in shares trading hands.

The feverish pace of trading makes the Internet an ideal, and as yet untapped, vehicle for this market, Ching said. Currently, only 6 percent of the Taiwan market's stock volume is transacted electronically, and three-fourths of that goes through automated telephone services.

Commissions are low--traditional brokers charge 0.14 percent of the value of the transaction--so brokerage houses have to depend on volume. i-Invest offers customers a 40 percent discount on top of that by keeping costs low.

The company became Taiwan's first pure online brokerage last April and began trading in November. Last month, the company saw transaction volumes of $28.7 billion NT ($1 billion U.S.).

In the tradition of Asian conglomerates, i-Invest is only the first of Enovation's projects. An online insurance broker, called Insure 121.com, kicks off next month. Following that, Ching said he hopes to take Enovation's engineering department, which designed the brokerages, and spin that off into a consulting firm. Expansion into other Asian markets will occur in the near future.

Although the Internet is a relatively new force in Taiwan, Enovation faces daunting competition. Traditional brokerage houses are moving to open online brokerages. The incubator concept is not new either. One source in the financial community estimated that Taiwan already has at least 200 incubators "for an island of 23 million people."

Nonetheless, the optimism is tough to shake.

"The market is kind of small now, but the growth will be enormous," Ching said. "In a few years, even the old geezers will learn to use PCs."