Start Up Funding - Company Profile - 洋璽藝術創業計畫

1. Company Profile

1.6. Start Up Funding

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to receive Latin American Art and better positioning and brand awareness with our collectors/partners.

 After year 5 the goal is to the organize 10 exhibitions yearly (6 in Taiwan and 4 in China) and participate in 9 art fairs (4 in Taiwan and 5 in China and Asia Pacific).

The number of exhibitions will be increased year by year to reach 14 in year 10 (7 in Taiwan and 7 in China), and a participation in 11 art fairs (4 in Taiwan and 7 in China and Asia Pacific).

 The increase of the successful rate will also continue to be a key goal, increasing it year on year to end with a 50% in year 10 both in Taiwan and China. The average price of the works will also increase as bigger works will be promoted based in a stronger client base. The average price sold for the company will end in US$9,745

 This will give the company a revenue in year 10 of US$1.7 million annually (NT$51 million).

1.6. Start Up Funding

The company initial investment will be US$250,000 (NT$4,500,000) which will be allocated into different areas. Capital investment will be equal to US$100,000 (NT 3 million) and the rest for working capital for the first years of operation. Part of the resources will come from the founders and part from investors and loans. Some resources will be used for working capital to develop the relation with the artists, and produce marketing materials as catalogs, paying salaries, fees for curators, and bare the costs of operation as is rent. Another resources will be used mainly for the organization of the exhibitions and fair participation.

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Nevertheless, Taiwan’s art market still faces pains to market actors. The first is the market remains relatively closed selling mainly local and regional artist. In this sense Asian artists have still advantages, as most of the dealers promotes and sells mainly Taiwanese and Asian artists. This market behavior diminishes the possibility of some diversification for local collectors and has shaped a market were local artists enjoy relatively high prices due to the lack of competition, making collectors over-pay overall diminishing the effectiveness of their investment.²

1 Today more than 120 art galleries are in operation in Taiwan and relevant art fairs takes place each year in several cities as Taipei, Taichung, Tainan, Kaohsiung. Art Taipei being one of the oldest art fair in Asia. As well, several art auctions houses, local and foreign, participate in the Taiwan market. Private dealers and public initiatives are also all playing a strong role consolidating a mature and developed art market in Asia, just second in value behind Mainland China art market. Taiwanese art collectors have also become one of the main forces in Asia Pacific art circles, being know because of their purchase power, taste and knowledge about art.

2 The closeness of the market is not a consequence of trade barriers or non-tariff barriers to trade, as regulations, or special permits, but is the result of the preferences of art collectors, dealers and the weak of developed networks with other art realities.

Figure 3 Pains in the Taiwan and China art markets

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known as emerging to mature, important pains are still observed. In terms of the value of these artists and their art, questions and doubts arise. Some are coming to the market without an extremely strong internal and external value, but are promoted and sold as if they were artists with high internal and external value.³ Some of these artists enjoy a position in a relatively good price bracket compared to their real value, taking advantage of the higher prices available in the market. Taiwanese collectors are also overpaying for this art diminishing their investment, economic returns and enjoyment in the future.

An extremely high concentration of western artists from Europe and the US is the third pain. This is happening because they are easier to promote and to leverage the positive perception of their value taking advantage of a positive “Country Brand Effect.” Local emerging novice collectors and art lovers are emotionally pushed to invest in these artists.⁴ This closes opportunities to valuable foreign artists from other regions.

In this arena, Latin American, African and Middle Eastern art and artists are especially under-represented. This fact opens as well big questions. In the case of Latin American art is seen in high end art circles as a flourishing art, extremely strong, unique and creative, still underpaid and sometimes undervalued, being an excellent investment opportunity causing increase in collection.⁵

This trend in collecting Latin American art, nevertheless, is not occurring in Taiwan, which is a pain to collectors. ⁶ Finally, there is the pain for Latin American artists. For

3 According to research in the economies of the art sector, internal value of an artist is measured based in his/her special personality, creativity and originality in producing works of art. External value is measured in the development of the artist’s network of partners, supporters and colleagues, see Magnus Bruno Frederik Resch, Management of Art Galleries-Business Models. Dissertation, University of St.Gallen, School of Management, Economics, Law, Social Sciences and International Affairs, 2011.

4 This is pushed also because collectors have the perception that the art collected comes from “places were art must be valuable and is a safer investment” rather than based the artist value. According to Thompson (2008), in London and New York there are around 40,000 artists in each city. From that amount (80,000) 40% are vanity artists with no gallery representation and 41.5% are considered “poor dogs” selling thanks to their own promotion, without a gallery representation or supporters. This means that in the 2 most developed art sectors in the world 81% of all artists are considered with a low internal and external value. Some of these type of artists can be coming to Asia and Taiwan.

The pain though comes that some are being promoted as if they were successful artists, being able to do it, based in the “positive country brand effect” and a lack of knowledge from some emerging collectors or art lovers and the marketing used by local or International dealers.

5 Relevant galleries in London and NY, as Gagosian and White Cube, have increased their efforts promoting Latin America artists and international power collectors, as the Deutsche Bank Art Foundation, are pushing Latin America art as one of their main areas to develop into the future based on their soundness and investment expected returns.

This under-representation is the result of a complex scenario. On one hand in Taiwan there is the “Low brand effect of Latin America” as a whole as the knowledge about Latin America is still poor. This make that artists or art from this region has to compete with the “High brand effect of Europe and United States (US)” which is has not been easy.

Collectors perceive US and European art to be more valuable and a safer investment so dealers also concentrate in this part of the market. Another cause is that there are higher barriers to introduce this artists, based also in weak

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connections between Latin American artists and Asian dealers and the lack of knowledge of Latin America artists and dealers on how to approach Asian collectors.

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3. Launching the Company to Help Eliminate the Pain

Given the aforementioned market of challenges and pains, Sello de Agua Art（洋璽藝術) main value is to enter the market and promote in Taiwan and in China valuable visual contemporary art and successful artists coming from Latin America.

This will help increase the value of Taiwanese art collections, the enjoyment of collectors, and serve as new investment opportunities in the art sector. It will also open a growing market for Latin America art through an effective and trustful channel of promotion.

The type of artists that will be promoted by Sello de Agua Art（洋璽藝術) will be the key point in the value proposition and a solvent to collectors actual pains. Sello de Agua Art（洋璽藝術) will promote mature and emerging artists chosen with a high internal value and a developed external value. For Latin American artist the company will solve their lack of connections and knowledge about this growing art markets, helping them to expand their markets and enhancing their art careers.

Figure 4 Solution given by the company entering the market.

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emerging art markets in the East, such as Mainland China, Taiwan, Hong Kong, Korea and Singapore.

Chinese and Taiwanese art markets exemplifies this trend perfectly. Mainland China has become the fastest growing art market in the world and in 2013 became the second in worldwide share in value. Taiwan is the fifth contemporary art market worldwide concentrating more than 1% share in overall turnover of contemporary art in 2012.

Considering this figures, being launched in Taiwan art market will allow access to the fifth contemporary art market in the world and simultaneously makes reachable the access to Mainland China’s art market thanks to the near and convenient geographical location between Taiwan and Mainland China, in addition to cultural similarities and current strong connections between Taiwanese and Chinese consumers.

The shift to East is also accompanied by a wider international development in these markets thanks to the introduction of foreign art. In the case of Mainland China 2013 imports of foreign art accounted for US$ 1 billion, two times the exports of art, indicating Mainland China has become a relevant buyer of art. Comparatively, Taiwan imports of drawings have grown 12% annually from 2002 to date.7

7 A relevant prove of this shift to the East is the strong strategy in China developed in recent years by Sotheby’s, one of the oldest art auction houses in the world. Sotheby’s has implemented a regional marketing initiatives such as the publishing of Hong Kong sales catalogues in Chinese, the launching of a Chinese language website that includes e-catalogues for sales of Asian Art and Sotheby's major Impressionist and Contemporary sales, and the hosting of innovative private selling exhibitions. They have continued investing in staff with the requisite skills to service Asian clients at Sotheby's Hong Kong, New York, and London locations, as well as to support the growth of the Chinese art market. In Hong Kong Sotheby’s added a state-of-the-art gallery with over 15,000 square feet for selling and exhibition space. Sotheby's Beijing was established in 2012 to provide Sotheby’s a platform for art-related auctions and private selling exhibitions in the art capital of China. See Sotheby’s form 10-K, 2013.

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The second is that the sector In Taiwan and China is in a maturity and diversification stage pushed by foreign art as local dealers and international dealers are bringing art from the outside permanently or by participation in art fairs. This is a trend occurring in Taiwan and in China since the beginning of the XXI century. Thanks to it Taiwanese and Chinese art collectors and art lovers are becoming more sophisticated and knowledgeable, demanding larger amount and more valuable foreign art in their own country. Following this trend and demand behavior marks the right moment to enter the market offering valuable foreign art and new artists.

A third factor is as we have noted already, Latin American art is under-represented in Taiwan, even though has received special attention and is being collected in high-end art circles worldwide, a trend not occurring yet in Taiwan. In this sense, Taiwan art market is behind other art markets in the world, even Asian art markets such as Mainland China, Hong Kong, Korea and Singapore, were Latin American Art is already being promoted.

Coming into the Taiwanese market offering valuable Latin American art in this moment serves a need not yet served and will create a first mover advantage, being able to develop brand awareness with Taiwanese collectors (public and private), art institutions, and gain a special place in the Taiwanese market providing future leverage. It will also provide leverage with artist selection, being able to bring valuable artists much of which are not being promoted seriously and in a permanent basis in Taiwan and in Asia.

Figure 5 Reasons to launch the company

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are located in Japan (1.9 m), Mainland China (643,000), Australia (207,000), Hong Kong (114,000), South Korea (160,000), Taiwan (95k) and Thailand (73,000).8 In Taiwan the HNWI population has increased at a 13% annual compound rate since 2008 with HNWI are expected to increase to 120,000 by 2015, a 26% increase from 2012. In Mainland China this class grew by 14% in 2012 and is expected to continue growing.9

Finally, investments in passion items, is a big trend in wealthy Asia-Pacific individuals.

According to the consumer attitude of HNWI, luxury good consumption in this group is increasing year on year. In 2014 is expected that consumption in luxury goods in this group worldwide will increase in 36%. Inside the consumption of luxury goods, investments in passion items is a growing area of HNWI spending activity, were 44%

of HNWI are becoming more interested in collecting art.

In Mainland China, according to art economics, HNWI individuals are allocating 17%

of their total investments to passion items, as is art. In Taiwan this figure should be transferable according to similar behaviors between both communities. In this sense, the markets where the company will operate, are increasing its fondness to collect and make investment on passion items, such as art. Based on these circumstances and behaviors entering into the market gives relevant opportunities to grow and establish itself in an environment of expansion in the target class and in a type of product, such as art, being demanded with more fondness.

8 Bar, Julius. Wealth Report: Asia, June 2013.

9 Ibidem.

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5. The Market and Target Audience: Taiwan, China and Asia Pacific Art Markets

Sello de Agua Art（洋璽藝術) will operate to capture the art markets located in the Asia Pacific region from its main headquarters in Taipei. The company will focus to enter FIRST the Taiwan and China art markets, particularly penetrating Taipei, Tainan and Kaohsiung in Taiwan and Beijing, Shanghai and Hong Kong art markets in China, as these represent growing markets in terms of size and maturity, with relevant levels of demand for visual art and a consolidated art ecosystem where several dealers, artists, framers, auction houses, museums and art fairs and art initiatives exist.

In a second phase the company will focus to penetrate other markets as that of Korea and Singapore as they are important factors in the development of the art market in the region. Cities as Seoul and Singapore will be in the targeted markets of Sello de Agua Art（洋璽藝術) through partnerships and fair participation.

5.1. Taiwan total available market

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10 A big part of the information related to the Market in Taiwan comes from a market research made in Taipei. For building this analysis 30 galleries in Taipei (50%) were visited. We assisted to more than 10 openings and interviews with some artists and museum officials. The market research tries to include the opinion expressed by dealers, gallery

Figure 6 Taiwan and China art markets.

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According to its value, Taiwan’s market, in Asia, is only behind Mainland China. In 2012, according to arteconomics Taiwan art market accounted to 1% of the global market value for postwar and contemporary art traded through auctions.¹¹ Based on this data, in 2012 its size, depending on the estimates, could have reached between US$196 to US$285 million (M) (NT$5,800 M and NT$8,565 M).¹² These figures make it bigger in value than Singapore, South Korea or Japan art markets. The 1% share is above European markets as Sweden (0.5%) and Austria (0.5%) and is very similar to the share of Germany (1.1%) and Italy (1.1%).¹³

staff, gallery owners, as well as some collectors and artist agents. This market research also includes data from important reports as the TEFAF and art economics data, and data collected trough fairs and research as Art Taipei 2013, Art Revolution Taipei 2014 and Art Solo 2014. The report also considers information gathered through participation in art Taipei conferences, talks and events.

11 Taiwan fine art market is still unknown in the west mainly as a result of being shadowed by seemingly larger markets such as Mainland China, Hong Kong and Singapore, but its size is important.

12 This figures are estimated following this criteria. The postwar and contemporary art in the world had a total global value of US$6,167 million. Taiwan has 1%, meaning Taiwan accounts for around US61.7 million. Artprice in the other hand estimated that in 2012 the contemporary art in Taiwan market was equal to 45% of the Taiwanese market. This means the total market could reach US$137 millions. But this is just the size considering the auctions. If the sales through auctions in Taiwan behaves as the average in the world, and accounts to 48% of the total sales in Taiwan, then the total market considering the dealers, would be around US286 million. If this is not the case and the auctions accounts to figures similar as in Mainland China (70%) which is the market were the auction houses have the biggest participation and can be a good benchmark for Taiwan, then the total market in Taiwan would be around US$196 million.

13 Is true that in Asia (China and Taiwan) collectors tend to overbuy art through auction houses compared to European collectors, nevertheless, this figure give us a understanding were the Taiwanese markets stands in the world compared to other art markets.

Figure 7 Taiwan total available market

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5.2. Taiwan Contemporary Art Market

Source: Art price, 2011.

The contemporary art market in Taiwan represents around 45% of the total market, with an estimated value between US$88 M to US$128 M a year (NT$2,640 M –NT$3,840 M). This figure however in Taiwan can have important volatility because there has been years where the contemporary art market reached 65% of the market. According to Artprice, the contemporary art market in Taiwan was, in 2011/12, the fifth in the world with 1.36% of the world total turnover.¹⁴

14 This size is just behind China (38.8%), US (26.10%), UK (22.6%) and France (2.4%) and above art markets as Germany (0.86%), Italy (0.70%), Turkey (0.74%), United Arab Emirates (0.61%), and Singapore (0.70%).

Figure 8 Contemporary art, top ten countries by auction turnover market (2011/2012).

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Figure 9 Taiwan total serviceable market.

5.3. Taiwan Contemporary Foreign Art Market

Source: World Bank.

As we have noted, contemporary foreign art has been raising in Taiwan with bigger offers in the market. Nevertheless, in terms of market share and size, there are not clear figures. The only data available are value of imports of paintings coming to Taiwan.

According to this data, 2012 imports of paintings and drawings made by hand to Taiwan were equivalent to US$15 M (NT$390 M), with an average of US$17.9 M (NT$537 M) Figure 10 Taiwan value of imports of painting, NT$ million (2002-2012)

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annually of imports since 2008, with a peak in 2009 of US$32.3 M (NT$972 M).¹⁵ From these imports not all should be contemporary art. If we consider the percentage of contemporary art in the Taiwan art market, average imports should be in around

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