Partner Selection Criteria

According to CIA World Factbook 2016, Taiwan was added to the list of developed countries. In this study, we will refer to Taiwan as the developed market as well. A study from Hitt & Dacin (2000) showed that there are differences criteria in partner selection between emerging and developed market. Important and differential priority of developed market seek for partner selection criteria are unique competencies, market knowledge/access, previous alliance experiences, cost of alternatives, industry attractiveness and special skills to learn from a partner. Both UPEC and Dachan entered Indonesia market by a joint venture with a local company, however UPEC and Dachan had different criteria to seek partner’s criteria.

When UPEC decided to expand to South East Asia countries, the company might very unfamiliar with the situation and condition of the local business market. An important factor that attracted UPEC to enter Indonesia market was industry attractiveness in F&B. In the partner selection criteria, UPEC seek a local partner who could share the fastest way to obtain market knowledge and access. ABC Central Food was established in 1975 which gained a lot of experiences and knowledge in F&B industry in Indonesia. ABC Central Food also is the one of leading processed food companies in Indonesia, with the good reputation and brand awareness among local consumers, which fit UPEC’s requirement of partner criteria.

After closing the first plant of aquatics and livestock factory in Indonesia, Dachan had continued to have a joint venture with the same owner of the previous partnership with the different company. In this case, Dachan might have good experiences with the local company before so Dachan decided to continue to have business relations with them. One of the important factors of Dachan's partner criteria is because of previous alliance

experiences. Mustika Aurora was not a big scope company in Indonesia but natural shrimp farming in mangroves was something new for Dachan and Mustika Aurora has comprehensive experience in aquatic farming despite its size. Mustika Aurora had also been doing aquatic farming in mangrove forest and gaining experience in this business. This study showed that Dachan sought unique competencies and special skill to learn from a partner as the consideration for partner selection.

Chapter 6 Conclusion

6.1 Conclusion

Over the past decades, globalization gradually changed the nature of the global business environment. Foreign direct investment has emerged as a fast strategy to enter targeted overseas industries or markets. As technology, research and development keep maturing, the food and beverage industry have invented new innovation and more efficient production and operating business. F&B is one of the important sectors in Taiwan, ranked eighth place of all industries in 2014. As a newly industrialized economy (NIEs), Taiwan will keep seeking the new market potential to expand its food and beverage industry.

There are several research studies regarding foreign direct investment (FDI) in developed countries and developing countries. Firms from developed countries tend to exploit business opportunities in developing countries through a joint venture with local firms because of the risk involved and unfamiliarity with the local market. Firms from NIE showed strongly motives in strategic asset-seeking and market-seeking to invest in developed countries, and tend to invest in developing countries for resource/labor-seeking motivation. Partners from countries with different development also have different criteria for their partner in the joint venture, mostly for access to resources and learning opportunities. The firms tend to seek for different complementary resources from their partners.

As industry competition stayed intense in the domestic market and the mainland Chinese market, Taiwanese enterprises had to find a foreign direct investment in overseas countries. In 1990, the third president, Lee Teng Hui encouraged Taiwan firms to invest more in Southeast Asia.

In 2016, newly elected president of Taiwan, Tsai-Ing Wen announced the “Go South” policy which encourages Taiwan enterprises to look at Southeast Asian countries as their investment target.

Indonesia is the most populous country in Southeast Asia with a close distance from Taiwan. Aside from the abundance of natural resources and tropical climate, Indonesian people also tend to spend most of its income on food and beverages. For this reason, Taiwanese enterprises found the attractiveness of Indonesia market in the food and beverages sector.

This study chose two Taiwanese enterprises which engaged in FDI in Indonesia in the food and beverage sector to study, namely Uni-President Enterprises Corporation (UPEC) and Dachan Great Wall (Dachan). Both companies have been involved in the food and beverage business for at least 50 years. This study showed that Dachan and UPEC have different motives for FDI, strengthened by different ownership structures in the joint venture company.

After previous research and in-depth interviews with department managers from the joint venture company in Indonesia, the case studies were analyzed. There are four important findings in this study which answer the research purpose statements. First, UPEC and Dachan showed different motives of FDI in entering Indonesia market. As a developed country, Taiwan has high technology capabilities and managerial know-how in manufacturing sectors. The study found that the key motive of UPEC to engage in FDI in Indonesia market was market-seeking, as the fourth populous country in the world must have market potential in processed food and beverages, the main product line of UPEC. Dachan’s key motive of FDI in Indonesia was resource-seeking.

Dachan had run meat farming industry in Taiwan for many years and was looking for product diversification by expanding to aquatic products. Due to the unsuitable climate, shrimp farming was very hard to be practiced in Taiwan compared to Indonesia. With the massive presence of

mangrove forests, the Indonesian people found a method to raise shrimp with natural processes and come up with a high-quality aquatic product.

Second, UPEC and Dachan had different timing and reasons for choosing Indonesia as location choice. UPEC had many product lines in food and beverages, and had already engaged in business in several countries to expand their market for specific product lines in each country.

Basically, UPEC came to Indonesia to expand the market for instant noodle. However, due to harsh competition in instant noodle, UPEC suggested the joint venture company to begin manufacturing and selling plastic bottled beverages, becoming the first to practice PET aseptic filling (essential for plastic bottle beverages) in Indonesia. Dachan entered Indonesia as their first move outside Taiwan, and their major reason was product diversification through aquatic farming.

Third, the ownership structure of the joint venture company was also different between UPEC and Dachan. UPEC had a minority ownership because relied on the local partner’s knowledge of the domestic market and the logistics in the archipelago. Dachan had a majority ownership because they had a role in ensuring the entire production process from shrimp farming to packaging product.

Fourth, the study also showed the different partner criteria between UPEC and Dachan in partner selection. Because its motive was market-seeking, UPEC looked for a local partner who could fastest access the market. As the key motive of Dachan was resource-seeking, the company for the partner’s unique competencies, including using mangrove forest for shrimp farming.

6.2 Limitations

Although this research has reached its aims, this study is subjected to a number of limitations.

First, the issues of international trade policy were neglected. Because the time of joint venture is

at least 20 years ago, it is hard to look for international business regulations at that time. An interviewee of this research suggested that Indonesia didn’t allow foreign companies to engage in wholly-owned investment or greenfield operations in the past, limiting them to joint ventures to access the market. However, there is no actual evidence to prove this statement. It is necessary to look further to country regulations at the time to gain significant results for this research.

Furthermore, it was not possible to know the other location preferences before UPEC and Dachan decided to engage in FDI to entry Indonesia market. Thus, the international trade agreements or the economic and political relations may perhaps have influenced to the location choices to the investors

Second, the size of the sample might be too small. By using deep interviews for collecting data and using case studies for analysis, this study found two Taiwanese enterprises and their FDI in the food and beverage sector in Indonesia. Many Taiwanese enterprises which conducted FDI in Indonesia mostly invested in textile, footwear, and paper industries, and it was hard to look for suitable companies which in the food & beverage sector.

6.3 Implication

The results of this research demonstrate the factors that affect FDI by Taiwanese enterprises towards Indonesia in the food and beverage industry. There are some suggestions presented below.

Indonesia has a huge market opportunity for business. Indonesia is the world’s fourth largest population and the largest domestic economy in Southeast Asia. In recent years, the Indonesian economy has kept growing while people’s consumption has kept increasing. The study found that Indonesia still has many business opportunities for development. In the study of the joint venture company of UPEC, it can be said that the demand for the product consumption was larger than the

supply product which reflects that the big business potential in Indonesia. Therefore, with the recent liberalization of the economy, I suggest the Taiwanese firms could establish greenfield or wholly owned subsidiaries in Indonesia instead of joint ventures. Taiwanese firms should take part and leverage market and sales knowledge in Indonesia.

They can also the asset resources in Indonesia for domestic sales in Taiwan or exports to other countries, such as Dachan did. Since Indonesia is rich in natural resources and low-cost labor in manufacturing, cross-border trade is also a favorable approach to boost Taiwan’s business.

On the other hand, Taiwanese enterprises should help Indonesian companies access the Taiwanese market. The study found that the partner company of UPEC in Indonesia started to export their product to Taiwan. However, UPEC was not willing to become a retail dealer for them due to competition on the same product line.

We hope in the coming years, the relationship of Taiwan and Indonesia would produce more mutually benefit through more cooperation.

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