Uber in Taiwan: Mixed Signals for the Asia Silicon Valley Project

Uber in Taiwan: Mixed Signals for the Asia Silicon Valley Project

Uber in Taiwan: Mixed Signals for the Asia Silicon Valley Project

Officially launched on December 25th, the Asian Silicon Valley Development Initiative (ASV) focuses on the Internet of Things (IoT) and innovation. Under the purview of the National Development Council (NDC, 國家發展委員會) the initiative is one part of a comprehensive plan to innovate five key industries in Taiwan in order to stimulate economic growth and shift away from being a manufacturing middle-man and export-oriented economy.

Taiwan’s Premier, Lin Chuan, said of the ASV, “this effort will bring the world’s most advanced ideas to Taiwan and attract high-level talent from overseas to improve the country’s competitiveness in the global market.” The ride-sharing company Uber, and other innovative services operating in the sharing economy, would seem like a natural fit.  

In a press release about ASV, the NDC stated:

Now that the fourth industrial revolution is underway, Taiwan must catch up by restructuring its industries. The island already has an excellent foundation in traditional manufacturing, machinery, and information and communications technology, and the government will spare no effort in pushing that transformation. 

However, Uber has faced resistance since first entering the Taiwan market and threats have been made to kick it out entirely, sending a contradictory message about the Tsai administration’s commitment to innovation and economic reform.

Uber debuted in Taiwan in 2013 and it is worth noting that the company’s hampered success on the island mirrors the resistance it has met in other markets with strong taxi unions and governmental regulations. In France 2015, taxi drivers staged protests and became violent—burning tires, cars, and stopping traffic in Paris. The service “UberPop,” which allows untrained and unlicensed people to provide rides, was subsequently banned in France. In Austin, Texas, Uber and Lyft paused operations in May 2016, after the state’s capital demanded fingerprinting all drivers. In Germany, Uber is legally banned but continues to operate and fight the legislation. However, the case of Uber in Taiwan is unique because of the recent ASV launch and Taiwan’s need to adapt to maintain its economic prosperity.

In a time when more and more services are creating smartphone apps and integrating with technology, Taiwan’s transportation sector appears focused on preserving traditional systems rather than leveraging technology to create new ones. For example, instead of creating regulations that would incorporate ride-sharing apps, the Ministry of Transportation and Communications (MOTC, 交通部) proposed a two-tiered taxi system of a standard and a “high end” taxi service. The proposed two-tiered system would create, in addition to standard cabs, a more expensive class of luxury cab service to be regulated by the government.

There is a political rationale for this apparent anomaly. There are about 80,000 taxi drivers in Taiwan, which act as powerful lobbyists against the ride-sharing company. On August 5th, 2016, members of Taiwan’s Taxi Union protested against the government’s lack of action against Uber. On August 12th, 2016, 100 cabs passed the Executive Yuan, stalling traffic, to further protest the fact that the ministry had not formally revoked Uber’s business license as promised. Another element that makes taxi companies seemingly so influential is that many may have ties to criminal networks. Their affiliation with organized crime makes them dangerous for officials to cross and could explain the government’s responsiveness to the taxi industry’s concerns.

Subsequently, in December 2016, legislators passed a hefty fine of up to $25 million NT (US $780,000) for people caught driving for Uber. As of January 2017, Uber has been fined $92 million NT (US $2.8 million), a portion of which are back-taxes Taiwan says the company owes. The MOTC has insisted that if Uber wants to continue to operate in Taiwan, it must pay local taxes, be covered by insurance, and be subject to government regulations. Indeed, critics of Uber in Taiwan have threatened to press criminal charges, saying the company is illegally operating without any regulations and does not pay the same fees as taxi companies. The government also threatened to have Uber pulled from Apple Store and Google Play, platforms where users can download the app. It is worth noting that Uber is quite popular among consumers. According to one media report: “The app has been downloaded by more than a million people in four cities and its drivers number in the tens of thousands.”

For outsiders confused by the mixed signals coming from the ASV initiative and the treatment of Uber, it is important to consider that Uber entered Taiwan before President Tsai was elected and it may be seen, from her cabinet’s perspective, as legacy confrontation from the Ma administration. In addition, there may be a lack of coordination between the Tsai administration and the officials at other ministries, including the MOTC, about the Asian Silicon Valley project. This is clear from the NDC’s statements, as well as its attempts to loosen regulations. For instance, the NDC created a tech accelerator to help Taiwan’s start-ups called Taiwan Startup Stadium to support businesses, rather than lead with rules. It is therefore imperative that the NDC, and President Tsai, take a whole-of-government approach and communicate to other ministries how the mission of ASV can be enacted in their departments, and why.

Taiwan can learn from its neighbors as it weighs options on how to respond to Uber. South Korea shut down nearly all of Uber’s operation in 2015. In the same year, Uber adapted and relaunched its services to connect riders to licensed taxi drivers. Native ride-sharing options, KakaoTaxi and Callbus, have entered the market by working with local unions. In Japan, Uber is finding modest success in under-populated cities with unregulated transportation markets, meeting the needs of local residents without infringing on protected services in major cities. In August 2016, Uber formally withdrew from China, not because it was forced to, but because it was beat by an indigenous company.

The tale of how Didi Chuxing (滴滴出行) overtook Uber in China is one of classic free-market competition and investment-hunting that can be taken as a positive example for Taiwan, encouraging it to embrace innovation. During their intense rivalry, which lasted years, Didi joined Uber’s competitor, Lyft, in a partnership, and then Uber sold its business to Didi, gaining a 17.7 percent stake in its Chinese competitor. Now Didi works with the two biggest ride-sharing companies in the world and is turning to the driverless car market.

All of this to say that, Taiwan could stand to gain from focusing less on shutting Uber out and more on how to restructure its industries to benefit people in Taiwan and the economy. One way that the Tsai administration could do this would be to create a special office that acts across ministries to help formulate new regulations and facilitate the lawful and safe introduction of innovative companies, be they domestic or foreign, to benefit Taiwan. For example, with a company like Uber, a central office on Taiwan’s side could negotiate a quota for locally-hired employees, set up a collaboration on R&D with a Taiwanese company, and support the MOTC’s negotiations with labor unions.

While the case of one company will not determine the outcome of Taiwan’s ambitious economic reforms, it does send a signal. If the government makes it especially hard for new tech companies to enter the market, it will discourage foreign investors and businesses from participating in the ASV initiative. Whether Taiwan’s government can coordinate and endure the messy process of regulatory reform to innovate its industries will be a test for the ASV initiative and Taiwan’s ability to restructure its economy going forward.

The main point: Uber has met strong resistance in Taiwan from both the government and the taxi industry. The disruptive nature of sharing economy apps encroaches on heavily protected sectors, spurring backlash in the form of fines and tightened regulations. However, if Taiwan wishes to reform its economy and execute the Asia Silicon Valley project, it will need to take a whole-of-government approach to help industries embrace innovation.