Chairman's Message

Global warming, frequent natural disasters
Global warming is continuing, and national disasters have been frequent. For instance, Australia suffered its biggest floods in 120 years. China and Argentina have encountered severe droughts, and Europe and the United States were affected by major blizzards. A magnitude 9 earthquake struck Japan on March 11 of this year, and the tsunami caused by this quake reached a height of 38.9 m. Some cities in northeastern Japan were wiped out by this disaster, which also caused disastrous damage to the Fukushima nuclear power plant. Apart from the deaths, property losses, and economic damage induced by this quake, global industrial supply chains also Furthermore, Munich Re—the worlds leading reinsurance company—has pointed out that as climate change has intensified, while the average number of natural disasters occurring annually worldwide was 785 over the past 10 years, 950 disasters occurred in 2010, which had the second greatest number of natural disasters since 1980; the natural disasters occurring 2010 cost 295,000 lives and caused property losses exceeding US$130 billion. There is no doubt that natural disasters are growing more unpredictable and increasingly large in magnitude, and they are certainly having a major impact on the world economy and corporate operations. As a consequence, efforts to protect the environment, counter global warming, and reduce the incidence of natural disasters are not only important public interest activities, but are also key links in corporate crisis management.
Intensifying regional conflicts
Although the threat of world war has receded during the post-Cold War era, regional conflicts and terrorist attacks have continued unabated. For instance, the “Cheonan incident” between North and South Korea aggravated tensions in East Asia; North Africa’s jasmine revolution and the civil war in Libya caused petroleum prices to soar; and the recent assassination of Osama bin Laden caused the United States to issue a global travel warning. It is apparent that individual regional crises can impact economic development worldwide in today’s global environment.
Rapid movements of hot money causing rising commodity prices have increased downside risk for the global economy
When the 2008 financial tsunami first struck the US economy, the American government implemented its QE1 and QE2 quantitative easing policies, which involved the release of US$2.7 trillion, in order to resuscitate the economy. In addition, the Bank of Japan released ¥21.8 trillion in order to meet post-earthquake liquidity and reconstruction needs. Since the market was now flush with cash, hot money flooded into Asia and other emerging markets, causing the prices of petroleum, precious metals, agricultural products, and other raw materials to soar. As a result, Asia and other emerging economies face strong import-driven price inflation. According to IMF data, the CPI of emerging and developing economies can be expected to rise to 6.9% in 2011, which will be an increase of 1.7 percentile from 5.2% in 2009. Although CPI will increase more slowly in the advanced economies, it is still expected to rise from 1% in 2009 to 2.2% in 2011. In order to fight inflation, emerging and developing countries have begun adopting tightening monetary policies, which is in complete opposition to the policies adopted by the US and Japan. For example, China has increased interest rates four times since 2010, and has hiked its deposit reserve rate 11 times to a historically high level of 21%. Over the past two years, Asian and emerging economies have played an important role in helping the global economy recover from the financial tsunami and achieve revival. Today these economies are suffering from dynamic and import inflation caused by the volatility of the dollar. The unbalanced state of global economic development has significantly increased downside risk for the world economy.

Taiwan is a small, open economy, and exports account for more than 60% of total GDP. It is self-evident that uncertain state of the global economy is having an immense impact on Taiwan’s economy. However, after several decades of energetic development, Taiwan possesses two key advantages that are difficult for others to copy: The first is that Taiwan plays a major role in global operations and is capable of great agility: Taiwan’s corporate customers and vendors span every corner of the globe; thanks to their global deployment and high degree of responsiveness, Taiwan’s companies can swiftly adjust their production-marketing strategies and structures minimizing the impact of economic disturbances. The second is that Taiwan’s increasing openness with China has boosted its trade advantages: In the wake of the signing of the Economic Cooperation Framework Agreement (ECFA), Taiwan and China have formed what Japanese business strategist Dr. Kenichi Ohmae referred to as a “two-country economic sphere,” which has further enhanced Taiwan’s trade strength.

Taking the Far Eastern Group as an example, the Group currently contains 229 companies; apart from Taiwan and China, the Group has business locations throughout Japan, Southeast Asia, and North America. In addition, major international companies as Invista, Dow, DuPont, Mitsui, NTT DoCOMo, Freudenberg, DWS, SingTel, and China Mobile are engaging in widespread cooperation with the Group in areas as petrochemicals, fibers/textiles, retail, finance, and telecommunications. Since the 1990’s, the Far Eastern Group has aggressively expanded in China. The Group’s main areas of investment consist of the central eastern and central northern economic region, the Yangtze Delta economic region, the mid-stream Yangtze River economic region, and the Chengyu economic region. The Group has focused its attention on areas closely connected with China’s economic take off, including fibers/textiles, cement, and retailing. With Far Eastern Industries (Shanghai) being the epicenter, the Group consolidated petrochemicals, polyester and synthetic fiber resources in cites including Shanghai, Suzhou and Wuxi and completed the vertical integration of these businesses. Furthermore, Sino Belgium Beer (Suzhou) Limited, a joint venture with Belgium’s renowned Martens Brewery, commenced operations in 2008. In the cement industry, the Group completed integration of Sichuan Yadong, Hubei Yadong, Jiangxi Yadong, Nanchang Yadong, Yangzhou Yadong Cement Companies and Shanghai Yali Cement Product Co., Ltd., to form a T-shape strategic deployment in the upstream and midstream areas of the Yangtze River. These firms are currently producing 22.4 million tons of cement annually, and the Group expects to become one of China’s ten largest cement producers. Asia Cement (China) Holding was also successfully listed on the Hong Kong Stock Exchange on May 20, 2008. The Group’s retail and department store businesses in China have adopted a dual-brand strategy focusing on Far Eastern and SOGO department stores. The Group’s department store and retailing operations are concentrated in the Beijing/Tianjin/Dalian areas of central northeast China, Shanghai/Wuxi areas of the Yangtze Delta, and the Chengdu/Chongqing areas of the Chengyu region. When Far EasTone Telecommunications signed a strategic alliance agreement with China Mobile in 2009, this set a precedent for cross-Strait telecommunications cooperation. Apart from petrochemicals, fibers/textiles, cement, department stores, and telecommunications, the Far Eastern Group has been vigorously developing such other areas as finance and shipping.

Thanks to a flexible, versatile business system based on globalization and diversification, the Far Eastern Group has successfully carved out markets in China and embarked on a new growth curve. This initiative has enabled the Far Eastern Group to survive the financial tsunami and lay the foundation for another growth surge. Nevertheless, many uncontrollable variables may affect the Group’s ability to overcome difficulties and seize an advantage. These variables include the structural changes underway in the Chinese market over the last few years, as well as major international economic fluctuations. From the perspective of business operations, although we perhaps cannot change trends in the external environment, we can adjust our attitudes and expectations, so that we can respond appropriately to the environment. As Asia becomes the world’s next economic-political focal point, as global warming, climate change, and fluctuations in the prices of raw materials continue unabated, and as technological innovations rapidly reshape market competition, we must rethink, rebuilt, and reinvent. We must review our goals, strategies, organization, and personnel to determine whether we are able to meet the brand-new challenges of today.

The Far Eastern Group emerged from Shanghai and reestablished its operations in Taiwan in 1949. Over the past six decades, the Group has constantly adjusted its business strategy to keep up with the times. As a result, the Group has transformed from traditional industries to high-tech and ventured from manufacturing into diverse service sectors as it met the needs of Taiwan and expanded into China and the rest of the world. We have thus built a business empire spanning 10 major industries, including petrochemicals & energy, polyester & synthetic fiber, cement & building materials, retail/department stores, sea/land transportation, construction, hotels, financial services, communications & Internet, and philanthropies. The Group’s operating assets total NT$1,774.5 billion, or US$61.2 billion. Nine Group companies are listed at home and abroad, namely Far Eastern New Century, Asia Cement, Far Eastern Department Stores, Far Eastern International Bank, Oriental Union Chemical Corporation, U-Ming Marine Transport, Everest Textile, Far EasTone Telecommunications, and Asia Cement (China) Holdings.

Looking ahead to the future, the Far Eastern Group will take “expansion of scale of operations, strengthening of R&D and innovation, and promotion of green development and sustainable growth” as its core development strategies, and will strive to realize its goal of having first-rate companies in all industries, while continuously creating value for customers, stockholders, employees, and society. What form should Far Eastern take in a new century with a highly volatile business environment? Although we do not necessarily know all the answers at present, we do know that we will continue to uphold the Group’s founding spirit of “Sincerity, Diligence, Thrift, Prudence, and Innovation” and will constantly rethink, rebuild, and reinvent ourselves. Riding the crest of a wave, we will give the Group new substance and vitality, create new growth momentum, and give the world a model for first-class corporations.