Replicating Taiwan’s Success

I’m always a fan of stories/articles highlighting the importance of Taiwan in the technology industry, so I was especially pleased that one of my favorite publications recently put out an article highlighting the very key Computex industry conference, the role of the Taiwanese government’s ITRI R&D organization in cultivating Taiwan’s technology sector, and the rise of Taiwan’s technology company stars (Acer, HTC, Mediatek, and TSMC).

Some of the more interesting insights are around two of the causes the article attributes to Taiwan’s disproportionate prominence in the global technology supply chain:

Much of the credit for the growth of Taiwan’s information technology (IT) industry goes to the state, notably the Industrial Technology Research Institute (ITRI). Founded in 1973, ITRI did not just import technology and invest in R&D, but also trained engineers and spawned start-ups: thus Taiwan Semiconductor Manufacturing Company (TSMC), now the world’s biggest chip “foundry”, was born. ITRI also developed prototypes of computers and handed the blueprints to private firms.

Taiwan’s history also helps make it the “best place in the world to turn ideas into physical form,” says Derek Lidow of iSuppli, a market-research firm. Japan colonised the island for half a century, leaving a good education system. Amid the turmoil of the Kuomintang’s retreat to Taiwan from mainland China, engineering was encouraged as a useful and politically uncontroversial discipline. Meanwhile, strong geopolitical ties with America helped foster educational and commercial links too. Western tech firms set up shop in Taiwan in the 1960s, increasing the pool of skilled workers and suppliers.

It also provides some interesting lessons for countries like Russia who are struggling to gain their own foothold in the lucrative technology industry:

• Facilitate the building of industrial parks with strong ties to R&D centers of excellence. Taiwan’s ITRI helped build the technical expertise Taiwan needed early on to gain ground in the highly competitive and sophisticated technology market by seeding it with resources and equipment. The government’s cooperation in the creation of Hsinchu Science and Industrial Park near ITRI headquarters and two major universities helped erect the community of technologists, engineers, and businessmen that’s needed to achieve a self-sustaining Silicon Valley.
• Make strategic bets on critical industries and segments of the value chain. Early on, ITRI recognized the strategic importance of the semiconductor industry and went out of its way to seed the creation of Taiwan’s foundries. This was uniquely far-sighted, as it not only allowed Taiwan to participate in a vital industry but it also helped create the “support network” that Taiwan needed for its own technology industry to flourish. While semiconductor giants like Intel and Samsung can afford the factories to build their own chips, small local companies are hard-pressed to (see my discussion of the foundry industry as a disruptive business model). Having foundries like TSMC nearby lets smaller local companies compete on a more even footing with larger companies, and these local companies in turn will not only grow but also provide the support basis for still other companies.
• Build a culture which encourages talent (domestic and foreign) to participate in strategic industries. This is one example where it’d be best not to imitate Taiwan. But, as the Economist points out, the political turmoil in Taiwan until the mid-80s made politically neutral careers such as engineering more attractive. In the same way that “culture” drove a big boom in technology in Taiwan, the environment which fostered smart and entrepreneurial engineers helped bring about the rise of the Silicon Valley as a global technology center (with the defense industry playing a similar role as Taiwan’s ITRI). Countries wishing to replicate this will need to go beyond just throwing money at speculative industries, but find their own way to encourage workers to develop the right set of skills and talents and to openly make use of them in simultaneously collaborative and entrepreneurial/business-like ventures. No amount of government subsidies or industrial park development could replace that.
• Learn as you go. To stay relevant, you need to be an old dog who learns new tricks. The Taiwanese technology industry, for example, is in a state of transition. Like Japan before it, it is learning to adapt to a world in which its cost position is not supreme and where its historical lack of focus on branding and intellectual property-backed R&D is a detriment rather than a cost-saving/customer-enticing play. But, the industry is not standing still. In conjunction with ITRI, the industry is learning to focus on design and IP and branding. ITRI itself has (rightfully) taken a less heavy-handed approach in shepherding its large and flourishing industry, now encouraging investment in the new strategic areas of wireless communications and LEDs.

Jury’s still out on lesson #5 (which is why I didn’t mention it) – have some sort of relation to me – after all, I was born in Taiwan and currently live in the Silicon Valley…