BASEMENT
HD28
Dewey
%^
\
ALFRED
P.
WORKING PAPER
SLOAN SCHOOL OF MANAGEMENT
/Taiwan's Informatics Industry
The Role of the State in the Development of
High-Tech Industry
;
Professor Denis Fred Simon
Sloan School of Management
Massachusetts Institute of Technology
and
Professor Chi Schlve
Department of Economics
National Taiwan University
1693-85
MASSACHUSETTS
INSTITUTE OF TECHNOLOGY
50 MEMORIAL DRIVE
CAMBRIDGE, MASSACHUSETTS 02139
DRAFT
Taiwan's Informatics Industry :
The Role of the State In the Development of
High-Tech Industry
Professor Denis Fred Simon
Sloan School of Management
Massachusetts Institute of Technology
and
Professor Chi Schlve
Department of Economics
National Taiwan University
1693-85
Paper prepared for the "Workshop on the Development of High-Technology
Industries," sponsored by the National Science Foundation, Washington,
May, 1985. Revised June, 1985.
D,
DRAFT
Introduction
Minister K.T. Li,
1979,
In
man considered
the
principal architect of Taiwan's economic development,
to
be
the
stated that
"the development of the information industry is a worldwide trend,
economic future depends very much on our ability to
and Taiwan's
catch up with this
trend.
promotion of
and
informatics.
two
progress.
of
such,
it
has
onward,
.
a
national
calling
the
development
of
the
symbol for the island's economic
a
continued to occupy
policy agenda of Taiwan's
the
leaders
As
at
"strategic industries," machinery
time
informatics industry has become
later,
resolution was passed
a
so-called
From that
year
One
economy,
conference on Taiwan's
for
"^
a
central position
industrial and technological
'
The
decision
to
emphasize development
of
an
indigenous
informatics industry can be traced to two primary sources.
even though Taiwan has enjoyed
8.0 percent
along with
during the
the
1970s,
two global
a
First,
comfortable growth rate of about
the
two
oil
crises
recessions have had
a
(1973
and
1979)
severe impact on
^K.T. Li, "Targets and Strategies for Developing the Information
Industry in the Republic of China," December 17, 1979.
5.
^For an overview of the key dimensions of the information industry
in general see Michael Dertouzos and Joel Moses, eds.. The Computer
Age; A Twenty Year View (Cambridge: MIT Press, 1980).
DRAFT
.
DRAFT
3
Strong pressures for major cost reductions and
the local economy.
greater production efficiency were generated by both internal and
external
sources.
integration of
increased application and
The
automation and information technologies in both manauf acturing
facilities and the modern office have been viewed as one effective
means for responding to these pressures.
Second,
where more
some
than
half
however,
future,
of
of
has
it
island's
the
promising,
end of
the
by
the
its
1970s,
GNP was
become
the
a
point
exported.
Looking into
the
the
world market
for
that
clear
traditional products
particularly in such areas
segments of consumer electronics
in
Taiwan had reached
— where
as
longer
no
looked
textiles and some
increasing protectionism
industrialized world and growing competition made re-exam-
ination of
the
island's
some
South Korea,
seemed poised
more sophisticated product
to
embark
areas.
strategy
necessity.
a
immediate rivals,
Taiwan's more
Additionally,
of
development
a
major
move
Pressures
for
into
such as
new and
introducing
similar shifts in the focus of Taiwan industry began
to
emerge.
Newly emerging technologies such as informatics seem to hold great
potential as
a
means
of
maintaining
the
island's
future competi-
tive position in the global marketplace.-^
^This theme is developed in Denis Fred Simon, Taiwan, Technology
,and Transna t ionali sm
Jhe Polltica,! Manag^ement of Dependeiycy
Wes t view Press
forthcoming )
Transfer
( Boulder
;
:
,
DRAFT
DRAFT
paper will examine
This
status
the
industry in Taiwan.
informatics
4
In
and
development
of
the
section one we discuss
the
general characteristics of Taiwan's present development strategy.
examine the broad economic and political
We
development of informatics
focus
on
the
is
context
taking place.
in which
section two,
In
situation in the industry with
current
respect
the
we
to
overall output as well as product and market orientation.
In
section three we examine the taregts set by the industry and
the
efforts
four,
that
focus
we
government
to
underway to achieve
are
on
the
these
targets.
industrial policies
facilitate the island's
put
In
section
forth by the
transition into higher
technology and higher value-added industries such as informatics.
The conclusion will then highlight some of the outstanding issues
that
confront
both
business
and government
as
they attempt
to
stimulate expansion of this critical industry.
Taiwan's Current Development Strategy
I.
lince
the
late 1970s,
Taiwan has been embarked on
ment program deisgned to shift
cheap,
both
of
labor-intensive,
low skill
develop-
economy away from reliance
industries
towards
structural
A
changes
combination of
in
the
Japan Economic Journal
,
rising domestic
world economy have
November 15,
DRAFT
1983,
on
development
skill-intensive and knowledge-intensive products
technologies.^
^
the
a
labor
costs
and
and
necessitated this
p. 5.
DRAFT
shift.
of
5
In
5
Taiwan has
particular,
technology-intensive goods as
been
forced
to
Southeast
the
expand exports
Asian nations
and
China have started to catch up with the island in the field of
light industrial products.
Government policy has been to use
lay
a
foundation for the development of
a
industries.
variety of instruments to
a
series of
Depending on the circumstances,
been willing
to
act
initiator,
as
it
dominance.
has
maintained
Moreover,
a
commitment
— though
in the last
private sector pre-
to
government officials
government has
strategic decision-
regulator,
maker, diffuser of technology and entrepreneur
instance
the
new critical
on
Taiwan have
recog-
nized that "policies to promote technological advance" can be just
as
Important
reliance
that
on
a
as
"technology policies"
the
broad mix of
activities
in
with the nature of
the
the
policy
tools
themselves.
underlies
technological sphere have
economic environment
and
the
their
as
Their
belief
much
to
do
structure of
incentives and rewards.
In
May
1978
a
new "science
and
technology development plan"
was formulated and passed by the Executive Yuan in May
'
'
1979.
The
-^
^ChaoYao-tung, former Minister of Economic Affairs, attributed Taiwan 's
economic problems and inefficiencies in the 1970s to a )subs idi z at ion
of domestic oil prices during the 1973 oil crisis, b)the slow level
of indigenous technological development, c ) d e f i c i e nc i e s in modern
management, d)outdated governme-nt regulations, and e)lack of proper
entrepreneurial spirit.
China Post March 23, 1983, p. 10.
,
DRAFT
DRAFT
plan
out
laid
a
and
list
in
strategic
improved
and
civilian industries
of
for
the
island
entailed
that
research and development and education,
restructuring,
industrial
course
development
greater investment
6
linkages
between defense
high-technology fields.
in
industries was
a
tax incentives,
variety of
a
1982,
These strategic
identified.
industries were made eligible for
By
preferential financing packages, and technological support.
essential features
The
of
island's
the
new development
strategy is its emphasis on these strategic industries
and
informatics), restraints on the expansion of energy-intensive
industries,
This
(machinery
is
to
and
be
program to modernize
labor-intensive
industries.
accomplished through the acceleration of industrial
technology development and
application.
assumed
a
provide
industrial guidance,
critical role
by
technological rennovation,
establishing
and
expand
a
The
special
funds
implement
a
government has
for
commission to
training and
program of
industrial
consolidation and corporate mergers."
The reasons for the emphasis placed on industrial consolidation were: l)Taiwan economic planners and administrators viewed
the large number of small and medium size enterprises as a disadvantage as the island attempted to improve productivity and
generate greater efficiency through economies of scale; and
2)after Taiwan had gone through two recessions in the 1970s, a
smooth process for corporate mergers was viewed as a vital
However,
ingredient for facilitating needed economic adjustments.
at the time, the existing tax laws actually discouraged corporate
mergers.
The current program, to a large extent, is designed to
relax such unfavorable factors.
^
DRAFT
DRAFT
the government has adopted a two-pronged strategy
essence,
\Jln
7
for meeting its technological needs.
One major objective has been
to
expand and extend the island's interdependence with key actors
in
high
use
of
technology segements
various
of
the
island
the
world
economy.
Through its
incentives designed to increase the attractiveness
an
as
Industries and as
ents,
of
a
investment
site
for
source of high quality,
advanced
technology
sophisticated compon-
Taiwan is attempting to hurdle the technology gap that
separates
the
advanced industrialized nations for most
the
of
developing world.
v^The other major objective of the leadership is to strengthen
island's
the
This
is
capacity
being
spending since
lingness
to
for
technological self-reliance.
greater
accomplished by significant
the
late
absorb the
1970s
as
well
as
the
increases
R&D
in
government's wil-
financial costs of serving as the initial
recipient of key priority technologies that must be purchased from
abroad.
to
As
Simon has noted,
break down pockets
of
stimulate development of
"imported technologies are to be used
domestic
technological stagnation and
indigenous
science
and
technology capa-
bilities."^
The
centerpiece of Taiwan's new development orientation
is
^Denis Fred Simon, "Chinese-Style S&T Modernization: A Comparison
PRC and Taiwan Approaches," Studies in Comparative Comn^un stn
Volume 17, Number 2, Summer 1984, p. 91.
of
j.
DRAFT
,
DRAFT
8
act
as
catalyst
a
In
nologically advanced
1969
two
efforts
Industries.
to
tech-
more
originally conceived
was
It
Into
move
In
developed with the assistance of the National Science
and
The
Council.
to
Taiwan's
created to
The park was
the Hsinchu Science-Based Industry Park.
site of Hsinchu was chosen because of
leading
Taiwan's
of
its
proximity
science and engineering universities.
According to K.T. Li,
National Chiao Tong and Tsinghua.
park
the
should provide the popwerhouse for Taiwan's future development in
much the same way that the export processing zones created in the
mid-1960s helped spark the island's greatly successful exportoriented phase of development.
Work on the park had sparked
a
lively debate within Taiwan's
economic circles in the early 1970s as disagreement arose over the
initial
orientation of
the
basic versus applied research,
latter.
had
Second,
lumped
tries
into
made
that
time,
one
category.
the
many of Taiwan's
The global
disagreement,
including
realized
that
"capital
energy
allowing
between these two sectors.
Taiwan officials
a
debate over
with the former giving way
"technology intensive" and
helped resolve
be
at
there was
First,
park.
a
the
economic leaders
intensive"
crises,
clear
indus-
however,
distinction to
With the onset of the
their development
1980s,
objectives,
employment and income distribution concerns,
better be managed by focusing on skill-intensive industries.
DRAFT
to
could
DRAFT
By
the
end of
1984,
with 56 having operations
information,
communication,
park is
world's
that
well
has
as
the
precision instruments
around
built
is
leading high
computers, etc.
as
it
broader commitment
stimulated the return of
the
past,
returnees will serve as
a
the
park
high technology development
By
of
ethnic Chinese
reversing the
Taiwan officials
of
the
of
microelectronics,
in
large numbers
pool
some
the establishment of
scientific and technical personnel.
drain" problem of
and machinery,
presence of
the
to
are
The interesting aspect of
technology firms
the other hand,
On
already under-
investment priorities
and biotechnology. _
special materials,
the
identified as
industries
key
The
plants had been registered to set up
71
operations in the park,
way.
9
hope
the
entrepreneurial
"brain
influx of
as
well
as
engineering talent to support high technology industry.
Taiwan's decision is to rely mainly on imported technology to
spearhead
part
of
a
activities
in
the
broader strategic
comparative advantage not
innovate,
Taiwan's
adapt,
and
in
park.
This
consideration
basic R&D,
improve established
bargaining position vis-a-vis
approach is viewed as
that
but
sees
in
the
the
island's
ability to
technologies.
Overall,
technology transfer has
o
the 56 firms already in the park, 38 are involved in
electronics and informatics, 9 in precision instruments, 6 in
special materials, 2 in biotechnology, and one in computer services.
°0f
^
4,
Science Bulletin
April 1984.
,
National Science Council, Taipei, Volume
DRAFT
16,
Number
DRAFT
steadily improved as
10
several factors.
result of
a
First,
the
growing presence of other high-technology firms reinforces the
attractiveness of
island
the
as
a
site
for
specialized components and final products.
manufacturing of
Second,
there
is
personnel and engineers,
ample supply of qualified technical
an
some
of
whom have been able to provide expert advice to the government
on
a
host of investment proposals and/or prospective licensing
agreements.
has
And
third,
improved due to
foreign firms.
underestimated
Taiwan's
ficulty
extensive experience in interacting with
its
value
The
since
overall competence of the bureaucarcy
the
goes
it
experience
this
of
long way
a
should
not
be
toward explaining why
counterparts on the China mainland have had such difin
acquiring
foreign technology over the
last
several
years ^0
.
Generally speaking,
together
foreign
private sector.
100%
these
Several
actors
The
is
government sees the park as bringing
with
firms
locally owned.
three
the
of
local
the
best
the
R&D
firms
and
the
operating in the park are
example of
highly
organizations
touted
the
coming
together of
United Microelectronics
u
^^Taiwan's
overall
foreign technology is best
success regarding the acquisition of
exemplified by the performance of its
petrochemicals
industry, e.g. Formosa Plastics, as well as the
achievements of such firms as Tatung and Sampo in the electronics
industry.
Of course, there have been exceptions due to poor
planning or inadequate evaluation, resulting in very little actual
technology transfer.
Most observers within and outside Taiwan
would agree, however, that these cases are in the minority.
DRAFT
DRAFT
which received 25% of its initial
The company,
Corporation (UMC).
11
start-up capital from the Bank of Communications,
a
public
bank
secured its know-how as
a
result
of
for industrial development,
a
licensing agreement for integrated circuit technology that was
between
arranged
Research Ins
t i t
u
t e
(
ITRI )
presently manufactures
calculators,
Asia.^^
And,
is
one
it
Industrial Technology
government-sponsored
the
ICs
of
RCA of
and
in
largest
IC
suppliers
recently has made plans
investment" by signing an agreement
for
in
which
a
and
Southeast
"reverse
a
establish
to
UMC,
timepieces
digital
for use
the
Today,
US.
the
foreign
facility in
northern California's Silicon Valley. ^^
Status of the Information Industry in Taiwan
II.
A.
Roots of the Information Industry
In
1952,
first
the
Taiwan at
National
beginning
of
what
Chiao
the
in
dynamic and progressive
years,
the
services,
ranging
E/ven
,
was
650)
introduced
This
marked
would become one of
industries
to
(IBM
University.
1980s
from equipment
Free China Review
^^ Taiwan
Tong
industry amounted
data processing.
^^
computer
in
no
Taiwan.
more
rentals
In
than
and
its
the
in
the
most
formative
computer software
maintenace
to
basic
during the 1970s, in spite of the fact that
December 1982.
Industrial Panorama
,
Volume 12, NUmber
DRAFT
1,
November
1,
1984.
DRAFT
there already was
and
place,
export
for
domestic electronics parts industry in
a
existing data indicates
the
produced
being
locally-made monitors
some
there were
12
there was
that
local
no
commercial production of computers and related products.
came
breakthrough in Taiwan's
^he
big
in
1980 when
terminals began.
production of minicomputers and computer
the
the overall output in terms of quantity and
Yet,
dollar value still remained negligible.
television manufacturer began
local
which achieved
tion and
A year
mass
to
during
that,
same
this
exports of other key products,
move
have
been
into
the
in
place
however,
the
by
period,
time
such
mid-1970s,
information industry until
a
terminals,
produce
It
produc-
minicomputers,
as
Thus, while
disc drives, and printers began as well.
may
later,
value of US$4 million in that year.
an export
also should be noted
informatics
development of
a
foundation
Taiwan did not actually
the
1980s
—a
that
fact
makes the present level of achievement even more remarkable.
^
The
\^.
V
market
summarized
in
orientation of
Table
3.
In
value of US$ 67.8 million,
hardware sales.
and
relied
a
out
Ir^jii^^lly,
highly export-oriented,
cent
1982,
of
information industry
the
the
industry had
output
while the production of hardware was
with an export
to
total
which 99.6 percent derived from
ratio
dollar value of US$63.6 million,
mainly on imports
a
is
meet
DRAFT
demand.
of
close
the
Imports
to
94
per
domestic market
accounted
for
.
DRAFT
97% of
market
the
industry was
the
that
fact
The
1982.
in
13
so
export-oriented may seem quite surprising, but for those who have
followed
past,
the
results
the
ences.
development of similar industries
general,
In
remained small at
tion
seem quite
the
On
low cost
ipherals at an early point
new entrants
to
those
in
considering future invest-
foreign firms
other hand,
potential source of
from local end-users
demand
time and did not offer much of an attrac-
perpspective of
from the
ment.^-*
this
consistent with previous experi-
level of
the
Taiwan in the
in
saw Taiwan
as
a
components and specialized pertime,
look outward were
and
thus
strong at
incentives
for
inception of
the
the
the
industry
The growth rates
impressive.
In
terms
information industry have been quite
of
the
of
exports,
average
the
annual growth rate
between 1981-1984 was 278%.
Obviously, part of the reason for the
tremendous
is
it
rate
started.
of
increase
Yet,
US$326.8 million.
equipment
exports.
replaced
and
In
textiles
a
In
components
this
to
projections for
will reach US$810 million,
of
due
the
are
that
from which
total
exports
considerable jump from the 1984 total
1984,
exports
constituted
same year,
as
1985
base
small
the
26.9% of
electronics,
island's
13 It
information-related
of
total
for
the
leading export
electronics
first
time,
industry.
If
also must be recognized that, in many cases, local producers
could not produce the type of sophisticated equipment that was desired
DRAFT
DRAFT
present
projected,
continue as
trends
14
informatics will occupy an
increasingly large portion of the electronics industry as well as
Taiwan's overall export mix.
B.
The Commodity Structure of the Information Industry.
V>"
of
The trade statistics shown in Table
2
present
the commodity structure of the informatics
First,
industry on Taiwan.
terminals have dominated the industry's exports, accounting
for two-thirds of the export market until 1984.
it
is
clear picture
a
projected
that
the
share
In
1985,
however,
overall informatics exports
of
accounted for by terminals will drop to around 40 per cent.
The
second major export item is the personal computer, whose share of
informatics
exports
1985
expected
is
to
35-40%.
be
Two
expected
to
significant export earners, with projected export values
of
additional items,
be
in
disk drives
printers,
and
are
also
US$100 million and US$80 million respectively.
While
the
relationship of
mation industry is
quite
the
clear,
in
above
products
some
other areas,
to
tinction is much more cloudy.
For
monitors and computer parts,
difficult to assess
it
is
example,
in
infor-
the
dis-
the
the
case
the
of
dollar
amounts of the output that are directly associated with use in the
information industry.
Before
1982,
originally were developed in the
DRAFT
these
1970s,
two
items,
accounted for
which
a
much
.
DRAFT
larger quantity
and
exports
value
of
In
1984,
ducts. (See Table 2).
15
than
four
the
above
pro-
total export value of monitors
the
was US$318 million, which was only slightly less than the total of
export
value of
printers, combined
For
— which
components,
exports,
126%
over
By
year,
1984 and will
informatics
of
likely surpass US$1.7
quarter of
first
the
value
export
total
the
broadly defined,
last
information
the
larger range of related electronics products
a
then
1985.
and
target for monitors is US$430
definition of
the
equalled US$1,005 million in
billion in
disk drives
computers,
amounted to US$326.8 million.
broadens
one
If
industry to include
and
personal
the projected export
1985,
million.
terminals,
1985,
informatics
totalled US$322 million, an increase of
suggesting
that
target
the
is
well within
reach
The
of
dominant
position of monitors
in
the
overall export mix
informatics products, especially in the 1980s,
major surprise
to
those who have followed Taiwan's
technological development over the
mid-1970s, Taiwan already had become
sets.
In
units,
while
1984,
1979,
total
million.
In
exports of black
&
exports of color TVs
exports of
many
color
respects,
last
a
two
DRAFT
be
a
industrial and
decades.
By
the
major producer of televsion
white TVs totalled 4.8 million
reached
1.3
telvisions was
the
should not
monitor
million sets.
By
valued at US$400
industry
is,
in
fact,
a
DRAFT
part of the television industry.
monitors
that
are
16
In a
making inroads
large number of cases,
foreign markets are being
in
manufactured by current or former producers of
As
the market for black
and
substitutes,
of
which
television sets.
white televisons began to shrink at home
&
looked
producers
abroad,
the
monitor was
the
into
quickly
move
to
a
feasible
readily available alter-
native. ^^
C.
Product and Technology Development
Given
Taiwan,
take
has
the
In
been mixed,
government,
the
experience
of
industry has
The
the
informatics
industry
in
general product and technology base has just begun to
shape.
organization
history of
short
the
addition,
with
nature of
industrial
organization
variety of different roles being played by
a
private
local
the
sector,
firms
reflected
who
five
and
have
foreign-based actors.
entered
different
into
modes
the
of
The
information
start-up
and
.
first model
is
characterized by companies founded by
people who have had first hand experience
in
dealing with infor-
^^Taiwan's ability to expand exports of monitors can be attributed
factors: a)increases in local content from AO-60%; b)sharp
competition between Japan and the US that has driven American firms
to switch their CRT production sites to Taiwan; and c)growing techIn addition, demand for CRT terminals is
nological capabilities.
expected to grow over the next several years.
to several
DRAFT
DRAFT
themselves
technologies
mation
17
have
and
taken
growing demand
the
informatics products as an opportunity for starting their own
for
Multitech,
example,
computer that is
local
businesses.
For
based
Hsinchu Science and Industry Park, was founded by
the
in
few university professors
was
not
for
industrial
computer,
a
assembled;
1976,
its
first
language,
firm began
related to computers and turned out its
a
first
later.
few years
some television game manufacturers
assembling personal computers.
in
the
Later on,
case, when the government shut down all television game
playhouses in 1981,
small
product
prototype computer was
self -designed mini-computer for industrial use
In another
first
company's
educational purposes.
for
sequential control
the
R&D
in
The
a
rather was automation testing instruments
main use was
its
engage
In
use.
after developing
to
but
1976.
in
a
size
expertise of
a
and
depends
to
This
a
type
high
of
degree
company
the
on
moved
is
into
general
technical
few select individuals.
Another group of companies became involved in the industry by
marketing products for large foreign firms.
been
able
to
master some
product manufacturing.
were
invited
duction.
links
with
In
by
their
most
After the company has
technical know-how,
In
some
cases,
foreign partners
instances,
these
foreign companies as
a
a
to
firms
means
access to technology and market information.
DRAFT
it
has
number of
engage
in
moved
into
these
firms
such
have maintained
to
secure
protheir
additional
DRAFT
companies was organized by large multi-
group of
third
A
18
through foreign direct
national firms
for
Qume,
investment..
example, has terminated its production of disk drives in the US
entire manufacturing
and moved its
tories also has
a
line
sizable venture in Taiwan both in manufacturing
Generally,
mini-computers and in local-based R&D.
preferred
firms have
Investments.
They see
100 per
retain
to
their business
cent
these
foreign
ownership in their
acitivities
in
Taiwan as
a
support their overall marketing and development activ-
means
to
ities
for
responding
oppor tuni t ies
to
changing demands
and
new technological
.
A fourth category of
to
Wang Labora-
Taiwan.
to
initaives
the
on
part
companies got their start-up in response
government.
the
of
In
an
effort
to
encourage entry into particular product segments and technology
the
areas,
government has been willing^ to absorb part of
the
start-up costs in terms of capital investment and, on occasion, by
providing assistance in securing foreign technology and
diffusing it to
been known
And,
their
it
to
has
status
a
local firms.
contribute as
been
of
much
the government has
some cases,
In
as
50% of
then
the
paid-in capital.
satisfied with allowing these firms to maintain
privately-owned ventures.
Such
instances where
these types of .public-private interface take place usually involve
large-scale efforts
focused
on
the
DRAFT
development
of
new,
special-
DRAFT
19
Ized technologies
The
category of firms has been organized directly by
last
anxious
large domestic firms who are
lines.
or
Most of the technology has been acquired through licensing
these
firms
also have engaged
investment in their dominant product
have been outside of informatics.
local cable and wire producer,
set
an R&D
up
early 1985,
outward
in
— which
areas
For example,
the
this same firm also established
form of specialized technical know-how.
15% of
1984,
Hsinchu Park.
ation
(NDC),
the
may or may not
few years ago, a
a
decided
three
One
which is
of
a
Corporation and ITRI,
technical personnel
to
categories, however,
new
the
"local"
firms,
the
signed
for
five
a
that
is
not mutually
began operations
firms
in
New Development Corpor-
joint venture with
design and develop products
In
capital was provided by the subsidiary
these different
In
foreign direct
integrated circuit
an
in the
exclusive.
some
laboratory in Silicon Valley in California.
of which
Each of
In
largest one in Taiwan,
plant,
the
product
their own
other cooperation agremeents with foreign firms.
cases,
to
expand
to
year
the
Development
China
contract with
company.
IBM will
NDC to assist with product
IBM
send
research;
to
out
it
also agrees to purchase all the products NDC turns out in both the
microcomputer and software areas.
By
NDC
development
hopes
to
acquire new software
DRAFT
engaging in such
a
venture,
methodology while
DRAFT
obtaining the marketing channels
multinational firm.
of
highly successful
large,
a
IBM hopes
return,
In
20
able
be
to
to
develop
hardware and software packages of satisfactory quality at fraction
of
the development cost in the US.
The
level
of
technological advance
a
island.
Several major technological breakthroughs
1984.
developed
For
technology for
1.5
two other firms
been able
1.0
in
the world,
Also
The
somewhat
was
in
1984,
the
Only
Intel(US) have
aimed at
is
first
16-bit
Phillips
Taiwan
the
Recently,
analytical color picture
m.m. high
significance of this announcement,
tempered
by
firm had already been working on
a
the
fact
that
a
locally-based
similar product for some time.
Along with hardware development,
played close
later,
step
The next
computer was marketed.
the
and
made
D-RAM was
CMOS
K
months
6
(Japan)
Hitachi
1024K chips.
future.
however,
than
technology.
0.29
in
Less
were
micrometer 256K CMOS D-RAM was mastered.
proposed production of
tubes
micrometer 64
3.5
a
1984.
develop this
to
micrometer
personal
example,
November
in
fact
this industry did not even exist on the
few years ago,
that just
during
the
particularly in view of
been appreciable,
industry has
informatics
the
in
Taiwan
attention to software development.
firms
They
also have
recognize
that without development of standardized software packages foreign
firms will
continue
to
have
advantages
DRAFT
in
the
local
market
and
DRAFT
Taiwan-made machines will not
tance
foreign markets.
in
package
software
called
able
be
big
language word processing system,
a
file management
system,
has
a
accep-
gain widespread
development
including
five,"
of
a
new
a
Chinese
an electronic calculation sheet,
graphics
system,
and
a
communication
been given support by the government and is scheduled
to be introduced
to
system,
to
regard,
this
In
"the
21
The ability
into the local market by June 1985.
develop Chinese language software is
a
main attraction for the
Some of
growing foreign investments by foreign firms.
the
large
multinationals such as HP and IBM wish to further strengthen their
competitive position in Asia by gaining access to such specialized
software packages. ^^
Industry Targets and Efforts
III.
In
order
to
promote
cally,
development
the government has
industry in Taiwan,
tion and marketing
the
targets over
a
set up
of
a
the
informatics
series of produc-
ten-year period.
More specifi-
the Council for Economic Planning and Development under the
Executive Yuan has worked with several other organizations
develop
a
ten-year plan for the industry.
for the accomplishment of five major tasks:
of
computers at all
^^ Science
6,
Bulletin
,
levels of
The current
plan calls
l)to increase the use
government organizations;
National Science Council, Taipei, Volume
June* 1984.
DRAFT
to
16,
2)to
Number
DRAFT
22
develop and manufacture min i -compu
peripherals;
3)to
t e r
systems
and
selected
establish software engineering capabilities;
4)to develop an expanded base of trained personnel; and 5)to build
an
e 1
ec
t r
oni cs
/ i
center to serve as
electronics
science
nf orma t ion
a
and
technology exhibition
central headquarters for the informatics and
government hopes
The
industries.^"
to
these
achieve
goals through several primary means:
a)popularization of the benefits of computers and their
applications in business and government;
b)identif icat ion of government-supported domestic markets
for informatics products to attract domestic and foreign
investments as well as to accelerate the accumulation of
needed technical experience and managerial skills;
c)encourage more participation of foreign firms
overall development of the informatics industry; and
in
the
d)improve organizational coordination and planning.
By
jected
1989,
to
total
output
reach US$4.6
from hardware
in
information industry is pro-
the
billion,
of
which US$3.9 billion will be
and US$0.7 million will
be
from software.
Total
exports of hardware and software are slated to be US$2,820 million
and US$350 million respectively.
Given present rates of growth in
information industry product output in other countries, Taiwanmade
products
achieve
these
should
occupy about
goals,
the
2.0% of
the
world market.
To
industry will have to attain an average
^^ The
Current Development of the Software Industry in Taiwan, RQC
Institute for Information Industry, Taipei, November 1982.
DRAFT
,
DRAFT
23
annual growth rate between 1982-1989 of 78%.
These
limit
however,
will be difficult to achieve.
technological constraints
both
are
targets,
Taiwan's ability
(See Table 3)
and
obtain
to
market
2.0%
of
barriers
market.
Nonetheless, one cannot discount the industry's potential.
of
informatics
at
a
products
tremendous
Thus,
1985.
rate:
it
on
241% in
actually be achieved.
could
Output
hardware side has been increasing
1983,
inconceivable
not
is
the
will
that
world
the
There
The
382% in
that
the
possibilities
above
are
148% in
and
1984,
projections
also enhanced
by the fact
that Taiwan producers are often able to overcome their
own
in
limits
assessing exports markets
by
themselves
tying
closely to the needs of foreign firms from the US and Japan.
In
February
1982,
a
special government-sponsored
'^^
force
task
under the Executive Yuan was set up to promote the growth of
informatics industry.
Under the jurisdiction of
the
special
the
task
force are three government organizations at the ministry level and
two non-profit ones.
force
to
(See Chart
1)
It
is
the function of
the
task
ensure that activities among these five units are
well-coordinated and focused on the priority areas
I
selected for
I
One of the critical weaknesses of the Taiwan economy has
been its dependence on foreign firms, especially trading companies
from Japan, for discovering emerging market opportunities. Govern-
ment
efforts
have
been
underway
to
establish
several
large
trading firms, similar in structure and orientation to those from
Japan, in order to gain more autonomy in dealing with the marketing of locally-produced items.
DRAFT
(
DRAFT
24
In July of
implementation plan was announced,
laying out
interest,
promotion of
government aasistance,
development,
tasks
22
encouraging foreign investments,
seven
in
market
technology development,
categories: manpower development,
an
that same year,
the industry in the ten-year plan.
public
the
modification
and
of government procurement practices.
terms
In
specific responsibilities,
of
organizations play
development.
a
critical
Information Industry ( III
For
example,
sored
by
supported
research and
Institute
for
the
spon-
project mentioned earlier was
July
in
1979,
the
III
is
and
jointly
private
(There are 43 members on the Board of Trustees,
organizations.
from government,
Its
the
of
academic institutions,
government,
by
terms
two non-profit
concentrates on software development.
,
Founded
III.
the
)
"big-five"
the
in
organization,
first
The
role
the
7
6
from academia, and 31 from the private sector.)
software development,
main mission is
including providing
advice and guidance to government and private organizations.
The
organization
other
Research Ins
t i t
ute
(
ITRI
)
As
.
the
key
one
Research and
operates
own
its
the
in
Electronics
noted,
Industrial Technology and
ITRI
is
the
largest R&D
Within ITRI are several specialized
organization on the island.
institutes;
the
is
information
Service
integrated
circuit
DRAFT
industry
Organ i z at i o n ERSO
facility and
a
is
) .
the
ERSO
related
—
DRAFT
25
subsidiary in the Hsinchu Science-Based Industry Park.
the
Several of
critical innovations that have spearheaded the emergence of
Taiwan's
industry have
integrated circuit
come
from within the
ERSO laboratory.
As
a
knowledge-intensive industry,
research and development
play an important role vis-a-vis the development of new technology
products.
and
industry in
18
Total
1979 were
expenditures
R&D
US$4.1 million,
R&D expenditures during that year.
to US$37.4 million,
approxmiately
recent
1.10
%
the
3.1% of
By 1982,
information
total
Taiwan's
that amount increased
11.0% of the island's overall R&D spending
or
(excluding defense).
or
for
During
of
the
sample of 26 firms
1982,
the
electronics industry spent
industry's sales on R&D.
in
the
informatics
Based
industry,
on
a
however,
spending on R&D averaged 3.3% of sales, reflecting the high-degree
of
R&D
intensity within that rapidly growing sector.
^^
At
the
same time, Korean electronics firms spent 2.44% of sales on R&D in
1982,
American firms spent 7.6%(1980),
and
Japanese
firms
spent
4.06%(1981).20
18 "The
Republic of China's 4 Year Plan: R&D in Science and Technology,"
Industry of Free China Volume LIX, Number 5, May 1983, pp. 21-36.
,
I'S.C. Ke
Technology and Administrative Control; A Case
Study of the Minicomputer Industry (Draft).
,
2^For Taiwan, the next three major areas of high R&D expenditure (1982)
are au t oraat ion--US $ 26 . 3 million, special mater ial S--US $ 2 1 1 million,
and energy
US$14.2 million.
.
DRAFT
DRAFT
26
pattern of growth in R&D spending in the information
The
industry is consistent with the general increases in R&D expenditures over the last several years.
In
total R&D spending in
1979,
Taiwan was US$133 million, or 0.42% of GNP.
increased
was
US$321 million,
to
aimed at
1.0%
2.0%
1985 and
projections
in
is
this
Given
1989.
for R&D
and
1984,
in
0.7% of
or
1982,
By
The
GNP.
expected
it
R&D/GNP ratio
climb to
to
trend,
this amount
is
1.2%
in
that
probable
spending in the informatics Industry will be
met and will that the informatics industry will continue to be the
island's leading R&D industrial and technological target.
As
a
companies
of
its
designation
as
active
the
informatics
field are eligible
in
low-interest
special
the
loans.
task
force,
long-term loan rates.
made
available
Among
the
lion's
If
to
can obtain
So
far,
domestic
applicants,
share
it
—'25.73%
is
a
a
firm's
proposal
chosen by
funds
2%
at
the
includes
to
a
one
information
below the regular
to
the
electronics
of
the
total
product
support
parts
funds.
took another
development.
producers
took
Informatics
10.5%
the
firms,
from the pool.
the government's intention to Increase the size of
in order
for
total of US$3.75 million has been
firms
including software producers,
It
the
selected priority projects
150
industry
"strategic industry,"
result of
this pool
encourage substantial increases in R&D and investment
in both product and process
technology.
DRAFT
)
DRAFT
27
Industrial Policies in the Information Industry
IV
Along with the previously mentioned special organizations
information industry and the availability
promote
the
interest
loans,
that
there
have
been- introduced
have
been
several
stimulate
to
other
of
to
low-
incentive packages
technological advance and
new product development.
1.
Tax Incentives
The
latest
revision of
the
which was promulgated in December
tax deduction for R&D spending.
expenses
are
occurred,
Investment Encouragement Law,
1984,
totally deductible
for
the
year
accelerated depreication can be applied
and
of
a
— but
no
liability.
to
which
they
instruments
Also,
any
firm
deduction in corporate income tax equivalent to 20%
the company's additional R&D spending above
peak
in
machinery and equipment
imported for R&D are exempt from import duties.
may request
very generous
a
Under the prevailing statute, R&D
equipment purchased for R&D,
and
provides
more
than 50% of
the
total
the previous 5-year
corporate income tax
Another tax incentive that Is soon to be introduced is
that no foreign firm will have to pay income tax on royalties paid
by companies
2.
in selected
industries, one of which is informatics.
Direct Foreign Inves t ment ( DFI
DRAFT
1
.
DRAFT
28
Direct foreign Investment has made
to Taiwan's
1984,
.
^
almost every major multinational firm involved
electronics industry had
the
significant contribution
export growth as well as the transfer of technology
By the end of
in
a
have been the dominant
venture in Taiwan.
a
participants with some
recent
firms
US
increase
in
activities occuring among companies from West Europe and Japan.
Most of these firms have come to Taiwan in response to the quality
of
skilled labor force as well as the cost of skilled labor.
the
This
stands
in
sharp contrast
the
to
past
when
cost
the
and
availability of unskilled labor for simple assembly operations was
the principal attraction of Taiwan.
Within the context of the move towards more technology-intensive industries,
Taiwan's policies towards foreign Investment have
undergone significant changes in emphasis since the mid-1970s.
general,
while becoming more
selective,
attempted to remove much of
the
the
red-tape
also
government has
that
was
a
In
frequent
source of complaints among foreign businesses in the past.
Taiwan
officials have
as
let
it
export processing zones,
investment projects,
be
known that even in sites such
they no
longer encourage labor-intensive
preferring instead investment proposals that
bring new technology or products
O
the
1
to
the
island.
Improved
capa-
^^Gustav Ranis Chi Schive, "Foreign Investment and Taiwan's
Economic Development," in Walter Galenson, ed.. Trade and Investment in Asian, Countries (Madison: University of Wisconsin Press,
forthcoming )
DRAFT
.
DRAFT
bilitles
screening and evaluating foreign investment projects
in
gone
has
29
long way toward helping
a
to
between Taiwan's development needs and
ensure
the
a
better match
objectives of the
foreign firms
In
Taiwan,
effort
an
to
attract more foreign firms
investment regulations governing foreign investment.
requirements
being dropped,
regarding export
commitments
the
First,
the
Second,
eliminated over the next few years.
gradually
are
with the expectation that they will
into
in
variety of policy changes have been introduced
a
previous
come
to
largely
be
foreign firms,
along
with the domestic firms, will soon be eligible for the special
low-interest
fact that
in
the
loans
interest
the
rate on "preferential" long-term financing
Taiwan has generally been lower than that in most of the OECD
countries,
except for Japan and West Germany,
these monies might prove to be
of
Given
mentioned previously in the paper.
a
the availability of
major investment incentive.
3.
Other Related Policies
The
Hsinchu Science-Based Industry Park offers an ideal set
incentives for potential investors
try.
A
five year
tax
in
the
indus-
informatics
holiday is offered--but under
the
present
circumstances, the investor can choose to begin the holiday period
at
any
ation.
time
during the investment's
Moreover,
the
park
acts
as
DRAFT
a
first
nine
years
of
oper-
"technological hothouse,"
.
DRAFT
situated in one strategic location.
where high-tech firms can be
from the
Thus,
30
perspective of
those
in
the
informatics industry,
the growth in the park and its facilities is viewed as a continued
benefit, especially in terms of attracting competent personnel and
receiving government support.
Relatedly,
a
^
venture capital market was set up
a
year ago in
order to help capitalize entrepreneurs looking to start operations
in
high-technology fields.
In
far.
addition,
the
Three
firms
have been established
so
domestic stock market was opened up to
foreigners in 1984, thereby further strengtheing the opportunities
The government has also
for progressive ventures to get underway.
taken
strong
steps
counterfeiting,
a
to
respond
to
the
problems
of
problem which has discouraged some
industrial
firms
from
bringing advanced portions of their production and R&D activities
to the
island. 22
Severe penalities have been introduced for those
who violate the proprietary rights of other firms.
An island-wide
inspection agency for the information industry has been established in order to better ensure
sanctity of
the
technology and
know-how
The government has also retreated from its generally protec-
tive
stance
regarding the development of
new,
emerging indus-
22iBM is one firm that has experienced severe problems with respect
to alleged counterfeiting of its products and technology by Taiwan
Asian Wall Street Journal Weekly October 22, 1984.
firms.
,
DRAFT
DRAFT
tries.
As
a
result of
government officials,
the
31
encouragement of several progressive
decision was made over the last
a
several
years to relax some of the previous restrictions and heavy duties
on
imports.
of
foreign products will help generate sufficient competition for
Government officials hope that
overly complace
growing presence
the
thus stimulating them to pay more
nt local firms,
attention to R&D, product design, marketing, cost, etc.
V.
Prospects and Conclusions
Recognizing that the informatics industry represents the
technological wave of the future,
concerted effort
to
Taiwan authorities have made
establish both
a
technological and manu-
facturing base for the
industry on the
accomplish this goal,
they
industry
island's
provided
In
as
a
host
addition,
the III,
one
of
of
incentives
to
the
In
order
to
information
strategic sectors
and
have
present and potential entrants.
through the establishment of
organizations such as
the government has created an institutional framework for
better coordinating
actors.
the
island.
designated
have
a
activities of
the
These actions
all
serve
to
both public and private
reinforce
the
critical
role
played by the state in developing this high-priority industry.
At
the
same
time,
it
must
also
be
recognized
government on Taiwan has not chosen to establish
DRAFT
a
that
the
public enter-
DRAFT
prise
in
though the public sector
field,
this
32
plays
dominant
a
role in the energy and several other heavy industries, e.g. steel,
shipbuilding,
absorb some of
risks
for
start-up costs
the
thereby reducing,
on-going strategy has been to
its
Instead,
etc.
and
some
in
industry as
the
the
alleviating,
cases
private sector.
the
for
a
whole,
investment
government has provided
The
substantial amounts of capital to facilitate the emergence of new
enterprises
V
a
careful
remained
Past
in
number of key product lines,
leave
to
the
management to
but
it
has
always
private sector.
the
experience has taught Taiwan officials that in order
globally competitive industry, the quality and standards
develop
a
of
products
the
to
as
well
their overall
as
structure must be
cost
judged first and foremost by the requirements of the market.
The
ability of
equipment has
industry to produce computer-related
the
improved over
the
last
few years,
largely in the
medium-technology end of the spectrum.
Moreover, Taiwan has moved
frontier
technologies and products.
into
the
Yet,
mass
development of
some
production of these items has been carefully considered
before moving forward.
Instead of seeking to compete head on with
firms from the industrialized nations, Taiwan has pursued
y
niche
strategy,
seeking out
matics market where it
advantage. This
specialized segments
can develop
has meant
that
a
secure,
of
but
the
a
market
infor-
competitive
producers have concentrated on
specialized peripherals and related items
DRAFT
as
well as
serving as
DRAFT
OEMs
some
for
and Western
critical
Europe.
role
leading multinationals
the
of
regard,
this
In
structuring the
in
33
the
from Japan,
US,
the
state also has played
relationships
between the
a
local
economy and the large foreign firms, minimizing potential "damage"
facilitating the transfer and diffusion
industry and
to
local
of
technology.
VV_f^he current su ccess of the industry can
large part,
tries
to
that were created during the late
requirements
channels,
technological skills and manufacturing
same
the
had
that
established as
Produc-
1970s.
terminals, and components such as semiconductors
tion of monitors,
share many of
1960s and
in
indus-
televison and electronics parts
strong
the
attributed,
be
been mastered earlier.
reliable
producers and plugged
In
addition,
into
once
active market
some of firms found it easy to make the transition into
these other product lines, especially since they were supported in
their efforts by foreign firms.
Also,
this
paper has
focused on the civilian dimensions
of
role played
by
the
information industry,
the
military in providing funds for R&D and stimulating tech-
nological advance.
In
ignoring the important
Taiwan,
the
military has become
user of advanced informatics products and components.
future,
demands
for
especially since
such
there
advanced products will
is
a
strong effort underway
DRAFT
And,
likely
major
a
in the
increase,
to
promote
DRAFT
between
links
stronger
34
civilian and defense industry.
the
Software development appears to be the primary area where activity
will
the
increase- at
fatest
rate.
such,
As
addition to
in
responding to foreign market demands and internal demands of
civilian nature,
may also
we
needs playing an even
defense
see
a
larger role in pushing out the existing technological capabilities
of the industry.
Of
course,
the
development of
not proceeded without problems.
the
industry,
some respects,
in
economic base
In
that
is
the
informatics
spite of
the
the
industry has
rapid growth of
strong technological and
needed to support the industry has not
evolved to the extent desired by top government leaders.
implementation of the Statute for the Encouragement of
has
not
always
informatics
been well-coordinated with
industry,
hindering,
development and applications.
R&D continue
to
at
times,
the
Investment
development of the
broad
scale computer
Also, private sector investments in
lag--a pattern that has been typical of many
Taiwan companies in other industries in the past.
been difficulties
There also have
interpreting the various aspects of
the
incentives for R&D-related activities, especially since its
hard to define R&D and to make
end-use of
financial
The
accurate determinations about
imported equipment.
assistance
for
various
And,
on
projects
materialize because in R&D-intensive sectors,
DRAFT
tax
is
the
several occasions,
has
been
slow
to
calculating precise
DRAFT
35
returns on investment is frequently problematic.
This
litany of problems might
lead
one
suggest
to
difficulties have out-weighed the level of progress,
not
informatics
and
The
case.
the
the
this
but
represents
challenge
great
a
to
both
government
the
private business due to the complexity of the problems,
need for
a
tition.
And,
current
shift
high degree of coordination,
towards
industries has
foreign
challenges
The
tation of
has
ahead will
the
Taiwan officials
and
the
compe-
"pirating,"
receive
strong
support
the
from the
Informatics has become Taiwan's
to
suggested it
should
ensure more consistent implemen-
These will not be easy tasks,
1980.
have
par-
industry becomes more competitive
Nonetheless,
the
prospects
tried to give each of
governnment organizations,
a
be
informatics
global basis.
—
and
government policies and to maintain the momentum that
ticularly as
firms
to
community.
appeared since
a
the
skill-intensive and knowledge-intensive
future--as Minister K.T. Li
the
involved,
cooperation,
problems with
the
of
continued
business
industry of
spite
in
is
movement into high-tech industries such as
broad scope of the sub-sectors and technologies
on
that
appear bright
the
key
private sector companies,
vested interest in the success of the effort.
DRAFT
actors
and
as
—
foreign
en
§
o
c
"I
o
m
00
00
00
U)
o
N> *»
00
o
o
M
(BOO
•'I
•
''^
rf
1 1
CO
B
rr
rr
n
0»
3° 3"
rr
«
<B
O.
i-n
»-h
p.
00
C
-I
CD
CD
09
rr
rr
3
M 3
n
B
O J,
a
3 O
rr 3
CD
I
3* rr
3*
CD
o
33
O
I-o
3
n
O
s
o
o
»
o
3
z
«
K
>
3
3
O
1
a
3
cu
c
a
01
rr
00
rr
3*
n
o
o
3
rr
>i
O
CO
rr
09
w
«
a
CO
rr
C
O.
•
m
o
o
e
P- 00
i-h
o
3
>
O
o
z
o
O
>
00
l-l
(B
o
3 O
- 3
ON
00
a
rr
H
n
v:._
00
h-
OJ
z
>
M
(-'
O
C
o
m
9
e
m
00
VO
o
to
o
«
1
o
S
o
pa
p>
ft
o
9
tsJ
3*
9
o
S
i-n
i-t
O
3
9
c
a
rr
1
3*
n>
1
CD
w
rr
ca
n
O
1
T3
»*
CO
o
e
1
n
(0
ls>
CO
2
O
H
Vi
o
c
1
n
0>.^:f'
3
TDfiD
003 OST 77a
^^w
1
4 1986
DaiSi^MEMl
jyol'87
0E05'88
r^
JUL 3
'6
).^!.
(tB
Lib-26-67
«4_A-'^-'
v-w-".-"'