Small Island, Big Business
Taiwan enjoys a strong economy and a substantial presence in the semiconductor and display industries. Current challenges to Taiwan’s position in the world marketplace include a shift in consumer-device preferences, uneasy relations with nearby mainland China, and a global perception that its industry executes somewhat better than it innovates.
by Jenny Donelan
THE island of Taiwan is just slightly larger than the state of Maryland – about 14,000 square miles to Maryland’s 12,400.1 Yet, it boasts the 19th largest economy in the world – one of the richest in Asia.2 Taiwan has a formidable high-tech industry that includes numerous display companies, including AU Optronics Corp. and Chimei Innolux. It is the world’s largest chipmaker. And it has a well-established tradition of technology education and startup incubation that continuously feeds this industry.
It would be difficult to list here all the computer and display companies based in Taiwan. Examples are TSMC (Taiwan Semiconductor Manufacturing Company, MTK (MediaTek), Acer, Advantech, Asus, Foxconn, and HTC Corporation. Display companies include BenQ, CPT, HannStar, Prime View International (E Ink Holdings), and the aforementioned AUO and Chimei Innolux. “Semiconductors and displays are the two biggest consumer electronics industries in Taiwan,” says Tim Tsai, Deputy General Director at ITRI/DTC (Display Technology Center).
Rise of an Asian Tiger
Taiwan’s rise to economic power has been rapid. In fact, the speed of industrialization and economic growth in Taiwan during the second half of the 20th century has been referred to as the “Taiwan Miracle.” The nation is also sometimes referred to as one of the “Four Asian Tigers,” along with Singapore, South Korea, and Hong Kong.3
The circumstances that led to this success are complex and involve many economic, cultural, and political factors. But to understand the trajectory of the achievement, it is worth a very quick look at the recent history of the country that over the centuries has also been known as Formosa and the Republic of China (ROC). Taiwan was ruled in the past by the Dutch, Portuguese, and Japanese. It became the ROC in the 1940s, after the Kuomintang (KMT) military regime led by Chiang Kai-Shek retreated there following the loss of mainland China in the Chinese Civil War. Stability was achieved with martial law during the 1980s. Lately, a more democratic political system has thrived.4
Despite and perhaps also because of this fluid political situation, Taiwan’s economy has flourished. In the early 1950s, the new government set in place a series of law and land reforms that allowed for faster industrialization. In the 1970s, after Taiwan was expelled from the UN, its government began an aggressive process of modernizing its industry, with an emphasis on technology such as micro-electronics, personal computers, and peripherals.3 In terms of numbers, between 1952 and 1982, Taiwan’s economic growth was on average 8.7%, and between 1983 and 1986, 6.9%. Its gross national product grew by 360% between 1965 and 1986.3 The Gross Domestic Product value of Taiwan now represents 0.79% of the world economy. The total has ranged from $253.09 billion (in US dollars) in 1980 to a high of $489.21 billion in 2013.5
One of the reasons for Taiwan’s success is purely geographical: its tactical location near China, Japan, and the Philippines. Other reasons are “soft” – an emphasis on productivity; increases in capital and labor, including the entry of more women into the workforce; and the initiative of its people.3
Without doubt, a primary force behind the country’s success is the cultural emphasis on education, particularly in science and engineering. (In the Asian region, Taiwan is not alone in this emphasis.) In 1999, among reporting countries, more than 1.1 million of the 2.6 million S&E degrees worldwide were earned by Asian students at Asian universities. According to World Education News and Review, students graduating from the Taiwanese education system do so with some of the highest scores in the world in comparative international tests, especially in the more technical fields such as mathematics and science.6 Taiwan also has more than 100 colleges and universities.
Engineering is an extremely popular field in Taiwan, and engineering degrees represent about one-quarter of the bachelor degrees awarded in the country (out of roughly
65,000 degrees a year). These numbers reflect government policies that encourage students to focus on high-tech manufacturing industries.1
One of the best-known Universities in Taiwan is National Chiao Tung University (NCTU), which is world-renowned for science and technology. The university was founded in Shanghai in 1896 and moved to Xian during World War II. In 1958, NCTU alumni, in cooperation with Taiwan’s Ministries of Education, Communications, Economic Affairs, and National Defense, jointly recommended that a branch of the University be established at its present location in Hsinchu, Taiwan. There are now five branches of Chiao Tung University in existence: four in mainland China and one in Taiwan. Three of these universities are very well-known: Shanghai CTU, Xian CTU, and Hsinchu NCTU in Taiwan.7
H-P. Shieh, NCTU Professor and Vice-Chancellor at National Chiao Tung University (who received SID’s Slottow-Owaki Prize this year), has advised more than 100 M.S. and Ph.D. students in display-related fields in 20 years’ time. Shieh helped found the Display Institute (DI) at National Chiao Tung University (NCTU) and has assisted other major Chinese universities to establish display-related institutes in their engineering schools.
In the late 1990s, says Shieh, NCTU was well-known for microelectronics and photonics, but didn’t have the same foundation for the study of displays, which were becoming significant to industry in Taiwan at the time. “Of course, NCTU already had substantial resources in microelectronics fabrication, labs, and expertise, which made my job of establishing the DI much easier,” says Shieh. Training new generations of display scientists obviously keeps the momentum going for the country’s display industry as a whole.
Another driving force for technology and industry in Taiwan is the Industry Technology Research Institute (ITRI), created in 1973 as a non-profit R&D organization. ITRI has played an important role, as its Web site states, “in transforming Taiwan’s economy from a labor-intensive industry to a high-tech industry.” ITRI has assisted in the creation of more than 240 start-ups and spin-offs. TSMC, mentioned earlier, is one of these. TSMC is now the largest semiconductor company in Taiwan and one of the most important semiconductor makers in the world. ITRI is also a major employer, with approximately 6,000 employees, 1,300 with Ph.D.s and 3,000 with M.S. degrees. According to ITRI, it has cultivated more than 140 CEOs in the local high-tech industry and holds more than 20,000 patents.8
Government and Business Climate
Currently, Taiwan is a great place to do business and do business with, in part because of its supply chain, according to an AUO spokesperson who says “Taiwan has the world’s most sophisticated display-industry chain, with nearly two decades of development.” AUO also has fabs and factories in mainland China, Eastern Europe, and Singapore (in addition to Taiwan) that range from Gen 3.5 to Gen 8.5 (Fig. 1). Displays are big business in Taiwan. AUO is the 23rd largest company in Taiwan. Hon Hai Precision (Foxconn) is the largest.9
Fig. 1: AUO’s Gen 8 TFT-LCD fab in the Houli district of Taiwan reflects the country’s green initiatives; it received LEED platinum certification in 2011.
In terms of foreign investment, the trade and business environment in Taiwan is fairly open. For example, the government allows foreigners to own 100% of their companies in Taiwan. The World Bank ranks Taiwan 17th overall (out of 189 countries) for ease of doing business, in terms of factors such as starting a company, getting construction permits or lines of credit, etc.10
According to a World Bank report, in 2012, Taiwan was the United States’ 11th largest trading partner in goods, placing it ahead of markets such as India and Italy. It was also the 16th largest U.S. export market overall and the seventh largest export market for agricultural products. The report noted that Taiwan’s banking and systems are well developed, and “there are no foreign exchange regulations that would significantly hamper a U.S. exporter from receiving payment for goods shipped and services provided.”10
Taiwan’s enviable economic position has been threatened in recent years. One reason is that its strength has been in PC and PC-component manufacturing,
an area with declining sales. Sales of smartphones, on the other hand, for which Taiwanese companies control less than one-fifth of the market, are rising briskly, according to a 2013 article in The New York Times. The Times also noted that while Taiwanese manufacturing has always been known for its discretion (very few leaks) and high-quality final engineering and mass production of consumer electronics devices, it is less well-known for coming up with new products.11
Another challenge has been a certain restlessness on the part of the young engineers trained in Taiwan. “For the past 5 years,” says Shieh, “very few of my students go on to join display companies; most of them join TSMC. This is certainly reflected by their stock price – AUO is about NT$10/share and TSMC over NT$100/share.” But even the semiconductor companies are finding it more difficult to get the best engineers. Another Times article last year reported that the COO of a major chip company in Taiwan said his industry was losing intellectual talent to companies such as Apple, Facebook, and Google.12
Yet another ongoing trial is Taiwan’s relationship with mainland China, which over the years has been complicated and strained. Currently, mainland China is a member of the UN; Taiwan is not. Trade between the two entities has not always been freeflowing, although it certainly exists, and in recent years has become easier, according to sources interviewed for this article. However, now that mainland China is an engineering and manufacturing powerhouse of its own, it is more of a rival to Taiwan than formerly.
In June 2014, Zhang Zhijun, director of mainland China’s Taiwan Affairs Office, visited the island to officially discuss relations, the first openly permitted visit by minister-level officials in the 60 years since the Chinese Civil War.13 The subject of the visit was trade, yet discussions of trade agreements are often wrapped up with touchy political issues such as the possibility of unification, which many in Taiwan do not welcome. At press time, there was also talk of a trade agreement between China and South Korea that could threaten agreements Taiwan currently has with China.14
Lastly, Taiwan has sometimes been perceived as a country of skilled end-of-pipeline manufacturers more than innovators, a country with education and corporate systems that do not nurture innovation. This is a deep criticism in a global business climate that currently values innovation and disruptive technology above all else. It’s also somewhat unfair considering ITRI’s startup record and the recent success of Taiwanese companies like Asus, which has recently delivered a number of notebooks with innovative features, such as a notebook/tablet transformable that took an innovation prize at CES this year.
In any event, recent articles like The New Yorker’s “The Disruption Machine: What the gospel of innovation gets wrong” and the discussions it has sparked indicate that some in the business world are questioning the advisability of relentless innovation.15 Perhaps hard work and attention to detail, which the Taiwanese companies do so well, will take innovation’s place as the secret ingredient behind industrial success! Whatever happens, it seems likely that a nation that has survived numerous occupations, martial law, and more, only to rise as a technology powerhouse, will probably adapt and adjust as necessary to retain its major player status.