Asia Magazine #2

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Chalmers knowledge in Asia

the CITO bulletin no. 2, November 2003

November 2003

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Andreas Sigurdsson

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Contents Letter from the editor

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Centered on CITO A new start at the CITO office

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South East Asia An economic overview

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The Taiwan-China issue Cross-strait relations

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the CITO bulletin no. 2 November 2003 editor Klara Sibeck writers Martin Ekenbäck Thien Hoang Emma Lantell Andreas Larsson Andreas Sigurdsson thanks to Andrew Nelson Vivian Nelson Christofer Salsing CITO also wants to thank v Jörgen Sjöberg for making CITO possible.

The miracle explained: 12 Taiwan’s industrial development

v The Chalmers students who set up the CITO-office last semester.

Being here, we can see you did an

Biotechnology 15 The future driving force behind Taiwans economy?

Industrial design in Taiwan Into a new century

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excellent job.

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What is CITO? Chalmers International Taiwan Office (CITO) opened in March 2003 and is the result of a bilateral exchange agreement between National Chiao Tung University (NCTU) and Chalmers University of Technology. The CITO office is strategically located at NCTU, near Hsinchu Science-Based Industrial Park and ITRI, Taiwan’s most important industry cluster.

The purpose of CITO v Increase awareness at Chalmers about the development in East Asia, with focus on China and particularly Taiwan v Support mobility of students and staff between NCTU and Chalmers

CITO – Chalmers International

v Enhance Chalmers’ visibility in

Taiwan Office

Taiwan and the neighboring region

National Chiao Tung University Taiwan’s technology transition: From Integrated Circuits to System-on-Chip

November 2003

1001 Ta-Hsueh Rd., Hsinchu Taiwan, 300 Republic of China e-mail

info@cito.chalmers.se

web

www.cito.chalmers.se

phone

+886 (0)3 5737369

fax

+886 (0)3 5737469

Exchange Currently, six Chalmers students are at NCTU, while eight students from NCTU are studying at Chalmers.

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Letter from the editor

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November 2003

Klara Sibeck, editor-in-chief

The overall reason to come to Taiwan is very simple: it is Asia’s turn now. The 19th century belonged to Britain, the 20th to the United States. The dynamic South East Asia has the prerequisites for becoming the new core of the world, and presence here is a necessity for everyone that wants to take part in this development. Chalmers International Taiwan Office constitutes Chalmers’ link to this region, located in Taiwan which probably is the best door to South East Asia: better skilled in foreign languages than many of its Asian neighbors, and much more welcoming than most countries. Hospitality to foreigners might be appreciated when travelling, but becomes fundamental when setting up a living in a foreign culture. One of my Taiwanese acquaintances relates his people to Italians: noisy, not very law-abiding, but very friendly.

I did not know much about Taiwan and all the political and economical conditions when I decided to come here. Since that day, I have learnt more than I expected. Being in this environment, where politics has a very direct impact on the economy and the development of the industry, is a new experience for us Swedes. Activities at home seem very rational and unexciting in comparison to the bizarre turns on this side of the globe. However, current political conditions in Taiwan make the market very unstable and the next election, to be held in March 2004, will be crucial for the future. Will Taiwan take a step closer to China, or will it try to separate further? The importance of commercial connections to China and its immense market can hardly be denied by anyone, pro-independence or not. A deeper look into the relations between Taiwan and mainland China is given on page 8.

This issue of the CITO-bulletin, the second one from the start, concentrates mainly on Taiwan’s industry and gives a summary of the successful development since the 1950s. Today however, the industry is meeting new challenges. The current conditions

Klara Sibeck

“Why on earth did you come to Taiwan?” When talking to Taiwanese youths, this is one of their first questions. You can tell from their facial expressions that they find it very odd for any foreigner to come to Taiwan and study, not to mention setting up a Swedish office. From their point of view, Taiwan does not have much to offer. Usually, I just answer: “Taiwan is a wonderful place!” Needless to say, this reply leaves them unconvinced and if they insist I give them a better explanation.

Old world meets new economy: “Taipei 101”, in the background, will be among the highest buildings in the world when finished in 2004.

are described from different points of view in reports on biotechnology, industrial design and micro electronics. We also take a look outside Taiwan and give an overview of the economy in South East Asia.

The purpose of this publication is to gather information on the development in East Asia and share it with people connected to Chalmers, in order to increase the awareness of this region.

If you are interested in learning more about the opportunities the Chalmers-NCTU collaboration offer, you are welcome to contact our office. Taiwan might seem far from Sweden, but the distance is shrinking as we are increasing our knowledge about each other. b

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Centered on CITO:

A new start at the CITO office Roughly three months have passed since we arrived in Taiwan.

The heat and the humidity of the Taiwanese summer took us all by surprise, but we have now had some time to get used to the weather and all the other things that are different from Sweden – and that is a lot! Even very basic and simple things like ordering food in a restaurant becomes a challenge when you do not master the language. When you arrive as a newcomer in Taiwan, things like setting up a living, find stores to shop in and nice places to eat at can be very difficult. Also dealing with authorities will be a time consuming and frustrating experience.

Then, when you finally get used to the heat, it starts to vanish and the fall slowly makes progress. From what we have seen so far it is very much like the fall in Gothenburg; windy, grey, and rainy with the only difference that the temperature is around 20 degrees Celsius.

written by Andreas Larsson

CITO representatives, from left: Andreas Sigurdsson, Andreas Larsson, Klara Sibeck, Martin Ekenbäck, Emma Lantell, Thien Hoang

Representatives this semester Andreas Sigurdsson, head of office, is a student in Industrial Engineering and Management. As head of office it lies within his responsibilities to represent Chalmers in contacts with NCTU, to be the contact to the President’s office at Chalmers, and to allocate work to other CITO representatives. Furthermore he has the over-all responsibility for the economy of the office.

Emma Lantell, deputy head of office, is a student in Mechanical Engineering. Emma has the special assignment to introduce the rest of the CITO team to practical matters of the office operation, since she already has spent one semester in Taiwan. She is also responsible for the exchange of students and PhD’s between Chalmers and NCTU. Thien Hoang, representative, is a student in Industrial Engineering and Management. Together with Emma, Thien handles questions concerning the exchange of students and PhD’s between Chalmers and NCTU. Klara Sibeck, representative, is a student in Industrial Design Engineering. Klara is responsible for the technical and economical regional survey, i.e. to make sure that this publication – the CITO Bulletin – is produced.

Martin Ekenbäck, representative, is a student in Industrial Engineering and Management. Martin is responsible for corporate relations.

Andreas Larsson, representative, is a student in Naval Architecture and Ocean Engineering. Andreas works together with Martin on corporate relations.

At NCTU, all of us study at the College of Management. We all have our own reasons for coming here, but one thing we have in common is an interest in learning Mandarin Chinese and to know the culture. Studying in Taiwan will be a very good experience for the future, with regard to the rapid development in the region and the emerging market of mainland China.

The assignment for the fall 2003 v Make a detailed plan of operation for the second half-year 2003. v Consolidate the operation of CITO. The office, which was opened in March 2003, needs to come into smooth operation. v Develop a concept for interaction between CITO, NCTU and companies in Taiwan and beyond with Swedish connections.

The concept should be based on the companies’ needs, CITO’s competence and NCTU’s consent. A report on CITO’s opportunities to work with companies is expected. v Assist Chalmers and NCTU’s in the effort to increase cooperation in research between NCTU and Chalmers, particularly by facilitating mobility of PhD students and enhance exchange of information about research initiatives.

Depending on the progress of the assignment and the conditions for CITO, an additional activity may be to support recruitment of young Swedish engineers for short time contracts with Swedish and other companies operating in East Asia, particularly Taiwan.

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November 2003

written by Martin Ekenbäck

Events during the fall v In the beginning of the semester, several key persons at NCTU were invited to the CITO-office, where they were introduced to the tasks and objectives of this of autumn’s CITO team. v In early September, the CITO-team visited Hsinchu Science-based Industrial Park, which is located next to National Chiao Tung University. May Hsia, who has spent som years in northern Sweden, welcomed us in Swedish and held gave us a presentation of the science park and the companies in it. v In the end of September, CITO participated in a traditional Swedish crayfish party, arranged in Ericsson’s facilities in Taipei by the Swedish Trade Council in cooperation with some Swedish companies. The event gave us the opportuity to meet some Swedish compatriots and converse in our native language.

The CITO office is open daily and students can come by and ask questions about studying at Chalmers.

v A visit at ITRI, the Industrial Technology Research Institute, gave us an overview of the current status of the technological situation in Taiwan. Hearing about ITRI’s important role in the industrial development in Taiwan was very interesting. v In October, Taiwanese students interested in studying at Chalmers were invited to the CITO-office for a presentation of Chalmers and Sweden. Afterwards, an informal meeting was held where students had the opportunity to get answers to all their questions. v On November 9-10, CITO represented Chalmers and other Swedish universities at the European Higher Education Fair in Taipei. During two intense but enjoyable days, we informed Taiwanese students on everything worth knowing about Sweden. Many had already decided to apply and knew a lot about Sweden and Chalmers. The fair proved to be a very good opportunity to reach students outside National Chiao Tung University, and it was also a pleasant experience for us to meet all these people interested in studying in our country.

Education fair in Taipei. The Swedish booth attracted numerous Taiwanese students.

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November 2003

South East Asia

An economic overview Despite the slowdown of economic growth due to the SARS epidemic, the Asia-Pacific countries are again set to be fastest growing economies of the world this year.

Moreover, growth is expected to increase further in 2004. The reconstruction after the SARS epidemic was very rapid and after only a few months things were almost back to normal.

Although things seemed as usual, the impact of SARS has been huge, especially in the financial areas. Throughout the region, domestic demand is clearly playing a more important role than before the crisis.

The SARS epidemic impact has been most visible in tourist arrivals and retail sales, especially in Hong Kong and Singapore.

To enhance retailing and draw visitors to Hong Kong, the city government is planning to have a festival for tourists. SARS has also affected investments and further consequences will occur if the epidemic returns this winter. The epidemic’s effect on the economy cannot be estimated with certainty, but future investments have been on hold or re-cancelled since new risk factors are considered in business plans. Companies are still trying to catch up on work, which has been delayed due to the epidemic.

Among the newly industrialized countries, South Korea is leading the way to develop a service-based economy. However, domestic demand is decreasing which may call for further fiscal stimulus to higher economic growth. In the IT area, South Korea seems to be heading for a major boom. This development is strengthened by the IT companies that survived the IT crash and now make revenues.

In China, the expectation remains that SARS will constitute a temporary shock with no lasting impact on the medium-term growth outlook. Activity is likely to revert at the end of 2003, helped by continued investment and rapid credit expansion.

China’s economic sector is growing fast but there are structural obstacles, which can hold back the economic development; improvements are needed in many areas. China is concentrating on some key sectors: faster asset disposals by asset management companies, restructuring and privatization of state-owned enterprises, and banking reforms.

written by Thien Hoang

80.5. This confirms that public belief and purchasing power is still at very low levels, which concerns investors, as public purchasing is one of the stimulating factors to economic growth.

The uncertainties from both consumers and investors show that the market still is very unstable.

Different Asian countries have had different currency development. China and Hong Kong have had a stable development and their currencies have gained against the U.S. dollar. Taiwan on the other hand is very dependent on the U.S. dollar currency and has followed its depreciation. China is also dependent on the U.S. dollar, due to major export quotas, but with the maintenance of a de facto exchange rate the Chinese currency has not decreased. The depreciation of the U.S. dollar has had a great impact on exporting countries but only slightly affected the China market because of enhanced domestic market growth. However, if the U.S. dollar keeps depreciating, the Asian as well as the global market will be affected negatively.

The Japanese economy seems to be facing better times and the development has been steady. For the first time in nearly three years, a majority of the Japanese manufacturing companies feel confident about business conditions, according to a survey

by Bank of Japan’s quarterly Tanakan. There are also signs of a brighter future for SMEs (Small and Medium sized Enterprises), which were hit very hard by the economic downturn. However, the continued strength of the Japanese yen against the U.S. dollar might lead to a new economic depression in the future.

A stronger yen, as in the case of the Chinese yuan, might be disadvantageous for export and manufacturers’ competitiveness in the global market.

Inflation pressure remains very low in the South East Asian countries; the estimated inflation is projected to be below 2%.

In Japan there has been overt deflation and this has slightly stimulated the economy. The risks of dramatic changes in the inflationary environment are small. However, with low inflation, increasing salaries and with a period of price decline or stable development, the consumer strength will increase and stimulate the economy further. This is where Japan is heading currently.

Global currency markets impact

Developments in research areas in Taiwan

The currency market has had some major fluctuations, and the U.S. dollar has continued to decrease in value. The American Consumer Confident Index has fallen to 76.8, which is a larger decrease than analysts have expected – the estimated level was

Taiwan is becoming a center for R&D (Research and Development) as well as a manufacturing center. In August 2003, Intel Corporation opened a research facility for wireless networking products. Intel wants to increase the pace and make

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turnovers in a very short time at a low cost. Taiwan’s foundation of high technology skills and well developed research centers is an excellent base for more effective research. To enhance development of new high technology centers, the government has plans for tax reductions and direct subsidies. The strategy is to make Taiwan the R&D center for Greater China and the whole South East Asian region.

Intel is not the only company that has successfully implemented a high tech research center in Taiwan. Companies like Dell, Sony, IBM and HP have all opened R&D centers in recent years. Hewlett-Packard has made large improvements since they opened their product development center in Taipei and the work performed in Taiwan has enhanced efficiency 60%, at only half of the cost compared to research performed at the old center in the U.S. However, the increased interest in Taiwan as a foundation for research has given foreign governments great concerns because of lost jobs in their own countries. This is a major hurdle that the Taiwanese government as well as foreign companies have to face.

Another hurdle is the competition in R&D and manufacturing from other strong developing countries such as South Korea and China. Foreign companies that set up research centers in Taiwan also set up centers in China and South Korea. In order to not lose the advantage of lower costs, Taiwanese companies are following the same pattern and setting up their own research centers in China. b

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Sources International Monetary Found (IMF) www.imf.org ”Taiwan’s resilience shows through after SARS epidemic” Taipei, Taiwan, The China Post Editorial, 2003/8/16 “Japan feeling confident; US depressed” Taipei times, Oct 02, 2003 “Taipei prepared to combat SARS”, Chris Cockel, The China Post of Taiwan, Washington, D.C. 2003/8/21, “Taiwan’s Climb Up the Tech Ladder; It’s becoming a center for R&D as well as manufacturing”, Bruce Einhorn in Taipei, with Peter Burrows in San Mateo, Calif. Asian Business, October 6, 2003

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The Taiwan-China issue

Cross-strait relations The cross strait issue is constantly discussed and debated in Taiwan. No matter if the subject is economy, domestic or international politics or the national holiday – cross-strait relations is always a concern. A conversation between someone, not familiar with the fact that Taiwan is not a Chinese province, and a native Taiwanese, can easily turn into a harsh discussion. It will always come down to the same thing: whether Taiwan should be regarded as an autonomous region and part of the People’s Republic or as an independent country.

The Republic of China was founded in 1911 by, among others, Sun Yat-sen (1866-1925). Sun was the leader of the Kuomintang (KMT), also called the “Nationalist party”, until his death in 1925 when Chiang Kai-shek (1887-1975) replaced him. In 1927, the smaller Communist party collapsed and a 22 year long civil war broke out. With Japan’s defeat in 1945, the ROC gained control over Taiwan and a few islands offshore Fujian. In 1949, the Nationalists were defeated by Mao Zedong’s Communist forces in the civil war and the government of the Republic of China relocated from the Chinese mainland to Taiwan, still proclaiming to be the only legitimate government of China.

In Beijing, Mao Zedong announced the establishment of the People’s Republic of China. Thus began the still unsettled saga of the ‘two Chinas’, the PRC and the ROC. In order to continue the fight against communism and unite the country under freedom, the ROC government began to implement political and economic reforms in Taiwan, despite serious threats to national security from the mainland. The first stage of political development began with the relocation of the ROC government to Taiwan and ended in 1977 with the Chungli incident1. During this period, the ROC kept diplomatic relations with numerous democratic countries, and until 1971, the ROC was recognized as the sole legitimate representative of China. The recognition of the ROC came to an end when the PRC started to open relations with the United States and other western countries. Sweden was one of the first countries to recognise the PRC. Additionally, when the PRC gained admission to the United Nations, the ROC was forced out. The cross-strait tensions encouraged the government of Taiwan to ensure economic improvement as well as political stability. The latter took place by adopting an authoritarian system in order to promote modernisation. In 1949, the ROC government implemented the Emergency Decree, which noticeably

written by Emma Lantell

benefited the safeguarding of Taiwan’s security. Measures taken were strict controls on entry and exit, and restrictions on founding new political parties. These actions were taken in order to hinder Chinese communists from penetrating Taiwan, prevent attempts of subverting the ROC and to prevent multiparty politicking that could decrease the nation’s strength. The KMT was more or less the only party at that time and it had a positive influence on Taiwan’s political and economic development. As for the economy, the situation after the relocation was extremely poor and consequently the top priority of the ROC government was economic development. In the 1950s and 1960s, the basic focus was to improve the living standard and enhance national strength. After 1970, the main objective was shifted toward establishing a self-sufficient economy.

Local elections were held in the ROC during Chiang Kai-shek’s period as a president. Indeed, in that time a solid foundation and a basic groundwork for democracy in Taiwan was established. Later, when the ROC was led by Chiang ChingKuo, the KMT adopted a more tolerant attitude, relaxed its policies and gradually opened up the political system. This stage of development is viewed as the start of the progress of Taiwan’s democracy because of the vast number of improvements made to its democratic features. The formal announcement of the Democratic Progressive Party (DPP) on September 28, 1986, marked the second stage of Taiwan’s democratic development.

On October 15 the same year, Chiang Ching-Kuo lifted the Emergency Decree and the ban on the formation of new political parties, and thereby signaling the takeoff of democracy in Taiwan. Chiang Ching-Kuo’s successor, Lee Teng-hui, followed the same line as Chiang Ching-Kuo and they have both played a vital role in Taiwan’s democratization. The result of their prodemocracy movements is a “political democracy”, where the nation’s leader is now elected by the people.

Current cross-strait conditions The first direct presidential election of the ROC was held in March 1996, and the sitting President Lee Teng-hui was reelected.

In the second direct presidential election 2000, the opposition Democratic Progressive Party (DPP) candidate won. With the inauguration of the incumbent president, Chen Shui-bian, the DPP became the new ruling party. This was the first democratic change of government ever in Chinese history. Taiwan’s third

1 The Chungli incident November 19, 1977: Hsu Hsin-liang split from the KMT and his supporters suspected that the KMT was involved in vote fraud so they surrounded the Chungli police station and a riot ensued.

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Andreas Sigurdsson

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Tamsui River, Taipei

presidential election is scheduled for March 2004.

The Chen Administration has emphasized the need for ending corruption and promoted the need of political reforms and generally populist positions of concern for the environment and the working people. One of the most significant differences between the DPP and the KMT has been their views on Taiwan’s independence. During the 1990s, when the DPP matured and gained a more noteworthy role in Taiwan politics, it modified its standpoint on this question. Even though the DPP still stands for independence, Chen has promised not to declare independence or to hold a referendum on the issue, but only under the condition that the PRC does not use military force against Taiwan. The KMT maintains that reunification with China should remain an ultimate goal, but this can only be considered if the PRC achieves a democratic government and an appropriate level of economic prosperity.

As for mainland China, the PRC states that the cross-strait issue can be discussed, but first, Taiwan has to accept the “one China “principle. President Chen has stated that “one China” as a pre-condition is unacceptable, but that it can be identified as an issue to be dealt with by the two sides. The PRC has made some efforts by delivering new expressions, as for instance – “both the mainland and Taiwan are a part of China”. Despite efforts from the mainland, most DPP leaders lack trust of the PRC and are skeptical about the consistency of their more flexible position.

During President Chen’s speech on October 11th 2003, the nd 92 anniversary of the founding of the ROC, President Chen appealed to Beijing to abandon its “one China” ideology and to end its military threats in order to make peace possible. “The ‘door to cooperation’ can open only if the ‘one China’ and ‘one country, two systems’ formulas are put aside,” Chen said and as for the military he expressed: “The ‘door to peace’ can open only when China renounces its threat to resort to the use of force

and halts its strategic attempts to isolate Taiwan internationally.”

According to President Chen the democratic society Taiwan has developed during the last decades has played an essential role for Taiwan’s internationalization. “All these years, Taiwan has been able to take an active role in the international arena, not merely because of our strong economic and trade capabilities, but, more importantly, as recognition of our relentless pursuit to put into practice our foundation of democracy and freedom,” he said.

With the change of leadership in Taiwan, from the KMT to the DPP, it was obvious that the DPP’s traditional selfdetermination stance would get into conflict with the PRC’s intention to take back Taiwan. Just as Chen adjusted his political approach in the sovereign issue, the Chinese Communist Party (CCP) changed its attitude against the DPP. Since 2002, DPP members are welcome to visit the PRC as long as they are not unreasonable advocates of Taiwan independence. While the PRC has lifted its ban of DPP members traveling across the strait, Taiwan has also adjusted to a more open attitude towards PRC nationals. The cooperation between the PRC and the ROC is enhanced today, but the trust is still low on both sides of the strait.

As mentioned, Chen wants a referendum about the independence issue and that is a sore point for the PRC who claims that Taiwan is preventing improvement of the relations.

In effect, the changed position on independence, from actively encouraging independence to passively remaining the status quo is crucial from a Taiwanese perspective. The KMT have still not got over the defeat in the election of 2000, and takes every chance to sabotage the policies of the DPP. The KMT, whose policy has always been “go slow, be patient”, is now playing the reverse role against the DPP, accusing them of going too slow.

On October 13, 2003, the Nationalist Party stated that they want

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to sue Chen for libel, as he is accusing the KMT and the Peoples First Party (PFP) of having accepted secret aid across the strait.

The PFP is a young party, established in 2000 and led by James Soong, a former member of the KMT. Since Chen declared that the “pan-blue alliance”2 had received secret assistance from Beijing, the KMT Chairman Lien Chan and PFP’s James Soong have been cooperating to challenge Chen’s re-election bid.

Meanwhile, according to the director of the National Security Bureau, no evidence has yet been found to prove that secret aid has been received.

KMT’s spokesperson Alex Tsai has said that they will take legal action against Chen for his slanderous remarks against the party. Furthermore, Tsai stated that “starting from today, the party will set up a legal panel which will, day by day, record all Mr. Chen Shui-bian’s inappropriate and illegal remarks /… / We will then gather them all and press charges [against Chen] on May 20 next year”. Since the president has the benefit of executive immunity from prosecution during his term of office, the KMT must wait until that term ends, which will be on May 20, 2004.

The PRC’s attitude toward Taiwan has slightly changed, most likely as an effect of the changes in Taiwan’s domestic political situation. The fact that DPP members have been invited to the mainland is a great step forward, but still the PRC does not seem willing to move forward on formal talks, not even on issues such as the three links3 that are of mutual interest.

However, since the business flow between the mainland and Taiwan has increased in the last few years and accelerated even more since they both entered the World Trade Organization (WTO), the need for direct links has become an urgent issue.

There is yet no direct link between the two, but since September 25, 2003 indirect charter cargo flights by Taiwanese carriers to destinations in China, via Hong Kong and Macau, are allowed.

The fundamental question is about the definition of the flights.

On one hand, the PRC’s opinion is that Taiwan is a part of China and therefore the flights are domestic. On the other hand, the Taiwan government sees the flights as international flights. Chen remarked that indirect cross-strait charter flights represent the most viable provisional solution on the air transport problems, as they demand the least change in the status-quo when talking about direct links in the cross strait issue.

Taiwan’s accession to the WTO Taiwan’s entry into the WTO finally became reality on January 1, 2002. In fact the ROC became a member of the world trading system under the General Agreement on Tariffs and Trade (GATT) as early as 1947, but only three years later the ROC formally withdrew from GATT when the nationalist government relocated to Taiwan. In the 1960s, when Taiwan began to establish trading power, the interest of a GATT participation reappeared

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and in 1965, the ROC was given an observer position in the GATT meetings. The observer status was kept until 1971 when the issue of recognition of PRC arised. In 1990, the ROC applied to become a GATT member, but to avoid a clash with the PRC Taiwan applied as the “Separate Customs Territory of Taiwan Penghu Kinmen and Matsu”. In 1995, the accession application was transferred to the WTO, and since January 1st 2002, Taiwan has been a member of the WTO. The trade across the strait has increased over time. China’s economic modernization has made it an attractive destination for Taiwanese business and the accession of both China and Taiwan to the WTO has further accelerated the cross-strait trade. During their short time of membership, the interrelation and the economic integration between Taiwan and China have increased rapidly. Capital is flowing across the strait but the economic relationship is extremely skewed, with the outflow of Taiwanese capital to the Mainland, but almost nothing in the opposite direction. With increasing Taiwanese Foreign Direct Investment (FDI) and enhanced ability to attract human capital and resources from Taiwan, the PRC’s confidence in the TaiwanChina issue is growing. On Mainland China’s behalf, the lack of transparency makes the business environment more problematic than needed and with the accession to the WTO China has been required to deal with the problem. There still remains a lot to improve but the Chinese attitude has ameliorated and the environment has become more transparent.

Simultaneously, as executives are moving their businesses into China with all its opportunities, Taiwan is concerned about the domestic economic slowdown and increasing unemployment.

Another anxiety from a Taiwanese perspective is that Taiwan might become overly dependent on the PRC. The majority of overseas investments the last decade have been in electronics, metal products, petrochemicals and plastics, food and beverage processing, non-metallic minerals, medical equipment, and services. Lately the investment has shifted more to electronics and IT production and the Taiwanese are worried that Taiwan’s high-tech sector may be relocated to the mainland too rapidly.

Furthermore, Taiwans’ security planners are concerned that the establishment of these kinds of businesses might indirectly help the PRC to develop its military capabilities. However, owing to all the opportunities in the Chinese market place and the accession to WTO, the business relations will keep growing.

Prior to the entry in the WTO, Taiwan had developed a rather stringent system of regulations to control investment activities in the PRC. The system was created because of concerns of unemployment, unregulated capital outflows, and the risk of transferring technology into China. Consequently, there is a long list of business activities where Taiwanese investments are forbidden. With the accession to WTO, Taiwan now has to liberalise the market to make it compatible with the WTO

2 The Legislative Yuan is split between two political coalitions. The first coalition-the “Pan-Green” alliance-is made up of the DPP and Taiwan Solidarity Union Party (TSU) and holds 100 seats in the 225-seat legislature. The second coalition-the “Pan-Blue” alliance-is made up of the KMT and PFP and holds approximately 114 seats.

3 The three links: Direct, commercial, and air and sea links between the Chinese mainland and Taiwan

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framework, which implies that regulations regarding investment in the mainland must be relaxed. The liberalisation also demands that Taiwan reduce the government intervention such as subsidies and other discriminatory measures. The result of these drawbacks might be that the membership in the WTO appears frightening for Taiwan. On the other hand, the membership gives the ROC the chance to trade internationally on the same conditions as the PRC. Taiwan’s membership in the WTO has somewhat eroded the PRC’s attempts to obstruct Taiwan from acting as an international player, and has raised the concern that Taiwan may use the WTO to declare independence. On one hand, China has stated that trade issues can be resolved between Taiwan and Mainland China without the WTO framework, but in contrast, Taiwan is willing to cooperate and discuss trade issues with mainland China through the WTO. According to Chen Shuibian, both sides should adopt a pragmatic approach, set aside differences and engage in negotiations to solve the encountered problems, in order to obtain the greatest benefit for citizens on both sides.

Sources

Conclusion

The Sino web-page, Sinorama magazine http://www.sinorama.com.tw/en/Taiwan50/ Taiwan-50-1.html

The past plays an important role for the cross strait issue since Taiwan and China, de facto, are strongly interconnected through their common historic heritage. More importantly though, are economic power and political causes. Despite political issues such as power and revenge, it is obvious, from an economic perspective, that greater cooperation would be favourable for both parts. The PRC needs Taiwan’s know-how and capital while Taiwan needs China’s manufacturing capabilities as well as China’s emerging markets for industrial and consumer products.

The accession to the WTO enhances and facilitates trade across the strait and a possible development is that trade will further improve the cooperation and negotiations between the PRC and the ROC. The final outcome however remains to be seen. b

The Taiwan.com.au portal http://www.taiwan.com.au/Polieco/History/ROC/ report02.html Acia-Pacific Digital Library http://apdl.kcc.hawaii.edu/~taiwan/history.htm Taiwan in the WTO: an economy and policy analysis http://www.taipei.org/un/wto0223.htm#2 The U.S. Commercial Service http://www.usatrade.gov/Website/CCG.nsf/ShowCCG? OpenForm&Country=TAIWAN Taipei News http://www.taipeinews.com/p/ea/e644ee104bf4.html? id=1682715#top http://www.taipeitimes.com/News/front/archives/ 2003/10/11/2003071243 http://www.taipeitimes.com/News/front/archives/ 2003/10/14/2003071584

Board of Foreign Trade, Taiwan http://www.trade.gov.tw/english/page312.htm Carneige Endowment for International Peace http://www.ceip.org/files/events/2002-01-30-chinameetingsummary.asp Center for Strategic and International Studies http://www.csis.org/asia/events/020206deng.pdf National Committee of American Foreign Policy http://ncafp.org/projects/2003clough.pdf http://ncafp.org/projects/2003hsu.pdf http://www.ncafp.org/projects/2003hsiao.pdf

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The miracle explained:

Taiwan’s industrial development The development in Taiwan has been a continuous success story over the past decades. From being an agricultural based economy in the middle of the 20th century, Taiwan is today one of the world leaders in the highly agile and technology intense Information and Communication Technology industry.

Industry watchers claims that Taiwan now has the world’s largest and most dynamic venture capital industry, surpassed only by Silicon Valley. What is the story; and what were the key elements in this rapid success of Taiwan’s industry?

Back in the 1960s and early 1970s Taiwan became an important manufacturer on the global market due to its cheap labor. The economic growth of this era paved the way for further economic development. However, the reluctance of developed countries to transfer advanced technology to Taiwan caused severe problems as Taiwan tried to enter into a new phase of industrial development in the second half of the 1970s. As a result the government took a more active role in the development.

Policies were formed to target the growth of strategic industries and R&D activities.

Development strategy Taiwan’s leaders set out to create their own comparative advantage where none had existed. The general view in economic circles in the 1970s was that anything dynamic and technologically sophisticated had to be located in the private sector, while the public sector would be used for utilities and low-profit activities that no-one else would want to do. Taiwan, by contrast, set out to create its core high-technology capabilities within the public sector, and then used these institutional creations as gateways for rapid diffusion of technological capabilities to the private sector.

Initially, the government intervened by providing tax incentives and financial assistance to high-tech industries. It subsequently started to invest heavily to secure R&D (Research and Development) activities through the Industrial Technology Research Institute (ITRI) in 1973, the Strategic Industry Development Program (SIDP) in the 1980s, and allocation of resources for industrial R&D – particularly the Hsinchu Science-Based Industrial Park (HSIP) and Science and Technology Projects (STP), both in 1979.

The STP aimed to (i) develop new high-tech industries, (ii) upgrade the traditional industries, (iii) strengthen the industrial infrastructure, (iv) enhance resource utilization efficiency, and (v) solve common industrial problems associated with pollution control and industrial safety.

written by Andreas Larsson

The creation of a suitable infrastructure Aiming to produce an environment suitable for Science and Technology (S&T) research, HSIP provided enterprises with adequate industrial infrastructure. The Science Park was established with the conscious intention to facilitate the leveraging of advanced technologies from around the world, and accelerate the uptake and mastering of these technologies by Taiwanese firms.

The Hsinchu Science-Based Industrial Park is modeled quite explicitly on California’s Silicon Valley, whose core is the interaction between Stanford University and a dynamically changing population of IT firms. Hsinchu, likewise, is located next to ITRI and two of Taiwan’s most significant technical universities, the National Chiao Tung University (NCTU) and the National Tsing Hua University (NTHU).

The interaction between ITRI, HSIP, NCTU, and NTHU became an important part of Taiwan’s industrial infrastructure.

ITRI set up incubators in the incipient stage, while HSIP helped fertilize and nurture the technology by providing institutional facilities and networks to reduce the risks and uncertainty associated with R&D investment. Companies in HSIP initially recruited experienced personnel from ITRI, while NCTU and NTHU graduates were the main source for the entry-level expertise. Usually new graduates joined ITRI to gain experience, before switching to companies in HSIP. This naturally achieved arrangement allowed ITRI to focus on research.

In a late-coming industrializing nation, the risks of firms involved in high-tech activities are huge. In Taiwan one sought to reduce these risks by creating a public sector infrastructure (HSIP), public sector capabilities (within ITRI), public sector financing, and publicly funded but privately operated demonstration ventures (for instance United Microelectronics Corp.).

The government’s vision was of a complex industrial ecology, consisting of firms but also research institutes, service houses, and public agencies – all interacting dynamically. Thus, a public sector research institute, ITRI, was created at first, to act as the gateway for technology leverage.

ITRI – the gateway for new technology ITRI, founded in 1973 by the Ministry of Economic Affairs (MOEA), has grown from a small research institute with three laboratories to a vast organization comprising seven laboratories and four centers with a total of more than 6000 employees.

The mission of ITRI is to undertake applied research to accelerate the industrial development of Taiwan in close

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co-operation with Taiwan’s private sector. It conducts precompetitive research on projects sponsored by the Ministry of Economic Affairs, with the view to transfer the outcomes to the private sector, non-exclusively, as well as short and medium term research sponsored by private firms.

The business of ITRI is not front edge research as much as technology transfer; it scans the global technological horizon for developments of interest for Taiwan’s industry and then executes the steps required to import the technology (e.g., under license or through joint development), absorbs it and adapts it.

This is achieved by involving Taiwanese firms in projects that utilize the new technology, and finally transfer it as products, equipment, and know-how to the same firms, which then take over for further commercial development. ITRI acts as a hub in the alliance and will provide a single point of contact to international advanced firms, that in this way can license its technology to Taiwanese firms without having to deal with many small firms simultaneously.

These co-operations or alliances between public and private sectors, built to overcome the scale disadvantages of Taiwan’s small firms, is a characteristic feature of the country’s technological upgrading strategies. The basic model of Taiwanese alliances is the construction of a process that facilitates learning and technology diffusion. Furthermore, via bringing many small firms into a collaborative alliance with each other and with ITRI, R&D costs can be shared and risks reduced.

The goal of these alliances is rapid adoption of new technological standards, products or processes developed elsewhere, and their rapid diffusion to as many firms as possible.

This makes them different from their counterparts in North America, Japan, and Europe, where the goal is to extend the envelope of R&D. Taiwanese alliances are conceived as transient entities, and are disbanded as soon as the goals have been achieved. Perhaps this is the reason why the Taiwan research partnerships have not yet involved participation by universities.

The development of R&D alliances The characteristic features of Taiwan and its institutions is pragmatism and an ability to learn from mistakes. Failures were frequent in the incipient period of the STP due to information asymmetry; researchers often proposed topics based on their own technical interest, which resulted in ITRI developing technology that was technically sophisticated but had limited commercial potential. Consequently, private firms were reluctant to absorb the results owing to commercialization problems.

The role of the firms involved has evolved from being fairly passive recipients, via co-developers (and co-founders), to the point where firms themselves are taking initiatives. However, all the models involve ITRI securing access to technology for Taiwanese firms that otherwise would have been beyond them.

From 1990 MOEA started to encourage the private sector to participate in research projects directly and jointly with the

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research institutions. As a result, private companies became participants in the learning and steering of research projects.

As the electronics and information technology firms achieved sufficient technological upgrade, MOEA started to subsidize private R&D activities directly. Private companies were allowed to submit research proposals and compete with government-sponsored S&T research institutes for STP funding from 1997. The participation of internationally competitive domestic firms, alongside government sponsored research institutes, helped improve the STP further. Academics were included in the competition for STP from 2000.

The success of the STP program The success of Taiwan’s semiconductor industry owes much to the STP program. The program was nurtured by ITRI, that provided the technology development and strengthened the R&D capabilities of domestic firms. The result was spinoffs such as United Microelectronics Corp. (UMC), Taiwan Semiconductor Manufacturing Company Ltd (TSMC), and Vanguard International Semiconductor Corporation (VIS).

The progress made by Taiwan, in closing the “technology gap” to the industrialized countries through the advanced semiconductor industry, made public policy shift toward eliminating the gap completely via deepening the industry’s sustainability. Subsequently, new firms have entered the industry through private-sector technology leverage arrangement. It is remarkable how rapidly the process of technology leverage has moved from the public sector to the private sector.

The industry created is sustainable in the sense that it is potentially capable of standing on its own in the face of international competition. Thus, the institutional infrastructure acted as an accelerating national system of economic learning, where the emphasis has been technology capture and diffusion.

The influence of human capital A central, but largely unrecognized element in the industrial development of Taiwan, is a community of US-educated engineers who have created a social and economic bridge, linking the Silicon Valley and Hsinchu economies.

In the 1960s, talented engineers started to emigrate from Taiwan to the US. In 1965, 47 scientists and engineers immigrated to the US and two years later, in 1967, the number had increased to 1,321. During the 1970s and 1980s, thousands of Taiwanese students came to the US. Most of them stayed after graduation, recognizing that there would be little demand for their skills back home.

The growing number of emigrants joined various social networks to preserve their culture and traditions. Later these social networks evolved towards professional purposes, creating associations to provide resources and role models to assist the advancement of individuals within the community. Consequently, local institutions and social networks played a new role: to

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support intense communications, informal collaboration, and collective learning across firm boundaries.

must move from technology transfer and mass production towards R&D, brand development, and marketing.

Policy makers in Taiwan started to view US-educated engineers as a potential asset in the 1970s as they sought to upgrade the island’s position in the international economy. Drawing heavily on policy advice from overseas Taiwanese engineers, strategies were developed to upgrade the technological capabilities of the private sector, and to promote new firm formation and competition in the emerging information technology industry.

During the 1970s and 1980s, government agencies in Taiwan aggressively transferred state-of-the-art technology from the US. Other measures to diffuse technology were the formation of the Industrial Technology Research Institute and the Hsinchu Science-Based Industrial Park. Taiwan also created a venture capital industry long before it became fashionable elsewhere in the world.

Inter-firm R&D collaborative alliances have flourished, and with them new institutional foundations and facilitative mechanisms have been discovered. The alliances constitute an essential component of Taiwan’s national system of innovation and will continue to do so. To bring more Small and Medium sized Enterprises (SMEs) together in consortia to utilize the flexibility of the vertically disintegrated company structure in Taiwan will be an important step to take in order to succeed in the future international market.

The result was that a growing number of US-educated engineers returned to Taiwan during the 1980s and 1990s. Returning experts played an important role in the technical upgrade of HSIP; almost half of the 97 companies in the Science Park 1997 were started by US-educated engineers, many of whom had considerable managerial or entrepreneurial experience from Silicon Valley. As engineers travel between two regions, they carry technical knowledge as well as contacts, capital, and information about new opportunities and new markets.

Without doubt, biotechnology is one of the future markets of great interest, and Taiwan has already started to make its way into this industry. For instance, ITRI’s newly opened branch in Tainan, in the south of Taiwan, has much of its focus on biotechnology. Also, the new president of ITRI, Dr. Johnsee Lee, was recruited from the Biomedical Engineering Center (BMEC) at ITRI, where he currently holds the position of General Director. He is known as one of the top advocators of biotechnology on both the technical and the business fronts in Taiwan.

The future will also bring further development towards intellectual property and IP-malls, a development which can be seen for example in the Si-Soft project. From a broad perspective, a move towards knowledge and marketing will be the new direction for Taiwan. b

The future development of Taiwan’s industry

Andreas Sigurdsson

The future of Taiwan lies in developing new technologies and integrating them with the strengths of today, i.e. the IC industry and its advanced manufacturing ability. Furthermore, the focus

Typically Taiwanese: motorcycle parking, Hsinchu

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Biotechnology The future driving force behind Taiwans economy?

The concept of manufacturing as the engine of Taiwan’s economy is losing favor. As manufacturing plants are moving to China, Taiwan needs to take the full step into a knowledge based economy in order to continue its economical growth.

Hopes are high that the factors which led to the island’s strength in semiconductor manufacturing and IT-related industries will also translate to biotechnology, augmenting the existing IC and IT industry with a robust biotech industry.

Taiwan’s vision is to play an effective role in developing and commercializing biotechnology in the international biotech community. The government is supporting several national programs and offices and is expected to invest NT$ 150 billion (US$ 4.34 billion) in order to set up more than five hundred biotechnology companies, which are supposed to be a part of the international market within the next ten years. Taiwan wants to become an international biotechnology business link and promote itself as an Asia-Pacific R&D, manufacturing and operations center. This is to be accomplished by a six-year national development plan, which identifies the biotechnology industry as a key task in Taiwan’s development.

Areas of potential Taiwan already has in place the advanced technologies in IC (Integrated Circuits) and IT to drive the integration of these key technologies with basic knowledge on biological systems, such as biocomputing and bioinformatics. Another area of potential is Traditional Chinese Herbal Medicine which has been recognized as one of the future niche markets for Taiwan.

According to Dr. Liu, Deputy General Director at the Biomedical Engineering Center at Industrial Technology Research Institute, there are three paradigm changes happening globally which will also impact the development of the healthcare business in Taiwan. The first area Dr. Liu identifies is pharmaceutical genetics. After completing the mapping of human genetics, research now focuses on finding relationships between diseases and certain defected genes in order to personalize drugs. The second area is regenerative medicine. The people of today live longer than our body parts are originally designed for. Thus new treatments, for example tissue engineering, are required.

The third area identified by Dr. Liu is monitoring of disease processes. The advancements in the IT industry make it possible to design smaller and better devices for collecting and monitoring of data.

written by Martin Ekenbäck

Taiwan’s competitive advantages Favorable location Taiwan wants to market itself as a hub of the dynamic AsiaPacific region; it has geographical proximity to its neighbors Mainland China, Japan, and Korea with similar language and cultural ties. According to the government, these advantages make Taiwan an ideal base from which to penetrate the AsiaPacific market.

World leading IT industry Dr. Liu at ITRI recognizes Medical Device Technology as an area with potential. With Taiwan’s leading IT-knowledge it might be possible to transfer and diversify its products into smaller and more efficient tools for the biotechnology industry in order to collect, monitor and analyze research data.

Favorable investment climate As the biotechnology industry is knowledge-intensive, it requires a strong comprehensive R&D foundation and heavy investments for continued growth. The relatively low cost of R&D personnel and the government’s large annual investment give Taiwan the basic conditions for the development of its biotechnology industry. Besides that, private investors are eager to repeat their success in the IT-industry. To further boost biotechnological growth, various tax relief measures, such as a five year tax-free operation, low shareholder investment tax and tax incentives on company mergers, have been proposed by the government to create a favorable investment climate.

Technology transfer centers The Taiwanese government wants to bring together biotechnology companies and academia by establishing technology transfer centers in key universities around the island. In this way the achievements of research organizations are anticipated to be smoothly applied to the industry. Semigovernmental, nonprofit R&D organizations, such as the Development Center for Biotechnology and ITRI, have helped to build facilities and also play the major role in the technology transfer between universities and the industry. The concept of development is that the government provides funding for equipment, the university contributes personnel and the basic research, while industry researchers pay for the centers’ services.

ITRI picks up promising technology from the universities in order to incubate and commercialize it to the industry with financial support from the Ministry of Economic Affairs.

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Founding of biotech departments and partnerships Through governmental funding, academic institutes are making strides towards innovative research and pay more interest in the applicative value of research results. Increasing numbers of universities have established graduate programs in applied biology, biomedicine, and biotechnology. The demand of graduated students is so high that these are immediately courted by the industry. The government is also actively seeking to establish strategic partnerships with internationally renowned biotechnology companies and organizations. Several joint research programs with international institutes in the United States, Canada, Australia, and other regions are in progress.

The shortcomings of the biotech development Even though Taiwan has the R&D structure in place and has improved the environment for development, the biotech industry is still in its infancy. There are many differences between IC and biotechnology. The know-how that built the electronics industry will not necessarily translate into competence in biotechnology.

Shortage of competent personnel The most severe shortcoming the biotech industry development is facing in Taiwan is the lack of top-level managers and scientists with experience in developing biotech products. Universities have problems keeping competent personnel from moving to the more profitable private sector. Taiwan is also in need of an increased number of advanced research facilities in order to accelerate the biotech industry.

Intellectual Property issues Taiwan has to set standards and improve its handling with Intellectual Property (IP). This is an ongoing process. New patents hit a brick wall when they reach the government’s regulatory body. The IP Office does not have enough biotechnology patent reviewers to cope with the workload. This delays market entry for potentially competitive products.

In Taiwan there is an ongoing discussion whether the protection of IP should be extended or not. International organizations mean that Taiwan’s history of poor protection of IP constitutes a barrier for them to do business there. The protection time is a trade-off. In one hand, the protection of data is one of the basic requirements that have to be fulfilled in order for Taiwan to become a knowledge based economy. On the other hand, technology transfer is in line with the Taiwanese government’s philosophy to accomplish economic growth. Taiwanese semigovernmental organizations like ITRI do not focus on spinning of a few successful companies with superior IP – they focus on technology transfer in order to raise as many successful spinoff companies as possible. ITRI opposes companies that act like knowledge islands. But Taiwan may need to extend the protection if they want to increase cooperation with established

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international biotechnological organizations. Otherwise these organizations might be scared off.

Outlook of Taiwan’s biotechnology industry Taiwan has developed a basic platform for its biotech industry.

R&D has been promoted, and technology transfer centers have been established. Assistance and incentives for investments have been strengthened and international mutual accreditation has been promoted. But still there are some barriers to overcome in order to become an established international biotechnological player. The government and the industry seem to have problems adjusting from being a manufacturing economy to one based on innovation and research.

Since Taiwan does not have a history of a strong biotechnology base, nor a well-developed pharmaceutical infrastructure, it focuses on new areas in biotechnology. In this way Taiwan does not have to play catch-up since everyone is at the same starting point. The government’s “Challenge 2008, The Six-year National Development Plan” contains a concrete plan for how to achieve the objectives regarding the biotechnology sector through gradual improvements each year.

The legal framework and certification system of IP protection for biotechnology related inventions need to be inspected in order to work smoothly. Even though international actors complain about Taiwan’s history of poor IP protection, the situation is gradually changing. Taiwan is nowadays a significant producer of IP and has an own interest in improving the protection.

Through internationalization, technology transfer, education and the government’s six step plan, Taiwan has the basic conditions for solving the problems it is facing at this initial level of development. With serious commitment from the government, internationally significant research and a number of potential investors, biotechnology in Taiwan seems to be gaining momentum. b

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Industrial design in Taiwan:

Into a new century Taiwan has had outstanding economic performance over the past decades. Unfortunately, most design capabilities have failed to keep pace as industries are rapidly progressing.

Improvement of design capabilities is one of the most important tasks as Taiwan is finding its new role in the world economy.

In the past, Taiwan competed in price and the quality of products was not seen as very important. The situation is changing however as Taiwan meets competition with countries like China, where labor costs are lower. Furthermore, manufacturers in Taiwan have been reluctant to create designs of their own – the practice is to copy or imitate products that are already available in other industrialized countries. To be able to compete in the international market, Taiwanese companies have to create strong brands and high quality products with a distinctive design.

Industrial design is one of the keys to upgrade manufacturing industry and build a knowledge-based economy. The task of an industrial designer is to create products that are not only aesthetically appealing but also safe, ergonomically correct and user-friendly, as well as easy to produce and to service.

Development of design expertise Taiwan’s industrial design effort started in the 1960s. The Korean War had dragged China and the United States into conflict, and because of Taiwan’s strategic position, it became a recipient of US aid. This greatly influenced the rapid development of Taiwan and design projects started. The emergence of an Industrial Design education program in Taiwan was more forethoughtful than imperative, as most of Taiwan’s manufacturers were busy making Original Equipment Manufacturing (OEM) products.

The reason why the Mingchi Institute of Technology (MIT) decided to set up such an education program was simply that a Japanese expert, Mr. Koike, suggested that it was “the only way to make economy take off”. However, the demand of designers was sparse and early graduates got job positions in marketing, engineering and even advertising. Industrial designers lacked a clear identity and the profession was not well known to the public. The program level was also too low to change these conditions.

In 1973, the National Cheng Kung University offered the first Industrial Design program at university level. Since the late 1960s, Taiwan had invited Japanese and German designers to hold lectures and seminars. Many students also went to Japan, Germany or the United States to study. In the late

written by Klara Sibeck

1970s, the quality and number of students completing formal education in Taiwan had improved. At the same time, many design students returned from studying abroad, and the earlier shortage of qualified local teachers was solved. Furthermore, the economic recession in the 1980s led to an awareness of the need to upgrade and innovate product design. This resulted in the golden age of industrial design education in Taiwan, with 13 new undergraduate and 12 graduate programs established between 1987 and 2000. In the year 2000, the rapid expansion of design programs had reached a point when improvement of quality was expected and the first doctoral program in industrial design was started.

Today, Taiwan suffers no lack of educated industrial designers as approximately 400 students complete their Masters degree every year – a large quantity compared to other industrialized countries. According to Mr. Chuang, professor in Industrial Design at National Chiao Tung University, influences from Japan have given most Taiwanese design educations the advantage of being situated under the faculty of engineering, resulting in a similarity to industrial engineering programs and closer relations with industry. Comparatively, most educations in the US are situated under art faculties.

There are also disadvantages of the Taiwanese education system: the masters programs emphasize theory too much, according to Chuang. Currently, all masters students have to write a theoretical master thesis rather than carry out a practical design project. Students are expected to acquire enough design skills during their bachelor education, but Chuang argues that this is not sufficient for developing the expertise needed for practical work. Only a small amount of the students should focus on theory since most of them will work in the industry.

Incentives to strengthen design Throughout the industrial development in Taiwan, small and medium sized enterprises have dominated the market. These companies have not had the resources to consider design matters, and consequently, the progress in design has relied upon government support. In 1979, the Design Promotion Center (DPC) was founded as a part of CETRA, China External Trade Development Council. Through joint efforts by the DPC and the private sector, Taiwan has seen some fruitful development: many local manufacturers have set up design departments and a number of design firms have emerged. In the earlier stages of industrial development in Taiwan, the government helped

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manufacturers employ industrial design facilities by paying part of the designer’s salary. Today, companies will mainly have to survive by themselves but projects can still be subsidized through the DPC’s programs to promote product design and help corporations with image building. The DPC enjoys the role of coordinator and organizes design exhibitions, seminars and competitions.

Still, the list of Taiwanese high-quality design products is not long. Companies like Acer (computers), BenQ (computers, telephones etc) and Giant (bicycles) are becoming internationally recognized, but the standard is still comparatively low, according to Jason Deng from the Design Information Sector at the DPC. He states that the design process in Taiwan is very special since it is generally conducted on an Original Design Manufacturing (ODM) basis. ODM companies design and manufacture their own products but usually sell them under another company’s brand name. Products for international brands like Apple and Palm might be designed by a local Taiwanese talent even if he or she will not be accredited officially. The business trend is to locate design near the production site, since a close cooperation between design and production ensures manufacturability of the product. One example of this arrangement is digital cameras: Taiwan is a leading manufacturer in this field, with the consequence that the design of many digital cameras is carried out in Taiwan. ODM companies in Taiwan are small, which makes them flexible and able to react to clients’ needs extremely fast; a product might be designed in only two weeks. Taiwanese designers have a reputation of being able to do qualitative design rapidly, and even though domestic industry so far does not have the resources for producing high-quality Taiwanese brand products, the proficiency level of human resources has obviously improved.

In contrast, there is a trend in the opposite direction: Taiwanese companies seeking help from Italian or German designers in developing products suited for the European market. Most Taiwanese products are designed for export, and so far, there is no detectable attempt to develop a Taiwanese style in industrial design – rather, companies strive towards internationalization. Globally, consumer tastes are converging as the same products are marketed all over the world. This development would imply no need for expression of regional attributes in products. However, retrogression toward a demand for unique product design might occur, leaving Taiwan emptyhanded. The government has realized the lack of identity and the Challenge 20081 includes an effort to develop cultural design. This will start with handicraft products and it is uncertain whether or not the endeavor will reach higher levels and influence technical products, but at least the incentive shows an awareness of the importance and attractiveness of traditional

culture. If consumers associate Taiwanese products with a special identity and unique attributes, Taiwan will finally get rid of its old reputation as “the kingdom of piracy”. However, which will these attributes be? Independence groups on Taiwan are increasingly alienated from Chinese culture and try to deny the heritage of mainland China, which leaves Taiwan with little culture of its own. Developing a Taiwanese style in design remains a challenge in more than one way.

Ways for the future No matter how much Taiwan wants to separate from its crossstrait neighbor, China is becoming the global manufacturing site and the country the whole business world is focusing on. The growing China market is Taiwan’s opportunity to compete with customized products since the language and cultural background is the same. This gives Taiwan an advantage over its industrialized Asian neighbors. However, Korea is far ahead in design, partly because the industry model is different from Taiwan’s; companies tend to be bigger, which implies more resources for design. Furthermore, the Korean government is concentrating heavily on design and the number of graduate students is even larger than in Taiwan. While Taiwan still lacks international brands, Korea has companies such as Hyundai and Samsung that have been successful in design. Korea seems to be Taiwan’s biggest competitor at the present, as Taiwan’s relationship with Japan is of a more cooperative type. The inequality of this cooperation is gradually diminishing as Taiwan’s industry is slowly gaining up to Japan’s level. Other industrialized Asian countries, i.e. Singapore and Hong Kong, have no manufacturing facilities and, according to the current trend – to locate design with manufacturing – no industrial design. However, Taiwanese design will meet competition from an unexpected source, namely China itself. Design skills on the mainland might still

1 Challenge 2008 is a five-year national development plan, seeking to revitalize the economy. One project is a national design center Taiwan Institute of Design (TID), aiming at upgrading the design capabilities of both traditional and high-tech industries in Taiwan. TID is scheduled to open in December 2003.

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be embryonic, but much will happen in the next ten years as China is focusing on developing this competence. Soon, China will have a large, qualified, and – maybe most important – very cheap industrial design workforce.

To conclude, Taiwan is a small island with few natural resources and an increasingly expensive labor force. As China is becoming the new global manufacturing site, Taiwan can no longer compete in this field. These circumstances will force Taiwan to change its scope and produce quality high-tech products and good designs.

Taiwan’s disadvantage is the small size of the companies; they have little means to spend on design. On the other hand, the small size is also an advantage as it makes companies flexible and quick to react to orders and market demand. Taiwan has a trump card: the China market, but is facing challenge from other Asian countries as well as from mainland China. The challenge for Taiwan is also to convince companies to go for design; many manufacturers still see the design of their products as only surface styling. Taiwanese corporations possess advanced electronic technologies and top grade manufacturing quality, but these qualities are often hidden from consumers through average designs and poor interfaces. Good industrial design can actually increase a product’s market value without increasing production costs, and as the industry is changing from OEM to ODM, industrial design will be an important weapon in facing international competition. One day, Taiwanese companies will be ready to take the step into the next phase – Own Brand Manufacturing – and build international brands with unique designs. b

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Sources “Industrial Design in Taiwan 1959-1994”, Andy Cheng et al.

“Experience in Product Design and Development in the Republic of China”, David U. C. Liang, President Acer Design & Development Corp., 1990 “A turning point: The very first Ph.D. program in industrial design in Taiwan”, Kuohsiang Chen, 2000 “Designing the future”, Jeffrey Babb, China Post “Taiwan’s future in Design”, Han Wang, Taiwan International Trade, autumn 2003 China External Trade Development Council www.cetra.org.tw

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Taiwan’s technology transition:

written by Andreas Sigurdsson

From Integrated Circuits to System-on-Chip In the early 1960s, the IC industry in Taiwan was no more than a vision. Forty years later, Taiwan is known as the Silicon Island. In 2001 Taiwan became world leaders in IC design, IC foundry, IC packaging and ROM chips. As manufacturing facilities are being moved to China, Taiwan is developing into a knowledge-based economy where innovative design and intellectual property will become more important than manufacturing.

In the late 1950s, Taiwan realised the importance of electronics technology. National Chiao Tung University (NCTU) was established in 1958 with only one institute, the Institute of Electronics. At this moment, Taiwan’s quest for knowledge on semiconductors and IC technology began.

Taiwan’s IC industry was born in the 1960s with a small but well developed IC packaging industry. In 1974, the Industrial Technology Research Institute (ITRI) founded the Electronic Research and Service Organisation (ERSO). ERSO provided the basic laboratories and personnel for the transfer of technology from countries such as the US. An important milestone was the project between ERSO and the American electronics corporation RCA to transfer CMOS1 IC technology to Taiwan.

To make use of Taiwan’s advantage in human resources – well-trained engineers and technicians willing to work from 7.00 am to 11.00 pm – the government built Hsinchu Science Based Industrial Park (HSIP). The park is situated near ERSO and two leading universities: National Chiao Tung University (NCTU) and National Tsing Hua University (NTHU). In 1979 the first IC industries started building facilities in the HSIP. Until the middle of the 1980s, Taiwan was still in the packaging industry. The first step towards IC manufacturing was the foundation of the United Microelectronics Corporation (UMC). UMC was established as a spin-off from ERSO to retain its primary role of research and to reduce its manufacturing role.

UMC began to produce and sell ICs while ERSO kept their main mission of research.

In 1987, Taiwan Semiconductor Manufacturing Company (TSMC) was established. It was the first professional IC foundry in the world and marked the beginning of Taiwan’s IC design industry. With the formation of TSMC and UMC, the foundation of the IC industry was complete. Taiwan began making Computers, PC peripherals and communication devices that overall increased the IC production in Taiwan.

1 Complementary Metal Oxide Silicon

The companies in HSIP formed supply chains in which they both competed and cooperated in IC production and operation. During the 1990s, Taiwan added support industries to the supply chain and the network was completed with over 150 industries and a workforce exceeding 50 000 employees.

With cost effective production and effective management, the Taiwanese IC-industry had a winning concept in the global competition. Taiwan became ‘the Silicon Island’, producing most of the world’s notebook computers, and was ranked first in the production of more than a dozen categories of computer components and peripheral devices.

From IC to SOC Taiwan is no longer in possession of a cheap labour market; its days as a low-cost manufacturing base are counted. Just across the strait, mainland China is showing an increased development in manufacturing while other countries in Asia are seeing a boom in service and intellectual property development. Europe, Japan, Korea, the US and Taiwan are transferring design and manufacturing technologies to China as Taiwan’s role as an OEM centre is changing. Its mid-range manufacturing is being phased out to China as Taiwan focuses on producing chips with more advanced processes. This development should not be seen as negative only: manufacturing advances on the other side of the strait complement and support the market shift in Taiwan, and help it change toward a knowledge intensive industry. This is not a development unique for China and Taiwan; all over the world manufacturing growth in one area is complemented by the growth of knowledge-based economies in other areas.

High-tech industries have become the backbone of Taiwan’s industrial structure. With the share of high-tech products in total exports reaching 54.4% and the added value created by knowledge-intensive industries being 43% of GDP, these industries are considered to be the driving force of the economy.

The government and the industry both believe that Taiwan should continue focusing on its capabilities in IC design and System-on-Chip (SOC) in order to maintain its global technological leadership and make its semiconductor industry advance further. The semiconductor industry is shifting to the creation of intellectual property – the innovation behind the products manufactured. Instead of focusing on production, Taiwan will focus on the design of products and product

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components, and finally marketing of its own brands. To succeed in this, manufacturing strengths must be used as an engine to drive new designs.

UMC. Also National Chiao Tung University takes part in the Si-Soft project, with NCTU’s president, Mr Chang, as one of the project leaders.

Taiwan’s global business environment is ranked third in Asia (Economist Intelligence Unit, Nov 2002), surpassed only by Singapore and Hong Kong, and surpassing South Korea, Japan, Malaysia and China. The last few years, a major initiative has been to entice foreign companies into building R&D centres in Taiwan. Another project has been to promote international standards domestically and abroad in order to ensure that chips made in Taiwan can be used in products everywhere.

What is SoC? The new functionality for chips, system-on-chip, is a technology for integrating as many functions of different chips as possible into one single chip. With the new technology it will be possible to make smaller chips that conserve more energy and can perform more operations, which will reduce costs and save space. With SoC devices, smaller and lighter than before, there will probably be a big breakthrough in the market for cell phones and PDAs. An obstacle in making a SoC is that it requires a lot of intellectual property (IP). Instead of creating all the IP needed for the chip, a lot of time could be saved if it was possible to use part of someone else’s IP and put it together with your own. Companies like HelloBrain are already trying to do this on the Internet. One of the goals in Taiwan’s Si-Soft project is to provide an IP Mall, making it possible for designers domestically and worldwide to buy the IP they need and save both time and money.

National Projects and Governmental Influence on the Industry Beside the focus on design and the shift of industries, the government of ROC has no certain directions for the industry.

Instead, money is placed in funds and promising projects can get financial support. A national project usually has 1-3 years to meet a matrix, or will otherwise lose its foundry.

The National Si-Soft project is an initiative that builds on Taiwan’s achievements in manufacturing to launch a new wave of companies that will contribute to the core underlying technology used in the creation of electronic products. The objectives for the Si-Soft project is to develop SoC infrastructure for domestic as well as international production facilities, but also to build an IP-mall were it will be possible to source regional designs, mixand-match IP, and manufacture and test integrated circuits.

The National Si-Soft project is divided into five parts: 1. Innovative product designs § SoC solutions 2. Silicon intellectual property (SIP) development § A broad range of SIPs, verified for robustness 3. Electronic design and automation (EDA) flow integration § New platforms to test and verify virtual components.

4. SIP mall § A variety of SIPs put together for customers to quickly select and integrate the SIPs in to SoC designs.

5. Design service solutions § SoC industrial park constructed to better serve customers around the world The Si-Soft project predicts NT$ 30 billion in revenues 2005, particularly from sales of IP. In the year of 2010, the revenues will exceed NT$ 300 billion from the marketing of innovative products. This creation of Taiwan’s knowledge economy does not mean a change to another manufacturing strategy; instead, the Si-Soft strategy builds on the existing industrial infrastructure and utilizes existing industrial strengths. The emphasis is placed on product development that will upgrade the existing manufacturing base.

Many companies are involved in this project, one of them is

Taiwan’s future On its small island, Taiwan has managed to create an ability to design, build and operate the world’s best semiconductor foundries and packaging factories. Its international competitiveness today lies in highly-skilled R&D personnel, R&D applications, incorporation with multinational industries, and a highly integrated electronics supply chain. Taiwan has become a world leader in foundries and packaging and is the second largest IC design centre after the US. However, Silicon Valley is transferring its design to China and so is Taiwan’s own companies. This makes it necessary for Taiwan to build up its design capability as soon as possible.

The long term objective and vision of the Si- Soft project is to promote the creation of IP by Taiwan’s design houses and to lead the third wave of industrial development, where Taiwan companies are not only important members of the global electronics supply chain but also direct contributors to the design, manufacture, and marketing of brand name electronic products and consumer goods. An obstacle is that most Taiwanese design houses are small with only a dozen engineers.

In comparison, Japanese design houses may employ a couple of hundred engineers. To win this competition, Taiwan has to link all its small design houses in a collaborative network. A possible way to do this is using IP malls.

Whether Taiwan’s firms will move from manufacturing to brand and development or not depends on the integration of the design chain. However, some problems exist, for example: there is a shortage of talented staff, and there are weaknesses in the supply

CITO BULLETIN

chain. Plans to solve this include the establishment of a National Science and Technology Program for SoC Technology which will solve manpower and talent shortages. Also, foreign talents will be recruited to help advance the industry. The government and the private sector are working together, and within the next few years more than US$ 225 millions will be invested to develop SoC technology.

To make the transition from IC to SoC to work smoothly, and to be world leaders in IC, Taiwan needs to adjust its industry for coming challenges and demands. Creation of IP and the ability to design chips is an important part, and if Taiwan’s goal for the future comes true, we will all have Taiwan IP in our electronic products. b

November 2003

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Sources Island Recovery http://www.stroudgate.net/biap/articles/166b.html Taiwan should focus on IC design, SOC technologies: MOEA http://www.taiwanheadlines.gov.tw/20020104/20020104b1.html The second Industrial Evolution of Taiwan -- Si-Soft project http://www.eic.nctu.edu.tw/SOC/doc/Sisoft-Eng.pdf Taiwan Bets on System-On-Chip Technology http://www.internetnews.com/infra/article.php/1457901 Industry Status, Semiconductor Industry Promotion Office http://www.sipo.org.tw/en_view/content02.htm New chip-design tool kit may give TSMC an edge http://www.taipeitimes.com/News/biz/archives/2002/08/30/166151 IC design set to grow this year http://www.taipeitimes.com/News/biz/archives/2002/01/04/118607