2011Vol.41 No.8 by AmCham Taipei

INDUSTRY FOCUS A Report on Taiwan’s Hotel Industry

August 2011

Vo l u m e 4 1 N u m b e r 8

w w w. a m c h a m . c o m . t w

Semiconductors:

Continuing Growth, Mounting Challenges 半導體業：持續成長、艱困挑戰

NT$150

8_2011_Cover.indd 1

ISSUE SPONSOR

2011/8/31 11:36:28 AM

CONTENTS

NEWS AND VIEWS

4 Editorial

9 Issues

A Need for Open Dialogue AuguST 2011

VOlumE 41, NumbEr 8

一○○年八月號

Publisher

Andrea Wu

Revising the Patent Law; Protecting Proprietary Chemical Information; Regulating the Collection of Royalties

良善政策始於坦誠溝通

5 Taiwan briefs By Don Shapiro

發行人

吳王小珍

Editor-in-Chief

總編輯

Don Shapiro Art Director/

專利法修正案；保障化學物質的專利權；著作權收費規範應更合理

沙蕩

COVEr SECTION

美術主任 /

Production Coordinator

Katia Chen Staff Writer

Jane Rickards

後製統籌

Taiwan’s two giants – TSMC and UMC – have remained strong, fending off competition from new rivals through continuous expansion and the development of new technology. Taiwan is also home to the world’s largest chip assembly and test industry, and it has had impressive success in the chip design sector, although those “fabless” companies are now facing new competition from Chinese counterparts. The problem portion of the industry has been the manufacture of DRAM memory chips, where most of the players have been under severe financial pressure. Today the sector is reliant for its technology on Elpida of Japan and Micron of the United States. By Alan Patterson 撰文／白逸仁

陳國梅採訪編輯

李可珍

Manager, Publications Sales & Marketing 廣告行銷經理

Irene Tsao

曹玉佳

Translation

Zep Hu

翻譯

胡立宗

American Chamber of Commerce in Taipei 129 MinSheng East Road, Section 3, 7F, Suite 706, Taipei 10596, Taiwan P.O. Box 17-277, Taipei, 10419 Taiwan Tel: 2718-8226 Fax: 2718-8182 e-mail: amcham@amcham.com.tw website: http://www.amcham.com.tw 名稱：台北市美國商會工商雜誌發行所：台北市美國商會臺北市10596民生東路三段129號七樓706室電話：2718-8226 傳真：2718-8182 TOPICS is a publication of the American Chamber of Commerce in Taipei, ROC. Contents are independent of and do not necessarily reflect the views of the Officers, Board of Governors, Supervisors or members. © Copyright 2011 by the American Chamber of Commerce in Taipei, ROC. All rights reserved. Permission to reprint original material must be requested in writing from AmCham. Production done in-house, Printing by Farn Mei Printing Co., Ltd. 登記字號：台誌第一零九六九號印刷所：帆美印刷股份有限公司經銷商：台灣英文雜誌社台北市105敦化北路222巷19之1號1樓發行日期：中華民國一○○年八月中華郵政北台字第5000號執照登記為雜誌交寄 ISSN 1818-1961

OFFICERS: Chairman/ Bill Wiseman Vice Chairmen/ William E. Bryson / David Pacey Treasurer: Carl Wegner Secretary/ William J. Farrell 2010-2011 Governors: Michael Chu, Alan Eusden, Douglas R. Klein, Cindy Shueh Lin, David Pacey, Stephen Y. Tan, Lee Wood. 2011-2012 Governors: William E. Bryson, Alexander Duncan, Christopher Fay, William Farrell, Steven Lee, Neal Stovicek, Carl Wegner, Bill Wiseman. 2011 Supervisors: George Chao, Varaporn Dhamcharee, Jenny Lin, Ashvin Subramanyam, Ken Wu. COMMITTEES: Agro-Chemical/ Melody Wang; Asset Management/ Christine Jih, Winnie Yu; Banking/ Carl Chien; Capital Markets/ William Bryson, Jane Hwang, Jimin Kao; Chemical Manufacturers/ David Price; CSR/ Lume Liao, Fupei Wang; Education & Training/ Robert Lin, William Zyzo; Greater China Business/ Helen Chou, Stephen Tan; Human Resources/ Richard Lin, Seraphim Mar, Ashvin Subramanyam; Infrastructure/ L.C. Chen, Paul Lee; Insurance/ Mark OÆDell, Dan Ting, Lee Wood; Intellectual Property & Licensing/ Jason Chen, Jeffrey Harris, Scott Meikle, Douglas Weinstein; Manufacturing/ George Chao, Albert Li; Marketing & Distribution/ Christopher Fay, Wei Hsiang, Gordon Stewart; Medical Devices/ Nelson Hsu, Daniel Yu; Pharmaceutical/ David Lin, Edgard Olaizola, Jun Hong Park; Real Estate/ Peter Crowhurst, Kristy Hwang; Retail/ Prudence Jang, Douglas Klein; Sustainable Development/ Eng Leong Goh, Kenny Jeng; Tax/ Cheli Liaw, Jenny Lin, Josephine Peng; Technology/ Revital Golan, R.C. Liang, Jeanne Wang, Deborah Yen; Telecommunications & Media/ Thomas Ee, June Su, Jason Wang; Transportation/ Michael Chu; Travel & Tourism/ Pauline Leung, David Pacey.

13 Semiconductors: Continuing growth, mounting Challenges

半導體業：持續成長、艱困挑戰 In the foundry segment of the industry,

TAIWAN buSINESS

24 using Social media in business

Some companies are seizing the opportunity to have more direct communication with their customers. By Aimee Wong

28 machinery Industry Poised to Join “NT$1 Trillion Club”

Export sales are strong, not only to China but to ASEAN, Europe, and the United States. By Philip Liu

30 Deep-Sea Fishing: Facing Issues of Sustainability

Taiwan’s Fishery Agency has been trying to reduce the number of vessels and impose tighter monitoring. By Timothy Ferry

bEhIND ThE NEWS

34 how to Inculcate Creativity?

Taiwan’s traditional education system has not encouraged thinking outside the box, but new programs are seeking to change that. By Timothy Ferry c ov e r ph o to : c o u rte s y o f ts mc

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august 2011 • Volume 41 n umbe r 8

INDUSTRY F

COVER SPONSOR

CUS

Inotera Memories’ building in Guishan (龜山 ), Taoyuan County

Micron – Driving Innovation in Semiconductors Hotel Sector: Tourism Growth Enlarging the Opportunities By Kasey Reisman

38 Filling up the Rooms – and the Restaurants 41 A Variety of Styles in New Hotels 43 Shortcomings in Education and Training

Micron Technology, Inc., headquartered in Boise, Idaho, is a 34-year-old company composed of dreamers, visionaries and scientists who are powering progress. With a presence in nearly 30 countries, Micron is recognized for driving innovation in semiconductors. With the industry’s broadest and deepest portfolio, Micron designs, manufactures and markets a full range of innovative memory technologies including DRAM, NAND and NOR Flash memory, packaging solutions and semiconductor systems. Micron’s technology is deeply ingrained in many of the things we use every day — from mobile phones to car navigation systems — to home computers and much more. Through strategic partnerships with other manufacturers and technology leaders, Micron enables customers to further innovate and gain competitive advantages. In 2008, Micron entered into a joint venture partnership with Taiwan’s Nanya Technology Corporation (a member of the Formosa Plastics Group) to engage in technology sharing, mutual development and to form Inotera Memories. With a focus on sub-50 nanometer technologies, the partnership leverages both companies’ manufacturing technology, strengths and experience to create greater scale and efficiency.

46 Running the Regent Brand from Taipei: Interview with Steven Pan

AMCHAM EVENTS

50 AmCham Companies Through the Years

At the heart of Inotera are two fully-integrated state-of-the-art 300 millimeter wafer fabrication facilities that employ more than 3,000 staff. Inotera is positioned for success thanks to its proven business model, strong strategic partnerships, cutting-edge memory foundry capabilities, and world-class management team. The transition to specialty DRAM production continues to be a key growth driver, for which Micron is providing its world-class product design capabilities and marketing expertise. Micron is strongly committed to growing its operations and business in Taiwan and will continue to leverage its global expertise, industry insight and rich traditions to provide products and solutions that are synonymous with technology innovation and market growth.

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E d i t o r i a l 良善政策始於坦誠溝通

五

年之前，台灣的銀行產業普遍面臨逾放比過高的問題，部分銀行的財務甚至惡化到必須由政府接管。金融主管機關因

此積極鼓勵購併，以縮減銀行家數、強化經營規模與效能。 2006年至2008年，花旗、渣打、匯豐、星展、澳盛等大型跨國銀行，開始購入體質健全與不健全的本土行庫。購併有助這些外商銀行拓展據點，同時也能提升他們在台灣市場的份量。對台灣經濟而言，外商銀行擴大經營，代表數十億美元的資金進駐投資，也有助提高台灣銀行業的競爭基準、強化體質，使台灣金融業足以撐過接下來的全球金融風暴。然而，在此之後卻出現令人擔憂的轉變：行政院金融監督管理委員會在尚未充分瞭解業界生態的情況下，決定改變銀行營運的相關規範。TOPICS今年二月的社論曾經指出，銀行若被迫將境外資料處理中心移回國內，恐將造成業者成本大增，但金管會始終不願對決策動機做明確解釋。現在，另一個影響外商銀行在台營運的議題浮上檯面。主管機關審核外商銀行購併台灣本土銀行的營業計畫時，要求這些外銀成立子行承作業務（部分銀行已經取得子行營業執照，其他的則仍在進行之中）。這些外銀原本以為，合併後，銀行仍可保有作為外商銀行在台分行的營業執照。但這個認知可能與金管會的政策走向有所出入。雖然金管會並未明白要求外銀合併之銀行不得成為分行，行政院長吳敦義也曾明白告訴台北市美國商會代表主管機關不可能這樣要求，但跡象顯示，金管會可能仍然堅持收回分行營業資格的作法。如果金管會決定執行到底，將導致外商銀行質疑政府施政前後矛盾，形同「政策像月亮，初一、十五不一樣」。如此的作法也不利台灣金融市場運作。因為台灣設有單一客戶的放款上限，碰到本國企業主導的大型基礎建設或擴建計畫，外商銀行分行可以憑藉母行的財力進行金額遠高於子行所能承作之大額放款。外商銀行分行也能提供本土銀行外匯貸款及相關服務。考量政策的公平與一致性，以及強化台灣經濟，政府宜延續外商銀行同時擁有子行、分行資格之雙軌營業制度。商會也希望，主管機關在修改政策前，能夠更公開、坦誠地與業者溝通，以免業者必須揣測政策走向與背後原由。坦誠與公開的溝通對話，才能打造有利經營的良善政策。 4

A Need for Open Dialogue

ust five years ago, the Taiwan banking system was beset by worrisome levels of non-performing loans and a string of distressed banks that had to be taken into government receivership. The financial authorities were also actively pursuing policies to encourage M&A activity with the aim of bringing about fewer – but larger and more efficient – banks. Between 2006 and 2008, a handful of major international banks – Citi, Standard Chartered, HSBC, DBS, and ANZ – stepped in to acquire local financial institutions (including some of the troubled banks). The move gave them expanded branch networks, enabling them to become important players in the domestic market. It also benefited the Taiwan economy, bringing in several billion U.S. dollars in new investment, raising competitive standards in the banking industry, and strengthening the financial sector so that it was better positioned to withstand the shocks from the worldwide financial crisis that came soon afterward. Lately, however, there have been disturbing signals that the Financial Supervisory Commission (FSC) is seeking to change the rules governing how these banks can operate, without due regard for the impact on their business. The editorial in the February issue of TOPICS cited the pressure the banks were facing to return any offshore data-processing functions to the island, despite the enormous expense involved – and in the absence of clear communication about the reasons for the request. Now another issue has arisen. When the foreign companies acquired Taiwan banks, the business plan approved by the regulators called for them to organize the resulting commercial banking operation as a local subsidiary (several have already obtained the subsidiary license; others are in process) – but at the same time to retain their original license as a branch of their parent institution. That clear understanding no longer seems assured. Although the FSC has not stated explicitly that it intends to require “hybrid” banks to surrender the branch license – and although Premier Wu Den-yi recently said flatly to a group of AmCham leadership visitors that “it won’t happen” – indications remain that this is the regulators’ intention. If it takes place, the result would be to further dampen foreign investors’ confidence in the consistency of Taiwan’s government policy. It would be regarded as a clear example of “moving the goalposts” in mid-game. Such a change would also be contrary to Taiwan’s own interests. Because of Taiwan’s single-borrower lending limits, branches – with the backing of their parent institution’s capital – can make far larger loans than subsidiaries to support major infrastructure programs or expansion projects by leading Taiwan corporations. The foreign bank branches are also able to offer foreign-currency funding and correspondent banking services to local banks. In the interest of fairness, consistency, and benefit to the Taiwan economy, the practice of foreign banks operating with dual licenses should be allowed to continue. AmCham Taipei also urges the relevant authorities to communicate more clearly and candidly with industry when contemplating a change in policy, instead of leaving companies to guess at what is being considered and why. Frank and open dialogue is the best way to create workable policies that contribute to a positive business climate.

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BY don sh a p i r o

MACROECONOMICS

NEW QUESTION MARKS Until reaction to the U.S. debt-ceiling crisis and credit downgrade caused U.S. and global stock markets (including Taiwan’s) to plunge in early August, the Taiwan economic outlook for 2011 had continued to appear increasingly rosy. As of the end of July, the economic forecasts for the year all remained very positive, ranging from the 4.9% projected by Global Insight all the way to the 5.7% from the Taiwan Institute of Economic Research (TIER). In between those poles were 5.02% from the Chung-hua Institute for Economic Research, 5.2% by the Polaris Research Institute, and 5.52% by Academia Sinica. The next round of fore-

casts is likely to entail at least moderate downward adjustments, considering the growing economic uncertainties not only in the United States but also in Europe. In the first of these downward revisions, Taiwan’s Directorate General of Budget, Accounting and Statistics (DGBAS) on August 18 reduced its full-year growth forecast from the previous 5.06% to 4.81%, based largely on the assessment that “the propelling strength of the external sector will turn to moderate” in the second half. The importance of export trade to Taiwan’s economic performance always leaves the island vulnerable to external factors, and the current situation presents more questions than answers. Reacting to the mood

Taiwan stock exchange index & value

THE RED LINE SHOWS CHANGES IN TURNOVER AND THE SHADED AREA CHANGES IN THE TAIEX INDEX.

9000

160

8750

150

8500

140

8250

130

8000

120

7750

110

7500

100

7250

7000

6750

July chart source: TwSE

Unit: NTD billion

on Wall Street, the Taiex plummeted by 464 points on August 4 – from 8,317 to 7,853 – and then by another 300 points the following day, for an overall drop of over 9%. The market recovered slightly in the following days, with help from some stockpurchasing by governmentrun pension funds, but by mid-month was still well below the peak at the beginning of the month. The stock market aside, Taiwan still appears to be benefiting from the strong economic momentum it had seen all year long. First-quarter economic growth has been calculated at 6.16% and the preliminary figure for the second quarter is 4.64% – a strong showing considering the base of 13.59% and 12.86% growth in the first two quarters of last year. Foreign trade is a major contributor to that performance, with exports up 17% (and imports 19.4%) for the first seven months over the same period last year. The trade balance showed a surplus of US$13.4 billion. July was in fact the best single month for trade so far this year, with exports of US$28.1 billion and imports of US$26.7 billion. Export orders, a leading indicator, were still strong in July, coming in at

US$37.59 billion or slightly more than the US$37.36 billion in June. The July figure was a substantial 11% above the level of the same month last year. After falling for three months, the unemployment rate rose slightly in June to 4.35%, from the 4.27% posted in May. The Consumer Price Index in July rose by 1.32%, compared with the 1.93% in June, the highest level in about two and a half years. DGBAS said it expects the CPI to be up by 1.59% for the year as a whole. Looking ahead to 2012, DGBAS in its August report forecast 4.58% real GDP growth. It noted that world trade volume is expected to grow more slowly next year, leading to only “mild growth” in Taiwan’s exports. CROSS-STRAIT

NEW NAMES FOR HK, MACAU OFFICES The Mainland Affairs Council announced in July that Taiwan’s representative offices in Hong Kong and Macau would receive new names to reflect their actual status and functions. The Hong Kong office, which many foreign residents of Taiwan are familiar with from “visa runs” to the former British colony, was formerly

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sell their land to be used for non-agricultural purposes. Another controversial topic, as it always is during periods of drought, is the government’s method of rationing water supply among households, industry, and farmers. Usually the agricultural sector receives the least amount of distribution.

MASSIVE TAX EVASION BY DOCTORS UNCOVERED UNHAPPY FARMERS — Demonstrators in front of the Presidential Office Building had a variety of complaints, including government procedures for expropriating agricultural land. photo : ap/Chiang Ying -ying

known as the Chung Hwa Travel Service, but will now carry the name of Taipei Economic and Cultural Office in Hong Kong. In addition, the Taipei Economic and Cultural Center in Macau will be renamed the Taipei Economic and Cultural Office in Macau. As part of the agreement, a new Hong Kong Economic and Trade Office will be established in Taiwan, the Council said. DOMESTIC

YES, WE HAVE TOO MANy BANANAS (AND PAPAYAS) Agricultural policy uncharacteristically took front and center last month, with farmers staging a series of protests, including one in which they spread grain on the 6

boulevard in front of the Presidential Office Building. The issues included the extremely low market prices for fruit, especially bananas and papayas; the method of expropriating agricultural land for infrastructure projects; and the government’s policy for water-resource allocation. During a trip to the South, President Ma Yingjeou was besieged with complaints from fruit farmers that they were having difficulty making ends meet because an over-supply had driven prices down to rock-bottom. Ma's response of “Why didn’t you tell me earlier?” opened him to criticism that his administration was out of touch with problems at the grass roots, and his proposed solution of increasing

cross-Strait sales of fruit prompted objections from the opposition Democratic Progressive Party (DPP) that the Kuomintang (KMT) tends to see further reliance on the China market as the answer to every problem. In response to the complaints about expropriation of farmland – that the procedures are poorly defined and the compensation too low, the head of the Construction and Planning Agency of the Ministry of Interior pledged that the government would submit an amendment to the Land Expropriation Act to the legislature within the next three months to rectify the problems. There were also protests over plans by the Council of Agriculture to limit the right of farmers to

The Ministry of Justice Investigation Bureau in July reported discovery of a massive income-tax evasion scheme involving hundreds of doctors at public hospitals. The physicians are accused of having fraudulently taken tax deductions for donations made to a medical education foundation, which then returned the money to the doctors in the form of teaching and research grants. Investigators said the amount of funds channeled through the program between 2007 and 2009 came to over NT$100 million (about US$3.5 million). The cases have been sent to the Taipei District Prosecutors Office for prosecution.

WANG IS BACK, PITCHING FOR WASHINGTON NATS As the pitching ace on the New York Yankees staff, winning 19 games each in 2006 and 2007,

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Wang Chien-Ming became a national hero in Taiwan – the most accomplished athlete in international competition that the island had ever produced. But then Wang suffered injuries and underwent shoulder surgery, necessitating painstaking therapy and rehabilitation. In the meantime, he was let go by the Yankees and his contract was picked up by the Washington Nationals. In the culmination of a comeback long awaited by his fans, Wang was the starting pitcher when the Nats faced the New York Mets on July 30. The game was covered by three local TV channels, and the Taipei and New Taipei City

governments hosted separate parties where Wang’s supporters could watch on large outdoor screens. But after a two-year layoff, the 31-year-old pitcher was clearly not back to his preinjury form. He lost his first two games but then improved steadily, and as of mid-August had evened his record at two wins and two losses. BUSINESS

FPG’S PLANT SAFETY PROBLEMS PERSIST Following the sixth fire in two years (and the fourth in three months) at its huge petrochemical complex in Mailiao in the Yunlin County, the Formosa

Plastics Group (FPG), one of Taiwan’s largest conglomerates, was ordered to suspend production at one of its oil refineries and to take even more stringent action to assure safe operating conditions. Formosa Petrochemical Chairman Wilfred Wang and President Su Chi-yi stepped down to take responsibility for the situation. The latest incident makes it even less likely that FPG will soon gain approval from the Yunlin County Government to resume operations at 10 plants that were shut down following a previous fire in May. Media reports said the situation would cause group member

COMEBACK KID — After shoulder surgery and a long period of therapy and rehabilitation, former New York Yankee ace Wang Chien-ming returned to the mound in the uniform of the Washington Nationals.

companies Formosa Plastics, Nan Ya Plastics, and Formosa Chemicals and Fibre to reduce output by 30-40%. The government has advised the group to decrease exports if necessary and give priority to domestic customers. In addition, the authorities reportedly notified the group not to expect approval of any outward investment applications until the safety problems have been solved. In the week before the most recent fire, FPG had announced a US$416 million project to “renew” all 1,063 pipelines in the complex before 2014. It said many of the pipelines had deteriorated faster than expected due to the coastal location. FPG has applied to the Council of Labor Affairs to hire 2,500 technicians from abroad, including many from Singapore, to carry out the pipeline maintenance and servicing. It said that Taiwan lacks sufficient personnel with the necessary experience and expertise. The government has also assigned the stateowned oil company, the CPC Taiwan Corp., to work with FPG to improve its industrial safety standards and revamp its corporate culture. An official of the Industrial Development Bureau speculated that inferior maintenance due to

photo : ap/Pablo Martinez Monsivais

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Economic Indicators Unit: US$ Billion Current Account Balance (2011 Q1) 10.75 Foreign Trade Balance (Jan.-July) 8.7 New Export Orders (June) 37.36 Foreign Exchange Reserves (end July) 400.30 Unemployment (June) 4.35% Overnight Interest Rate (July 30) 0.371% Economic Growth Rate (2011 Q1)P 6.16% Change in Industrial Output y-on-y (June)p 3.61% Change in Industrial Output y-on-y (Jan.-June)p 10.18% Change in Consumer Price Index y-on-y (June) 1.93% Change in Consumer Price Index y-on-y (Jan.-June)p 1.45% Note:

p: preliminary

Year Earlier 9.93 14.10 34.22 370.11 5.16% 0.200% 13.59% 24.33% 70.08% 1.19% 1.21%

SO URCES: MOEA, DGBAS, CBC, BOFT

2011

141.5 155.8

2010

168.8 182.3

21.6 15.8

2011

66.5

2010

2011 Exports

the iPad and iPhone. Some analysts suggested that the amount of licensing fees to Apple, if the ruling against HTC stands, would be quite manageable. But others estimated that the compensation package would amount to several hundred million U.S. dollars, deflating HTC’s earnings and causing its stock price to erode. When share prices did tumble, the company announced plans to buy back as many as 20 million of its own shares to help stabilize prices.

EIGHT TAIWAN FIRMS MAKE FORTUNE 500 Of the eight Taiwan companies (the same number as last year) on the latest Fortune 500 list of the largest global enterprises, the highest ranking was taken by Hon Hai Precision Industry Co., the world’s

73.6

HK/China

20.4

Imports

14 17.3

2010

Europe

2010

TOTAL

26.9

2011

19.2 29.9

16 23.7

31.4

2010

17.8 18.5

The U.S. International Trade Commission (ITC) ruled in July that Taiwan’s HTC Corp., the world’s fifth largest manufacturer of smart phones, had infringed on two patents owned by Apple Inc. HTC expressed confidence in its legal position and said it planned to appeal the ruling. The ITC found no violation regarding eight other patents, as charged by Apple. But in July the U.S. company filed a new complaint against HTC, alleging infringement of another five patents involving software architecture and user interfaces used in

ASEAN

10.7

HTC TO APPEAL PATENT CASE WITH APPLE

Japan

14.5 16.1

The 5% increase in the minimum monthly wage to NT$18,789 (about US$651) announced by government in late July exceeded the expected 3% rise. But angry labor representatives demanding a hike of as much as 31% still demonstrated outside the Council of Labor Affairs (CLA) building, while the Chinese National Federation of Industries complained that the extra burden for management was more than many enterprises could bear. “It’s our responsibility to take care of financially disadvantaged families,” CLA Minister Wang Ju-hsuan told reporters. She said she appreciated that the amount of increase

TAIWAN'S JANUARY-july TRADE FIGURES (YEAR ON YEAR COMPARISON)

29.4

MINIMUM WAGE RISING BY FIVE PERCENT

fell short of labor’s expectations, but said adjustments needed to be made gradually so as not to seriously impact small and medium-sized companies.

10.2

a desire to cut costs could be the root cause of the series of fires.

2011

2010

2011

Unit: US$BN Source: BOFT

biggest electronics manufacturing service provider. Hon Hai, also known as Foxconn in some markets, saw revenue leap by over 60% in 2010 to reach US$95.2 billion, enabling the company to jump from last year’s No. 112 spot on the list to No. 60. The second biggest Taiwan computer listed was Quanta Computer, whose US$35.7 billion in revenue last year earned it a ranking as No. 246. Third was Cathay Life Insurance (No. 258) with US$34.8 billion, followed by Compal Electronics (No. 339), the state-run oil company CPC Corp. Taiwan (No. 349), CPC’s private-sector rival Formosa Petrochemical Corp. (No. 409), PC maker Acer Inc. (No. 486), and Acer spin-off Wistron Corp. (No. 499), a contract manufacturer of computers.

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Issue s

Revising the Patent Law Some new complications may hold up passage of needed amendments.

he content of a nation’s Patent Law can help determine how well it fosters innovation – with direct consequences for the pace of economic growth. Amid the current bitter political feuding in the United States over economic policy, for example, one of the few things that Democratic and Republican leaders seem to agree on is the value of modernizing the Patent Law to spur economic development. In Taiwan, efforts to amend the Patent Law began as long as eight years ago. After many rounds of study and drafting in the executive branch, as well as consultation with scholars and industry, a bill was presented to the Legislative Yuan – and as of just a few weeks ago seemed assured of support from lawmakers across the political spectrum. The bill was expected to come up for priority treatment in the autumn legislative session. The amended legislation would bring Taiwan’s Patent Law more in line with the latest international practices. It would permit patent protection for partial designs, for example, and make it possible for just part of a granted patent to be invalidated (instead of necessarily invalidating the entire patent, as at present). The revision would also enable some lapsed patent rights to be restored under certain conditions. But last month the initiative encountered a snag when opponents of the proposed Article 24, which would permit the patenting of new varieties of plants, gained agreement from the Democratic Progressive Party to withdraw from the interparty consensus behind the bill. The move reflected concern that Taiwan farmers could be disadvantaged if the need for licensing hampers their ability to develop certain crops. AmCham’s Intellectual Property & Licensing Committee views Article 24 as an important component of the Patent Law. The benefits to Taiwan’s growing biochemical, agricultural, and pharmaceutical would far exceed the potential advantage some farmers might gain if these rights are not protected. Such patent protection would encourage Taiwan companies to invest in research in new plants and organic substances, creating the opportunity for Taiwan scientists to take an even larger leadership position in these fields. “After all the work that has gone into preparing this legislation over such a long period, it would be a shame not to see it go through as early as possible,” says Jeffrey Harris, co-chair of the IP&L Committee. “However, Article 24 is an important part of this legislation and it would be even more of a shame if this article were left out of the new Patent Law because of calls from a few individuals who see a potential to profit from the lack of this protection.”

專利法修正案部分條文的反對聲浪可能導致新法難產

國

家對產業創意的保障是否周全，指標之一是其專利法規的完善程度；越完善則越為有利經濟發展。美國國內各派雖然為了經濟政策相持不下，但民主與共和兩黨都不能否認的是，專利法規的持續更新必將有助經濟發展。就台灣而言，專利法的修法工作早在八年前就已經展開。經過行政部門多次研議，以及與學者、業界無數諮商，專利法修正案終於在 2009年底送交立法院審查。數周之前，新法似乎已經普獲各黨立法委員支持，可望在下會期列入優先法案儘速通過。新法將使台灣的專利規範更加貼近國際慣例。其例之一是，修改現行法令，允許部分設計的專利保障，避免專利保障因部分元件遭到排除而全部喪失。另外，非因故意未主張優先權，或未依時繳納專利年費，而導致的專利權喪失，開放申請權利回復。但修法工作在上個月陷入停頓，原因是反對刪除第24條第1款的人士說服民進黨，於朝野協商中表態反對。現行的第24條第1款，禁止授予與植物生產有關的專利，修正案刪除此一禁制後，動植物發明將可成為專利標的。此一發展凸顯農民的疑慮，擔憂開放專利核發將影響他們的生計。台北市美國商會的智慧財產權及授權委員會認為，刪除第24條第1款是修法的關鍵之一，因為開放植物專利，對於國內生技、農業、製藥產業的幫助，將遠超過禁止所能帶給農民的利益。開放授予專利將能鼓勵本土產業研發新種植物及有機物質，使台灣研發人員進一步提升相關領域的競爭優勢。美國商會智財權及授權委員會共同主席華傑夫指出，「修法工作經過長久準備，如果因此擱置實在令人遺憾」，「修正第24條第1款是修法重點之一，如果因為少數人意圖自禁制狀態謀取私益，導致條文無法修改，勢必讓多數人深感扼腕」。

—– By Don Shapiro

—撰文／沙蕩

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Issues

Protecting Proprietary Chemical Information A new chemical notification system being set up in Taiwan raises questions about companies’ ability to keep information confidential.

everal countries in the world maintain a New Chemical Notification (NCN) system, requiring the registration of chemical substances manufactured or imported in that market. The goal is to help the authorities manage risk assessment and deal with potential hazards. Taiwan’s Council of Labor Affairs (CLA), the government agency in charge of industrial health and safety, is currently in the process of setting up such a system, with the implementation to be outsourced to the Safety and Health Technology Center (SAHTECH), an organization spun off from the Industrial Technology Research Institute (ITRI). As a first step, the authorities are establishing an inventory of the chemicals already in the market. They have therefore called on companies in the industry to file Existing Chemical Nominations (ECN) for products manufactured or imported here through the end of 2010. Chemicals not in that inventory would then have to go through the NCN procedures, which are expected to be enacted in the next session of the Legislative Yuan and come into force by the end of this year at the earliest. The NCN implementation guidelines are still being drafted. Although the objectives of the system are praiseworthy, a number of companies have had serious concerns about one aspect of the program in particular – whether the confidentiality of proprietary information will be adequately protected. That worry prompted the American Chemistry Council, the U.S. chemical industry organization, to raise the issue with the U.S. government on behalf of more than 30 of its member companies. The U.S. Department of Commerce then entered into discussions with the CLA and SAHTECH, so far with at least partially satisfactory results. As a result of the inter-government communications, a workable process has been established for companies to document their requests for confidentiality. For chemicals whose data is protected in other countries, SAHTECH was initially requiring the submission of letters of certification from the governments in those countries, attesting that the information was indeed protected there. But in practice, the United States and most other governments do not provide such letters to individual companies or to other governments. The solution was for Taiwan to accept other forms of proof: the Pre-Manufacture Notice (PMN) number and Notice of Commencement (NOC) from the U.S. Environmental Protection Agency (EPA)

企業專屬化學物質資料，宜維持機密性質新化學物質申報系統可能侵害企業機密

不

少國家都有「新化學物質通報（NCN）」系統，要求化工原料在製造或銷售前應完成登記程序。此一系統旨在風險管理與預防潛在危害。負責勞工安全與衛生的行政院勞委會，現正研議創設台灣版的新化學物質申報系統，並可能將登錄管理工作委託給與工業技術研究院有關的財團法人安全衛生技術中心。新化學物質申報系統的第一步是建立市場既存商品的資料庫。主管機關因此要求業者，就2010 年底前已生產或進口的產品，進行「既有化學物質提報（ECN）」。立法院下會期如能通過法源依據，新制最快將在今年底前上路；屆時，不在既有化學物質資料庫內的產品，都需完成新化學物質申報。不過，新制的相關施行細則仍在草擬之中。建立新化學物質申報系統的用意固然良善，但業界的最大顧慮在於，企業專屬之商業機密所有權是否能獲得充分保障。事實上，美國化工協會（ACC）已經代表30餘家會員廠商，向美國政府表達他們的質疑。美國商務部已經與勞委會及安衛中心溝通過，目前已達成部分共識。經過美台官方討論後，新制已經較能滿足廠商對資訊保密的期待。對於已由他國法令保障的企業專屬產品資訊，安衛中心原本要求出具他國政府單位的證明文件，以確認相關資訊是否確屬業務機密。然而實務上，美國與其他多數國家根本不會核發類似證明。新制的折衷之道是改採另一種證明，即美國環境保護署的「產製前通知（PMN）」序號與「產製通知（NOC）」，或是聯邦公報的相關紀錄。既有化學物質申報原訂6 月30日完成，現在也延後以利廠商準備。但業者指出部分問題仍然存在。其一是，美

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Issue s

or else the record in the U.S. Federal Register. The short deadline to respond to SAHTECH’s request for additional substantiation of confidential ECN filing was also lifted to give companies more time to reply. But industry sources say that several problems remain. One is that old EPA and company records are not readily available or retrievable, so that products launched before 1985 may not have PMN numbers, NOCs, or Federal Register notices. SAHTECH has reportedly argued that such old chemicals should no longer need confidentiality, but the manufacturers disagree with that assumption. A similar question is the treatment of polymers, which are in some cases exempt from notification under the U.S. law. There may legitimately be no PMN number or NOC that could be provided to SAHTECH. In addition, SAHTECH has not readily accepted U.S. companies’ submission of documentation from other countries – Canada, Australia, Japan, Korea, and China – for the protection of confidentiality, which will severely hamper the workings of the system. More fundamentally, CLA and SAHTECH have not specified precisely what means would be used to protect data confidentiality. This is a crucial issue for chemical manufacturers and importers, because if data becomes public knowledge in any market in the world, it is no longer possible to claim confidentiality in all other markets. SAHTECH has agreed that if confidential treatment is denied, companies have the option of withdrawing the chemical from the Taiwan market before the substance is listed on Taiwan’s public inventory. This may be helpful for a company’s global intellectual property rights, but eliminates their market in Taiwan.

國環保署與化工業者可能並未保存或無法立即取得往年資料，因此1985年之前已經開始生產的商品，可能無法出具產製前通知序號與產製通知，也沒有聯邦公報紀錄。安衛中心據稱認定，年代已經如此久遠的產品應該已經沒有保密問題，但業者並不認同。化學聚合物也有類似問題。由於美國特許某些聚合物不必提交產製前與產製通知，因此就算在美國屬於合法生產、銷售，這些產品也無法出具產製前通知序號與產製通知。此外，安衛中心也不接受美商基於資訊保密的立場提交第三國證明文件來申請化學物質登錄，如加拿大、澳洲、日本、南韓與中國。如此一來，勢必對新制的運作造成阻礙。更根本的疑慮在於，勞委會與安衛中心無法說明切確的保密措施。但對化工業者與進口商而言，保密卻是最關鍵的考量，因為業務機密一旦在任何國家公開，勢必無法要求其他國家履行保密責任。安衛中心已經同意，如果保密申請遭到拒絕，業者可以在既有化學物質申報之前，自行停售特定產品。此一狀況一旦發生，雖然廠商的業務機密得以保全，但台灣市場也將少了一種可用產品。

—撰文／沙蕩

—By Don Shapiro

Regulating the Collection of Royalties Industry asks for reconsideration of several of the rules now in place.

n many countries, copyright owners such as music performers and composers often join collective management organizations (CMOs) to help them collect royalties from existing users, as well as to seek out and license new users. But as AmCham's Intellectual Property & Licensing Committee expressed in this year's Taiwan White Paper, industry has questioned the reasonableness of some regulations governing CMOs in Taiwan, particularly the promotion of “single-window collection” and the ban on using commission agents. The “single-window” system is being driven by the Taiwan Intellectual Property Office (TIPO) under the Ministry of

著作權收費規範應更合理業界呼籲政府修改現行法規

許

多國家的著作權人，包括音樂家與作曲家，通常都會委託集體管理團體（C M O），協助他們向商業使用者收取授權費，或是開發潛在的使用對象。但正如台北市美國商會智慧財產權及授權委員會在今年《台灣白皮書》中所陳述的，業界普遍質疑《著作權集體管理團體條例》某些規定的合理性，特別是要求各家集管團體組成收費單一窗口，以及禁止集管團體聘任代理人。單一窗口的概念主要來自經濟部智慧財產局。智財局的想法是，同一類著作權的集管團

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Issues Economic Affairs. For the convenience of licensees, TIPO has advocated a system in which CMOs of the same type – for example, the three composers’ organizations – would be required to coordinate operations to enable users to pay all royalties to them through one channel. In the first such case, TIPO has instructed the CMOs to provide single-window collection by February 2012 for public performances using computerized karaoke machines. CMOs such as the Recording Industry Foundation of Taiwan (RIT) and the Association of Recording Copyright Owners (ARCO) stress the practical difficulties for the different organizations – with their individual repertoires and separate price structures – to cooperate in offering a single window. In the case of karaoke machines specifically, they have found it hard to set a common royalty rate for a package encompassing their various repertoires. Further, even after a package is sold, CMOs may squabble over the proportion of revenue they should receive according to the frequency of use of their respective repertoires – particularly when there are no accurate measures of frequency. TIPO officers told Taiwan Business TOPICS that they understand these challenges, but believe that CMOs can work out a fair way to divide the money – and that after an initial teething period, the burden on both CMOs and users will decrease. The CMOs are also concerned that single-window collection for karaoke machines may be just the first stage, and that in the future they will be required to provide the service for many other types of users. But Director Chang Yuh-Ying of TIPO’s Copyright Division says the agency recognizes that single-window collection is not appropriate for every CMO/ user relationship. While users such as TV stations and KTV houses buy repertoires from every CMO, others such as cafes are more selective, favoring repertoires that might focus on Mandarin, Taiwanese, or Western music. In such cases, demanding CMOs to provide a single package would not be suitable, she notes. On another front, the CMOs object to TIPO's 2008 ruling prohibiting them from using commission agents. With the vast number of potential users in Taiwan, ranging from buses to restaurants to hotels, CMOs argue that they need more manpower to adequately cover the market. TIPO, on the other hand, worries that commission agents may not act responsibly, pointing to past cases of user harassment by agents. Besides pointing to the widespread use of commission agents in other markets, the CMOs maintain that short of an outright ban, other less drastic means could be found to manage and regulate the behavior of agents to prevent abuse.

—By Jonathan Lin

體，例如國內三家音樂著作權集管團體，應該整合作業方式，以利被授權人透過單一窗口繳納授權費。單一窗口制的首例是卡拉OK，智財局要求集管團體在2012年2月前建立利用卡拉OK伴唱機公開演出版權歌曲時的整合收費機制。台灣唱片出版事業基金會（RIT）與中華民國錄音著作權人協會（A R C O）等集管團體都已強調過，各家規模不一、收費標準也不同，實在難以建立各方都能接受的單一費率。以卡拉OK伴唱機為例，業者就認為，根本無法制定兼顧所有需求的單一費率。就算真的能擬出一套收費共同標準，集管團體也勢必會因為收入分配而爭執不休，畢竟收費分配是基於使用頻率，但頻率計算卻沒有公信標準。智財局官員告訴TOPICS雜誌，他們不是不瞭解問題所在，但相信集管團體應該能解決拆帳問題，而且過了磨合期後，集管團體與被授權人的接受度應該都會增加。集管團體的另一項擔憂是，政府只是拿卡拉OK伴唱機的單一窗口試水溫，未來還會陸續納入其他領域。但智財局著作權組組長張玉英強調，政府瞭解不是每種授權機制都適合推動單一窗口。她表示，電視台與KTV的交易對象遍及所有集管團體，但咖啡廳等小眾場所則偏好特定種類，例如專挑國語、台語或西洋歌曲；以後者而言，要求集管團體制定單一費率就不見得適當。就代理人部分，業者明確反對智財局2008年的決定，即禁止集管團體委任代理人。鑑於台灣市場潛在使用者數量龐大，從公車到餐廳、旅館都可能使用版權樂曲，集管團體認為他們需要更多人力才能充分涵蓋。但智財局擔心，代理人良莠不齊，過去就曾發生代理人騷擾客戶的案件。集管團體認為，其他市場都允許聘用代理人，台灣的主管機關不妨考慮一些直接禁止之外的適當管理機制，這些機制仍然可以約束代理人的不當行為。

—撰文／林承平

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COVER STORY

semiconductors

Semiconductors:

Continuing Growth, Mounting Challenges 半導體業：持續成長、艱困挑戰

n the foundry segment of the industry, Taiwan’s two giants – TSMC and UMC – have remained strong, fending off competition from new rivals through continuous expansion and the development of new technology. Taiwan is also home to the world’s largest chip assembly and test industry, and it has had impressive success in the chip design sector, although those “fabless” companies are now facing new competition from Chinese counterparts. The problem portion of the industry has been the manufacture of DRAM memory chips, where most of the players have been under severe financial pressure. Today the sector is heavily reliant for its technology on Elpida of Japan and Micron of the United States.

說到半導體晶圓代工，台灣的兩大龍頭台積電與聯電，仍然基業穩固，以產能擴張與科技研發，抗衡新的競爭對手。台灣有全球最大的晶片封裝測試產業，也在晶片設計上持續進步，不過這些無晶圓廠現正面臨中國業者的積極競爭。台灣半導體業的問題來自D R A M記憶晶片的產製，多數廠商都面臨嚴重的財務壓力。整體來說，DRAM的技術仍掌握在日本的爾必達與美國美光科技手中。

BY ALAN PATTERSON

ph o to : tS MC

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撰文／白逸仁

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Cover Story

aiwan, one of the world’s largest suppliers of semiconductors, is likely to establish itself this year as an even more important player in the global chip industry. A key indicator is Taiwan’s rapidly growing demand for the materials used to make chips. According to global industry association Semiconductor Equipment and Materials International (SEMI), the value of the island’s purchases of semiconductor materials this year is expected to reach US$9.6 billion, overtaking Japan to rank as the world’s largest market. Over the years, the Taiwan government has provided a number of incentives to help companies in the industry and encourage foreign investment. The measures include tax preferences, R&D subsidies, low interest loans, and personnel training, according to the Department of Investment Services under the Ministry of Economic Affairs. Other key factors have helped the industry grow rapidly. Taiwan’s universities and research organizations have provided a large pool of skilled personnel. Moreover, domestic equity markets have helped local chip companies raise the equivalent of billions of US dollars in capital for expansion. Perhaps nothing has highlighted the importance of the island’s chip industry in the global electronics supply chain more than the huge 7.6 magnitude earth-

已

quake that struck Taiwan on September 21, 1999. The earthquake shut down power to the Hsinchu Science Park for nearly a week, bringing Taiwan’s chip output to a temporary halt. In the weeks following the quake, the Philadelphia Stock Exchange's SOX semiconductor industry index plunged by about 13% as U.S. companies ranging from Advanced Micro Devices (AMD) to Xilinx Inc. saw chip supplies cut off. Since that time, overseas rivals Semiconductor Manufacturing International Corp. (SMIC) of China and GlobalFoundries (the former manufacturing arm of AMD, now majority owned by the investment arm of the Abu Dhabi government) have aimed to provide chip customers with alternative supply channels to diminish their risk – in the process trying to displace Taiwan’s biggest chipmakers, Taiwan Semiconductor Manufacturing Co. (TSMC) and United Microelectronics Corp. (UMC), as the world’s leading chip “foundries.” But despite that challenge, TSMC and UMC have increased their share of the foundry business to 75%, up from about 66% a decade ago, supplying such leading international brands as Intel, Texas Instruments, and Motorola. The two Taiwan companies have been among just a few chip companies in the world with the ability to maintain a competitive edge by investing billions of U.S. dollars in new

是全球最大半導體供應國的台灣，今年可望更上層樓。重要指標之一是台灣對晶片原料的需求急速增加。國際半導體設備材料產業協會（SEMI）指出，台灣今年的半導體原料採購總額可望達到96億美元，超越日本成為全球第一。台灣政府長期提供優惠方案，以協助本土半導體產業、吸引海外投資。經濟部投資業務處指出，相關措施包括租稅減免、研發補助、低利貸款，以及人才培訓。其他關鍵因素也協助產業快速發展。台灣的大學院校與研究機構培育了大量專精人才。國內資本市場也協助晶片產業募集數十億美元以擴張產能。最能凸顯台灣半導體產業對全球電子供應鍊的關鍵地位，或許是1999年規模7.6的921地震。地震導致新竹科學園區的供電中斷近一週，使得台灣的晶片生產暫時中段。地震後數週內，費城證券交易所的SOX半導體指數下跌約13%，因為從超

plants and advanced technology. Besides the foundry segment, Taiwan also maintains leading positions in other portions of the global chip industry. It has the world’s largest chip assembly and test industry, for example, with companies such as Advanced Semiconductor Engineering. These operations slice chips from silicon wafers made by TSMC and UMC, and then build the finished semiconductors that go onto printed circuit boards for use in everything from Apple iPads to Sony PlayStations. Taiwan’s dominance in semiconductors doesn’t stop there. Taiwan’s chip design industry is the second largest in the world after the United States. The chip designers make specialized semiconductors that run cell phones, flat screen TVs, and tablet computers. Still, as Taiwan’s semiconductor industry matures, some problem areas have also emerged on “Silicon Island.” Ta i w a n ’s d y n a m i c r a n d o m a c c e s s memory chip (DRAM) industry, which once accounted for about a fifth of the world’s production, is shrinking as it fails to keep pace with larger global rivals. In 2009, the government planned to try to integrate and resuscitate the industry by forming a state-owned corporation, Taiwan Innovation Memory Co., but the idea was abandoned when it failed to get support from either industry or the Legislative Yuan. Today the DRAM indus-

微（AMD）至賽靈思（Xilinx）等相關業者都面臨晶片短缺。自此之後，中芯國際與全球晶圓（GlobalFoundries）等國際競爭對手便積極爭取成為降低風險的替代性供應廠。全球晶圓原為AMD 的生產部門，現在則由阿拉伯聯合大公國官方資本主導。競爭對手的目標是取代台灣的兩大龍頭台灣積體電路與聯華電子，成為全球頂尖的晶圓廠。雖然面臨挑戰，台積電與聯電仍然拿下75% 的全球市佔率，高於十年前的66%，並持續供應英特爾（Intel）、德州儀器公司（TI）、摩托羅拉（Motorola）等跨國領導品牌。只有少數業者能和台積電與聯電一樣，投資數十億美元至新廠與技術，以維持競爭優勢不墜。除了晶圓代工，台灣在全球半導體業的其他項目也維持領先地位。舉例來說，台灣有全球最大的封裝測試產業，知名廠商如日月光半導體。這些環節包括，台積電與聯電產製晶圓切割出晶片，然後加工製成半導體以供製造印刷電路

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Semiconductors

STILL ON TOP — Taiwan Semiconductor Manufacturing Co. (TSMC) has fended off challengers through continued investment in new technology, enabling it to remain the world's largest foundry. photo : courtesy of TSMC

try is heavily reliant on partnerships with onetime competitors such as Elpida from Japan and Micron Technology of the United States. The overseas companies are looking to boost their market share in competition with South Korea’s Samsung Electronics and Hynix, which have locked up nearly two-thirds of the DRAM market. In the meantime, foundries TSMC and

UMC are threatened by new competitors such as GlobalFoundries, which has grown rapidly (including its late 2009 acquisition of Singapore’s Chartered Semiconductor) to become number three in the world through petrodollar-funded investments. GlobalFoundries and other chipmakers such as Samsung Electronics are aiming this year to take more of the worldwide foundry business, which

板，最終用於蘋果（Apple）iPad、索尼（Sony） PlayStation等產品。台灣在半導體業的領先項目還不僅於此。台灣的晶片設計產業全球僅次於美國，製造出的專用晶片可使用在手機、平面電視與平板電腦。不過，台灣半導體業步入成熟期後，一些問題也開始浮現。D R A M產業雖然一度佔全球產能的1/5，但因跟不上大型國際業者的腳步而失去市場。政府2009年原本計畫成立國營的台灣創新記憶體公司，以整合與重振D R A M產業，但因無法獲得業界與立法院的支持而失敗。現今的 D R A M產業高度依賴過去的競爭對手，如日本的爾必達（Elpida）與美國的美光科技（Micron Technology）。國外廠商的目標是擴大市佔率，以抗衡佔2/3市場的南韓三星電子（S a m s u n g Electronics）與海力士半導體。同時，台積電與聯電的晶圓代工市場也遭逢新競爭者的威脅，例如全球晶圓。包括2009年合併新加坡特許半導體（Chartered Semiconductor）等

has been outpacing growth in the overall semiconductor business. UMC is squarely in the crosshairs of GlobalFoundries, which earlier this year said it expects sales revenue to rise at least 14% to surpass US$4 billion this year and overtake UMC to become the world's second-largest foundry by revenue. TSMC and GlobalFoundries, in particular, have been in a spending race

擴張計畫，以及來自「油元」的投資，使全球晶圓快速成長為全球第三。全球晶圓與其他業者，如三星電子，都希望在今年搶佔更多晶圓代工市場，因為晶圓的成長幅度高於其他半導體項目。全球晶圓鎖定的目標正是聯電；全球晶圓稍早表態，期望今年銷售額提升至少14%、突破40億美元，取代聯電成為全球第二大的晶圓廠。特別是台積電與全球晶圓，都持續高額投資以保持製造技術與產能的領先地位。但因全球經濟展望在今年中開始看淡，台積電被迫刪減2011年的資本支出。台積電財務長何麗梅7月28日向產業分析師表示，「我們決定下修2011年全年的資本支出，由原本的78億美元降至74億美元，因為經濟情勢弱化衝擊我們下半年的晶圓產量」。建立晶圓代工概念的台積電董事長張忠謀也在同一場合表示，「美國經濟成長不如預期，歐洲不少國家都有債信問題，日本長期不振的經濟又遭逢地震與海嘯，中國的問題則是通貨膨脹」。此外，台積電與全球晶圓的積極擴張，可能

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Cover Story Chinese Fabless industry revenue (millions of u.s. dollars)

fundraising by nanya, powerchip and promos from 2006-2011

30%

$7.0

$10,000

25%

$6.0

$8,000

20%

$12,000

Revenue

Annual Percentage Growth

$5.0 $4.0

15%

$6,000

$3.0 $4,000

10%

$2,000

2008

2009

2010

2011

2012

2013

2014

2015

“U.S. growth is below earlier expectations,” TSMC Chairman Morris Chang, the originator of the foundry concept, said in the conference call. “Europe has been troubled by debt problems in several countries. Japan's slow growth has been exacerbated by the March earthquake and tsunami. China is trying to control inflation.” Further, the expansion plans of TSMC and GlobalFoundries may result in a glut of chip-making capacity, damaging the companies’ profitability. Market research

造成供過於求，衝擊企業獲利。市場研究公司顧能（Gartner）警告，晶圓產能過度擴張可能導致 2013年出現過度供應的現象，使平均產能利用率低到只有80%。建立晶圓廠可能需要30億美元，新的產製科技也越來越昂貴。為儘快回收投資，半導體業者莫不希望儘量提高產能利用率。台積電除了擴大最先進晶圓的產能，同時也積極投資研發以拉開與競爭者的距離。

3D晶片台積電今年可能成為全球第一家推出3D晶片的業者；3D晶片可以大幅提高半導體內的電晶體數量至千倍以上。電晶體佈置更為緊密後，晶片廠將可進一步降低耗能、改善效能、降低成本。熟知產業動態的人士表示，台積電最快2011年底前就可推出首批3D晶片。3D晶片是由多層矽晶堆疊而成，效能提高1/3、但耗能少50%。因此，

$1.0 $0

Nanya

Powerchip

ProMOS

SOURCE: IHS iSuppli May 2011

for the lead in chip-making technology and production capacity. As the outlook for the global economy soured during the middle of this year, however, TSMC was forced to trim its capital expenditure budget for 2011. “We decided to revise down 2011 full-year capital expenditure to US$7.4 billion from the original plan of US$7.8 billion, as weakened economic conditions impacted our wafers in the second half of the year,” said TSMC Chief Financial Officer Lora Ho in a July 28 conference call with analysts.

$2.0

firm Gartner Inc. has warned that aggressive capacity expansion by foundries may cause severe oversupply in 2013 and drive down average factory utilization to as low as 80%. Chip plants can cost as much as US$3 billion to build and equip, and the cost of new production technology is rising. In order to recoup their huge capital investments, semiconductor companies need to keep their plants running as close to full utilization as possible. At the same time as it expands capacity for

3D晶片特別適合新一代的行動裝置，如平板電腦與手機。同時，台積電也在開發更大型的晶圓以降低成本。台積電研發資深副總蔣尚義說，全球只有四家公司能跟台積電一樣，負擔得起450毫米晶圓廠的興建經費。台積電現在的主力是300毫米晶圓。面積更大的晶圓既能增加晶片產出，也能拉低成本。聯電本月表示，就算經濟看淡，今年18億美元的資本支出不會縮水。聯電執行長孫世偉8月 3日向分析師表示，「聯電2011年資本支出維持不變，將能維持我們的產製優勢」，「聯電認真看待研發工作，有信心滿足客戶的需求」。他說，「我們的晶圓技術將可充分配合快速成長的行動通訊與電腦市場，滿足高效率、低耗能的需求」。日益困難的D R A M產業中，台灣廠商的角色越來越不重要，儘管全球廠商的數量已經減少。台灣D R A M廠商現在高度依賴與爾必達、美光的伙

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Semiconductors

production of the world’s most advanced chips, TSMC is also investing heavily in R&D in an effort to distance itself from the competition.

3D chips TSMC this year may become one of the world’s first companies to sell threedimensional chips that boost the density of transistors in a semiconductor by up to a thousand times. By packing transistors more closely together on a semiconductor, chipmakers can reduce power consumption, improve performance, and cut manufacturing costs for their products. TSMC will make its first 3D chips commercially sometime before the end of 2011 at the earliest, according to someone familiar with the situation who requested anonymity. A 3D chip stacks several layers of silicon together, enabling performance gains of about one-third while consuming 50% less power. For this reason, 3D chips are particularly well suited to powering new generations of mobile devices such as tablets and mobile phones. At the same time, the company is also investing in the production of larger silicon wafers to cut costs. TSMC may be one of only five companies worldwide that can afford the cost of building new plants that make 450-millime-

ter wafers, according to Chiang Shang-Yi, TSMC’s senior vice president for R&D. The company currently makes most of its chips on dinner-plate-sized 300-millimeter wafers. Making chips from larger silicon wafers provides the double benefit of increased yields of chips per wafer and lower production costs. For its part, UMC said this month that it will maintain its US$1.8 billion capex budget for this year despite a worsening economy. “UMC's capex, which remains at US$1.8 billion for 2011, will support our advanced production ramp,” said CEO Sun Shih-Wei in an August 3 conference call with analysts. “UMC's R&D efforts will continue in earnest to prepare for customers' future technology requirements. We will also leverage our foundry technologies to take advantage of the fast-growing mobile communication and computing markets with highperformance, low-power consumption requirements.” In the ailing DRAM sector, the handful of manufacturers in Taiwan are becoming less significant players, even as the number of survivors in the worldwide DRAM industry shrinks. Taiwan’s DRAM makers currently rely heavily on partnerships with Elpida or Micron for access to key production technology that can keep them in the ballgame despite the challenge from Samsung Electron-

伴關係，取得關鍵產製技術，以抗衡全球最大的 DRAM廠三星電子。身為南韓最大財閥的一員，三星電子持續成長，目標是取得50%的DRAM市場。爾必達財務結盟對象是力晶半導體與瑞晶電子，業務往來對象則為茂德科技與華邦電子。爾必達的挑戰來自，如何確保台灣供應商能夠跟得上爾必達的技術，以及如何管理整體產能。美光則與台塑集團的南亞科技合資成立華亞科技。美光也許會進一步拓展在台經營，因為市場傳聞，台灣第二大DRAM廠的南亞科或許會出售華亞的股份給美光。華亞副總經理梅國勳不願回應相關傳聞。美光持有華亞30%的股份，是2008 年購自德國的奇夢達（Qimonda），而梅國勳則為美光在董事會的代表人。南亞科的持股也為 30%。梅國勳表示，「歲月無情，不斷有廠商退出市場，現在只剩四大技術開發商」，意即三星電子、海力士、爾必達、美光。他說，「市場演變

ics, the world's biggest DRAM maker. Part of South Korea’s largest chaebol or conglomerate, Samsung Electronics continues to grow and is aiming for a 50% share of the DRAM market. Elpida has equity tie-ups with Powerchip Semiconductor and Rexchip, while also maintaining contractual relationships with ProMOS Technologies and Winbond. The challenge for Elpida is to keep its Taiwan suppliers up to date with Elpida production technology and manage overall output. Micron is a joint venture partner with Nanya Technology (part of the Formosa Plastics Group) in Inotera Memories. Micron may have a chance to strengthen its alliances in Taiwan, as rumors have been circulating that Nanya, Taiwan’s second-largest DRAM maker, may sell its stake in Inotera to its U.S. partner. Inotera Executive Vice President Scott Meikle declined to comment on those reports. Micron currently owns a 30% stake in Inotera, which it purchased from Qimonda of Germany in 2008, and Meikle sits on the Inotera board of directors by virtue of Micron’s shareholding. Nanya Technology also owns a 30% stake. “There are four technology developers remaining in the world market after the march of time has steadily reduced the number of players,” says Meikle,

DIVERSIFYING — TSMC Chairman Morris Chang has spearheaded the company's investments into solar panels and LED lighting, which use materials and processes similar to those in the semiconductor industry. photo : courtesy of TSMC

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Cover Story referring to Samsung, Hynix, Elpida, and Micron/Nanya. “A possible outcome, as the market continues to develop, is that that number may be too many.” Micron decided to invest in Taiwan to take advantage of its friendly business environment, he says. “Taiwan’s capital markets are favorable. The semiconductor industry and infrastructure are well developed. It’s a logical place for us to participate.” He went on to note that “we don’t have an explicit acquire-thecompetition strategy.” Worldwide, DRAM makers’ revenues dropped in the ﬁrst quarter of 2011 on lower average selling prices (ASPs), according to research firm IHS iSuppli. Each of the top eight companies, which together account for 98.1% of total industry sales, saw revenue decline in the first quarter this year. Nanya’s announcement in April this year that it would raise capital from the sale of 700 million new shares shows that the company remains successful in crucial fundraising activities despite the highly uncertain future for Taiwan’s DRAM business, according to IHS iSuppli research. In the last five years, Nanya has raised some NT$170.2 billion (US$5.87 billion) in equity and bond issues as well as loans to fund capital expenditures, dwarfing similar efforts by other Taiwanese DRAM companies. Taiwan’s top four DRAM makers recorded losses totaling NT$22.2 billion (US$765.5 million) in the first quar-

ter this year and total losses of NT$34.5 billion (US$1.2 billion) last year. Earlier, Taiwan’s Powerchip was reportedly seeking a new extension on its repayments for NT$40 billion (US$1.36 billion) worth of loans. As of February 28, the company’s debt ratio was 73%, Powerchip said in a March statement to the stock exchange authorities. To cope with the situation, the company is aiming to reduce its exposure to unprofitable DRAM chips. By the end of 2011, production of commodity DRAMs will account for only 45% of Powerchip’s total output, compared with 67% a year earlier, the company said. In an effort to support the industry, the government has provided Taiwan DRAM makers with grants, tax rebates, and low-cost land in industrial parks. Bankruptcy by any of the local companies would create a serious problem for the government, both because of the size of the industry, which employs tens of thousands of people, and the fact that state-owned banks hold billions of NT dollars in loans to the companies. The political as well as economic repercussions would be substantial. “Micron's position is to let the market decide the outcome” without government intervention, Meikle says. Still, such intervention on behalf of DRAM makers is commonplace in other countries where memory chips are made, according to industry executives. South Korea has often been accused of unfairly protect-

MEMORY CHIPS — Scott Meikle, Executive Vice President of Inotera, sees new opportunities and challenges as the DRAM industry's focus shifts from personal computers to new devices.

ing its DRAM companies, particularly Hynix, which was near bankruptcy in 2002 before being bailed out by domestic state-run banks. The Samsung group, in addition, accounts for nearly a third of the Korean economy. How is it possible for smaller DRAM companies elsewhere in the world to compete? The DRAM business in recent years has diversified away from components for use in personal computers, and a plethora of new types of memory chips with an alphabet soup of acronyms has emerged to meet demand in mobile phones, MP3 players, and even automobiles. This trend has created new challenges and opportunities for memory chip makers, Meikle says. “ I n f l a s h m e m o r y, M i c r o n i s a leader,” Meikle notes. The company’s acquisition of Numonyx B.V. has strengthened Micron's broad portfolio of DRAM, NAND, and NOR memory products and expertise in developing and supporting memory system solutions, Micron said in a May 7, 2010 statement. “This strategy has put us on a par with Samsung” in terms of range of technology, Meikle adds. “Micron is not aiming to match Samsung in terms of business scale.” For Taiwan's DRAM companies, which years ago fell far behind their bigger rivals in manufacturing technology, is there any possibility that their alliances with foreign partners will enable them to catch up? Meikle says

的結果，可能會使四家都嫌太多」。梅國勳說，美光投資台灣是基於友善的經營環境，「台灣的資本市場很不錯，半導體業與基礎建設也很健全，自然適合我們開發」。他接著表示，「我們並不是以購併降低市場競爭」。市場研調機構IHS iSuppli指出，由於平均售價滑落，全球DRAM廠2011年第一季的營收都呈現下滑。前八大廠商今年第一季的營收都下滑，而其銷售額達市場總銷售額的98.1%。 IHS iSuppli指出，南亞科四月宣布出售七億股以募集資本，顯示就算台灣DRAM產業前景充滿變數，南亞科仍然能夠順利找到資金。過去五年，南亞科以股權、公司債、貸款募集1702億新台幣用於資本支出，其他台灣DRAM廠都難望其項背。台灣前四大DRAM廠今年第一季合計虧損222億

photo : courtesy of inotera

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Semiconductors

photo: inotera

Inotera has a chance. The company last year began running 50-nanometer technology and is now converting to 42-nanometer. The measurements indicate the amount of space between transistors on a chip – the smaller the space, the better the performance and production cost. Inotera will start trial production using technology in the 30-nanometer range during the third quarter, says Meikle. “We expect to be on par or ahead of the industry average in design rules and cost effectiveness. Our intention is to ramp this technology in the first half of next year.”

China: an emerging rival Ta i w a n h a s y e t a n o t h e r e m e r g ing rival in the chip business – China –

which has attracted a number of investors away from Silicon Island. Two decades ago, China designated semiconductor manufacturing as a “pillar” industry, but up to now the plan has yielded few significant results. Nevertheless, a number of Taiwanese companies and private investors have invested in China’s chip industry to tap demand in one of the world’s largest markets for electronic products. Taiwan, which has more than 10 of the world’s most advanced chip plants making 300-millimeter silicon wafers, has put regulations in place to control the movement of cutting-edge technology across the Strait. To date, the government has not allowed any domestic chipmakers to build 300-millimeter plants in China. TSMC is the only Taiwan chipmaker that has been permit-

新台幣，去年全年則為345億新台幣。稍早，力晶科技據傳希望展延400億新台幣的貸款。力晶三月提交證交所的資料顯示，截至二月底，公司的資本債務比例為73%。為改善財務，力晶計畫減產不賺錢的晶片產品。力晶指出，2011 年底前，標準型DRAM將只佔總產量的45%，而去年的比例為67%。為協助DRAM產業，政府長期提供獎助金、租稅抵扣，及科學園區租金減免。任何一家本土DRAM 廠倒閉都會為政府帶來麻煩，因為DRAM產業總雇用人數好幾萬人，而公營行庫又放貸數十億資金給DRAM業。受到衝擊的不只是經濟，政治效應也很嚴重。梅國勳表示，「美光的立場是由市場機制決定」。但業界主管指出，其他生產記憶體的國家，同樣也有政府介入DRAM產業的現象。南韓常

ted to start production in China, and that facility uses 200-millimeter technology several generations behind the state of the art. Currently the company is building a second 200-millimeter plant to be closer to its Chinese customers. UMC aims to take over China’s He Jian Technology (Suzhou) Co., a chipmaker that it helped to establish in 2002, later receiving a 15% stake in the company in appreciation of its role. Robert Tsao resigned as UMC chairman in January 2006 after being indicted for allegedly damaging the interests of UMC shareholders by assisting in the start-up of He Jian. Tsao was cleared of the charges by a Taiwan district court in October 2007. UMC said in April 2009 that it planned to buy the remaining 85% stake in He Jian for as much as US$285 million. The plan has been stalled,

被指責過度保護DRAM廠商，特別是海力士；公司 2002年瀕臨破產之際，還是靠公營銀行紓困才能過關。此外，三星集團約佔南韓經濟規模1/3。如此看來，其他國家規模較小的DRAM廠怎麼可能拚得過？ D R A M產業近年來已經不只是供應個人電腦，令人眼花撩亂的新型記憶體推陳出新，應用在手機、M P3播放器，甚至是汽車上。梅國勳表示，對記憶體廠商來說，這股趨勢既是挑戰也是商機。梅國勳表示，美光在快閃記憶體上是領導者。美光2010年5月7日的聲明指出，併購恆憶（Numonyx）後，美光在DRAM、NAND與NOR記憶體上都獲得強化，開發與協助記憶體系統解決方案的專業也獲得提升。梅國勳說，「就技術廣度而言，併購使美光得以追上三星；不過美光並不

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Cover Story however, because He Jian has failed to meet standards on profitability. Taiwan’s restrictions on investments in China by its semiconductor companies are motivated by fear of the loss of jobs and especially key technology to China, which still considers Taiwan a renegade province and has not ruled out the use of military force to take over the island. But that hasn’t kept a number of prominent individuals in Taiwan’s chip industry from playing an active role in that sector across the Strait. Winston Wong, for example, the eldest son of Formosa Plastics Group founder Wang Yung-ching, in 2000 established Grace Semiconductor Manufacturing Corp. in Shanghai together with Jiang Mianheng, a son of former Chinese President Jiang Zemin. Wang Yung-ching, who passed away in October 2008, was ranked as one of Taiwan’s wealthiest persons at the time. Winston declined to say where he got the money to invest in a multi-billion dollar chip plant in China, but quipped: “You can guess.” Grace, China’s second-largest chip foundry, also counts a number of other influential people as its backers, including Hong Kong billionaire Li Ka-shing, whose Hutchison Whampoa Ltd. and Cheung Kong (Holdings) Ltd. agreed to buy a US$90 million stake in Grace in 2004. Neil Bush, brother of former U.S. Pres-

ident George W. Bush, received a US$2 million, five-year contract from Grace in 2002 to be a director and adviser. Next door to Grace on the outskirts of Shanghai is SMIC, China’s biggest chip foundry. It was established in 2000 by Richard Chang, who also earlier had founded World Semiconductor Manufacturing Co. (WSMC) in Hsinchu. After TSMC acquired WSMC, Chang sought to start anew in the chip-making business by setting up SMIC in China. Although SMIC and Grace have so far have failed to take any significant share of the foundry business away from Taiwan’s TSMC and UMC, China’s nascent chip designers are starting to make significant inroads on the markets of some of their Taiwan competitors. Taiwan’s impressive success in the chip design sector has been built on the performance of such “fabless” companies as MediaTek, a major supplier of chips to mobile phone makers in China. But Taiwan chip design industry sales in the second quarter of 2011 saw declines of more than 13% from the same period a year ago. The weakness in the industry has been exemplified by MediaTek, which had a 34% plunge in second quarter sales and has been in a downward spiral for more than a year. Companies such as Shanghai-based Spreadtrum have been in intense competition with Medi-

打算在規模上和三星競爭」。台灣DRAM廠商的產製技術，數年以前已經遠遠落後大型競爭對手，與外國企業聯手是否還有一線生機？梅國勳認為華亞還有機會。華亞去年開始實用50奈米製程，現在轉換為42奈米。奈米代表晶片電晶體間的距離，距離越小、效能與成本越具優勢。梅國勳指出，華亞第三季將開始30奈米的試產，「就設計與成本效益，我們預期能夠趕上或超前業界水準。我們的目標是明年上半年實用此一技術」。

崛起中的對手–中國全球半導體業中，台灣還有另一個崛起中的對手–中國，畢竟不少投資案已經由台灣轉向對岸。中國20年前將半導體製造定為關鍵產業，但迄今成果有限。然而，部份台灣企業與私人投資者已經進軍中國半導體業，看準中國龐大電子市

aTek, increasing market share by selling lower-priced chips. China’s “fabless” sector is growing rapidly, with revenue set to double between 2010 and 2015, according to IHS iSuppli. The key driver of growth has been China’s cell phone industry, which grew by about 60% last year. Operations of chip design companies in China will generate US$10.7 billion in revenue in 2015, up from US$5.2 billion in 2010, according to IHS iSuppli. M e d i a Te k r e c e n t l y i n t r o d u c e d stripped-down versions of smartphone chips in a bid to stage a rebound. The chips offer such basic functionalities as Internet connections and e-mail on mobile phones. At one time, the Taiwan company controlled more than 80% of China's chip market for no-frills handsets, but it has been ceding market share to Spreadtrum in recent years on aggressive price cutting. If China’s chip design companies continue to grow, it is quite likely that foundries such as TSMC and UMC will seek to expand operations in China to be closer to their chip design customers there. Already a number of Chinese electronics companies, such as communications equipment maker Huawei, account for the equivalent of billions of U.S. dollars in chip orders each year to chipmakers in China and overseas.

場的潛在商機。台灣現有10座全球最先進的300毫米晶圓廠。政府禁止廠商將最先進技術轉移到對岸，因此仍不得在中國建立300毫米晶圓廠。台積電是唯一獲准者，但所用技術是過時的200毫米。台積電正在興建第二座200毫米廠以爭取更多中國客戶。聯電計畫取得和艦科技的深圳廠。聯電2002年協助建廠，之後取得15%的股份。由於和艦案，曹興誠被控傷害聯電股東權益，隨後在2006年1月辭去聯電董事長一職。曹興誠2007年10月一審獲判無罪後，聯電2009年4月宣布，計畫以2.85億美元購買和艦剩下的85%股份。但因和艦獲利不如預期，購股案仍無進展。台灣限制半導體業投資中國，主因是擔憂就業機會減少，以及關鍵技術流向對岸，畢竟中國仍然宣稱台灣是其領土，也不願放棄以武力解放台灣。但政策無法阻擋部分半導體業知名人士積極開拓中國市場。舉例來說，台塑創辦人王永慶的大房長子王文洋就和前中國國家主席江澤民的兒

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Semiconductors

Sliding margins For virtually all of the companies in Taiwan’s semiconductor industry, profit margins have been slipping steadily. TSMC, which sits at the top of the industry pyramid in terms of total sales and net income, has traditionally maintained a gross margin in excess of 50%, a level that would be the envy of any company in Silicon Valley. Yet even for TSMC, the gross margin dipped below that mark in 2010, admittedly a tough year for everyone in the tech business as the world economy emerged from recession. Smaller rival UMC stands out among Taiwan’s semiconductor companies with a gross margin that actually rose to 29% in 2010, from previous years in the teens. The company has pared capex in recent years as part of an effort to lift profitability. But without that capital expenditure, the company is in danger of falling behind the competition in terms of production capacity and technology. Moving down the industry pyramid to the chip assembly and test segment, gross margin figures are much thinner. The largest companies in this segment, ASE and Siliconware Precision (SPIL), compete with scores of smaller players on the island and abroad, which makes for fierce price competition and weak profitability.

Global DRAM Market Share (Ranking by Revenue in US$ Billions) Rank Company Q1-11 Revenue Q1-11 Market Share Q4-10 Revenue Q4-10 Market Share 1

Samsung

3.26

39.3%

3.63

41.3%

Hynix

1.91

23.0%

1.91

21.8%

Elpida

1.12

13.5%

1.18

13.4% 12.4%

Micron

1.08

13.0%

1.09

Nanya

0.34

4.1%

0.36

4.1%

Powerchip

0.21

2.5%

0.22

2.5%

ProMos

0.12

1.4%

0.13

1.5%

Winbond

0.11

1.3%

0.11

1.2%

Others

0.16

1.9%

0.16

1.8%

Total

8.29

100.0%

8.78

100.0%

Source: IHS iSuppli May 2011

ASE’s gross margin in 2010 slipped to 21%, from nearly 29% in 2006. For SPIL, the gross margin in 2010 dropped to 15%, from 27% in 2006. In the DRAM segment, profit margins are merely a wish, as nearly all the companies in Taiwan have posted losses in the past one to two years on slumping demand and prices. Taiwan’s chip design segment has some standout companies with admirable gross margin figures, yet even those companies have posted annual declines or just maintained the status quo. MediaTek, Taiwan’s largest chip designer, had a gross margin in 2010 of nearly 54%;

子江綿恆合作，2000年在上海創辦宏力半導體。王永慶2008年10月過世前，曾是台灣首富之一。王文洋不願說明建廠資金來源，反倒要「大家自己想」。宏力快速成為中國第二大晶圓代工廠，而其後台包括許多重要人物，如香港企業大亨李嘉誠的和記黃埔及長江實業2004年就認購了9,000 萬美元的股票。美國前總統小布希的弟弟尼爾．布希 2002年也以五年200萬美元的合約成為宏力的董事與顧問。距離宏力不遠處就是中國最大的晶圓代工廠中芯。張汝京最早在台灣創辦世大積體電路，但 1999年世大被賣給台積電後，張汝京決定前往對岸發展，並於2000年創辦中芯。雖然中芯與宏力還無法撼動台基電與聯電的晶圓代工業務，但中國新興的晶片設計業已經開始搶佔台灣企業的市場。台灣在晶片設計上的成功，來自於無晶圓廠的努力，例如中國手機晶片的主要供應商聯發科

though strong, that number represented slippage from about 57% percent in 2006. Smaller competitors in Taiwan and China have entered MediaTek’s core business in cell phone chips and have pared profits as a result. One of MediaTek’s domestic rivals is Mstar Semiconductor, Taiwan’s second largest chip design firm, which has maintained a gross margin of about 42% in recent years. Sliding profits and growing competition are issues that have grabbed the attention of executives in Taiwan’s semiconductor industry, and some chipmakers are searching for new areas of busi-

技。台灣晶片設計業2011年第二季的營收較去年同期下跌13%。產業的弱化在聯發科身上最為明顯：第二季營收衰退34%，而持續下滑已經超過一年。上海的展訊通信等中國企業是聯發科的主要競爭對手，以低價策略搶食市場。 IHS iSuppli指出，中國的無晶圓產業發展快速， 2010年至2015年間，營收預估可以倍增。主要動能來自手機產業的擴張，單是去年一年就成長了 60%。IHS iSuppli指出，晶片設計業2015年的營收預估可達107億美元，2010年僅為52億美元。聯發科最近試圖反擊，推出智慧型手機的精簡型晶片，具備上網與電郵等基本功能。聯發科一度掌握中國基本款手機晶片的80%市場，但近年來因展訊的削價競爭而節節敗退。如果中國的晶片設計業持續成長，台積電與聯電等晶圓代工廠應該會更想拓展中國業務，以貼近潛在客源。部分中國電子大廠，如通訊設備製造商華為，每年的晶片採購額已達數十億美元。

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Cover Story ness to help revive growth in profits and sales. TSMC, for example, is launching new spinoff companies that are related to its core business. During the first half of 2011, its board of directors approved the formation of TSMC Solar Ltd. and TSMC Solid State Lighting Ltd. The former will enter the solar panel business, while the lighting company will make products based on light-emitting diodes (LEDs), which dramatically reduce the consumption of electricity compared with older incandescent and fluorescent lights. Solar panels and LEDs are made from the same types of materials and production processes that are used in the semiconductor business. “We believe that it is almost essential for a successful company like us to form new companies,” Morris Chang

said following the approval by the board. “You cannot keep them confined in the thinking that has made the parent successful.” The companies will aim for initial public offerings in a few years, Chang said. But despite his optimism, the new businesses may still face the same kinds of challenges as the parent company. The two units will be contract manufacturers for other companies that control brands and marketing without bearing the high costs of the manufacturing facilities. Moreover, the two startup companies will not be the first in Taiwan in their respective fields. The solar and LED industries already have a large number of companies that compete mainly on the basis of price. Those factors suggest that TSMC may need to find some other ways of lifting sales and profits. Some U.S. compa-

獲利下滑幾乎所有台灣的半導體業者，獲利都在持續下滑。台積電的營收與淨利都居業界之冠，毛利率往年都超過50%，足以羨煞矽谷的任何企業。但就算是台積電，2010年度也無法維持紀錄，因為全球經濟衰退導致科技業全面進入寒冬。第二大的聯電表現相對較好，2010年毛利率上升至29%，優於往年的百分之十幾。聯電近年開始減少資本支出，以改善獲利情況。然而，一旦資本支出下滑，聯電就有可能在產能與技術上落後對手。產業中游的晶片封測業，毛利率更為降低。規模最大的日月光與矽品精密工業，必須與眾多國內外小規模業者競爭，激烈價格戰導致獲利不佳。日月光2010年的毛利率滑落至21%，低於2006 年的近29%。矽品2010年的毛利率只有15%，也低於2006年的27%。 DRAM產業近來罕聞獲利佳音。近一兩年因為需求及價格暴跌，幾乎所有台灣業者都處於虧損。至於晶片設計，部分業者還能維持不錯的毛利率，只是就算這些企業也出現下滑，或是只能維持不墜。聯發科2010年的毛利率近54%；帳面上雖然不錯，但仍低於2006年的57%。兩岸小型業者已經開始進攻聯發科的核心業務，即手機晶片，導致公司獲利開始下滑。聯發科的國內對手之一是晨星半導體。身為台灣第二大晶片設計廠，晨星近年的毛利率維持在 42%。獲利下滑與競爭增加已經引起半導體業者的擔

nies in the semiconductor business, such as Intel with its “Intel Inside” strategy, have successfully created brands that have added value to their chip products. Chairman Chang has noted in his conversations with analysts that TSMC has the scale and recognition that has made the TSMC name a brand – within the semiconductor industry, at least. To step outside the shadows of the companies that control the brands and high margins in the electronics business, TSMC and the other semiconductor companies in Taiwan may need to move outside their comfort zone as no-name contract manufacturers. It’s not impossible. Korea’s Samsung, which today dominates so much of the electronics industry in everything from cell phones to TVs, successfully made the move a little more than a decade ago.

憂，部分廠商因而轉向全新領域以重振獲利與銷售。例如台積電就將核心業務分離、單獨設立子公司。 2011年上半年，台積電董事會批准分割讓與台積太陽能與台積固態照明的營業價值。前者負責太陽能板業務，後者進軍LED照明。與傳統的白熾燈及螢光燈相比，LED照明的耗能大幅降低。太陽能板與L E D照明的原料及製程，與半導體並無二致。台積電的張忠謀在董事會後表示，「對於我們這樣一家成功的企業，成立子公司是非常關鍵的」，「你不應該以母公司過去的成功經驗侷限子公司的發展」。他表示，台積電的子公司計畫數年內上市。雖然他本人相當樂觀，但子公司還是會面臨與台積電類似的挑戰。台積太陽能與台積固態照明還是其他品牌大廠的代工廠，必須負擔高額的建廠成本。此外，兩家子公司都不是相關領域的首創者，大量既存廠商早已進入價格割喉戰的困境。綜合上述因素，台積電顯然必須另類思考才能提高銷售與利潤。部分美國業者，例如英特爾的「Intel Inside」行銷策略，成功開創出自家產品的品牌價值。張忠謀在與分析師溝通時表示，台積電規模夠大、招牌也夠響亮–至少在半導體業界如此。電子業仍有許多大廠，既掌握品牌，也具有高獲利，台積電與其他台灣廠商的生存之道，或許在於脫離熟悉的代工模式。這並非毫無可能。南韓的三星集團，十多年前就走上自主品牌的路，今天才能獨佔眾多電子產品項目的市場，從手機到電視都是。

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Using Social Media in Business Some companies are seizing the opportunity to have more direct communication with their customers.

BY AIMEE WONG

e’ve all heard the buzz: Facebook, Twitter, Plurk, Google+. But what is social media anyway? In the absence of a clear dictionary definition, many people aren’t sure what it encompasses. “Everybody has a different idea of what social media is – and it’s continually evolving,” notes Albert Wang, New Business Manager at PR firm Veda International. He labels social media as any type of user-generated content: information sharing websites such as Facebook, Twitter, blogs; collaboration websites like social bookmarks, Wikipedia, Digg; multimedia websites such as F l i c k r a n d Yo u Tu b e ; r e v i e w a n d opinion websites like Yahoo Answers or Epinions; and even online games such as World of Warcraft. One of the latest trends is social commerce, or e-commerce that makes use of social networks. Many mainstream e-commerce websites have already been incorporating aspects of social commerce, such as Amazon's customer ratings, reviews, and rec-

ommendations. But with the recent explosion in popularity of social networking websites, social commerce has risen to a whole new level. Amazon for example, has long offered the ability to purchase gift cards to be used on their website. But now you can connect your Amazon account with your Facebook account, and not only make product recommendations based on your Facebook friend’s interests, but also purchase an Amazon Gift Card and post it to his Facebook wall, complete with a personalized message. Another example of social commerce is Groupon (group + coupon), an international deal-of-the-day website that allows users to purchase discounted gift certificates to be used at various shops and restaurants. The catch is that the deal only becomes available if a certain number of people sign up for the offer, thus reducing the risk for retailers. At the same time, this makes social media the perfect platform for spreading the word. To call 100 friends one by one and ask them to join you in purchasing gift certificates would be

time consuming, potentially awkward, and possibly ineffectual – your friends may not be in a place easily accessible to a computer. But if you post it on your blog, link to it on your Facebook wall, and send out a tweet about it, you automatically reach your entire target audience – friends who care enough about you to receive your updates and, most importantly, are already online – and all in less than the time it takes to make a single phone call. Then there are virtual events, online gatherings of people in virtual locations, for purposes such as tradeshows, job fairs, and meetings. These can include live or pre-recorded webcasts followed by Q&A sessions, as well as virtual booths, forums, and designated meeting places where participants can interact via online video and voice chat. Virtual events offer a convenient and economical way to bring large numbers of people together, perfect for greenconscious companies or those with reduced travel budgets. Moreover, it’s great from a marketing point of view as each participant’s activities and interac-

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tions can be easily tracked and recorded for later analysis. Social media’s entrance into the business world is a natural extension of its widespread personal use, and companies cannot afford to avoid plunging into the fray. “For most people it’s already a fact, not a fad,” says Albert Wang. “Among the top 30 websites in Taiwan, 12 are pure social media websites – Facebook is number two. That’s close to half of the top websites in Taiwan, and if you include hybrid websites like Yahoo with social media functions, it’s actually closer to two-thirds.” Although Yahoo itself is not a pure social media website, it’s impossible to ignore its influence as the island’s largest web portal, with a 98% market penetration rate. It’s a primary social networking provider, having purchased Wretch, the leading blogging platform in Taiwan, in 2007. (Taiwan is, in fact, the only market in which Yahoo! has a blogospheric presence.) But it’s also connected through global agreements with Facebook, Twitter, and Zynga. You can post Yahoo news to your Facebook wall and view Facebook friends on your Yahoo! Messenger contacts list, giving users the ability to link Yahoo with their Facebook, Twitter, and Zynga accounts. You can also view your Facebook friends on their Yahoo homepages and in Yahoo! Mail. (Yahoo’s integration with Twitter and Zynga’s popular social games will be launched later this year.) What accounts for Yahoo!’s overw h e l m i n g s u c c e s s i n t h e Ta i w a n market? “Yahoo! can mobilize a large

global network of resources, and we cater to users with extensive, in-depth localization,” says Joann Chen, the vice president of Audience & Business Management Yahoo! APAC. “We aim to distribute, aggregate, and drive engagement of social activities in whatever way possible.”

Google+ Another Internet giant, Google, launched the Google+ social network platform in a limited trial phase on June 28 this year (Google Taiwan representatives said they did not know when the service would be available in a Chinese format.) But will the new venture catch on? Though Google+ provides some options beyond Face-

book’s offerings, such as the ability to easily group contacts into social “circles” based on the nature of your relationship, what it boils down to may be a simple matter of numbers. “S o ci al m ed ia i s a n in te re st in g thing,” notes Albert Wang. “People tend to go where their friends are on, so the bigger it is in the world, the faster it continues to grow. That is, unless a whole new type of social media comes out for a specific demographic, such as Linkedin, which is for professional interaction, or Flickr for photo sharing.” In addition, social media is highly related to cultural preferences, and websites or platforms that are popular in one market may be nonexistent or do poorly in another. With her regional managerial role, Joann Chen

HOT IN TAIWAN — Over 40% of Plurk's traffic comes from this market, while the highly popular Yahoo portal serves social media in addition to its other functions.

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NEW WAYS TO COMMUNICATE — AMD uses YouTube and Flickr to post videos and photos of its events, such as these shots of its press conference and booth at Taipei's Computex show in June.. photos:amd

has observed the varied formats social media has taken on throughout the Asia Pacific: QQzone and Renren in China, Cyworld in Korea, Mixi in Japan, Orkut in Brazil and India, and Wretch in Taiwan. In the United States, Facebook and Twitter are dominant, while in Taiwan Twitter is far outclassed by Plurk, a similar micro-blogging platform. In fact, according to tracking agency Alexa, over 40% of Plurk’s traffic comes from Taiwan, where it is the 30th most popular website, coming in ahead of MSN. What accounts for the differences in usage and popularity? Ruu Wu, manager of Public Relations & Communication at Yahoo! Taiwan, explains it this way: “Let’s say you try to broadcast the same three messages on both Twitter and Plurk – ‘I ate an apple,’ ‘I drank some coffee,’ and ‘I picked up a stray cat.’ When your friend responds ‘Me too!’ on Twitter, you have no way to know whether she ate an apple, drank coffee, or picked up a cat. It’s more like a messaging system that creates a unique ID for each response. Plurk puts updates on a timeline so you can track what you posted when, and followers can start a discussion and reply to specific posts.” The Taiwanese preference for dia-

logue-based information sharing also manifests itself in the continued popularity of the National Taiwan University student-founded PTT, an online bulletin board system (BBS). It may be the most popular in the world, with more than 1.5 million registered users, along with 40,000 articles and 1 million comments posted every day. In terms of general usage tendencies, Wu explains that Taiwanese Facebook users are more open to using the website to make friends, whereas Westerners prefer to add friends with whom they already have an established connection. Pointing out another difference, Wu says: “In the United States you have a lot of expert bloggers, people who are authorities in their fields. But in Asia it’s all about my life situation – ‘I bought an iPhone, I’m playing this game’ – the ordinary person becoming a celebrity.” Another reason for Yahoo!’s tremendous popularity in Taiwan may be its preset-content homepage. Taiwanese generally “like to get told the contents rather than personalizing it themselves, so that is a difference in culture,” Albert Wang explains. “Google has this service called iGoogle where you can custommake your own homepage, but in Taiwan it hasn't gotten any traction. If you can build your own homepage, why

not do it? In Taiwan people still prefer those types of homepages like Yahoo! where the news is preselected, contents are pre-populated, and you might not get everything you want but a lot of things are there. Taiwanese are probably less selective in content and don't prefer to customize. So most of those products that you see in Taiwan are very clean, and those that allow users to fill in their own needs for the most part haven’t caught on.”

For business use Developing social media is a longterm investment with challenges such as finding expert consultants, training staff, finding the optimal balance between online and offline marketing budgets, and developing quantifiable goals and expectations. Even non-Internet-based companies can find ways to successfully integrate social media into their marketing strategies. Semiconductor company Advanced Micro Devices (AMD) is a prime example. “A major finding from our market analysis was that most of our customers will go on the Internet to check out our products before buying,” says Neal Wang, marketing director at AMD Taiwan. The company therefore

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developed an online marketing plan, including social media, to target this buying behavior. Five or six years ago, TV commercials were the most popular form of promotion in Taiwan, because of their directness, but even then online advertising was a close second. In terms of cost, television commercials are five to ten times more expensive than online advertising. AMD decided to pursue a two-pronged approach to social media: forums (where 80% of its target audience goes for information) and other social network platforms. “ Ta c t i c a l l y y o u c a n w o r k w i t h forum owners to open some more discussion space for specific products related to your category,” Neal Wang says. “You could say, ‘let’s have an opinion about APU’ [the company’s Accelerated Processing Unit]. It may be good or bad, but it’s still positive promotion because people start talking about APU and that’s the exclusive product of my company.” As for utilizing Facebook, AMD’s strategy is to keep it casual. “Social media requires ‘casual marketing,’” he explains. “You are not educating, you’re building relationships, getting people to know you and get familiar with your company.” AMD Taiwan hired Andrea Wei to serve as spokesperson for their “AMD Green” biking initiative, which has now evolved into a comprehensive social media experience, complete with biking gatherings and competitions, as well as lucky draw, trivia contests, and other giveaways and activities – all posted on Facebook. The company also uses Youtube and Flickr to post, for example, a video comparison of the operating speed of two computer processors, or photos from one of their events. “Intel and Nvidia are both large companies in our industry, but neither of their Facebook pages can compete with ours,” Neal boasts. “If you take a look at our AMD Facebook fan club, you’re expecting something there that’s interesting and related to your life – instead of ‘let me tell you how my product is better.’ Then it’s not fun.” The social media effect, Neal Wang

points out, extends even to those who do not participate in social media themselves. Mom-and-pop shops may not engage in social media, but they still buy computers. If they lack much experience with technology, they may ask a friend who knows more – and that friend, in turn, is likely to be someone who engages in social media. Another social media success story involves the Indian comedy 3 Idiots. A YouTube video created by a user compares AMD’s new APU technology with a competing processor, both installed on the same type of laptop. The battery-life test used both computers simultaneously to run the Bollywood-produced 3 Idiots film. The result? The competing machine could only show about two hours of the film, while the AMDpowered machine was able to show the entire three-hour video as well as another short clip. A whole new market also brings about a new range of concerns and problems. How can companies manage negative feedback when the medium moves faster than the time it takes to schedule a press conference, or even to return a phone call? “Sometimes you just have to let go,” Neal Wang says. “Some people will say, ‘I don’t like AMD, my experience using AMD was bad,’ but then maybe some others will respond with positive experiences, too. If the response comes officially from AMD, it’s going to get ugly, so we never do that. You have to be careful because it’s not an advertising activity. I’ll use the term ‘manage’ instead of ‘control’ or ‘advertising.’ You don’t want people to feel this is AMD talking about the product; you can’t do things too obviously or too commercially. All we can do is create the environment for people to discuss my product, which I’m proud of.” “A lot of corporations participate in social media using the ‘old media’ mindset,” agrees Albert Wang. “For example, you can go into Facebook and start a page for your brand, but all you do is promote your content – all you do is advertising and ‘buy me.’ It’s the old television advertising complex: I build my commercial, and you only

hear what I say. But with social media, even if all you do is post good things about your ABC Company, eventually someone will make an ‘I Hate ABC Company’ page. And if you think about it, it’s actually more dangerous that way because you never know where the negative things are going to come from. Why not open the doors to negative communication at your place, on your own page, so that when they give you that feedback you let them know you’re listening to it, and when really bad things happen you really have that trust. But if you never talk to people, you never build that trust. When a crisis happens and you come in to talk to them, people don’t know who you are. They just think you’re trying to brainwash them.” Another advantage offered by social media is that companies can look up prospective employees’ Facebook pages to get an idea of their interests. On the flip side, prospective employees can ask their social network contacts for job leads or run a search on Linkedin. Jean-François Amadei, Social Media Strategist at Era Ogilvy, actually learned about the job he is now holding through Twitter. “Harnessing the power of social media is a great way to break down barriers and provide channels for direct interaction and communication between employees and prospective employers,” he says. “Instead of simply posting resumés online, individuals should also build up their level of influence on social networks through engaging in discussions and forums related to their field of expertise, as it is not uncommon for high-level executives to also be active on these platforms.” At this stage, the question is not whether businesses and professionals should get involved in social media, but how should they get involved. Albert Wang stresses the need to make social media part of an overall corporate strategy. “It’s not just a one-time event, how much exposure can I get,” he says. “If you do that, you lose the whole point of social media. It’s a great chance to cut out all the middlemen, the TV and radio, and reach the people directly.”

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Machinery Industry Poised to Join “NT$1 Trillion Club” Export sales are strong, not only to China but to ASEAN, Europe, and the United States.

BY PHILIP LIU

fter staging a strong comeback from its nadir during the global financial crisis, Taiwan’s machinery industry this year is poised to join the club of “Trillion NT$” (US$34.5 billion) industries in output value, thanks to a continuing strong influx of overseas orders. The industry’s production value last year jumped 32.4% to NT$900 billion (US$29 billion) and is expected to gain another 17% to reach NT$1.05 trillion (US$36 billion) in 2011, according to the Taiwan Association of Machinery Industry (TAMI). The stellar 2010 performance was attributed mainly to booming export shipments, which soared 52.2% to reach US$16.7 billion. Further export growth of 30% is expected this year, says TAMI president Wang Cheng-ching. Some 75-80% of the overseas shipments go to the four major markets of China, ASEAN, the United States, and the European Union. “Buyers in developed nations like to purchase Taiwanmade machinery because of its good performance/price ratio,” says Wang. Besides lower cost, they find that

Taiwan is able to supply many models that are not produced in their own countries, particularly machines that can perform a multitude of functions. Hank Lin, chairman of Lico Machinery, agrees that cost effectiveness is key to the popularity of the company’s machine tools in such countries as Germany, Japan, and Italy. “Our products carry a price tag that is only 70% of what German counterparts are charging, but we offer comparable, or even higher, efficiency,” he says. The company makes combo lathemilling machines that integrate various machining operations into a single machine and are used mainly for machining parts for use in making hardware, kitchenware, bathroom ware, and electronic products. The combo machines, for instance, are capable of turning out one lock cylinder every two minutes. The operation is completely automated, including the feeding of raw materials, enabling the machines to run continuously for eight to 72 hours, depending on the model. Wang notes that another major point of competitiveness for Taiwan-made

machinery is the fast delivery time, which averages only three months, compared with half a year to one year for similar U.S. and European models. One major reason for that speed is the existence of industrial clusters, located mainly in central Taiwan, making it possible for machinery manufacturers to obtain parts and components rapidly from nearby satellite factories. Taiwan-made machinery has become increasingly popular in some emerging markets. Sales to China, for instance, shot up 77.7% to hit US$7 billion in 2010, while shipments to Brazil skyrocketed 84.8% to reach US$407 million and those to Russia rose 58% to US$187 million. Within the machinery industry, machine tools have remained the dominant category. After skyrocketing 66.7% to NT$125 million (US$4.3 billion) in 2010, output value for machine tools this year is expected to return to the peak level of NT$150 billion (US$5.2 billion) registered in 2008. The growth may enable Taiwan to climb one notch to become the fourth largest machine-tool producer in the world,

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played models featuring multifacet processing, multi-axis functions, and high-speed operation. Its HB430F largeParts and components scale horizontal boring-milling processing machine has appliMachine-tool parts and cations in the wind-power components this year are industry, while its VTC2500 expected to rack up NT$180 large-scale combination lathebillion (US$6.2 billion) in milling machine boasts the production value, reprethr e e funct i ons of l at hi ng, senting 20% growth over milling, and grinding. Both 2 0 1 0 ’s N T $ 1 5 0 b i l l i o n models feature patented tech(US$5.2 billion), which was nologies. similar to the 2009 level. In view of the rosy prosTAMI statistics show that Buyers at the 2011 TIMTOS show; the biennial event is now the third largest machine tool exhibition in the world. p e c t s , Ta i w a n ’s m a c h i n e r y exports of parts and comphoto :t IMtos makers are currently vigorously ponents increased by 88.7% expanding production capacity, to US$784 million in 2010, including that of facilities in China. years is expected to remain at a high making Taiwan the world’s third largest Among the companies with ambi 25-30%, according to a research unit supplier of machine-tool parts and comtious expansion plans are Fair Friend, on the Chinese market. High-end digponents. Taiwan has over 200 machineVictor Taichung, Tungtai, Hiwin, ital-controlled models will be the main tool parts suppliers, mostly in central Shieh Yih, Goodway, and Awea. Fair growth driver. Projections call for China Taiwan; the major products include Friend Group, for instance, recently to import 10,000 to 20,000 units of linear guideways, turrets, and ball broke ground on the construction of high-end machine tools annually in the screws. a new plant inside the Taichung Precoming years. Reflecting a general optimism in the cision Machinery Park that is due to The global status achieved by Taiindustry, TAMI chairman Hsu Hsiucost NT$500 million (US$17 million). wan’s machine-tool industry has been chang describes Taiwan’s machinery It also plans to build six new plants in fully manifested by the huge scale sector as “entering a golden decade” of Hangzhou in China’s Zhejiang Provof the biennial Taipei International fast growth. ince. Zhu Zhi-yang, chairman of Fair Machine Tool Show (TIMTOS). The A major positive factor is the open Friend, notes that ECFA has opened 2011 edition of the show, held March access Taiwanese machinery suppliers new horizons for the development of 1-6, attracted 910 exhibitors filling are enjoying in the mainland Chithe company, prompting the added 5,138 booths, passing Japan’s event to nese market, thanks to the inclusion of investment. become the second largest machine-tool some important items in the “early-harConsidering the rapid influx of show in Asia and the third largest in vest” list – the priority items for tariff orders, Wele Mechantronic chairman the world (behind the shows in Beijing cuts and marketing opening – within Kuan Yung-chang calls 2011 the “year and Hanover, Germany). This year’s the cross-Strait Economic Cooperaof expansion.” In addition to projects TIMTOS occupied the Nangang Exhibition Framework Agreement (ECFA), launched early this year to enlarge its tion Hall as well as the three downtown the quasi-free trade agreement that Hsinchu and Taichung plants, the comexhibition halls of the Taipei World took effect from this year. Seventeen pany will construct a new 6,000-ping Trade Center, but still could meet only types of machine tools, for instance, are (19,830 square-meter) factory, sched70% of the demand for space. on the list, reducing their tariff levels uled for completion in June 2012, in the Chairman Hsu of TAMI notes that for the Chinese market to 5%, from Houli area of the Central Taiwan Scithe products exhibited at the show the previous 9.7%. That decrease furence Park. clearly demonstrate the key three ther strengthens the market position for In addition, TAMI has been actively directions marking the development those products in China, which takes promoting the establishment of a preof Taiwan-made machine tools – the about 33% of the total exports in those cision-machinery industrial park in movement toward large-scale models, categories. Erlin of Changhua County. Some 100 combination models (particularly comAs the largest machine-tool market firms have expressed interest in setting bination lathe-milling machines and in the world, the Chinese market is up plants there involving total investmachines with five-axis processing vital for the development of the Taiment worth about NT$100 billion functions), and high-precision/highwanese machine-tool industry. Sales of (US$3.4 billion). The Industrial Develspeed models. machine tools in China rose by over opment Bureau is still in the process of One of the TIMTOS exhibitors, 40% in 2010 and the average comacquiring the necessary land. Wele Mechantronic, for instance, dispound growth rate in the coming five trailing only Germany, Japan, and China.

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Deep-Sea Fishing: Facing Issues of Sustainability Taiwan’s Fisheries Agency has been trying to reduce the number of vessels and impose tighter monitoring.

BY TIMOTHY FERRY

eased tensions over the he capture of the captain’s death. The Taiwanese fishing whole affair, however, vessel Jih Chun did little to amelioTsai 68 last year by pirates rate longstanding issues off the coast of Somalia facing Taiwan’s fishing had the elements of a Holindustry, particularly lywood thriller, but for the level of oversight the captain and crew, the t h e Ta i w a n g o v e r n stakes were all too real. ment is able to exercise The vessel and crew were over the country’s vast impressed by their Somali fishing fleet. captors into serving as a When it was base, or “mothership,” for hijacked, the Jih Chun the launching of further Ts a i 6 8 h a d b e e n pirate attacks on the Indian fishing off the coast Ocean for over a year. T h e h i g h s e a s d r a m a CATCH OF THE DAY — Taiwan is one of the major nations involved in the o f S o m a l i a , a n a r e a so riddled with piracy finally came to a violent end deep-sea fishing of tuna. photo : craig ferguson t h a t Ta i w a n e s e v e s last May when the Amersels had been warned ican naval frigate the USS to stay away by Taiwan’s own regularansomed off in April). Stephen W. Groves attacked the Jih tory authorities. Further, many media Ta i w a n e s e f i s h i n g g r o u p s w e r e Chun Tsai 68 in an effort to rescue the reports said the boat was suspected of harshly critical of the U.S. Navy’s hostages. Three Somali pirates were being part of a ring of Taiwanese fishing handling of the incident, but U.S. govkilled – but also the Taiwanese capvessels engaged in what is known as ernment payment of compensation to tain, Wu Lai-yu, who was inadvertently IUU (illegal, undocumented, and unliWu’s widow and a personal apology hit in the crossfire. The remaining two censed) fishing. The incident therefore from William A. Stanton, director Chinese crewmen were freed (the Indoraised questions as to whether Taiwan of the American Institute in Taiwan, nesian crewmembers had already been

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is a responsible player in the world’s fishing industry. Can Taiwan’s Fisheries Agency, part of the Council of Agriculture, adequately help safeguard the ocean’s fishing resources while simultaneously developing Taiwan’s deep-sea fishing industry? Fisheries Agency Director General James Sha notes that controlling a deepsea fishing fleet working out of farflung ports such as Cape Town and the Mauritius Islands is not easy, and that problems of illegal fishing continue to plague the industry. “We do our best to cut down on illegal activity” and the situation is improving,” he says. Others, though, are less sanguine. Hsu Chien-chung, professor of fisheries management at National Taiwan University, for example cites an essential conflict of interest in the Fisheries Agency’s mission. “They do not know what they manage: fishery resources or fishers,” Hsu says. He sees this conflict of interest as stymieing any real regulation of the industry, resulting in “incredibly many” regulations governing fishing – but regulations that exist only on paper. “Not one regulation can be executed rightly and assuredly,” he argues. Greenpeace Taiwan, the local chapter of the global environmental group, considers the balance between industry development and resource management has having already been skewed. It says that between 2002 and 2010, about 75% of the Fisheries Agency’s NT$11.7 billion (US$403.1 million) budget went to promoting deep-sea fishing, while less than 3% was used for fishing resources management. NT$4 billion alone was spent on fuel subsidies for deep-sea fishing vessels. The Fisheries Agency disputes these assertions, claiming that much of its budget is in fact used to reduce the size of Taiwan’s fishing fleet by buying out fishing boats. But Greenpeace Taiwan’s head, Kuo Yu-fen, responds that while Taiwan did indeed significantly reduce the size of its fleet between 2005 and 2007, subsequent years saw increased subsidies to the fishing industry. “The scrap vessel and buyback plans all had good intentions, but what followed

COMING ASHORE — Fishermen offload prized tuna at Donggang harbor in southern Taiwan's Pingtung County. photo : craig ferguson

was more money given to encourage fishing,” she asserts. Such controversy is common to the global fishing industry, with not only billions of dollars and millions of livelihoods at stake, but also the fate of the entire oceanic ecosystem. And as Taiwan is one of the world’s biggest deep-sea fishing nations, the passions can run especially high.

Home to a large fleet Taiwan might be better known for its high-tech industries, but it is also home to a vast deep-sea fishing fleet. The industry was developed in the early 1960s with American help as a way to earn foreign exchange through exports. Now, according to data supplied by Taiwan’s Fisheries Agency, the total deep-sea fishing production in recent years has averaged 800,000 metric tons, valued at NT$43 billion (US$1.4 billion). The harvest consists mostly of squid, saury (also known as mackerel pike), shark, and most prominently, tuna. Of the tuna sold on the worldwide consumer market, 60% is harvested in the Western and Central Pacific Ocean, where Taiwan is the biggest player. Operating on the seas off the Philip-

pines, Indonesia, and the Pacific island nations, as well as the high seas of the South Pacific and eastern Indian Ocean, this sector annually account for around 240,000 tons of tuna, with a value of nearly US$1 billion. Taiwan’s fleet of over 350 large-scale, longline tuna-fishing vessels and roughly 1,700 smaller longline vessels is larger than the fleets of fishing powerhouses Japan and the United States. Taiwan also has a substantial tuna purse-seine fishery with 34 vessels whose nets mainly harvest the waters of the countries of the Parties to the Nauru Agreement (PNA), including Nauru, Kiribati, and the Solomon Islands. Their annual production of 200,000 metric tons is valued at nearly US$250 million. In addition, Taiwan has about 35 distant-water trawlers paying access fees or participating in joint ventures with local partners to fish the waters of Indonesia and Papua New Guinea. Their annual catch is around 30,000 metric tons, with a value of nearly NT$2.4 billion dollars (US$82.8 million). Little of the deep-seas harvest actua l l y e n t e r s t h e Ta i w a n c o n s u m e r market. Most of it is exported to Japan, the United States, or Europe, although China is also a growing market for fish caught by Taiwanese vessels.

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Unfortunately, scientists, environmentalists, and even some fishing management organizations doubt that these yields can be maintained for long. Many of the world’s fisheries are stressed by overfishing, and high-value tuna species are some of the hardest hit. This year the International Union for the Conservation of Nature (IUCN) listed five of the eight species of tuna on its Red List of Threatened Species. Bigeye tuna, highly sought-after by Taiwanese fishers for its value in the Japanese sashimi market, is considered “vulnerable” by the IUCN – one step away from “endangered.” Other species that are both found on the IUCN’s Red List and are target species for the Taiwanese fishing industry are Yellowfin and the Albacore of many a tuna-salad sandwich. “This new study shows that there is an urgent need for effective management,” Jean-Christophe Vié, Deputy Director of the IUCN’s Global Species Programme, is quoting as saying on the IUCN’s website. “Marine life and jobs for future generations are both at stake.” Yet despite the size of Taiwan’s fishing industry and the urgent need for oversight to ensure sustainability, Taiwan’s Fisheries Agency maintains a staff of only 30 people in its deep-sea fishing division, out of total personnel of just under 200. NTU’s Professor Hsu further observes that “99% of personnel in the Fisheries Agency, including high-rank personnel, are not fishery management experts.” Nevertheless, the Fisheries Agency is well aware of the threats to the deepsea fishing industry, and says it does its best to manage both the fishers and the resources. “We all know that fish resources are not in good condition,” says Director Sha. He stresses that one way Taiwan has minimized the impact is by reducing the size of its fishing fleet. Peter Ho, president of the Overseas Fisheries Development Council of the ROC, says that Taiwan reduced the number of large tuna longliners by 240 vessels over the past few years, from 600 to the current 360. T h e Ta i w a n i n d u s t r y i s a l s o a party to most of the world’s regional

fishing management organizations (RFMOs), including the Western and Central Pacific Fisheries Commission (WCPFC), the Inter-American Tropical Tuna Commission (IATTC), and the Indian Ocean Tuna Commission (IOTC). RFMOs establish quotas for participating nations to limit catches to sustainable levels. According to the Fisheries Agency, Taiwan’s total deepsea quota for tuna was 77,400 metric tons in 2010. To ensure that quotas are adhered to, Taiwan has also made significant strides towards reducing the amount of IUU fishing through stricter and more effective management. All Taiwanese fishing vessels, for example, are required to install a Vessel Monitoring System (VMS), a combination black box and tracking device. The VMS enables the Fisheries Agency to monitor the exact whereabouts of all vessels in real time. The system can even reveal whether the boat is actually fishing or not, depending on how fast it is moving. Director Sha says that through the VMS equipment, mandatory on all Taiwanese vessels since 2002, the agency has a foolproof method for monitoring the deep-sea fleet. He adds that in the unlikely event the VMS fails, the boat is required to regularly call into the agency to report its catch during the month-long period allowed for getting the VMS repaired. Sha further notes the strict penalties for tampering with the device, including rescinding the fishing license or impounding the boat. Greenpeace Taiwan challenges the efficacy of the system, though. In its 2008 report, the environmental NGO said it has observed several instances in which Taiwanese boats had claimed that their VMS had failed, when in fact the system had been tampered with so that the boats could fish undetected in prohibited waters. To guard against such instances, Taiwan has also stepped up its direct monitoring of the fleet through more frequent Coast Guard patrols and reciprocal agreements for random inspections of fishing vessels with a number of nations with significant fishing interests, including the United

States, France, Australia, Japan, and the Cook Islands. If a Taiwanese vessel is found to have violated legal restrictions, it faces fines not only from the nation whose enforcement personnel boarded the vessel, but from Taiwan as well. This double jeopardy is intended to further inhibit illegal fishing. Taiwanese Coast Guard and training vessels also undertake extensive six-month-long expeditions on the high seas at great expense to the government to ensure that Taiwanese vessels are fishing legally, says Sha.

Observer program In addition, Taiwan introduced a fisheries observer program in 2002. Covering 5% of the island’s fleet, the observers live aboard the fishing vessels and monitor their activities, taking data on everything from actual catch amounts to “bycatch” – the non-target marine life inadvertently captured on longlines or in purse seines. Longlines can stretch for tens of kilometers behind the fishing vessel and are notorious for capturing not just the target tuna species but also seabirds, dolphins, whales, and sea turtles. Rebecca Lewison, a professor of ecology at the University of California in San Diego, says that in the 2004 fishing season alone an estimated 150,000-200,000 loggerhead sea turtles and 30,000-60,000 leatherback turtles were killed in the Pacific due to longlining. As a result, the populations of these species have been reduced by up to 80% in recent years. The data collected by the fisheries observers should be able to help the RFMOs manage bycatch reduction and ensure that vessels stay within their allotted quotas. But just placing observers on fishing vessels is no guarantee they will be effective. The international Association for Professional Observers (APO) says that observers may face intimidation from fishing-vessel captains not to accurately report actual catch or bycatch data. How common this phenomenon may be for Taiwan vessels is unknown, but Public Employees for Environmental Responsibility (PEER), a U.S.-

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based NGO, estimates that at least 10% of fisheries observers around the world have experienced intimidation to change their data. The APO adds that intimidation can result in “an absolute loss of sampling data generated” or else “significantly biased data.” It refers to observers’ risk of “serious physical and mental injuries” due to harassment or interference while at sea. This situation has a bearing on a further issue raised by NTU professor Hsu: the lack of quality data for managing fisheries. As a result, he says, the amount of Total Allowable Catch (TAC) – the absolute limit on harvests that can still allow for sustainable yields – “may be overestimated.” And as most nations, including Taiwan, tend to harvest their entire national quota, this miscalculation may lead to chronic overfishing. An even greater threat to the world’s fisheries, though, may be the phenomenon of Flags of Convenience (FOC). As developed nations, including Taiwan, further regulate their fishing industries, it has become common for Taiwanese boat owners to change the registry of the vessel to a nation with less onerous regulations. Popular FOC nations include Belize, Panama, and even landlocked Georgia. Since the FOC nation is responsible for monitoring the vessel, and as these nations typically lack the resources for such responsibilities, a large number of boats are now essentially fishing the ocean without any restrictions. Conditions have improved in recent years, however, as the global community has come to accept the concept of Beneficial Owner State, meaning that the country of citizenship of the boatowner must also take responsibility for the actions of the vessel. Accordingly, Taiwanese-owned FOC vessels are required to register with the Fisheries Agency and to follow the rules laid down by Taiwan. The Fisheries Agency reports that 217 FOC vessels have been registered, though international rules prohibit the Taiwanese Coast Guard from boarding an FOC vessel unless Taiwan has formal diplomatic relations

SERVING AS MONITORS — Vessels from Taiwan's Coast Guard fleet at anchor in Keelung Harbor. photo : tim ferry

with the country whose flag it is flying – a major restriction given Taiwan’s diplomatic isolation. More positively, some FOC nations have been incorporated into the RFMO system, reducing the ability of vessels from those countries to evade fishing regulations. Director Sha notes that Belize recently levied a fine against a Taiwanese-owned fishing vessel flying its flag of convenience. A s i d e f r o m t h e i s s u e o f Ta i wan’s ability to manage its deep-sea fishing fleet, the industry as a whole is undoubtedly facing ever more difficult challenges. Piracy remains a significant threat to all vessels operating in the Indian Ocean. Seven Taiwanese vessels, including the Jih Chun Tsai 68, have been hijacked by Somali pirates over the past few years. Five were successfully ransomed, the Jih Chun Tsai 68 was sunk, and a seventh – the F/V Shiuh Fu 1 – remains missing and is suspected of being used as a pirate mothership. Political uncertainty is also affecting the industry. The Solomon Islands has already closed its waters to foreign purse seiners, and Papua New Guinea is expected to follow suit. The reduced

demand in post-tsunami Japan, the world’s largest tuna market, plus rising fuel costs are causing 2011 to shape up as a difficult year for the deep-sea fishing industry. Whether these factors will increase IUU fishing, or just compel fishers to exit the industry, is uncertain. For Taiwan, though, the deep-sea fleet actually pays a different sort of dividend. While Taiwan is generally diplomatically isolated, the Fisheries Agency enjoys considerable international prestige. Taiwan, as “Chinese Taipei,” is a full or partial member in most of the world’s leading RFMOs for the simple reason that, as Director Sha points out, “if Taiwan doesn’t join them, all of their conservation measures would be useless.” The scale of Taiwan’s deep-sea fishing fleet provides that type of leverage. Whether Taiwan will use this influence to help ensure the longterm sustainability of the world’s ocean resources, and of its own fishing industry, remains to be seen.

— Amber Parcher contributed reporting for this article.

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How to Inculcate Creativity? Taiwan’s traditional education system has not encouraged thinking outside the box, but new programs are seeking to change that.

BY TIMOTHY FERRY

s head of management consultancy McKinsey’s Taiwan office, Bill Wiseman has a lot of experience advising international R&D teams. On numerous occasions, he’s seen those teams come to rely heavily on their Taiwanese engineering partners to do the bulk of the work. “The Taiwanese engineers are usually the guys who can really bang out highquality analysis and are willing to work long hours,” he observes. But while the work they are doing is integral to the project, it’s “not the conceptual stuff,” Wiseman notes. He says that most Taiwanese engineers seem quite comfortable with this role, operating under the mindset of “just tell me what to do.” Wiseman’s observations align with AmCham Taiwan’s 2011 Business Climate Survey of its membership, which f o u n d t h a t Ta i w a n ’s w o r k f o r c e – despite its many positive attributes, such as being well-educated, highly productive, and loyal – is relatively weak in terms of two important assets: creativity and initiative. The survey results come at a time of

growing recognition of the importance of creativity in today’s business environment. A recent study of CEOs from 60 countries conducted by IBM found that 60% of them considered creativity to be the most important leadership trait for business leaders for the next five years, beating even integrity and global thinking in importance. A recent Newsweek article entitled “The Creativity Crisis” linked personal success directly to Creativity Quotient scores, but found creativity to be a diminishing attribute in the United States. “Creativity” is now in vogue in business media, perhaps even overshadowing the longstanding buzzword “innovation.” And while these two terms are certainly related, the differences between them point to deep changes in the global economy. According to Professor Wu Jing-Jyi, head of the Center for Creativity and Innovation Studies at National Chengchi University (NCCU), creativity is characterized by both novelty and utility – the generation of original, useful ideas. Innovation, on the other hand, is putting these novel, useful

ideas to work as revenue-generating goods or services. McKinsey’s Wiseman, drawing on Thomas Friedman’s writing, observes that the global technology supply chain has itself become a commodity, with profits derived from the mantra of “make it faster, make it better, make it cheaper.” The business model of contract manufacturing based on this concept has worked very well in Taiwan. And while stripping costs and raising efficiencies does require some creativity, Wiseman observes that what you really need for this business model are “a bunch of guys who are going to put their heads down and get to work.” The problem is that there’s always someone willing to do the same thing for less. Taiwan has so far managed to compete successfully with low-cost juggernauts like China, but Wiseman observes that over time, wages will inevitably rise and productivity drop, undermining competitiveness. “It may be in the next five years or the next 30, but at some point your competitive advantage disappears,” he says. He also notes that recent changes in Taiwan’s

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ican CEOs expect their labor laws empowering employees “to express labor unions, combined their creativity and iniwith a strengthening curtiative,” to “find a rency, may contribute to problem and formulate hastening the end of Taia strategy to solve the wan’s competitiveness in problem before the boss this business model. asks you,” while offering Taiwan eventually will “strategies outside of need to build different what you remember business models in order from textbooks.” to generate GDP growth, Taiwanese employees, Wiseman says. What will though, find it very difthose future business ficult to meet those models be? “You need expectations. Wu jokes creative people to figure that it requires a good that stuff out,” he asserts. B u t i n n o v a t i o n – FOSTERING CREATIVITY — Students participating in an exercise as part of an deal of creative stratel a r g e l y s e e n a s t h e "EMBA Leadership and Team Development" class taught by Prof. Wu Jing-Jyi. gizing for them just to photo :nccu say “good morning” to domain of R&D – is not their American boss, the only reason why cremuch less take the initiaativity has attained such tive in solving problems. On the other prominence recently. In an article in He says he sees examples everywhere of hand, people who were not such good Businessweek, Frank Kern, senior vice Taiwanese creativity, from the array of students in school “need to find their president of IBM’s Global Business foods in any marketplace to the abunown way,” resulting in the creative lifedivision, writes that “global complexity dance of small businesses. “The people styles Wu sees all around him. is the foremost issue confronting” are creative!” he says. “They are not Wiseman says he recognizes this CEOs and their enterprises. From the taught to be creative, but in order to phenomenon, and at one point experiintegration of the global economy survive they become creative, and in mented with hiring graduates of secondto the interconnectedness of people order to survive better, they become tier universities rather than those “good through the Internet to the consevery creative.” students” from top institutions. He quences of climate change, CEOs now In fact, the only places where Wu hoped they would be hungrier – eager see a growing gap between the levels does not see Taiwanese being creative for a chance and thus more proacof complexity that business leaders are is where creativity is perhaps now most tive and likely to take on responsibility. facing and their organizations’ ability vital – inside classrooms and inside The result was disappointing, however, to handle the challenges. Also, the linbig corporations. He is not surprised for the reason that the graduates from gering aftereffects of the recession have that the AmCham survey found Taisecond-tier schools lacked the necessary soured many companies’ relationships wanese employees lagging in terms of English ability and general communicawith their customers. Globally, he says, creativity and initiative, and attributes tion skills. CEOs have come to recognize that crethe problem to the “good student” synAnd so the issue comes back to the ativity is the “necessary element for drome. Those chosen for employment educational system, but hopefully recast enterprises that must reinvent their cusat large multinationals are the ones to regard it as the potential solution tomer relationships and achieve greater with degrees from prestigious univerrather than the problem. operational dexterity.” sities – the good students – but most Based on the assumption that “diverIn designating 2009 as the “Year of of these students “are very passive,” sity and innovation are the focus of Creativity,” the European Union poshe observes. “They wait for orders to modern education,” the Taiwan govited that up to one-fifth of all future learn, to take the test, to pass – and that ernment in 1996 launched a series of jobs have not even been invented yet. habit carries over into the workspace.” research projects on creativity and innoNCCU’s Wu concurs, citing Chief When these good students enter the vation. The ultimate goal was threefold: Knowledge Officer and Chief Learning corporation, “their behavior mimics the first to establish an educational policy Officer as examples of jobs that did not classroom,” he explains. “They tend to that would encourage and support creexist a generation ago. listen to the teacher, to authority, and ativity; second, to develop and institute they’re afraid they’ll make mistakes.” instructional strategies to implement But while being a good student No shortage of creativity creative education; and third, to widen may gain them good jobs and prestige, the public’s vision and appreciation of it undermines their competitiveness But Wu disputes the notion that Taia “creative culture” by arousing their in other ways. Wu says that Amerwanese people are short of creativity.

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creative interests from an “ecological perspective.” The ideal being pursued is one in which creativity is encouraged and expressed – at both the individual level and in society – through the school system, the workplace, and the culture in general. These are lofty aims, and to reach them Taiwan’s Ministry of Education (MOE), along with think tanks such as NCCU’s Center for Creativity and Innovation Studies, came up with a number of creative programs. Perhaps foremost among them is the Intelligent Ironman Creativity Competition (IICC), an activity in which teams of high school students compete in weeklong exercises intended to stimulate their innovation and creative problemsolving skills, along with their abilities to work in teams from a multidisciplinary approach. In 2006, for instance, the competition required each team to stage a drama with a specific theme – not only writing and acting in a short play, but also designing and building the set and even preparing a budget and procuring supplies. The results of the IICC have been positive, with high-scoring teams revealing high levels of creativity and motivation. The Competition, which began in 2004 as a purely Taiwanese event, now attracts thousands of teams from Asia and around the world, including Germany, Japan, and the Philippines.

Educational curriculum But research indicates that special programs such as these have less impact on student creativity than incorporating new teaching methods into the daily curriculum. Singapore has taken a leading role in this regard. Under the slogan, “teach less, learn more,” Singapore has redefined the role of teacher. “The teacher’s role now is to be a facilitator, not just an instructor,” explains Wong Kai Jiun, senior assistant trade representative in Singapore’s trade office in Taipei. Moving away from the traditional Asian approach to learning that empha-

sizes memorization and testing, Wong says education in Singapore now utilizes a variety of different approaches, including open-book tests and analysis of case studies “that challenge students to think creatively” and to understand that there might not be a “single right answer and that every answer has pros and cons that must be weighed.” Taiwan’s MOE has set similar objectives, and at the primary school level, parents have been pleased to see the adoption of some new educational approaches that encourage creative thinking. But how far that evolution has proceeded at the junior and senior high school levels remains an open question. Students at public junior high school are typically kept in classrooms until 9 p.m. – 9 p.m.! – studying for their allimportant senior high school entrance exams (the state is only obligated to educate youngsters until the age of 14; after that, students must test their way into senior high school). This process occurs despite Taiwan’s own findings that, in the words of NCCU’s Wu, “our entrance exams kill creativity.” Wu believes change is on the way, though, citing the likely adoption of alternative entrance procedures in which students may opt out of entrance exams and instead be evaluated according to their overall education performance and extracurricular activities. Students have had this option for university entrance for nearly a decade, but the percentage of students taking advantage of it remains low, perhaps owing to cultural bias. The examination system, after all, has been part of Chinese society since the age of Confucius 2500 years ago, and is largely seen as a fair and objective assessment of a student’s aptitude and skill. Besides, in the words of a junior high school student, going the alternative route “means you have to study hard for all three years, instead of for just one test.” Despite all the buzz surrounding the word creativity, opinions vary as to just how significant creativity will really be to Taiwan’s future development. Jamie Lin, CEO of tech startup incubator Appworks is skeptical, suggesting that the importance of creativity is over-

sold. While that attribute is vital for company visionaries, he feels that the smooth implementation of the visionaries’ ideas is even more important to the company’s success. “Not everyone at Apple is creative,” he observes. “Most are just executing the vision of Steve Jobs.” Lin thus sees creativity as a top-down activity – a necessity for the company’s leaders but far less important for the employees. “Execution beats ideas,” he says. Appworks has seeded a number of rising stars in the new digital economy, foremost among them Richi.com, an online clearinghouse for digital currencies that won a place on Red Herring magazine’s list of Asia’s Top 100 tech companies. But creativity doesn’t even rank in the top three qualities Lin looks for in startups, which are passion, determination, and a deep understanding of the technology market. “We’re not looking for artists,” he says. Lin considers that Taiwan’s knack for executing the vision coming from the top will continue to be its competitive edge, pointing to companies such as HTC and Acer as examples of organizations that have successfully followed that style. Is the perception of the Taiwanese workforce as short on initiative and creativity real, or a question of cultural misperception? And if it is real, is it an attribute that in fact facilitates diligence and execution, or is it a potential obstacle to Taiwan’s continued prosperity? Ultimately, the issue may really come down to confidence. According to McKinsey’s Wiseman, “people who want to drive hard and get ahead are more than happy to tell their boss to get out of the way and let them prove that they can do the job. That’s what’s expected of you in a Western enterprise.” But he says he doesn’t see that level of confidence in Taiwanese workers, and notes that “I can’t tell if someone’s creative” because they won’t step up to the plate. With Taiwan’s future development at stake, maybe what’s really required is a little more batting practice.

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Tourism Growth Enlarging the Opportunities BY KASEY REISMAN

photo : courtesy of le meridien

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A Report on Taiwan’s Hotel Industry

Filling Up the Rooms – and the Restaurants The recent opening to individual Chinese travelers is just one of the changes affecting the market.

IN THIS SURVEY

• Filling Up the Rooms – and the Restaurants

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• A Variety of Styles in New Hotels

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• Shortcomings in Education and Training

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• Running the Regent Brand from Taipei

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lthough Taiwan’s opening to Chinese visitors has been a big boon to the domestic tourism industry for the past several years, it hasn’t had much impact on the luxury hotels. Until just recently, mainland tourists could only come to the island as members of package tour groups, and room rates at the leading hotels tend to be well above what those price-conscious tour organizers can afford. But the situation may be about to change. Starting from June 28, the market has been opened to Free Independent Travelers (FIT) – up to 500 entrants per day in the first stage, limited to visitors from just the three cities of Beijing, Shanghai, and Xiamen. Greeting the first batch of arrivals, Chao Hsin-ping, commissioner of the Taipei City Department of Information and Tourism, told the local media that the FIT program would bring tremendous business opportunities. “We expect more than 170,000 independent Chinese tourists to visit Taipei annually, which will create an output value of NT$2.4 billion” (US$82 million), she said. The new policy has been warmly welcomed by leading hoteliers. Grand Hyatt Taipei General Manager David Pacey, for example, says he is very pleased to see these individual Chinese tourists “supplement the existing

market.” Steven Pan, chairman and CEO of Formosa International Hotels Corp., says he expects a steady growth in the number of business travelers from China in the years ahead. Pan stresses the interconnections among Taiwan’s overall economic development, the improvement in cross-Strait relations, and the growth of Taiwan’s tourism industry. “Taiwan has become a more developed, consumption-driven economy,” he notes. “Tourism will become even more important, especially considering the personal and business relationships between Taiwan and mainland China. With the backdrop of peace, the tourism industry is a direct beneficiary of the improving relationship, and will outperform other industries.” At the Palais de Chine, General Manager Achim von Hake says the influx of this additional source of tourists can be expected to spur even more development in the market. “Many hotel operators will consider establishing branches or hotels in Taiwan to cater to these travelers because the demand for rooms is definitely rising,” he says. His counterpart at Shangri-La’s Far Eastern Plaza Hotel, Ulf Bremer, adds that this new business will prompt travel agencies and other tourism industry operators to create new packages catering to Chinese FITs.

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Others in the industry caution that it is still not easy for mainland citizens to get permission to visit Taiwan, and that the flow of travelers may be subject to political factors on both sides. Beijing might turn off the spigot to show displeasure over certain Taiwan policies, and Taiwan may decide to reduce the numbers during sensitive periods such as election campaigns. Nonetheless, if the FIT program proceeds smoothly, leading to more visitors from more Chinese regions, it could represent a substantial boost to the local hotel sector. After a decade or so without the entry of major new properties, Taiwan’s international hotel market has reawakened with a vengeance over the past two years. The new wave of hotel openings (see the next story in this section) has complemented the existing five-star establishments in Taipei by adding new interpretations of luxury and convenience. This widened choice for travelers is expected to help Taiwan meet its goal of attracting more than 5.5 million international visitors this year to set a new record. Because Taiwan is still a long way from matching the 30 million or more visitors a year in some other markets in the region, however, it is working harder than ever to project itself onto the global stage as a tourist destination offering a diverse, rich cultural experience. The start of operations at the new hotels, notably the Palais de Chine, W-Hotel, and Le Meridien – together with the highly anticipated opening next year of the Mandarin Oriental – is expected to give a powerful boost to the hotel sector and more broadly to tourism, now touted as one of Taiwan’s six “Emerging Industries.” While luxury hotel rooms in Taiwan were previously considered to be in undersupply, the new wave of establishments is adding more than 1,000 rooms to the total.

still absent, or are only now entering the market. One reason may be the preference of many hotel owners in Taiwan to operate on their own. The motivation is less to save the money they would have to spend on a management contract or franchise with a major brand than a desire to maintain control over the operation, says a Greater China executive from a major hotel group. “That’s the local mindset – they want more control,” he says. “The way they see it is ‘I own the land and I’m putting up the money to finance the construction, so I want to check on how all the money is spent.’” Often that entails placing people they trust, including close relatives, in key management positions. At the same time, international hoteliers praise the high standards maintained by many of the hotels under direct owner-management. “They are sophisticated enough to develop products that appeal not only to local customers, but also to the international market,” says the regional executive. He notes that the main challenge they face without international-brand affiliation is to develop sales teams and distribution channels to assure sufficient bookings. Industry experts also attribute the small number of international brands in the market to the relative lack of

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attention the tourism sector received in Taiwan for many years, as the government focused primarily on building up the island’s capacity in high-tech manufacturing. In contrast, “many other economies had a great focus on the service sector and encouraged it, even subsidized it,” says Cary Gray, general manager of the new W-Hotel. Some general managers at Taipei’s top hotels consider that the relatively low status of the Tourism Bureau, which comes under the jurisdiction of the Ministry of Transportation and Communications (where railways, highways, and harbors are the main concern), has been an obstacle to dedicating more resources to promoting Taiwan’s tourism. “Having a dedicated ministry towards tourism would be very beneficial for the country,” argues Morton Johnston, who recently completed his tenure as general manager of the Regent Taipei. “You can’t underestimate the impact and the importance of

Where are the chains? Although well-known international brands such as the Hyatt, ShangriLa, Sheraton, and Westin have been in Taiwan for some time, the question exists as to why other prominent brands are

The Palais de Chine has brought something different to the market, both in its distinct décor and its location in central Taipei close to inter-city transportation links. photo : courtesy of palais de chine

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A Report on Taiwan’s Hotel Industry Grand Hyatt General Manager David Pacey, who is also an AmCham Vice Chairman, served as emcee at the Chamber's Hsieh Nien Fan banquet at his hotel.

the tourism industry and how much revenue that can bring.” At the same time, hoteliers credit the Tourism Bureau with making progress despite limited resources. Ulf Bremer, for example, applauds the Tourism Bureau’s efforts to “move tourism as a business,” and its recognition of the industry’s potential for providing “employment opportunities as well as revenue streams.” One of the special characteristics of the Taiwan hotel industry is the degree of importance of Food and Beverage (F&B) services, reflecting the significant

role of food in Taiwanese culture. This is a society that “loves food, loves to socialize, and loves to combine the two,” says Morton Johnston, and for decades – in a phenomenon not found in most cities – many of the leading restaurants in Taipei have been located within the major hotels. Normally, at least 50% of the revenue in Taiwan’s hotels comes from F&B, and according to Tourism Bureau statistics, in the first half of this year the value of F&B sales across the industry exceeded the amount of revenue from rooms by NT$186 million (over US$6 million). “In Europe, it’s the other way around,” Johnston observes. “It’s the room revenue that really drives the hotels. It’s different here because there’s a very large local market that likes to eat out.” In addition, a big part of that F&B revenue comes from banquets, especially wedding and engagement parties. “Without a doubt, banqueting and social events in Taiwan are incredibly important – weddings, engagements, announcements, gatherings,” says Cary Gray. “That part of our business is a significant contribution to the revenue and profitability of the hotel.”

In some of the larger hotels, a propitious day on the Chinese calendar may mean the scheduling of a handful of wedding banquets at the same time in different restaurants and function rooms. And each wedding may involve considerable pageantry, with dramatic music and gongs, light shows, and the chef leading the wait staff as they march in with the first course.

Star rating system A new development in the industry has been the Tourism Bureau’s effort to implement a one to five stars rating system for hotels. The objective is to encourage the industry to raise standards so as to enhance Taiwan’s attractiveness as an international tourism destination. Previously hotels were given one of three classifications: “hotel,” “general tourist hotel,” and “international tourist hotel.” Many foreign tourists found the distinctions to be too vague to be helpful in choosing a place to stay. The new “Star Hotel Evaluation” system, introduced gradually over the past few years, works on a voluntary basis. The requirements for each level

photos: courtesy of le meridien

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of star rating are outlined in a list that includes both the tangibles and intangibles of a hotel’s offerings – from the number of banquet halls to the tastefulness of the guest room décor. A c c o r d i n g t o Ya n g Yu n g - S h e n g , director of the Tourism Bureau’s Hotel Inspection and Supervision Center, a major reason for adopting the system was the existence of similar mechanisms in many other tourism markets, leading to certain consumer expectations. “When people see a hotel’s star rating, they can feel assured that it maintains certain standards.” In planning the Star Hotel Evaluation project, Yang notes, the Tourism Bureau took the evaluation criteria of the American Automobile Association (AAA) as reference in order to ensure that Taiwan was adhering to international standards. After applying for a rating, a hotel will go through a comprehensive, two-part evaluation process – one announced and one covert. The scheduled visit involves the assessment of objective qualities such as the exterior appearance, number of restaurants, parking facilities, and other amenities. The clandestine evaluation is

carried out by sending an “objective third party” to stay at the hotel “under cover” as a customer to assess service quality, including the reservation service, restaurant service, and housekeeping. Although the evaluation seems straightforward and its purpose clear, some members of the industry have their doubts. Executives at some hotels in Taipei say the inspectors sometimes seem obsessed with minor details, such as the exact number of parking spaces and whether it matches the figure given on the hotel’s website. Some hoteliers also question the qualifications of the evaluation committee members for passing judgment on the quality of facilities and service. Yang responds that “the evaluation committee consists of an objective group of experts,” noting that “some of them have experience in managing hotels, some in the past have been leaders in foreign businesses and thus are familiar with service standards, and some have worked in travel agencies.” To avoid any conflict of interest, all the committee members are already retired, and so that they won’t be recognized by hotel staff, none of the individuals performing the service evalua-

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tion come from the Tourism Bureau itself. The committee members receive extensive training before performing any hotel inspection, says Yang. To bring the hotel ratings to the attention of both prospective travelers and travel agents, and hopefully in the process to raise the standards of the local hotel industry, the Tourism Bureau plans to promote the system through prominent tourism websites as well as domestic and international travel fairs. Still, some within the industry are skeptical of the continuing relevance of such a star-rating evaluation for hotels. In this ever more Internet-reliant world, travelers considering staying at a hotel are inclined to log onto travel websites and read previous customers’ comments in order to make more informed decisions. The W’s Gray also notes that it is hard for such an evaluation system to keep up with the pace at which the hotel industry is changing. “The changes that we’re making and the way we’re approaching our businesses is up to the minute,” he says. With the Internet, customers “can log on and find information quickly from people like themselves.”

A Variety of Styles in New Hotels

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Any hotel concept in the world, y o u c a n s e e i n Ta i w a n , ” s a y s Steven Pan, chairman and CEO of Formosa International Hotels Corp. Some of the more creative of those concepts are evident among the new hotel properties that have opened in Taipei in the past year or two. One such hotel is the Palais de Chine, the 286-room “urban resort” that gives East-meets-West a luxurious makeover. Filled to the brim with European and Oriental artworks and artifacts (most of them hand-picked by owner Nelson Chang and his wife), the Palais de Chine – part of the Taiwan-based L’Hotel de Chine Group – says in its literature that

it seeks to inspire visitors with treasures from two hemispheres to provide them with a “profundity of insights” and lead them to “external development and inner tranquility.” Among the many artistic pieces on display is a wooden unicorn, the imaginary creature often said to be symbolic of dreams. General Manager Achim von Hake explains that the hotel’s mission is to be a “dream-maker.” The level of service, as well as the décor and culinary offerings, should all be the stuff of dreams, achieving a “wow effect,” he says. “Taiwan is a market where people wish to experience the world,” he notes, and the Palais de Chine helps them

achieve that by providing a window into European culture through its unique ambience and standard of service. The hotel’s central downtown location is also a departure from the norm. Situated in the same complex as Taipei’s trendy new Q-Square Mall, it is a two-minute walk from Taipei Main Station, with its railway, High Speed Rail, and MRT connections, as well as the Taipei Bus Station. Business travelers who need to visit suppliers or customers in southern Taiwan find it to be a handy location; they also appreciate the 24-hour business center. Palais de Chine is also proud of its two restaurants – Le Palais (Cantonese

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The architect's rendering of the Mandarin Oriental Hotel nearing completion of construction on DunHua North Road. photo : COURTESY OF MANDARIN ORIENTAL

cuisine) and Le Rotisserie (Western grill) – and the Le The café. The food and beverage facilities have proved highly popular with local patrons, who account for the bulk of the hotel’s food and beverage business, says von Hake. Carving out an entirely different niche in Taiwan’s hotel market is the W-Hotel Taipei, part of the Starwood Hotels and Resorts Worldwide Group (as are the Sheraton and Westin brands that have been present in Taiwan for some time). Located in the lively Xinyi District just steps from the Taipei City Hall MRT Station, the hotel matches its surroundings in exemplifying the trendiness that Taipei has to offer in its epicenter of fashion and finance. The W-Hotel has the advantage of a worldwide luxury hotel brand’s broadrange vision. “We’re very much about people who are very young at heart – people who are design, fashion, entertainment, and music-focused,” explains G e n e r a l M a n a g e r C a r y G r a y. “ We attract a certain type of person who likes to be in on the current trend – in fact at the head of it.” This atmosphere permeates the entire hotel, from the fluorescent lights illuminating the elevators to the beautifully chic designs of its many meeting spaces. “Particularly in the last five years, Taipei has become known as a place that is really great to come to and have

fun,” says Gray. Part of that development was the growth of what he calls a “beverage culture” here. “We saw that trend come into its own, so we devoted a lot more space and resources to beverage venues than food outlets in the hotel.” Each of the F&B outlets – the three bars (WOOBAR, Bar at WET, and Bar at YEN) and two restaurants (YEN and The Kitchen Table) – has its own unique décor while simultaneously contributing to the hotel’s overall image as a beacon of pop culture and vogue. The strategy appears to have worked, as the hotel has been the subject of abundant media “buzz” and has become a favorite location for the local “in”

crowd. At the same time, the W makes sure to focus on work as well as play. Its 10 meeting spaces are thoroughly customizable (right down to the scent) and it offers 24-hour business services. The Starwood Group’s other recent entry to the market is the smaller, slightly more refined, and (literally) less colorful Le Meridien Taipei. Instead of the multicolored lights of the W, this 160-room hotel emphasizes sophistication through an atmosphere of elegant minimalism. Everything at Le Meridien down to the room keys is a specially designed creation to be appreciated as a work of art. There is even a full-fledged art gallery on the first floor, and Chocoart, the gourmet shop dedicated to beautifully crafted pastries and chocolate confections, promotes itself as a source of “edible art.” General Manager Daven Tai contrasts the small but cultured Le Meridien Taipei to the “huge and grand” hotels being opened in Mainland China. At the same time, Le Meridien offers 10 meeting rooms endowed with state-ofthe-art equipment, and it is also home to the hip Quube Lounge, café Latitude 25, and the restaurants My Humble House (Cantonese) and Latest Recipe (international cuisine).

Le Meridien General Manager Daven Tai likes to describe the hotel as small but cultured, with an emphasis on art. photo : courtesy of le meridien

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Although these openings have made quite a splash in Taipei’s hotel market, the industry is still awaiting one monumental addition, which upon opening sometime next year is due to become Taiwan’s largest hotel ever. Construction is nearly completed at the Mandarin Oriental near the corner of DunHua North Road and MinSheng East Road. This “mixed-use luxury lifestyle and entertainment complex” spans over five acres and will feature the biggest hotel rooms Taiwan has yet to see, as well as a luxury retail center that aims to rival The Regent Taipei’s Regent Galleria.

The hotel stands on the site of the former Mandarina Crown hotel (originally called the Mandarin), and is a joint venture among Mandarina Crown, the Dacin Construction Co., and Mandarin Oriental Worldwide. Another internationally recognized luxury hotel brand, the Okura, is also expected to open in 2012. Construction of the 208-room Okura Prestige Taipei is well under way on NanJing East Road near ZhongShan North Road, and is expected to appeal heavily to Japanese business travelers. Industry sources say that other inter-

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national brands are showing keen interest in the market, but that a big obstacle is the difficulty of finding a good location, especially in the Taipei area. “Land costs in Taipei are becoming such a high proportion of the development cost that it’s now hard to justify for a stand-alone hotel,” says a Greater China executive with a major chain. “And in places where land costs are more reasonable, there may be questions about whether the market is big enough to sustain the investment.” Nonetheless his company and others have been sending teams on a regular basis to assess the business opportunities.

Shortcomings in Education and Training Having friendly employees is a good start, but it’s not enough to guarantee quality service.

he warm, hospitable spirit of the Taiwanese people – something that impresses nearly all visitors to Taiwan – makes it seem as though the island should be a natural breeding ground for employees in the hospitality industry. But while recruitment and retention of qualified staff is a basic challenge in the hotel industry all over the world, in the eyes of some of Taiwan’s industry experts the situation here is especially difficult. “One of the great things about Taiwan is that the people are very open, very willing to go out of their way and help, so there is a foundation here of people who are very, very hospitable,” observes Cary Gray, General Manager at the W-Hotel Taipei. Achim von Hake of Palais de Chine, a veteran Taipei hotelier, similarly describes the Taiwanese people as “very hospitable, very caring, and serving people from their heart.”

Nonetheless, a career in the hospitality industry requires unrelenting patience, placing customer satisfaction high above one’s own needs, and above all a genuine passion for serving others. Such a career is by no means easy, and because of the industry’s generally low salary levels and labor intensiveness, it is hard enough for hotels to recruit enough qualified staff with a genuine passion for what they do, let alone foster their desire to stay in the industry. Taiwan is hardly immune from that HR challenge, and in some respects faces even more personnel obstacles than many other markets. For one thing, as Taipei is one of the most “connected” cities in the world, today’s youth are less and less interested in performing the “mundane” tasks required of the industry, such as housekeeping. David Pacey, General Manager of the Grand Hyatt Taipei, stresses that run-

ning a hotel is truly a people business. But in a competitive educational environment that emphasizes performance on examinations and good grades, the development of people skills is something that doesn’t receive much attention. Because today’s youth are so “plugged in” to their cell phones and the Internet, individuals possessing the social skills necessary to be successful in the hotel business tend to be harder and harder to find. D o l l y Ya n g , D i r e c t o r o f H u m a n Resources at the Grand Hyatt, explains that in the past, most Taiwanese parents discouraged their children from going to hospitality school and following a career in the industry. They did not regard that career path as a “golden rice bowl” (金飯碗, “jin fan wan”), a phrase referring to a well-paid, stable occupation with good opportunities for promotion. Pacey notes that many young job applicants want to move straight into

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ness takes a lot of time and hard work, not to mention stiff competition from co-workers with the same upward aspirations, many people switch career paths before having the chance to reach the higher rungs on the ladder. “You have to remember that the hospitality industry everywhere is one where there is high turnover,” explains Morton Johnston, who just completed his tenure as General Manager at the Regent Taipei. “Sometimes, in particular hotels, there are no opportunities to move up, and that’s why a lot of people move on.” Such negative perceptions of hotel work have deterred many young people from pursuing a career in this field. Fortunately, however, because families are now becoming more accepting of hospitality-related careers, this trend is gradually changing. But desire alone is not enough to be successful in the industry. Regardless of whether one works at the front desk, in food and beverage, or in housekeeping, these jobs require serving people non-stop in real time. Understandably, the pressure is too much for some to take.

The educational challenge

Getting the service basics down correctly takes a constant effort in most hotels. photo : COURTESY OF THE REGENT TAIPEI

high-level managerial positions, without prior experience in the everyday workings of the hotel. In the opinion of Ulf Bremer, General Manager of Shangri-La’s Far Eastern Plaza Hotel Taipei, “the ones who are going into hospitality education do not necessarily want to be learning the subject, and after three or four years working in the industry, they drop out and go somewhere else. The younger generation doesn’t want to do laborious jobs. They want to be managers or adminis-

trators, but in hospitality that doesn’t happen until a later stage.” A a r o n Wa n g , h e a d o f t h e H o t e l Management Department at Jin-Wen University of Science and Technology (JUST), expresses similar sentiments about her students. “The pay is not high,” she says. “Some students feel frustrated after four years, thinking ‘How can I get such low pay for working so hard?’ And that’s why they run away to other industries.” Because moving up in the hotel busi-

Hospitality training schools and programs are expected to accomplish the difficult task of preparing students with all of the skills needed to survive and thrive in the hotel industry. At first glance, Taiwan’s more than 20 hospitality training schools and programs seem well equipped for the job of training students and leading them to successful careers in hospitality. But interviews with hotel industry leaders reveal considerable dissatisfaction with how these training programs are performing. Hospitality school coursework is usually divided into more specific subdisciplines. For instance, the College of Hospitality and Tourism Management at JUST is divided into a Department of Leisure and Recreation Management, Department of Food and Beverage Management, Department of Travel Management, and Department of Hotel Management. In terms of curriculum structure, such schools seem to offer a healthy balance of

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theoretical and practical training. Many of Taiwan’s training programs incorporate at least a cumulative year of training in the field, in the form of six-month internships at the island’s top hotels and travel agencies. These internships alternate with six months of classroom instruction, and some students have the opportunity to intern three times before graduating. One might think that for students to spend almost half of their time in the field would be more than sufficient practical training. But hotel executives point out that many of their new employees with undergraduate or advanced degrees in hospitality-related subjects still need thorough training in “service basics” – concepts that they should have learned early on in school. “Where we are lacking the most is actually on the practical application of what we train and teach – the establishment of clear guidelines as to what classifies you as a trained chef, waiter, or front-office staff,” says Ulf Bremer of the Far Eastern Plaza. Victor Chou, General Manager at The Sherwood, adds that the current curriculum needs to be strengthened with “more realistic experience than case studies in order to promote the students’ evolution.” How can it be that even with students receiving so much real-world experience in hotels before graduating, hoteliers still find that their new staff members lack practical experience? If the students lack motivation to make the most of the internship opportunity, one reason could be the absence of any financial incentive. The students are putting in their time without pay, while still facing tuition bills from the hospitality school. Wang says she has several times asked the hotels to provide some compensation to the interns, but to no avail. From the hotels’ perspective, the free labor provided by the interns may be welcome, but it wouldn’t pay to put too much effort into training someone who may only be around for a few months. According to hospitality training experts, however, internships are not the only way to incorporate practical knowledge into the educational programs. “Many schools invite guest speakers to share experience,

so [students] can hear from people actually in the field,” says Dolly Yang. This trend came about only after criticism that many professors at Taiwan’s hospitality training institutions did not themselves have personal experience working in the hotel industry, and thus were unable to impart such knowledge to their students. Even if professors did have previous experience working in a hotel, some years may have passed since they left that job. In Taiwan’s dynamic and rapidly changing hotel industry, a gap of just a few years could be enough to render their real-world experience obsolete. “Over half of our staff used to work in the hospitality industry,” says Aaron Wang at JUST. “Others didn’t have the job experience, but maybe majored in management or languages.” She also cited the school’s “mock hotel,” with five different types of hotel rooms and restaurants, as another way to provide more practical experience on campus. Following the recent entry of more international brand hotels into Taiwan and the island’s increasing attention to tourism as an important contributor to the economy, hoteliers have been giving high priority to the maintenance of world-standard quality standards in both facilities and services. In order for the hotels to meet these standards, hospitality schools should emphasize a “global view” in their training of students, say industry leaders. The attractiveness of Taipei “as a destination for the international traveler” has increased because “the service quality has increased and international concepts in terms of culinary art and service quality have been implemented, which happened through support from Taiwanese people with international views,” says von Hake. One obvious way to try to promote this mindset in students is to have them do their internships with the top international hotels. According to Wang, these internships are considered the best, and hospitality students at the top of their class get to pick these first. Dolly Yang says the Grand Hyatt Taipei takes 120 interns per six-month cycle. But because smaller international hotels may not have

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the capacity to train this many interns, not all students have the opportunity to intern with an international-brand hotel. An alternative to interning at an international hotel is to go overseas to study, an option that has become increasingly attractive in the eyes of many students. Instead of going abroad for only a six-month internship, more and more students are even electing to get their degrees in other countries with world-famous hospitality training institutions, such as the United States and Switzerland. A huge advantage of studying abroad is language immersion, arguably one of the most effective ways to learn a foreign language. But because the large majority of students do not take the opportunity to study abroad, domestic hospitality schools now place a large emphasis on foreign-language study, especially English and Japanese. Using foreign languages to serve customers is a fundamental way to promote international-mindedness in hospitality students. In many markets, hospitality students can also gain valuable experience by enrolling in the local branches of wellknown international hotel schools. For example, the famous Les Roches International School of Hotel Management has set up a campus in Tianjin in China. Le Cordon Bleu has two campuses in Japan and one in Seoul, and the William F. Harrah School of Hotel Administration of the University of Nevada, Las Vegas offers a program in Singapore. But such opportunities are noticeably absent from Taiwan due to the Ministry of Education’s strict regulations regarding the establishment of satellite campuses by foreign universities. “The Ministry of Education should really relax the law to make it easier for international hotel schools to offer instruction here,” says von Hake. “Increasing the number of universities with hotel, hospitality, and tourism divisions would improve the training and level of service. And ensuring that Taiwan’s hospitality students get the most realistic, internationally oriented training possible would be one of the best ways to help Taiwan’s hotel industry raise its quality standards, and to push it into the global tourism spotlight.”

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Running the Regent Brand from Taipei An interview with Formosa International Hotels Chairman Steven Pan

Steven Pan is Chairman and CEO of Formosa International Hotels Corporation (FIHC) and President and CEO of Pacific Resources Group, a diversified global real estate holding company. He joined FIHC in 1991, became president in 1992, and in 2000 led a management buyout to become Chairman. Under his leadership, FIHC has become Taiwan’s largest and most profitable hotel company, and in 2010 acquired the Regent luxury hotel business. Pan earned his BA in economics from the University of California, Berkeley in 1986 and MBA from Columbia Business School in 1988. He was interviewed by TOPICS reporter Kasey Reisman and Editor-in-chief Don Shapiro.

Why did Formosa International Hotels decide to acquire the Regent Brand, and what do you think the impact will be for your business? We’ve been associated with the Regent brand for over 20 years – this hotel was one of the original Regents. The Regent made its name in the 80s with the opening of the Hong Kong Regent and the Beverly Wilshire Regent. The Hong Kong Regent was not only the best hotel in the world for years, but also about 14 out of the top 20 hotels in the world were Regents at one time. When the Japanese bubble burst, the company was sold to Four Seasons, which is when Four Seasons got a lift internationally. Then Four Seasons sold the brand to Carlson, an American company, and Carlson took Regent into the cruise business – Regent Seven Seas Cruise. The Regent brand is not simply a brand – it’s a service culture, and everything we do is “Regent.” So it wasn’t that difficult for us to consider this opportunity. When the financial crisis hit, Carlson decided to focus on its three-star and fourstar brands, because during the financial crisis, luxury was out.

They invited the Regent owners and the top 10 hotel companies to bid. Our Regent heritage, which was in our DNA, was a big advantage. Taipei being one of the most successful Regent hotels around also helped a lot, so they decided to award us the opportunity. Why is that important? The history of our holding company was that we were hotel builders and developers for the first 10 years until 2000. After 2000, I bought out the shares of my partner and decided to transform the company into a management company. With a management company, intellectual capital is extremely important, and with this you need a brand. We’d been trying to create a brand on our own, but of course it is not easy. Especially in the luxury sector, the entry barrier for a brand is very, very high. There are thousands of independent hotels, but only a handful of luxury brands in the world. So when this opportunity came, we knew it was perfect for us. It is what we were dreaming of. Especially in emerging markets, customers are very brand-conscious. In China, you must have an international brand to do business, especially in the service industry.

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Do you see it as beneficial to Taiwan’s overall hotel and tourism industry to have a major international brand based here? We’re a Taiwan company, so that is why we’re based here, but we weren’t thinking that Regent was going to do a lot in Taiwan. Hong Kong is a better base for international luxury hotels because all of the infrastructure, capital, and human capital. In our business, there’s a lot of legal and soft infrastructure that is absent in Taiwan. Of course, Regent is such a good brand that we’re able to attract a lot of people, and Taiwan has turned out to be the lowest-cost location in Greater China to operate a business. So it’s turning out to be a pretty good place to be, especially with the direct flights to China now, and it’s easy to go to America, Southeast Asia, Japan. So we weren’t going to be based in Taiwan, but it has turned out to be a blessing. We'll probably have a big operation in Hong Kong, but our parent company will always be here because it is listed here.

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How has the Regent Taipei maintained its reputation as one of the best-run hotels in Taiwan? It happens every second. It’s not a brilliant strategy – just paying attention to details, training, and hiring. It’s the basics. It really is getting down to operations and serving the guests’ needs day in and day out, and continuing to find the best people. It’s all about managing people and running a business.

How will Formosa International Hotels Corporation face the challenge of proving itself as a global hotel operator? The key is really to have an international team of people who are sophisticated and professional. On our marketing team, I have 10 nationalities working here at the base, so it’s really global. Another key is that we’re not only developing in China, we’re also in the process of signing a few management contracts in Europe. I just returned from there and America – we’re looking at opportunities in America, too. Each continent will have a different strategy for market entry, so international expansion and an international talent pool is very important. How will FIHC differentiate the Regent from its other brands? Will they be mutually supportive in an integrated strategy? No. The Regent is an international luxury brand, and it’s very distinct. We have a brand called Silks, which is more like the smaller guy with a lot of personality; Silks can go anywhere, be any size, so it’s a good complement to Regent. Just Sleep is very simple; it’s a budget hotel with a personality and design language, so that’s also totally distinct. How successful has the Regent Galleria been, and how will this shape further plans for development? We haven't officially opened, but 80% of the shops are open. It’s very successful in that we were able to bring in a lot of new brands to Taiwan. All the luxury brands in Taiwan started in the Regent Galleria 20 years ago when we first opened. It’s very important that we continue the mission of bringing new luxury brands into Taiwan that way. In terms of tenancy and operation improvement, it is very successful. The most important thing is that the hotel of the future is not just rooms; we will see urban centers, shopping, and restaurants as part of the experience, as well as branded residentials like the luxury condo Regent Residences. This mixed-use lifestyle sort of hotel is a very important business model for us, and it's very important for us to run a successful Regent Galleria as a benchmark for future Regent development.

Aside from the Regent luxury brand, Formosa International Hotels is also promoting its Silks and Just Sleep brands for other market niches. photo : COURTESY OF FIHC

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photo : CyCling life style foundation

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Calling All Cyclists! The First Taiwan Cycling Festival

t o u r i s m B u r e a u , r e p. o f C h i n a

ew countries can provide those who love to ride bicycles with more satisfying experiences than the Republic of China (ROC) on Taiwan. Not only is it a safe and modern society, but it is blessed with breathtakingly scenic and incredibly varied terrain. Ocean-loving cyclists who stick close to the blue waters of the Pacific will still see a lot of the mountains that cover two-thirds of Taiwan. Hill climbers will find every kind of gradient, not to mention stretches of road a mile or more above sea level. The rural lowlands are crisscrossed by well-maintained but littleused back roads on which bike enthusiasts can immerse themselves in a bucolic landscape of villages and paddy fields. Long the home base of some of the world's leading bicycle manufacturers, Taiwan now has a large and growing population of recreational cyclists. Inspired by a rapidly improving cycling environment, they ride for health and fun, on evenings and weekends. Wherever international bikers go, they are likely to run into English-speaking locals who share their passion. Cycling clubs can be found throughout Taiwan. “All you need apart

from your bike is a helmet, a water bottle, and a sense of adventure,” says Dustin Florence, a Texan who over the past decade has cycled in several parts of Taiwan. Some of Taiwan's roads carry a lot of traffic – that much is obvious as soon as you leave the airport. Fortunately, Taiwanese drivers are used to sharing city streets and highways with two-wheelers. Assisting cyclists – with tea and drinking water as well as directions – has been added to the police department's mission statement. The importance Taiwanese attach to good food means that finding sustenance or refreshment is never difficult, whether you crave a bowl of beef noodles soup from a traditional roadside eatery or a latte in an air-conditioned coffee shop. The country's thousands of convenience stores are another boon. Besides snacks and drinks, many keep pumps on hand in case a passing cyclist suffers a puncture. And because taking bicycles on trains has become easier in recent years, even those on short visits to Taiwan can enjoy cycling in picturesque places like Hualien and Nantou, both far from international airports.

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adventure

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Several local governments have created bike paths that provide easy access to nearby attractions. Kaohsiung's Meinong District has a network that links sites of cultural and ecological importance. The track that circles Guanshan, a small town in the southeastern county of Taitung, is deservedly popular. In central Taiwan, scenic trails connect the small towns of Fengyuan, Dongshih, and Houli. Urban bike trails in Taipei and Kaohsiung are used not only by tourists but also by commuters. Ta i w a n ' s s u m m e r s a r e h o t a n d frequently humid, but wonderfully vivid. The skies are blue and the rivers are clear. Stupendously beautiful mountain ranges are clearly visible from the lowlands. Butterflies and wildflowers crowd the roadside. However, North American cyclists may prefer to come between October and March, when the weather – especially in Taiwan's south – tends to be dry and sunny, with daytime temperatures typically in the low 20s on the Celsius scale (low 70s Fahrenheit). Cycling is surely one of the tourism activities with the most growth potential, and the First Taiwan Cycling Festival, scheduled for November 5 to 13, is destined to bolster Taiwan's reputation among cyclists worldwide. Building on the success of warm-up events last year, Taiwan's cycling fraternity expects the festival to be a full-scale annual bicycle extravaganza.

No one who has cycled along Taiwan's east coast will be surprised to hear that the region has been chosen as the festival's venue. The coun ties of Hualien and Taitung are thinly populated and unspoiled. Aside from having much of the island's finest scenery, they exhibit tremendous cultural diversity. The Han population includes large Hakka communities, many of whose forebears settled in Taiwan from Fujian centuries ago, plus a good number of families who arrived from the Chinese mainland after World War II. And one in four residents of the east is a member of the aboriginal Amis, Bunun, Kavalan, Paiwan, Puyuma, Rukai, or Truku tribes. The Ministry of Transportation and Communications has marked out 417.6 kilometers of bicycle routes in eastern Taiwan, and many of the region's railway stations are now equipped with ramps and other bike-friendly features. The 2011 Taiwan Cup, a 208-kilometer invitational road race on November 6, is set to be one of the festival's highlights. Competitors will head southward from Hualien City on County Road 193, a route much loved by recreational cyclists on account of its fine views and minimal traffic. Passing Guangfu's historic sugar refinery and crossing the Tropic of Cancer, they will proceed down the East Rift Valley as far as the town of Yuli. There they will turn toward the sea, and then take coast-

photo : giant adventure

hugging Highway 11 back to Hualien. Scores of foreign professional racers are expected to take part. In addition, a series of events for recreational cyclists who want to prove their fitness and stamina has been scheduled for October and November. These 100- and 200-kilometer rides will be held along the northeast coast into Yilan County – which thanks to a freeway and Asia's second-longest highway tunnel – is now easily accessible from Greater Taipei. Between early fall and the end of the year, the Taiwan Railway Administration is scheduling additional trains – on which cyclists can travel with their bikes – from the big cities in Taiwan's west to Yilan, Hualien, and Taitung. Among non-government entities promoting cycling in Taiwan are the ROC Amateur Cycling Association and the Giant Sports Foundation. The latter is sponsored by Giant, Taiwan's bestknown bicycle maker. For cycling and general information about eastern Taiwan, visit the websites of the East Rift Valley National Scenic Area (www.erv-nsa.gov.tw) and the East Coast National Scenic Area (www.eastcoast-nsa.gov.tw). For full details of the 2011 Taiwan Cycling Festival and other news of interest to visitors, go to the website of the Tourism Bureau (www. taiwan.net.tw) or call the 24-hour tourist information hotline (0800-011-765, toll free within the ROC).

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AmCham Companies through the Years As AmCham Taipei turns back the clock during this anniversary year to review its six decades of service, it is also asking its member companies to share photo remembrances of their early presence in Taiwan.

Hewlett-Packard co-founder David Packard and his wife took time out for sightseeing at Taroko Gorge during a 1975 visit to Taiwan, five years after the local HP operation was established.

The ceremony marking the opening of Pepsico (Taiwan)’s expanded snack-foods plant in Tainan in 1987. This year is the 30th anniversary of the company’s entering the market in 1981, originally under the name Presco.

Before the 1993 P&G Taiwan Women’s Tennis Open, Chi Lien-chih, a member of the ROC tennis team under training for the Olympics, was presented with the Wild Card by representatives of the national tennis association and ROC Olympic Committee.

Former ROC President Yen Chia-kan (left) in March 1979 received two dignitaries from Philips: Frederick J. Philips (center), a member of the company’s founding family, who was visiting from the Netherlands, and B.F. Jurgens, technology manager of Philips Taiwan (right).

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