2012 Vol. 42 No. 8 by AmCham Taipei

DU epo ST rt on RY IP FO R CU S

THE AMERICAN CHAMBER OF COMMERCE IN TAIPEI

Taiwan Business

Topics

Taiwan Tech in Transition

TAIWAN BUSINESS TOPICS

台灣科技業：險中圖強

August 2012 | Vol. 42 | Issue 8 中華郵政北台字第號執照登記為雜誌交寄 5000 8_2012_Cover.indd 1

NT$150

August 2012 | Vol. 42 | Issue 8 www.amcham.com.tw

2012/8/28 11:44:06 AM

CONTENTS NEWS AND VIEWS

4 Editorial

Getting Consumer Protection Right

auguS T 2 0 1 2 vOlumE 42, NumbE r 8 一 ○一年八月號

消費者保護法：過與不及

5 Taiwan Briefs Publisher

By Jane Rickards

發行人

Andrea Wu

9 Issues

吳王小珍

Editor-in-Chief

總編輯

Don Shapiro

Taiwan-U.S. Technological Cooperation; Addressing Social Media Risks; Nursing Crisis: Addendum

沙蕩美術主任 /

Art Director/ Production Coordinator

Katia Chen

後製統籌

陳國梅

Staff Writer

台美產業合作；因應社群媒體風險；護士荒：後續報導

採訪編輯

Jane Rickards

李可珍

13 Commentary

Manager, Publications Sales & Marketing 廣告行銷經理

Irene Tsao

曹玉佳

Translation

Revitalizing U.S.-Taiwan Relations

翻譯

By Richard Pearson

Chen Yu-chun, Frank Lin, Sonia Tsai 陳宜君、林治平、蔡函岑

COVER SECTION 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 Taiwan Business 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 2012 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108台北市萬華區長沙街二段66號發行日期：中華民國一○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

Taiwan Tech in Transition 台灣科技業：險中圖強

18 Tough Times for DRAM and LCD Makers

Market and technology challenges have plagued both sectors, but recent developments offer hope that conditions may improve.

23 Taiwan’s Chip Foundries Keep Forging Ahead By Alan Patterson

24 A Way Out of the PC Doldrums? By Alan Patterson

26 Darkness Before the Dawn for Solar Power? Wayne Wang

2011-2012 Governors: William E. Bryson, William Farrell, Christine Jih, Steven Lee, Neal Stovicek, Carl Wegner, Bill Wiseman. 2012-2013 Governors: Richard Chang, Sean Chao, Michael Chu, Varaporn Dhamcharee, Revital Golan, David Pacey, Lee Wood, Ken Wu. 2012 Supervisors: Agnes Ho, Douglas Klein, Richard Lin, Fupei Wang, Jon Wang.

COMMITTEES: Agro-Chemical/ Melody Wang; Asset Management/ Christine Jih, Winnie Yu; Banking/ Victor Kuan; Capital Markets/ Jane Hwang, Jimin Kao, C.P. Liu; 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; Infrastructure/ L.C. Chen, Paul Lee; Insurance/ Mark O’Dell, Dan Ting, Lee Wood; Intellectual Property & Licensing/ Jason Chen, Peter Dernbach, Jeffrey Harris, Scott Meikle; Manufacturing/ Thomas Fan; Marketing & Distribution/ Wei Hsiang, Gordon Stewart; Medical Devices/ Susan Chang, Albert Lim, Tse-Mau Ng; Pharmaceutical/ David Lin, Edgard Olaizola, Jun Hong Park; Private Equity/ William Bryson, Steve Okun; Public Health/ Jeffrey Chen, Dennis Lin, Dan Silver; Real Estate/ Tony Chao; Retail/ Prudence Jang, Douglas Klein; Sustainable Development/ Kenny Jeng, Davis Lin; Tax/ Cheli Liaw, Jenny Lin, Josephine Peng; Technology/ Revital Golan, John Ryan, Jeanne Wang; Telecommunications & Media/ Thomas Ee, Joanne Tsai, Ken Wu; Trade/ Stephen Tan; Transportation/ Michael Chu; Travel & Tourism/ Pauline Leung, David Pacey.

TAIWAN BUSINESS

28 The Unseen Role of Industrial Gases

Taiwan’s three producers play a crucial role in many of the island’s most important industries. By Madeline Bergner

taiwan business topics • august 2012

8 Contents.indd 2

2012/8/28 5:42:19 PM

au g u s t 2 0 1 2 • Volu m e 4 2 n u m be r 8

ANALYSIS

31 Cross-Strait Ramifications for Multinationals

INDUSTRY

As economic activity between Taiwan and China increases, issues arise for foreign companies operating here. By Timothy Ferry

SPECIAL REPORT IPR Protection: Continuing Progress

38 Chasing Counterfeits: Changed Environment

The center of production has moved across the Taiwan Strait. Now the problem is imports, not exports.

INTERVIEW

34 Stanton Reviews U.S.Taiwan Relations

Before stepping down as AIT Director, Bill Stanton talks to Taiwan Business TOPICS.

CUS

43 Taiwan’s Innovations at Great Risk

Measures by government and companies to improve trade-secret protection deserve high priority.

By Richard L. Thurston

46 The View from TIPO

An interview with Wang Mei-hua, Director-General of the Taiwan Intellectual Property Office.

By Don Shapiro

By Timothy Ferry

41 Music Business in a Bind

The rise of the internet has cut deeply into the profits of the recording industry and the musicians.

By Don Shapiro

By Timothy Ferry

taiwan business topics • august 2012

8 Contents.indd 3

2012/8/28 11:46:45 AM

Getting Consumer Protection Right

hen issues concerning consumer rights arise, the business community is often placed in an awkward position. Responsible companies want to be sensitive to legitimate obligations to their customers. But businesses also need to speak up when proposed measures for consumer protection go so far overboard as to undermine the proper workings of commercial activity in a free-market economy. Just such a situation has emerged as a result of the comprehensive revision to the Consumer Protection Law being undertaken by the Executive Yuan’s Department of Consumer Protection (DCP). Recently representatives from various AmCham Taipei committees have participated in a series of public hearings to present industry’s viewpoint for the reference of DCP officers and the scholar-advisers involved in the drafting process. A basic problem with the proposed new law is that it would give government the authority to mandate the terms and conditions that may and may not be included in standard contracts for a broad range of consumer transactions, and to stipulate the types of contracts that must follow those guidelines. That change would be wholly inappropriate for a free-market economy where the right to enter into private contracts should be respected – and where, in case of a dispute, the fairness of those contracts should be a matter for the courts to decide. Some specific aspects of the draft law are also cause for concern. An example is the requirement that in cases of consumer cancellation of a purchase made on-line or through mail-order or a sales visit, the merchant is allowed a maximum of 15 days to take the product back and to refund the payment

in full. The onus is placed on the merchant to retrieve the product – at no cost to the consumer – rather than the customer to return it. Less than scrupulous consumers would find that system an invitation to abuse. The requirement also ignores the practical impossibility for many companies, especially those with accounting handled offshore, to process refunds within 15 days. And it overlooks the added costs of doing business – costs that would likely have to be passed on to the consumer – that these procedures would impose on many merchants. In addition, the new draft seeks to address – but does so ineffectually – the problem of erroneous reports by private consumer groups or laboratories criticizing the quality or safety of certain products. On the positive side, the revised law would require such reports to include details of the testing methodology and standards employed. But if mistaken allegations are made, the reporting entity would not be required to retract the original report if the targeted business has already issued its own clarification. Clearly a manufacturer’s statement in its own defense would not carry the same weight with the public as a retraction, failing to reverse the damage to the company’s sales and reputation. The intent of the new law in looking after consumer interests is well-placed and much of the content is positive. But the current draft would also have serious negative ramifications. AmCham urges the DCP to consult further with industry to remove the problem sections before the bill is submitted for legislative consideration.

消費者保護法：過與不及

每

當企業界遇上消費者權益的

由法院判定。因此這樣的修法不符合

驗室發佈與事實相違的報告，批評某

相關議題，多半會陷入尷尬

自由市場經濟原則。

產品品質或安全性堪慮，新版修正草

情境。負責任的企業願意善

消費者保護法修正草案的部分條文

案原意是要設法解決此一問題，但恐

盡職責，照顧顧客權益。然而，若消

也引起業界疑慮。例如該草案提及，

怕是徒勞無功。從正面角度來看，該

費者保護規範過了頭，阻礙自由市場

若網購、郵購或訪問買賣之消費者欲

修正案規定這類報告需詳細說明其測

經濟中商業活動的運作機制，企業界

解除買賣契約時，業者需於15天之

試方法與測試標準。然而消費團體或

也必須發出不平之鳴。

內收回產品並全額退款。如此，業者

實驗室若提出不實指控，只要受批評

行政院消費者保護處正著手大幅修

必須承擔起取回商品的所有責任（消

的企業已澄清說明，指控的單位無需

改消費者保護法，已產生了前述的尷

費者卻無需負擔任何費用），不能要

撤回原報告。對廣大消費者而言，廠

尬現象。台北市美國商會各委員會代

求消費者自行寄回。心態不正確的消

商即使發佈澄清聲明，其影響力絕不

表近日參與一系列公聽會，表明業界

費者很可能濫用這項規定。

同於報告的撤回；企業聲譽和產品銷

觀點，期望消保官員及學者顧問在草擬修正法案的過程中納入參考。

前述規定也未能顧及另一個問題：

售所受的衝擊和損害仍難以彌補。

許多企業根本無法在15天以內完成

新版修正草案目的是為消費者權

消保法修法的根本問題在於，政府

退款程序，尤其是會計作業於境外完

益把關，立意良善，多數條文都具

將有權規定哪種條款能否納入各類消

成的那些企業。該修正草案也忽略了

有正面意義；然而目前的草案也可

費交易的定型化契約中，以及哪些類

此種退貨程序規範對業者經營產生的

能導致嚴重後果。美國商會籲請消

型的合約須遵守這些規約。自由市場

附加成本—亦即可能得轉嫁給消費者

費者保護處廣為徵詢業界意見，在

經濟中，兩方有權簽訂私人合約；日

的營運成本。

法案送交立法院審議前，移除有爭

後若產生糾紛，合約的公平性則應交 4

此外，針對民間消費團體或民營實

議性的條文。

taiwan business topics • august 2012

8_Editorial.indd 4

2012/8/28 11:47:16 AM

— BY jane ri ch ards —

MACROECONOMICS IF ONLY IT WERE 2050 First some good news before we turn to an analysis of Taiwan’s recent economic performance, which is at its most dismal point since the global financial crisis. If we can just hang on until 2050, say property giant Knight Frank and Citi Private Bank, we’ll be living in one of the world’s richest nations. The 2012 Wealth Report cited by Agence France Presse, Time magazine, and others concludes that Singapore, Hong Kong, South Korea, and Taiwan will be the world’s richest economies on a per capita basis in 2050, and that multimillionaires in Asia will outnumber those in Western countries. At that time, Singapore is expected to have the world’s highest GDP per capita of US$137,710, w i t h H o n g K o n g ’s s t a n d i n g a t US$116,639 and Taiwan ranked third at US$114,093. We can only hope. But in the meantime, the Directorate General of Budget, Accounting and Statistics lowered its projection for this years’ GDP growth in mid-August to 1.66%, down from a May estimate of 3.03% – evidence that a worldwide slowdown is truly underway, particularly in Europe, but with even China Taiwan stock exchange index & value

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

8000

135

7750

120

7500

105

7250

7000

6750

6500

6250

6000

5750

July chart source: TwSE

Unit: NTD billion

IT'S A DEAL — The two cross-Strait chief negotiators, China's Chen Yunlin, left, and Taiwan's Chiang Pin-kung, right, shake hands at the conclusion of talks on an investment protection agreement and a customs cooperation agreement. photo : cna

starting to cool. “Looking forward, the growth of the external sector will be limited due to weak global demand and obstructed export competitiveness,” the statistics agency said in a statement, adding that inflation as measured by the consumer price index will rise by 1.93% this year. Citibank also lowered its GDP forecast for Taiwan around the same time to 1.9%, down from a previous estimate of 2.4%, citing falling exports. The Ministry of Finance reported that July’s exports, at US$24.85 billion, decreased by a sharp 11.6% from the same month of last year, while imports – at US$23.94 billion – were down by 3.2%. The trade balance was still favorable at US$900 million. Export orders of US$35.94 billion were down 4.4% year-on-year in July, far more than analysts had expected, reflecting a decline in international demand for items such as smartphones and flat panels. With the euro zone possibly facing a prolonged recession, the main hope for a pickup in exports is considered to be the U.S. Christmas season, although consumers may still be reluctant to spend in the face of a slow U.S. recovery.

CROSS-STRAIT TAIWAN AND CHINA SIGN INVESTMENT PACT Taiwan and China signed an investment protection agreement and a customs cooperation pact in early August in the first follow-up agreements to the groundbreaking Economic Cooperation Framework Agreement (ECFA) inked two years ago. The investment protection pact, which took two years to negotiate, offers channels for dispute arbitration for investors from both sides, but on the most contentious issue, Taiwan was unsuccessful in its efforts to include provisions for international arbitration as one of those channels. Chinese i n v e s t m e n t i n Ta i w a n c u r r e n t l y amounts to only about US$300 million, compared with the estimated more than US$150 billion that Taiwanese enterprises have invested in the mainland. But the new pact could spur more Chinese investment in Taiwan. The opposition Democratic Progressive Party (DPP) has raised concern that the pact, by increasing Chinese economic influence on Taiwan, could strengthen Beijing’s ability to push for

taiwan business topics • august 2012

8_Briefs.indd 5

2012/8/28 11:48:23 AM

eventual political unification. The DPP nevertheless refrained from taking part in protest demonstrationss organized by other independence groups, labor organizations, and Falungong supporters that were staged outside Taipei's Grand Hotel, home to the cross-Strait summit.

DOMESTIC MEDIA TAKEOVER SPARKS CONTROVERSY Chairman Tsai Eng-meng of the Want Want Group, whose snack business in China has reportedly made him Taiwan's richest man, stirred up an uproarious debate on whether booming commercial ties with China are undermining Taiwan's press freedom with his plans to buy the nation's second-largest cable television system for US$2.4 billion. Tsai, who has an estimated net worth of US$8 billion according to Forbes, already owns several influential Taiwanese media outlets including the China Times, one of Taiwan’s four main newspapers, the Commercial Times, and the China Television network (CTV). Acquisition target China Network Systems has almost 1.18 million cable television subscribers, representing about one-quarter of the Taiwan market. The National Communications Commission approved the deal but with some stringent conditions. Apparently

ENCOURAGING LIBERALIZATION — In a speech to AmCham, U.S. Assistant Secretary of State Jose W. Fernandez urged Taiwan to further open its market for international trade. photo : courtesy of ait

worried about monopoly reach, it ordered Tsai to sell Cti, a China-leaning cable television news station, and to convert his CTV news channel to a non-news format. Tsai appears keen on pursuing the deal but reluctant to give up Cti. His spokesman, Chao Yu-pei, said Want Want is responding for now by evaluating its legal rights. Critics among academics and student groups said the government should not give any form of approval to Tsai’s takeover, and the opposition DPP proclaimed that “a healthy media environment is all but gone.” Respected Apple Daily columnist

Economic Indicators Current Account Balance (2012 Q1) 10.93p Foreign Trade Balance (July) .903.9 Foreign Trade Balance (Jan-July) 12.11 Foreign Exchange Reserves (end July) 391.11 Unemployment (June) 4.21% Overnight Interest Rate (July 6) 0.51% Economic Growth Rate (2012 Q2) 0.77% Annual Change in Industrial Output (June) p -2.44% Annual Change in Industrial Output (Jan-June) p -3.04% Annual Change in Consumer Price Index (June) 1.77% Annual change in Consumer Price Index (Jan-June) 1.47% NOTE: P-PRELIMINARY, R-REVISED

Year Earlier 10.65r 3.39 13.5 400.77 4.35% 0.37% 4.52% 4.36% 10.18% 1.95% 1.45%

SOURCES: MOEA, DGBAS, CBC, BOFT

Antonio Chiang said Tsai-controlled media outlets often echo Beijing’s views and are reluctant to raise sensitive issues such as Tibetan unrest and the Falungong. Last January Tsai told the The Washington Post that student casualty numbers in the 1989 Tiananmen Square massacre were greatly exaggerated. Although the tycoon has denied in past media interviews that he is under Beijing’s influence, many observers worry that as Taiwanese media owners’ business interests become increasingly enmeshed with China, self-censorship could become common even without Beijing’s direct interference. A pro-independence television station, Sanlih-TV, recently called for the resignation of a highly popular political talk show host, who was famous for running down China, reportedly in order to sell its popular Chinese-language television dramas in the mainland. Bruce Jacobs, a professor of Taiwan politics at Australia's Monash University, points out that the proindependence Liberty Times, with a circulation of over 700,000, still has a larger circulation than that of the China-leaning United Daily News

taiwan business topics • august 2012

8_Briefs.indd 6

2012/8/28 11:48:24 AM

and Tsai's China Times combined. The sensationalist Apple Daily, is also politically neutral, Jacobs says. He contends that Taiwan's media freedom has not yet been heavily undermined, but that Chinese commercial influence could certainly be a threat without firm government handling.

I N T E R N AT I O N A L ASST. SECRETARY OF STATE FERNANDEZ PAYS A VISIT When U.S. Assistant Secretary of State Jose W. Fernandez spent a few days in Taiwan in early August, he represented the highest ranking State Department official to visit the island in many years. Speaking on “The Future of U.S.-Taiwan Economic Relations” at a luncheon gathering organized by AmCham at the Taipei World Trade Center Club, Fernandez introduced the SelectUSA program to promote foreign direct investment from around the world into the United States, as well as American efforts to liberalize the international trade environment by spearheading negotiations for a Trans-Pacific Partnership (TPP) trade grouping. He also praised Taiwan for legislative action removing obstacles to the import of U.S. beef products, for “tremendous progress over the years in improving intellectual property rights protection and enforcement,” and for pursuing the goal of regional trade integration through eventual participation in the TPP. “Change will not be easy,” said Fernandez, “but the benefits of liberalization are clear: stronger and more competitive firms, better services, wider availability of products at lower prices, greater efficiency, and smoother integration into the world marketplace.” President Ma has set out a goal for Taiwan of entering into the TPP within eight years. Asked during the question time whether opposition from China might be able to block Taiwan’s ability

to join the trade bloc, Fernandez said that Beijing’s attitude on the matter would not be a factor.

FLAP OVER FLAG MIXES POLITICS WITH SPORT Taiwan launched protests in late July after the sudden removal of the nation's flag near 2012 Olympics venues in London. The Republic of China flag was removed from the Regent Street shopping district in London, reportedly at the request of the Chinese embassy, and replaced with the flag of Taiwan's Olympic committee. President Ma Ying-jeou ordered an investigation into why a Regent Street commercial association made the switch after four days of displaying Taiwan’s official flag, along with 200 others from around the world. In order to participate in the Games, Taiwan’s Olympic Committee in 1981 signed an agreement with the International Olympic Committee under which Taiwan competes under the name “Chinese Taipei” and uses the Olympic flag and anthem in place of the ROC flag and national anthem. After the incident, Ministry of Foreign Affairs officials said London Olympics organizers would permit

SWITCH — The ROC national flag was replaced by the Chinese Taipei Olympic flag on London's Regent Street. photo : cna

Taiwanese spectators to wave small ROC flags at individual events as a gesture of goodwill. But later, in mid-August, London Olympics officials were forced to apologize after a Taiwan flag was taken from a spectator by security staff at the women's under 57-kilogram taekwondo event, where Taiwan's Tseng Lin-cheng won a bronze medal. Taiwan Representative to the United Kingdom Shen Lyushun told the semi-official Central News Agency that he protested to London Olympic officials about the incident and obtained an oral apology. Taiwan overall performed modestly at the Olympics. Besides the bronze medal at the Taekwondo event, the only other medal Taiwan obtained was a silver medal for a woman’s weightlifting event, overall finishing in 63rd place in number of medals.

MA PROPOSES EAST CHINA SEA INTIATIVE President Ma in early August proposed a peace initiative for the East China Sea areas that include the disputed Senkaku or Diaioyutai isles claimed by Taiwan, China, and Japan, and potentially hold huge maritime gas fields. Under his East China Sea Initiative, Ma urged all nations involved to show restraint, refrain from aggression, and settle the issue peacefully. He also urged them to shelve differences, maintain dialogue, observe international law, and seek a consensus on a code of conduct. He further urged nations to establish a mechanism for cooperation for exploring and developing resources in the region. The political thinking behind this effort, says Alexander Huang, a professor of strategic studies at Tamkang University, is for Ma to raise Taiwan’s profile and show the world that Taiwan is a stakeholder in the dispute over sovereignty in the area – without offending anyone. From both military and political perspectives, Taiwan cannot afford to pick

taiwan business topics • august 2012

8_Briefs.indd 7

2012/8/28 11:48:25 AM

by early 2013. “This acquisition will increase Synopsys’ investment in Taiwan by growing our local engineering expertise, technology development capabilities, and customer support,” said Chi-Foon Chan, president and co-CEO at Synopsys.

FOXCONN TO INVEST BILLIONS IN INDONESIA The Foxconn Technology Group centered around Taiwan’s Honhai Precision Industry Co. plans to set up operations in Indonesia by investing US$5 billion-$10 billion there over five years, Indonesia’s Trade Minister Gita Wirajam was quoted as saying by Reuters in mid-August. The project will start with the assembly and production of three million handsets per year, with the first investment to start in October. Phase two of the project, starting July 2013, will see output increase to 10 million units per year. The move will allow the electronics giant, which has seen rising wages and labor unrest in China, to tap into one of the cheapest labor forces in Asia and establish closer links with Southeast Asian markets. Foxconn has not separately confirmed the investment sum, Reuters reported, although its chairman Terry Gou has previously said the company wants to invest in Indonesia

ISLAND FEVER — Supporters wave Taiwan flags as they welcome Diaoyutai activists aboard their fishing boat in Hong Kong. photo : ap/ Kin Cheung

BUSINESS SYNOPSYS TO ACQUIRE SPRINGSOFT California-based Synopsys, a world leader in software and services for semiconductor design and manufacturing, announced in early August that it would acquire Taiwan’s Springsoft through its Taiwan subsidiary in a US$305 million deal. Springsoft is a global supplier of specialized IC design software headquartered in Hsinchu. The transaction, involving acquisition of all of Springsoft’s outstanding shares in cash and any remaining shares pursuant to a follow-on merger, will be completed

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

2011

2012

15.8 21.59

14.18 18.91

17.8 18.5

16.52 16.99

Europe

2011

2012

2011

2012

Imports

TOTAL

159.54 171.65

2012

18.55 31.2

2011 U.S.

19.16 29.88

10.36

28.1

31.35

2012

10.74

25.18

2011

ASEAN

168.72 182.22

Japan

66.87

73.6

HK/China

26.87

fights with Japan over tiny uninhabited islands. With the growing importance of economic relations with China, Taiwan also doesn’t want to alienate Beijing. Ma was an activist in the Diaoyutai movement in his youth, and ROC citizens frequently join mainland Chinese activists on protest trips around the isles. To counter any impression in Tokyo that Taipei is leaning too much towards Beijing on this issue, Taiwan’s Ministry of Foreign Affairs recently has denied several times that Taiwan is cooperating with China over the Diaoyutais. The new Initiative is also Ma’s way of showing the world Taiwan has its own independent foreign policy and is not siding with China. Tensions flared up again in midAugust when a group of 14 Chinese activists slipped past Japan’s coast guard to land on one of the islets and raise both ROC and Chinese flags, before Japan took them into custody and then deported them. After this, over 100 Japanese protesters sailed to the area, with several of them waving Japanese flags on one of the islets. The incident triggered protests from the Beijing government, and in several Chinese cities thousands of people took to the streets, even overturning Japanese-brand cars.

Exports

2011

2012

Unit: US$BN Source: BOFT

taiwan business topics • august 2012

8_Briefs.indd 8

2012/8/28 11:48:27 AM

Issues

photo : andrew wang

Taiwan-U.S. Technological Cooperation The Taiwan government has established a new office to promote bilateral collaboration in industrial innovation.

he Ministry of Economic Affairs (MOEA) this month launched a new program aimed at enhancing Taiwan’s industrial innovation through closer collaboration with sources of new technology in the United States. The TaiwanU.S.A. Industrial Cooperation Initiative will seek to strengthen lines of communication with the 17 national laboratories in the United States, as well as American research universities, science parks, and major R&D-oriented corporations. It will then identify and follow up on opportunities for joint research or business development with Taiwan-based institutions or companies. The initial focus will be on four areas in which the United States has staked out a leadership position, and in which Taiwan is also seen as having much to contribute: green energy, biomedical and other forms of biotechnology, intellectual property, and information and communication technology (ICT). To carry out the program, the government has established a new Taiwan-USA Industrial Cooperation Promotion Office (TUSA) under the MOEA’s Industrial Development Bureau and staffed mainly by specialists from the Industrial Technology Research Institute (ITRI). The 12 employees in the Taipei office on Chang An East Road will be supported by ITRI personnel both at the institute’s headquarters in Hsinchu County and at its U.S.-branch in Silicon Valley. Speaking at the opening ceremony for the Taipei office, MOEA Minister Shih Yen-shiang said that in looking for outside partners to help elevate the local level of technological innova-

台美產業合作台灣政府設立新辦公室，推動雙邊產業創新合作

經

濟部8月推出新計畫，希望透過與美國新技術相關機構加強合作，促進台灣的產業創新。這項台美產業合作推動計畫將加強雙方溝通管道，對象包括美國17所國家實驗室以及美國的研究型大學、科學園區和主要的研發導向公司。接著將找尋與追蹤機會，供台灣研究機構或企業共同進行研究或發展業務。這項計畫聚焦四個領域，分別是綠色能源、生物醫學與其他生物技術、智慧財產權以及資通訊技術。美國在這些領域已取得領導地位，而台灣也看好可以大有貢獻。為執行這項計畫，台灣政府已在經濟部工業局新設台美產業合作推動辦公室（Taiwan-USA Industrial Cooperation Promotion Office, TUSA），人員主要是來自工業技術研究院的專家。長安東路的台北辦公室有12位員工，將獲工研院及其矽谷北美公司人員支援。經濟部長施顏祥在台美產業合作推動辦公室揭牌儀式表示，台灣要找尋海外夥伴，協助提升本地的技術創新水準，自然首先會放眼美國。他指出，兩國間經濟合作歷史悠久，可以回溯至1950 年代美國經援台灣的計畫，數十年來經貿關係一直持續。他也提起台灣如今蓬勃發展半導體產業的根源：工研院在1970年代獲得美國RCA公司技術授權，展開試驗性質的計畫。台美產業合作推動辦公室執行長將由工業

taiwan business topics • august 2012

8_Issues.indd 9

2012/8/28 11:49:47 AM

Issues tion, it was natural for Taiwan to look first to the United States. He noted the long history of economic cooperation between the two countries, dating back to the program of U.S. economic aid to Taiwan in the 1950s and continuing over the decades. He also mentioned the roots of Taiwan’s now-thriving semiconductor industry: ITRI’s licensing of technology from RCA to start a pilot project in the 1970s. The CEO of TUSA will be Y.C. Heng, who will continue to serve concurrently as general director of ITRI’s International Center. A Ph.D. in wireless communication, Heng came to ITRI after a 21-year career as an executive with Motorola. He describes TUSA’s mission as providing an “innovation bridge,” cultivating a win-win relationship between industry and research organizations in the United States and Taiwan. The objective, he said, is to bring American strengths in such areas as software, service, social networking, and advanced manufacturing together with Taiwan's fortes in global logistics, rapid adaptation of new technologies, and low-cost, efficient production. AmCham Taipei President Andrea Wu, who represented the Chamber at the opening ceremony, said afterwards that TUSA’s inauguration is an extremely welcome development. “For so long, the bilateral economic relationship seemed to be stuck on trade disagreements centering around various agricultural products,” she said. “It’s refreshing to see this kind of meaningful new initiative that should help to spur increased cooperation in the high-tech sphere for the benefit of both economies.”

技術研究院國際中心主任恒勇智兼任。恒勇智擁有無線通訊博士學位，擔任摩托羅拉公司（M o t o r o l a）高級主管21年後，進入工研院工作。他形容台美產業合作推動辦公室的任務是提供「創新橋梁」，營造美台產業與研究機構間的雙贏關係。目標是借重美國在軟體、服務、社群網路和先進製造等領域的實力，結合台灣在全球物流、快速採納新技術、低成本和生產效率方面的長處。台北市美國商會執行長吳王小珍參加揭牌儀式後表示，商會非常樂見台美產業合作推動辦公室開始運作。她說：「很長時間以來，台美雙邊經濟關係似乎因為一些涉及農產品的貿易歧見而難有進展。這種有意義的新計畫令人耳目一新，應該有助於促進台美在高科技領域的合作，對雙方經濟都有利。」

—撰文／沙蕩

—– By Don Shapiro

Addressing Social Media Risks It’s good for employees to engage in networking, but companies need to recognize and control the dangers.

ngaging with social media such as Facebook and LinkedIn is now even more popular than personal emailing. But with this popularity comes risks to corporations' IT systems. In a recent Amcham Taipei luncheon presentation, “IT Security & Data Privacy: Addressing Social Media Threats & Risks to Enterprises,” Loke Yeow Wong, director of Marketing and Go-to-Market Strategy for HP Enterprise Activity, cited a survey showing that the workplace is now the most common location for engaging with social media throughout the Asia-Pacific. 10

因應社群媒體風險員工致力於建立人脈是好事，不過企業必須認識並控制潛在風險

玩

臉書F a c e b o o k、L i n k e d I n之類的社群媒體，現在甚至比傳送個人電子郵件更流行。不過這個風潮為企業的資訊科技系統帶來風險。台北市美國商會最近舉行的午餐演講會「資訊科技安全與資料隱私：因應社群媒體對企業的威脅與風險」中，惠普亞太區企業級安全產品部區域總監王祿耀引述一項調查，顯示在整個亞太地區，個人辦公場所是目前用戶參與社群媒體的最普遍地點。

taiwan business topics • august 2012

8_Issues.indd 10

2012/8/28 11:49:48 AM

Issues There are many positive aspects to social media, Wong added, as they enable employees to make new contacts and keep in touch with old ones. A 2009 study by the Massachusetts Institute of Technology, for example, found that employees with the most extensive personal networks were an average of 7% more productive than their colleagues. But the downside is that malicious codes distributed via social networking are 10 times more dangerous than malware spread through email. According to Scansafe, one in 600 profile pages on social networking sites host some form of malware. Confidential information pertaining to companies can also be spread inadvertently through private posts on social-networking sites, and indiscriminate postings can damage a company’s brand and reputation. Many of the breaches stem from trusting the wrong person online. The definition of a “friend” on social-media sites can be very loose, with acquaintances and even strangers (especially when there are mutual friends in common) easily added to the list of friends. A study by Sophos found that 41% of Facebook users had given out critical information such as email address, date of birth, and phone number to someone they did not know. Wong described a case where an American security consultant created a fictional female online-profile. Based on her pretty face and resume as a professional computer hacker, within 28 days she had been befriended by 300 people working for the U.S. military, the government, and large enterprises, received job offers from Google and Lockheed Martin, and was invited to speak at several conferences. Trusting the wrong stranger can also turn computers into “zombies” that are under the control of a hacker or computer virus. Wong cited a social-media computer worm called Koobface, which gets its chance to attack when an online “friend” recommends watching a funny or sexy video. The user is then prompted to update his or her computer’s Flash software. Clicking the update begins the download of Koobface, which gives criminals control of the computer, while the worm tries to spread itself further through the victim’s social-network contacts. Another program, Firesheep, allows the user to see the websites that other users of an unsecured Wi-Fi network are visiting, and then log-in using other users’ names at the sites they have just visited. This subterfuge could allow an attacker to log in as an employee and ask others in the company, who believe they were communicating with a co-worker, to click on a link that downloads malware. While it is impossible to stop employees from using social media, Wong said, corporations should adopt strategies to mitigate the risks, such as creating and enforcing a social-media corporate policy and educating employees on best practices – what he terms “social media hygiene.” He also stresses the importance for corporations of conducting effective monitoring and vulnerability assessments. “It’s really a people problem, not a tech problem,” Wong noted.

王祿耀補充說，社群媒體有許多正面的面向，因為它們讓員工能夠建立新的人脈，並和舊識保持連繫。例如美國麻省理工學院在2009 年的一項研究發現，擁有最廣闊人際網絡的員工，生產力平均比同事高出7%。不過負面效應是，透過社群網絡散播的惡意程式，比透過電子郵件散布的惡意軟體危險10 倍。根據網路安全公司Scansafe的研究，社群網站上，每600個個人簡介網頁就有1個夾帶某種形式的惡意軟體。有關公司的機密資料也會不小心透過在社群網站的個人貼文散布出去，而且隨意貼文會損及公司的品牌和聲望。許多破壞源自在網路上誤信非人。在社群網站上，「朋友」的定義可能非常鬆散，不論認識或甚至陌生人（尤其是有共同朋友時）都可輕易加入朋友名單。防毒軟體業者S o p h o s的研究發現，41%的臉書用戶曾把電子郵件地址、生日和電話等重要資訊，給不認識的人。王祿耀談到一個個案，一名美國安全顧問捏造一個虛構的女性網路個人簡介。基於她的美麗容貌和專業電腦駭客的履歷，她在28天內被 300位替美國軍方、政府和大型企業工作的人加入朋友名單，還獲得G o o g l e和洛克希德馬丁（Lockheed Martin）公司的工作邀約，以及數場會議的演說邀請。相信存心不良的陌生人，也會讓電腦變成遭受駭客或電腦病毒控制的「殭屍」。王祿耀以名為K o o b f a c e的社群媒體電腦蠕蟲為例，每當一位線上「朋友」推薦觀賞好笑或色情的影片，K o o b f a c e就獲得攻擊機會。接下來使用者會被慫恿更新其電腦的F l a s h軟體。一旦點擊更新就開始下載K o o b f a c e，讓犯罪者得以控制受害者的電腦，同時這個電腦蠕蟲會嘗試透過受害者的社群網絡人脈，將自己進一步散布出去。另一個Firesheep程式能讓某個不安全的Wi-Fi 網路的使用者，看到其他用戶正在造訪的網站，然後利用其他用戶的名義登入剛剛造訪的網站。這個方法讓攻擊者能以公司員工身分登入，然後要求其他員工點擊下載惡意軟體的連結，但這些不知情的員工還以為自己是在和同事溝通。王祿耀表示，不可能阻止公司員工使用社群媒體，不過企業應該採取策略，以降低風險，例如制定和實施公司的社群媒體政策，並教育員工養成最佳習慣—他稱此為「社群媒體衛生」。他還強調企業進行有效監控和弱點評估的重要性。他說：「這其實是人的問題，而非科技問題。」

—文／李可珍

– By Jane Rickards

taiwan business topics • august 2012

8_Issues.indd 11

2012/8/28 11:49:48 AM

Issues

Nursing Crisis: Addendum The government is seeking to make work in this vital profession more attractive.

s part of the reporting for the article on the high turnover and resulting manpower shortages in the nursing profession that appeared in the Industry Focus on healthcare in the July issue, Taiwan Business TOPICS contacted the Bureau of Nursing and Health Services Development of the Department of Health (DOH) for its input. But officials at the Bureau did not have time to meet with TOPICS writer Audrey Yung until after that issue had already gone to press. As a follow-up to last month’s report, TOPICS offers these additional points raised by the Bureau’s Acting Deputy DirectorGeneral Tsai Yin-yin and Section Chief Chen Miao-ching: The government is taking steps to try to address the issue. After holding three public hearings in 2011, DOH this year established a special task force – consisting of scholars, representatives of the public, and members from various levels of the nursing profession – to study the problem and propose solutions. In a series of meetings, it also sought broader input from physicians, experts in hospital administration, and various social groups. In May the group submitted a reform plan outlining 10 major strategies for improving working conditions for nurses. Among them are increasing the pay and benefits for nurses at public hospitals, providing incentives for those working night shifts, narrowing the discrepancy in pay and benefits between nurses who quality as civil servants and those who are contract workers, refocusing nurses’ job function to concentrate on professional nursing care, reducing the amount of paperwork nurses are responsible for, creating more flexibility in the assignment of shifts, providing more National Health Insurance funding to health-providers earmarked specifically for nurses, and increasing the pass rate for the Registered Nurses’ exam. DOH is now working on the implementation of these measures. The Bureau is also seeking to create a “skill-mix” model by integrating nurse’s aides into the patient care system, to relieve nurses’ workload and enable them to return to focusing on professional caregiving. The special NT$2 billion funding that the Bureau of National Health Insurance provided earlier this year was distributed to public hospitals specifically to help remedy the nursing shortage problem. The money went primarily to increasing the salaries of nurses on the night shift, which is now 30% higher than for the two other shifts. A previous regulation requiring appropriations given to public hospitals to be distributed among all departments was abolished in order to enable the funding to go directly to nurses.

護士荒：後續報導台灣政府正設法讓這個重要行業的工作更具吸引力

在

進行七月號「產業焦點」健保專題針對護士業高流動率導致人力短缺一文的採訪報導時，TOPICS雜誌連絡了台灣衛生署護理及健康照護處，詢問看法。但直到該期雜誌付梓，該處官員才有時間和TOPICS記者雍佩璇見面。作為上月的後續報導，TOPICS提供下列由該處代副處長蔡誾誾和科長陳妙青提出的補充看法：台灣政府正採取行動，試圖解決此問題。繼 2011年舉行三場公聽會後，衛生署今年成立專案小組—由學者、民眾代表和來自不同層級的護理專業人士組成—負責研究問題，並提出建議解決方案。在一連串會議中，該小組也尋求聽取醫師、醫院管理專家和不同社會團體的廣泛意見。該小組在五月提出一份改革計畫，概述改善護士工作條件的十大策略。其中包括提高公立醫院護士的薪資和福利、提供輪值夜班獎勵、縮小擁有公務員資格護士和派遣護士之間的薪資和福利差異、讓護士的工作職務回歸專心於專業照護本身、減少護士負責的文書工作量、讓排班具有更多彈性、提供更多專門給護士的全民健保專款給健康照護者，以及提高護士執照考試的及格率。衛生署目前正致力於履行這些措施。該處也正尋求創造「技能混和」模式，將護佐整合到病患照護體系中，以減輕護士的工作負擔，讓他們能回歸專心於專業的照護。全民健保局今年稍早提撥的新台幣20億元專款，專門分配給公立醫院，協助解決護士短缺的問題。這些錢主要用於提高護士的夜班費，目前夜班費比其它兩班的酬勞高出30%。同時廢除過去要求撥付公立醫院款項須由各部門分配的規定，俾便讓這些錢直接發到護士手中。

taiwan business topics • august 2012

8_Issues.indd 12

2012/8/28 11:49:49 AM

commentary

Revitalizing U.S.-Taiwan Relations 重振美台關係 BY RICHARD PEARSON

ver the past 30 years, China’s economic, social, and political rise has astounded the world. China’s economic growth has enabled hundreds of millions of people to rise out of poverty and has engendered the largest increase in living standards for the largest number of people in world history. These are without doubt good things. China’s economic growth has also led the country to seek a larger role in the global political system and to invest heavily in a military commensurate with that role. While these are not, in and of themselves, negative developments, they do pose challenges for other countries. No country is more attuned to or sensitive to these challenges than Taiwan. As Taiwan continues to carefully navigate its relationship with China, no friendly country is more crucial to Taiwan than the United States, and no relationship in the region is a more important bellwether of Washington’s commitment to its friends, allies, and ideals than its relationship with Taiwan. Fortunately for Taiwan and its people the country has many friends in Washington. Taiwan’s democracy, vibrant civil society, free economic system, and openness make it both easy to like and a model for other countries undergoing political, economic, and social transformation – not only in Asia, but throughout the world. Despite this strong basis of friend-

文／里察‧皮爾森

ship and mutual understanding and the shared values of democracy, free enterprise, and liberalism, the U.S.-Taiwan relationship is facing some serious headwinds. Over the past 30 years, Taiwan has received less and less attention in the United States. In many ways this is a result of Taiwan’s own success in developing a robust democracy. Issues such as human rights abuses, political repression, and even assassination that once got great attention in the United States are no longer significant problems in Taiwan. Furthermore, Taiwan’s own government authorities, media, and nongovernmental organizations are now empowered to address those issues and do so with great energy and dedication. China’s dramatic changes over the past 30 years and the evolution in U.S.-China relations have also led to less attention being paid to Taiwan by Americans. While the American Institute in Taiwan continues to do nearly everything that is normally done by a U.S. embassy, and programs such as the Fulbright Fellowship and the Luce Fellowship continue to send young Americans to Taiwan, the overwhelming shift of attention to China has led to a marginalization of Taiwan. Neither the New York Times nor the Washington Post maintains a bureau in Taiwan. They cover Taiwan (only sporadically) from Hong Kong, Shanghai, or Beijing. More worrying, and likely with

longer term consequences for Taiwan’s security, is the decline in interest on the part of young Americans – the next generation of U.S. government officials, professors, policymakers, and others – in studying in Taiwan. Through the 1950s, 1960s, 1970s, and 1980s, and even the early 1990s, many – perhaps most – young Americans interested in Chinese language and Chinese-speaking regions spent some significant period of time in Taiwan. Whether as English teachers, military officers, diplomats, graduate students, or researchers, a large proportion of the United States’ Asia specialists – and the overwhelming majority of China specialists – spent time in Taiwan. For many, of course, it was a Taiwan very different from the Taiwan we know today. Recently I spoke with my college professor of East Asian history. He studied Mandarin at National Taiwan University in the early 1970s and has returned to Taiwan every few years since then. He remembered a Taiwan where U.S. graduate students had to enter a special locked room to read literature and China news items that were off limits to most people in Taiwan. At the same time, he experienced a Taiwan that was largely pro-U.S. and that respected religious freedom and free enterprise. Over the course of years, Taiwan changed, evolved, and democratized. Taiwan became a leading force for democracy in Asia and an example of peaceful democratic transformation for taiwan business topics • august 2012

commentary.indd 13

2012/8/28 11:54:00 AM

commentary

other countries. In watching Taiwan change and evolve, U.S. Asia specialists like my former professor developed an appreciation for what Taiwan has accomplished in building the first democracy in the Chinese-speaking world and establishing a vibrant civil society and a system that respects political, religious, and economic freedom. For them, Taiwan has provided a valuable and living counter to Beijing’s claims that Chinese-based cultures are ill-suited to democracy, religious freedom, or a free press. My history professor’s experience of Taiwan is not unusual; it is typical among China and Asia specialists of his generation. So too is an enduring respect for Taiwan, an appreciation for what Taiwan has accomplished, and

過

an inclination to keep Taiwan and Taiwan’s concerns in mind when forming U.S. policy toward Asia. Unfortunately for U.S-Taiwan relations and Taiwan, the generation of Americans with meaningful Taiwan experience is fast passing from the scene. Since the 1990s, U.S. students interested in Mandarin and regional affairs have chosen overwhelmingly to study in China. Study in China is certainly important in developing the next generation of U.S. Asia experts. Unlike Americans before the 1980s, U.S. students today are fortunate now to be able to spend time in China as teachers, language students, researchers, and so forth. And about 15,000 U.S. students each year choose to take advantage of this open-

去30年來，中國的經濟、社會與政治崛起震驚全世界。中國的經濟成長已讓數億人脫離貧窮，並為史上最多的人帶來生活水準的最大幅提升。這些無疑是好事。經濟成長耀眼也導致中國尋求在全球政治體系中扮演更重大的角色，並在軍事上進行符合此角色的大量投資。就中國本身而言，這並非負面發展，不過的確對其它國家構成挑戰。對於這些挑戰，沒有任何國家比台灣更了解或敏感。當台灣持續小心翼翼處理兩岸關係的同時，對台灣來說，沒有其它友好國家比美國更重要；就美國對其友人、盟邦和理念所做出的承諾來說，美台關係是重要的領頭羊，在亞太區應沒有任何關係比它更重要。對台灣及其人民而言，幸運的是台灣在華府擁有許多友人。台灣的民主、充滿生氣的公民社會、自由的經濟體系與開放，使其很容易就受到喜愛，也是其它國家（不光在亞洲，還有世界各地）經歷政治、經濟和社會轉型的模範。儘管擁有深厚友誼和紮實的互信基礎，以及民主、自由企業和自由主義的共同價值觀，美台關係正面臨一些嚴重的逆風情況。過去30年來，美國對台灣的關注越來越少。就許多方面而言，這是台灣自身成功發展健全民主政體的結果。曾引起美方極大關注的人權剝削、政治壓抑、甚至暗殺之類的議題，在台灣不再是重大問題。此外，台灣政府、媒體和非政府組織如今擁有處理這些議題的力量，也投入極大精力、心力於相關事務。中國過去30年來的戲劇性變化與美中關係的發展，也導致美國人減少對台灣的關注。儘管美國在台協會持續進行通常幾乎是由美國大使館負責的每項工作和計畫，例如傅爾布萊特獎學金（Fulbright Fellowship）和魯斯獎學金（Luce Fellowship）不斷把美國年輕人送來台灣，不過轉而關注中國的壓倒性改變已導致台灣邊緣化。紐約時報和華盛頓郵報等重要媒體都未繼續在台灣設置分 14

ness and do study in China. According to the most recent U.S. State Department figures available, the number of Americans studying in China grew 30% annually from 2001 to 2007. Not only are U.S. students focusing their attention on China, but China itself has been very aggressive and innovative in attracting foreign students, and U.S. authorities have also been proactive in promoting exchange programs. In November 2009, President Barack Obama announced the “100,000 Strong” initiative, designed to increase dramatically the number of U.S. students studying in China. According to the State Department’s web site: “The Chinese government strongly supports the initiative and has already committed 10,000 ‘Bridge

社。他們（只有偶爾）從香港、上海或北京報導台灣的消息。更令人憂慮，而且可能對台灣安全造成較長期性後果的是，美國年輕人（新一代的美國政府官員、教授、政策制定者等）對於到台灣留學的興趣下滑。從1950年代、1960年代、1970年代直到1980年代，甚至還有1990年代初期，許多（或許是大部分）對中文和華語地區有興趣的美國年輕人，會在台灣待上一段時間。不論是以英文老師、軍官、外交官、研究生或研究人員的身分，美國的亞洲專家中有一大部分（中國專家則是壓倒性多數）都曾待過台灣。當然，對許多人而言，當年的台灣和我們今日所知的台灣非常不同。最近我和專長東亞史、曾教過我的教授聊天。他在1970年代初期於台灣大學研讀中文，此後每隔數年就重返台灣。他所記得的台灣，是美國研究生必須進入上鎖的特別房間，閱讀大部分台灣人看不到的文學和中國新聞出版品。在此同時，他所體驗到的台灣人大多親美，尊重宗教自由和支持企業發展。這些年來，台灣已有所改變、發展和民主化。台灣成為亞洲民主發展的一股領導力量，也是許多國家的和平民主轉型典範。在觀察台灣改變與發展的過程中，美國的亞洲專家（例如我以前的教授）對台灣建立華語世界第一個民主政體，以及打造充滿活力的公民社會與尊重政治、宗教和經濟自由制度的成就，都有高度評價。對他們來說，北京聲稱華語文化與民主、宗教自由或新聞自由無法共處，台灣恰好提供珍貴的鮮活反證。我的史學教授在台灣的經歷並不特別；這在他那一代的中國和亞洲專家中相當典型。所以他長久以來一直敬重台灣，讚許台灣的成就，在思考美國的亞洲政策問題時，也常把台灣及其利害關係放在心上。對美台關係和台灣而言，不幸的是，擁有充分台灣經驗的這一代美國人正迅速淡出舞台。自1990年代以來，對中文和區域性事務有興趣的美國學生，都壓倒性選擇留學中國。

taiwan business topics • august 2012

commentary.indd 14

2012/8/28 11:54:00 AM

commentary

Scholarships’ for American students to study in China. This initiative seeks to prepare the next generation of American experts on China who will be charged with managing the growing political, economic, and cultural ties between the United States and China.” This is not simply an issue of concern to academics or people who value international education. It is having and will continue to have real ramifications for Taiwan and U.S.-Taiwan relations. The overwhelming focus on China and consequent lack of interest in studying in Taiwan means that the next generation of U.S. Asia experts will lack meaningful exposure to Taiwan and first-hand knowledge of Taiwan’s pluralist democracy, vibrant civil society, and religious freedoms.

Perhaps more worrisome for Taiwan, they will also lack first-hand knowledge of Taiwan’s international concerns and regional security issues. Considering that the United States is Taiwan’s primary security guarantor, this reduced attention could have dire consequences in the not-too-distant future. In some ways it is happening already. A few years back a friend of mine served at the U.S. Department of Defense. He would often take part in inter-agency roundtable meetings on cross-Strait issues. These are meetings that bring together country managers from the different U.S government agencies – the State Department, Treasury Department, CIA, Department of Defense, and so forth. Generally about 10 or 12 people would take part in each

到中國留學，對於培養美國的下一代亞洲專家肯定重要。不同於1980年代前的美國人，現在的美國學生都很幸運，能以教師、語言研習學生、研究人員等身分待在中國。每年約有1.5萬名美國學生選擇利用這樣的機會留學中國。根據所能取得的最新美國國務院數據，2001 至2007年間，到中國留學的美國人人數每年平均成長 30%。不僅美國學生把注意焦點放在中國上，中國本身在吸引外國學生時也非常積極，力圖創新，美國當局也已主動推廣交換計畫。2009年11月，美國總統歐巴馬宣布「多達10萬」計畫，目的是大幅增加到中國留學的美國學生人數。美國國務院網站指出：「中國政府強力支持這項計畫，已承諾提供1萬個『漢語橋獎學金（Bridge Scholarships）』名額，給在中國留學的美國學生。這項計畫尋求培養美國下一代的中國專家，他們將負責統理美、中之間不斷成長的政治、經濟和文化往來。」這不僅只是關切學術界或重視國際教育者的議題。目前的趨勢對台灣和美台關係，正在引發並將持續帶來實質後果。壓倒性的聚焦於中國，因而對於到台灣留學興趣缺缺，意味美國的下一代亞洲專家將缺乏充足的台灣經驗，以及對台灣多元化民主、朝氣蓬勃的公民社會與宗教自由的親身體認。對台灣而言，或許更令人憂慮的是，這些專家對台灣所關切的國際與區域安全議題，也將缺乏第一手的了解。由於美國是台灣最主要的安全保障者，對台關注減少，可能會在不久的未來造成危險後果。就某些方面而言，這情況早已發生。數年前，我的一位朋友服務於美國國防部。他經常參加有關台海兩岸議題的跨部會圓桌會議。這些會議讓屬於不同美國政府部門、負責特定國家相關業務的人員齊聚一堂——包括國務院、財政部、中央情報局、國防部等。每次會議通常約有10到12人參加。我朋友開始做這份工作時，參加這種會議時通常會有3、4個人提醒與會者，把美台關係放在心上，並且要顧及台灣的利益和關切的問題。

meeting. When my friend started his job and first started taking part in the meetings, there were usually three or four people that would remind the group to keep the U.S.-Taiwan relationship in mind and to take into account Taiwan’s interests and concerns. By the time my friend’s assignment ended three years later, he said that there was only one person left who showed concern for Taiwan’s interests and U.S.-Taiwan relations – that was my friend himself. The rest of the officers had retired and been replaced by younger staffers who were more inclined to focus on U.S.-China relations and to view Taiwan as little more than a troublesome impediment to better relations with Beijing. The worrisome trend is that more

三年後，我朋友的工作任務結束時，他說只剩下1個人會展露對台灣利益和美台關係的關切——就是我朋友本人。其他關切台灣的官員已退休，由較年輕的工作人員取代，他們更傾向把焦點放在美中關係上，將台灣視為改善與北京關係的棘手障礙。令人擔憂的趨勢是，越來越多美國官員將忽略台灣及其利害關係，並會逐漸以北京觀點檢視台灣與兩岸問題。這將是他們在中國生活、工作和留學期間一再接觸到的觀點，亦即忽視台灣的民主體系、競爭激烈的選舉和新聞自由。此觀點也否定台灣人對國家認同的複雜感覺，不在乎台灣對於與一黨專政的中華人民共和國統一為何抱持戒慎排拒的心態。當然，我們並無理由阻止美國人到中國留學，不過台灣和美國的政策制定者，以及其他關切美台關係的人，必須確保台灣不會被棄之不顧。積極推動相關政策，鼓勵美國和其它地方的新一代決策者認識台灣，非常重要。台灣及其美國友人的思維必須超越傳統的語言研習獎學金，開發嶄新計畫，將台灣介紹給未來的政策制定者與意見領袖。私人資助的「羅伯特博世基金會獎學金計畫（Robert Bosch Foundation Fellowship Program）」，已成功將數代的美國公共政策領袖介紹給現代德國；另外，自1994年起針對日本設立的麥可曼斯菲爾德獎學金（Mike Mansfield Fellowships），則訓練出美國政府的許多主要日本問題專家。同樣的，美台關係迫切需要具有創意和創新性的計畫，以確保美國未來對台灣的了解和支持仍然深厚，一如以往。

— 里察．皮爾森是跨太平洋中心（C r o s s P a c i f i c Center）總監，經常撰文探討美國外交政策和美國與亞洲關係議題。本篇原文刊登於台北時報（Taipei Times）。 taiwan business topics • august 2012

commentary.indd 15

2012/8/28 11:54:00 AM

commentary

U.S. officials will overlook Taiwan and Taiwan’s concerns and will increasingly view Taiwan and cross-Strait issues through Beijing’s lens. This is the view that they will have been exposed to over and over during their time living, working, and studying in China. It is a view of Taiwan that downplays Taiwan’s thriving democratic system, closely fought elections, and free press. It is a view that denies the complex Taiwanese feelings on their national identity. And it is a view that flatly dismisses the reasons for Taiwan’s deep wariness toward unification with the People’s Republic of China and its oneparty state. Certainly, there is no reason to discourage Americans from studying in

China, but Taiwanese and U.S. policymakers, as well as others concerned with U.S-Taiwan relations, need to ensure that Taiwan is not left by the wayside. Proactive policies to encourage the next generation of policymakers in the United States and elsewhere to know Taiwan are crucial. Taiwan and Taiwan’s friends in the United States need to think beyond traditional language scholarships to develop innovative new programs introducing Taiwan to future policymakers and thought leaders. The privately funded Robert Bosch Foundation Fellowship Program has successfully introduced generations of U.S. public policy leaders to modern Germany, while the Mike Mansfield Fellowships

to Japan have, since 1994, trained many of the U.S. government’s leading Japan hands. Similarly creative and innovative programs are desperately needed in the U.S.-Taiwan relationship to ensure that knowledge of Taiwan and support for Taiwan remains as robust in the United States going forward as it has been thus far.

— Richard Pearson is managing director of the Cross Pacific Center and writes frequently on U.S. foreign policy and U.S.-Asia relations issues. This article originally appeared, in English, in the taipei times.

Are You Reading a Borrowed Copy?

Subscriptions

TOPICS can be found in the Eslite, Kingstone, Caves and Hess bookstores in Taipei, Taichung and Kaohsiung. But why wait until we’re on the stands? Make sure of getting a copy by filling in the subscription form below.

Fill out this form and post or fax to 886-2-2718-8182 with your payment or receipt. AmCham will begin your subscription upon receipt of payment. Taiwan

q1 year = NT$1,500

q2 years = NT$2,700

Elsewhere in Asia

q1 year = US$75

q2 years = US$140

HK/PRC

q1 year = US$68

q2 years = US$130

USA/Europe

q1 year = US$90

q2 years = US$170

Name: _________________________________________________________________

Membership ID#: (if applicable)_______________________

Company: ___________________________________________________________________________ Telephone: ____________________________ Mailing address:______________________________________________________________________________________________________________ Email Address: _______________________________________________________________________________________________________________ qBill to Account (members only)

qAMEX

qMaster

qVISA

qCheck

qTelegraphic Transfer

Credit card number: _________________________________________________ Cardholder’s name: ______________________________________ Expiration date: ________________________________________________ Total amount (NT$/US$): ______________________________________ Signature: ______________________________________________________________________ Date: ______________________________________

• Please make checks payable to: American Chamber of Commerce in Taipei • Please direct telegraphic transfers to: American Chamber of Commerce in Taipei • Acct. #: 018-1-093665-6 Standard Chartered Bank, Tunpei Branch (Please fax your transfer receipt to AmCham.) American Chamber of Commerce in Taipei

commentary.indd 16

Tel : 886-2-2718-8226

E-mail: amcham@amcham.com.tw

2012/8/28 11:54:01 AM

Cover story

tech

Taiwan Tech in Transition 台灣科技業：險中圖強

taiwan business topics • august 2012

8_CoverStory.indd 17

2012/8/28 11:58:32 AM

Cover story

Tough Times for DRAM and LCD Makers Market and technology challenges have plagued both sectors, but recent developments offer hope that conditions may improve.

Two of Taiwan’s most important high-tech sectors – DRAM and LCD flat panel displays – are currently going through a period of turbulence, in part because of strong competition from Korea’s Samsung. But growing connections with Japan offer hope that both industries can find a firmer footing. At the same time, Taiwan’s crucially important semiconductor foundry business is continuing to perform well, and the PC industry also remains promising, despite some setbacks. DRAM與LCD平面顯示器這兩個台灣關鍵高科技產業正經歷巨大變動，來自南韓三星集團的強勢競爭影響不小。與日本廠商日益密切的合作，或許能幫助台灣站穩腳跟。同時，台灣重要的半導體晶圓代工業表現不俗，而PC相關業者雖幾經挫折，發展前景尚佳。

DRAM和LCD業者的困境與轉機〔節譯〕儘管半導體晶圓代工業持續創造佳績，電腦及手機產業雖遭遇困境但仍體質良好；然而台灣科技產業的兩大支柱 – DRAM（記憶體晶片）與 LCD （液晶顯示器）– 卻面臨多項重大挑戰。 DRAM 與 LCD 產業皆需投入大筆資金購置生產設備，但產業獲利率早已大不如前，部分可歸咎於全球市場景氣衰退，然而台灣科技業者的商業模式也亟需檢討。國內DRAM廠商大多仰賴國外的專利技術，而液晶顯示器業者幾乎都是國際大廠的專業代工。由於缺乏自行研發的關鍵專利技術，國內廠商一直未能擺脫低階產品代工廠的窠臼，難以走出創新的路子，取得更好的價格。 18

early three decades after the birth of Taiwan’s electronics industry helped shift the island’s economic growth into high gear, some of the mojo has disappeared from the sector. Although the vitally important semiconductor foundry business continues to do well, and the PC and handset segments are considered to be in reasonably good shape despite some setbacks, two of the key pillars of Taiwan’s tech sector – DRAMs (memory chips) and LCDs (liquid crystal displays) have been facing serious challenges. Last year Taiwan's LCD production was worth US$46.8 billion, according to the Industrial Technology Research Institute, while Digitimes Research put the DRAM production value at US$2.4 billion. Both are industries that require huge capital investment in production facilities,

2005 至2007年間，亟欲提升市佔率的國內 DRAM 廠商大舉擴張產能，為取得足夠資金，背負鉅額貸款並大量發行公司債。如今，業者因產能過剩、現金水位日益下滑而備嘗苦果。目前國內銀行團（大多為公股銀行）對DRAM 產業的放款曝險部位高達20億美元。部分業界人士指出，由於DRAM 業者缺乏最先進的專利技術，這些企業的清算價值其實很低，其生產設備價值也有限。事實上，全球D R A M 產業正在進行大規模重組，汰弱留強確立了三雄鼎力態勢 – 分別是南韓的三星、SK海力士及美商美光（Micron）。美光正準備以25億美元收購宣告破產的日商爾必達，預期將促進台灣DRAM 產業整併潮和供需穩定。美光多年前與南亞科技共同成立合資企業「華亞科技」，今年持股比重達六成，一躍成為最大股東，和台灣DRAM 產業早已密不可分。此外，

taiwan business topics • august 2012

8_CoverStory.indd 18

2012/8/28 11:58:33 AM

tech

but profit margins have been sharply depressed – in part because of the global market downturn, but also in part because of the business model most of the Taiwan companies have followed. The domestic DRAM makers have largely depended on licensing technology from abroad, while the LCD players have mainly served as contract manufacturers for major international brands, such as Apple, Samsung, Sony, Hewlett-Packard, and Dell. Without key proprietary technology of their own, they have been unable to shed their status as commodity products to move in innovative new directions and command better prices. In the DRAM (dynamic random access memory) field, Japanese companies dominated production in the late 1980s and early 1990s but soon lost ground to South Korean rivals. Most of the Japanese companies have since been forced to drop out of the market, along with Germany’s now-extinct Qimonda in 2009. Taiwan, for its part, entered the picture in the late 1980s. Keen on boosting their share of the market, Taiwan's DRAM manufacturers expanded capacity aggressively between 2005 and 2007. But massive bank loans and bond issuances to fund that expansion are now haunting them as they suffer from overcapacity and dwindling cash. Reuters at the end of last year quoted brokerage firm Jih Sun Securities as saying

banks currently hold about US$2 billion in DRAM industry debt. Much of that exposure is with staterun banks, and without their support it is quite likely that the Taiwan DRAM makers would already be defunct. “If you look at the amount of debt outstanding against the DRAM and LCD industries here in Taiwan, what happens to the Taiwan economy if they go under?” asks one knowledgeable observer. On the surface, the large book value of these companies appears to offer assurance of their continued solvency, he says, but “actually I don’t think the book values are properly stated because Taiwan’s DRAM technology is generally two to three generations behind the rest of the world.” As a result of the lack of stateof-the-art proprietary technology, he sees the liquidation value of these companies as quite low, with their production equipment worth just pennies on the dollar. The entire global DRAM industry, in fact, is currently going through a substantial reorganization, and the role that Taiwan will be able to play in that restructured industry is still uncertain. Observers have referred to the global DRAM business as a “last-man standing” game in which there are now three big players remaining – none of them a Taiwanese company. The three are Samsung and SK Hynix (formerly known

根據併購合約，美光將接手爾必達持有65% 的瑞晶股權（瑞晶為爾必達與力晶科技成立的合資企業）。此外，美光已和力晶達成協議，以3.34億美元買下 24%的瑞晶持股，使得總持股比例接近九成。除了力晶、瑞晶和南亞，台灣主要DRAM 大廠還包括茂德科技及華邦電子。台灣少數DRAM 廠績效優於同業，但大部分業者生存得很辛苦。據路透社報導， 2007年以來茂德和華邦兩家公司的虧損合計高達70 億美元。美光法人代表梅國勳指出：「美光收購爾必達後將取得新的客群、產品、和技術，DRAM 業務可望受惠。我們在日、台兩地繼承的大型設施，不僅可大幅提昇產能，還包括一批素質精良的優秀員工。」梅國勳指出，近年來記憶體產業的獲利率受到價格劇烈波動的衝擊，美光認為此趨勢顯示該產業（尤其是台灣）可望享有一些喘息的空間。隨著該產業重新洗牌、日商大廠爾必達退出市場、應用層面更加多元化、加上導入新科技步伐放緩，均使得產業態勢更為

as Hyundai Electronics), both from South Korea, and U.S.-based Micron, which is in the process of taking over Japan’s bankrupt Elpida. Elpida recently went under, despite having valuable key technology, unlike the tech-bereft DRAM makers in Taiwan. Elpida’s demise is therefore considered a warning sign for the prospects of the Taiwanese DRAM makers, who have posted financial losses for years. At the same time, the plans by Micron for a US$2.5 billion deal to take over Elpida offer hope that the American company may play a growing role in bringing some consolidation and stability to the Taiwan industry. Micron already has a strong involvement in Taiwan through a joint venture with Nanya Technology, Inotera Memories, in which Micron this year became the majority shareholder with a 60% stake. In addition, under the terms of the deal with Elpida, Micron would also assume ownership of the Japanese firm's 65% stake in Rexchip Electronics, its Taiwanese joint venture with Powerchip Technology. In addition, the U.S. company has agreed to pay Powerchip Semiconductor US$334 million for an additional 24% holding in Rexchip, bringing its stake to almost 90%. “Right now, Micron is the main partner of Taiwanese DRAM makers,” says Michael

穩定。台灣 DRAM 業者產能強大，可望在更穩定的環境中取得競爭優勢。梅國勳指出：「美光認為台灣是個優良的生產基地。基礎建設非常完善，人力資源素質卓越，成本架構相當合理，商業環境積極而友善。」台灣液晶顯示器產業也面臨嚴峻挑戰。全球產量過剩的情況下，部分業者長期以來呈現虧損狀態。更糟的是，國內液晶顯示器業者大舉投資建造10代廠（每座廠房造價逾40億美元），生產大型玻璃面板之際，全球對高畫質電視的需求正逐漸減緩。台灣最大的液晶面板廠奇美電子，為2010年群創光電（鴻海精密集團旗下成員）與陷入財務困境的奇美電子合併而成。即使是營收規模為全球第三大的液晶面板廠奇美，或是全球第四大廠友達，過去幾年來都無法轉虧為盈。電子時報（Digitimes）主編麥力斯表示：「正如 DRAM 產業，在過度飽和的液晶面板市場中，願意投資技術研發的大型企業才能領先群雄。」他指出，奇

taiwan business topics • august 2012

8_CoverStory.indd 19

2012/8/28 11:58:33 AM

Cover story McManus, managing editor of Digitimes. In recent years an oversupply in DRAM chips, which are a key component in personal computers, tablets, and smartphones, have been triggered by sluggish growth in PC sales and improvements in productivity as a result of massive capital investment. Those factors drove chip prices down to near production costs and forced even two of the three companies left standing – SK Hynix and Micron – to report losses. Besides Powerchip, Rexchip, and Nanya (owned by the giant Formosa Plastics Group), Taiwan’s main DRAM makers include ProMOS Technologies and Winbond Electronics. Some Taiwanese DRAM makers are faring better than others, but most are struggling. ProMOS and Winbond have racked up combined losses of US$7 billion since 2007, Reuters reported. McManus says that in 2009 there was so much speculation that many of Taiwan’s DRAM makers would go bust

that the government pushed to establish a state-sponsored Taiwan Memory Co. to consolidate the weaker Taiwanese players. At that time, the island's memory chip stalwarts – Nanya, Powerchip, and ProMOS – had been mired in losses for more than two years amid the industry's worst downturn, which began in 2007, and Powerchip and ProMOS were believed to be on the verge of defaulting on loan payments. “In retrospect, Taiwan Memory was nothing more than a stabilizing influence to give people the confidence that these companies would not default,” says McManus. “There was no chance of companies being merged, but the market realized that the government was standing behind the DRAM makers.” Eventually, the plans for Taiwan Memory were dropped. The realignment in the global DRAM industry will leave Samsung as the biggest player, with an estimated 42% market

share. The Elpida acquisition would reportedly double Micron’s share to 24% to put it in second place. “Through the acquisition of Elpida, Micron’s DRAM business will benefit from access to an additional set of customers, products, and technologies,” says Scott Meikle, the U.S. company’s representative in Taiwan. “As well, the addition of large facilities in Japan and Taiwan means a big increase in capacity and an enormous pool of talented and capable personnel.” For Taiwan, Meikle continues, “a business benefit is a potential stabilization of the market.” He says Micron “looks forward to the opportunity to partnering with Taiwan to drive synergy towards mutual business success through Rexchip, our existing joint venture Inotera, and our Joint Development Program partner Nanya Technology.” Meikle says Micron sees signs that the memory industry in general, and Taiwan’s

photo : inotera

taiwan business topics • august 2012

8_CoverStory.indd 20

2012/8/28 11:58:35 AM

tech

in particular, may be able to look ahead to some relief from the extreme pricing volatility that has affected profitability in recent years. The shakedown in the industry with the departure of major players like Elpida, a greater diversification of applications, and a slowing in the implementation of new technology may all contribute to greater stability. Taiwan, with its large amount of production capacity, is well placed to take advantage of a more stable environment, he says. “Micron thinks Taiwan is a great place to manufacture,” Meikle notes. “The infrastructure is exceptional, the human capital highly skilled, the cost structure very favorable, and the business environment proactive and friendly.”

IMPROVED OUTLOOK—Chimei Innolux President Wang Jyh-chau (right) said in June that business prospects look brighter due to increased demand from China.

Problems in flat panel displays Taiwan’s LCD industry, which makes more than a third of the world’s flat screen displays, is also facing severe challenges. With a glut in production worldwide, some of the manufacturers have experienced long periods of unprofitability. Exacerbating the situation has been the worldwide weakening of demand for high-definition TVs just as the domestic LCD makers had built vastly expensive new Generation-10 fabs – each one cost-

photo : cna

ing more than US$4 billion – to make the larger-sized glass panels needed for those products. Taiwan’s largest LCD maker, Chimei Innolux (CMI), was created in 2010 through the merger of Innolux Display (part of the Hon Hai Precision group, also known as Foxconn) with its financially troubled rival Chimei Optoelectronics, also based in Taiwan. Interna-

美、友達等台灣業者一心想降低成本，因此在技術方面缺乏優勢；而其實液晶面板產業真正的效率來自於規模經濟。麥力斯指出：「南韓廠商規模較大，生產效率因而較佳。台灣業者一味削價競爭，導致虧損連連。」全球面板雙雄 – 南韓的三星和樂金 – 垂直整合相當成功，並銷售自有電視品牌；相較之下，台灣科技廠商缺乏布局完整的下游通路來推動產品銷售。另一個根本的問題在於，面對中國低價競爭，台灣廠商難以獲利。麥力斯指出，台灣面板業者必須在研發領域挹注更多資源。隨著超薄型OLED 面板逐漸成為電視市場主流，這項趨勢顯示握有技術的企業才能取得優勢。相較於南韓同業，台灣面板廠導入OLED 技術的速度較緩慢，遠見也不夠。目前日本廠商也面臨龐大競爭壓力，該國正設法推動產業合作與整併。數十年來日本面板業者一直是台廠的競爭對手，如今日商應可委託台灣業者代工生產，畢竟台廠擁有低成本的產能與完整供應鏈。此一趨勢即將啟動，奇美電子母公司（鴻海集團）近期宣布計畫投資17億美元取得日商夏普一成股權。此策

tionally, Chimei is the world’s third largest LCD flat panel maker by revenue. Taiwan’s second largest player AU Optoelectronics, is the world’s fourth largest. They are both losing money. “CMI and AUO have not been profitable for about two years now,” McManus says. Around a decade ago, McManus says, the LCD flat panel industry still seemed to have enormous potential,

略將使鴻海晉升為該公司最大股東。深陷財務困境的夏普亟需資金挹注，奇美電則可受惠於夏普的先進技術、規模經濟、以及該品牌對顧客的吸引力。近期由於夏普股價暴跌，鴻海正與之重新議定入股價格，但預期這項投資案將順利進行。美商Pixel Qi 公司營運長萊恩（John P. Ryan）認為：台灣液晶面板產業應該拋開現有營運模式，擺脫「超量產低階商品」代工廠的角色，轉而生產獲利率較高的客製化產品。萊恩指出，台灣廠商應該找出其產品差異化的各項利基，再加上設計精良、生產快速、靈活管理等特性，在利基市場中取得競爭優勢。此外，台灣廠商的單位成本可是低於日、韓同業。萊恩認為，鴻海入股夏普的策略投資，能夠讓奇美 - 夏普的合作拍檔成為蘋果供應鍊中受青睞的供應商，因為蘋果可藉此降低對於三星 – 亦敵亦友的合作廠商 – 之依賴程度。有鑑於美光可望扮演 DRAM 產業的整合者；而鴻海夏普聯姻，將攜手提升雙方在液晶顯示器領域的競爭優勢，儘管台灣科技產業目前面臨重重挑戰，仍然可望在不久的將來漸入佳境、轉虧為盈。

taiwan business topics • august 2012

8_CoverStory.indd 21

2012/8/28 5:44:56 PM

Cover story with global growth in sales of around 20% a year. The growth was mainly driven by demand for flat panel televisions. But with market over-saturation, and with relatively slower replacement rates among Western consumers for TVs than for devices such as handsets, global growth has only been around 1% for the past three to four years. In a situation that parallels that of the DRAM industry, the winners in an LCD market that is oversaturated will be companies of enormous scale who are willing to invest in technology, McManus says. “They will be the big players with big pockets.” Taiwanese makers such as Chimei Innolux and AUO are at a disadvantage in this market because they concentrate on keeping costs down, whereas real efficiency in this industry comes from economies of scale, McManus says. “The Korean makers are bigger and can produce more efficiently,” he notes. “All Taiwan can do is sell below cost and lose money.” In another parallel with the DRAM industry, McManus adds, Taiwanese companies lack a strong downstream channel to sell their products compared with Korea’s Samsung Electronics and LG Display, the world’s top two players, which are vertically integrated and also sell their own brands of TV sets. With LCDs, another fundamental problem is the difficulty even of making money from the TV side of business, adds an American analyst whose company’s regulations prevent him from being identified by name. “There are low barriers to entry, and China is nibbling at the edges trying to get into the industry,” he says. “It is cost competition without any barriers to entry, so how is anybody going to make any profit?” Taiwanese flat panel makers need to invest more in research and development, McManus says. But they tend to lack a far-sighted vision, both for cultural reasons and because companies here lack the scale that allows rivals such as Samsung to devote large budgets to research. “Taiwan’s LCD industry is not dead, but we do not have a technology advantage over our competitors,” he observes. 22

An example of how technology gives some companies an edge is the television market’s shift towards organic light emitting display (OLED) panels. These creditcard-thin panels may consign today’s LCDs to the bargain shelf. Whoever can mass produce affordable OLEDs will have a headstart, Reuters reports. Sony was the first to market OLED TV technology in 2007, but halted production of the US$20,000-plus home screens three years later amid a global downturn and switched its focus to 3D-TV. Sony still sells OLED screens, but the high price tag drastically limits the market, Reuters said. In contrast, Samsung and LG displayed prototype 55-inch OLED screens at the Consumer Electronics Show in Las Vegas this January. Samsung has already signaled its intent to concentrate on the OLEDS in future, saying in February that it will spin off its LCD panel business, according to Reuters. For makers of OLED displays, which boast sharper images and do not need backlighting, the obstacle to consumer acceptance is price. Taiwanese panel makers have been slower and less visionary with OLED than their Korean rivals. The pressure is also on in Japan, where the nation’s once-proud LCD industry has withered. One option being explored there is an alliance of Japan’s major TV makers, brokered by the government, which would allow them to pool their R&D funds and engineering know-ho to reduce costs. Already Sony, Toshiba, and Hitachi have combined their small individual LCD operations to create Japan Display, a company that is two-thirds state-owned. But it may be hard for Japanese television makers to team up after decades of rivalry, and instead Japanese companies could look to Taiwanese contract manufacturers, with their low-cost manufacturing capability and complete supply chains, to handle their production. In what might be the beginning of a trend, Chimei Innolux’s parent, Hon Hai, recently announced plans to invest US$1.7 billion to take a 10% stake (making it the biggest shareholder) in Japan’s Sharp Industries. Financially troubled Sharp needs the capital infusion; Chimei Innolux

can benefit from the advanced technology, economies of scale, and access to a brand with consumer appeal that Sharp can provide. Although the amount of the investment is being renegotiated in light of a decline in Sharp’s stock price since the initial agreement, it appears almost certain that the deal will go through. In the meantime there has been media speculation that AUO may seek a similar tie-up with Sony. J o h n P. Ry a n , C O O o f C a l i f o rnia-based Pixel Qi Corp., says the best hope for the Taiwan LCD industry is to exchange its existing business model of producing “super-high volume mass commodities” for one of making customized niche products that can enjoy better margins. Pixel Qi, for example, focuses on designing low-power displays, which it then outsources to Taiwan companies to manufacture. Ryan says that Taiwan makers could find many other such niches to differentiate their products from other companies’, and that their attributes of “good engineering and ability to turn out products very fast” would give them a competitive edge in that end of the market. “The niche approach is something that Taiwan should be wellsuited to,” he maintains. “The management style is more nimble and the unitcost basis lower than in Japan or Korea, and the quality is pretty good.” Ryan, who is a co-chair of AmCham Taipei’s Technology Committee, also sees the Hon Hai investment in Sharp as a strategy with a high potential payoff. It could position the Chimei InnluxSharp partnership to be a favored supplier in the supply chain for Apple, enabling Apple to become less reliant on its combined competitor and cooperator Samsung. For all the current problems in the tech sector, the prospect of Micron playing the role of consolidator in the DRAM industry and of a Hon Hai-Sharp combination providing new competitiveness in the LCD field offer some hope that conditions are about to turn for the better. — This article is based on reporting by Alan Patterson, Jane Rickards, and Don Shapiro

taiwan business topics • august 2012

8_CoverStory.indd 22

2012/8/28 11:58:35 AM

tech

Taiwan’s Chip Foundries Keep Forging Ahead BY ALAN PATTERSON

hen Taiwan pioneered the idea of making chips on a contract manufacturing basis nearly 30 years ago, many people in the semiconductor industry scoffed. Today, TSMC and its smaller Taiwan rival United Microelectronics Corp. (UMC) rule in the foundry business, worth billions of dollars in annual revenue. “Taiwan is clearly the champion of the world in that industry, and TSMC specifically is behind that,” says Bill Wiseman, country head for McKinsey Taiwan. Michael McManus, managing editor of Digitimes, adds that unlike companies in Taiwan’s DRAM and LCD flat panel industries, the contract chip leaders excel in technology innovation, which is the main reason why their businesses are doing so well. “They can offer more than any of their global competitors,” he notes. “TSMC has leading-edge manufacturing that is better than anyone else in the world.” Hot-selling products such as iPads and smartphones are made from chips supplied by the Taiwan foundries. Miniaturization has reached a stage where some of the world’s leading semiconductor companies can no longer keep up with the manufacturing process, so many of them have focused on chip design and turned production over to the foundries in Taiwan, says Peter Kurz, head of research at Citigroup Global Markets Taiwan Securities. The world’s top four foundries in 2011 were TSMC with revenue of US$14.0 billion, UMC with US$3.6 billion, Abu Dhabi-based Globalfoundries with US$3.5 billion, and China’s Semiconductor Manufacturing International Corp. (SMIC) with US$1.3 billion, according to market research firm IHS iSuppli. Unlike some of the other tech sectors in which Taiwan plays a significant role, the outlook for the chip foundry industry appears rosy. Revenue in 2012 for foundry suppliers is projected to grow to US$29.6 billion, up 12% from the US$26.5 billion in 2011, according to

Taiwan's semiconductor foundries, particularly TSMC, have prospered on the basis of their leading-edge manufacturing technology. photo : tsmc

IHS iSuppli. That pace would be triple the expected rate of growth for the semiconductor industry as a whole. At the end of the first quarter this year, TSMC’s cash balance increased by NT$27 billion to reach NT$171 billion (US$5.7 billion). The company has a net profit margin exceeding 31%, more than the 21% of the world’s biggest chipmaker, Intel. This year TSMC is further investing aggressively on expectations for strong growth during the next few years. “Our three- or four-year growth is sustainable because we are not just talking about handheld products or the mobile products sector,” TSMC Chairman Morris Chang said on a conference

call with analysts following the company’s announcement of first-quarter earnings on April 26. “We are also talking about leadership – technology leadership, capacity leadership in the entire global logic IC industry. He who has the best and the most will get to be the primarily supplier.” Financial information supplier Seeking Alpha provided TOPICS with a transcript of the conference call. TSMC raised its capital expenditure forecast this year to a record US$88.5 billion as it aims to keep up with demand in the foundry business. That’s more than double the US$3 billion that the second-ranked spender, Globalfoundries, has earmarked for capex this taiwan business topics • august 2012

8_CoverStory.indd 23

2012/8/28 11:58:37 AM

Cover story year. One of TSMC’s key customers, Qualcomm, was cited by Bloomberg News as saying that TSMC has been unable to supply enough chips this year to support Qualcomm’s rollout of longterm evolution (LTE) wireless communications technology. According to TSMC, the lion’s share of its current new investment will go toward production of chips with so-called 28-nanometer technology, the world’s most advanced and the type that Qualcomm

and other communications chip companies are clamoring for. Such chips have transistors that are packed together with a mere 28-nanometer space separating them. Chips with such a high transistor density, which only a few companies can make, are more powerful and consume less energy. For 28-nanometer chips, “we are the only attractive foundry supplier,” TSMC’s Chang said in the conference call. “We are quite confident that we will remain the only effective foundry

TSMC Takes Lion's Share of 2011 Foundry Business tSMc 2%

2% 2% 2% 1%

UMc GlobalFoundries

SMIc

14%

towerJazz 56% 14%

IBM Microelectronics Vanguard International Dongbu hitek Samsung Powercip technology

source: g artner, March 2012

supplier for quite some time to come. And we are also confident that in the long run, which means many years, we will be the primary supplier.” For its next act, TSMC’s Chang said the company will probably need to roll out next-generation 20-nanometer technology even faster than it did with 28-nanometer tech. “In 20-nanometer, we will have to ramp up very fast,” Chang noted. “So it will be much to our advantage to shorten the learning cycle.” One potential risk of TSMC’s huge bet is the 40-50% capital intensity – a measure of a firm’s efficiency in use of assets, computed as a ratio of total assets to revenue over a certain period – that the company will bear as part of its capex investment. A higher ratio indicates lower efficiency. Companies with greater capital intensity are more prone to disruption from negative economic events. Meanwhile, TSMC’s smaller competitors are playing catch up. UMC expects to start volume production of 28-nanometer chips in the second half of this year, according to UMC Chief Executive Officer Sun Shih-wei. The company has budgeted a capital expenditure of about US$2 billion for this year.

A wAY ouT oF The PC DoLDRuMS? BY ALAn PATTeRSon

o understand the trouble the PC business is in, look no further than the May 23 announcement by the world’s largest PC maker, Hewlett-Packard, that it will cut 27,000 jobs by the end of 2014. Apple’s launch of the iPad about two years ago has eroded overall sales and prices of PCs as more consumers have turned to tablet computers. That’s not good news for Taiwan’s computer makers, who supply overseas brand owners such as HP and Dell, as well as local brands Acer and Asus. “When the iPad appeared a few

years ago, it caused PC prices to slide, even when new products were introduced,” Acer President Jim Wong said in an interview with Taiwan Business TOPICS. “That wasn’t healthy for the PC industry.” There are few signs that Taiwan’s PC makers will recover anytime soon. “The problem with the tablet is that it probably will not only erode PC market share, but it also is probably better made and marketed by companies like Apple and Samsung,” says Citigroup’s Peter Kurz. Apple has a whole ecosystem of

component suppliers, a large number of which are in Taiwan. Samsung is vertically integrated and makes its own components such as screens and memory chips. The Taiwanese PC makers aren’t very integrated, says Kurz, adding that Samsung has been more innovative with its products. One example is Samsung’s introduction of AMOLED (active-matrix organic light-emitting display) screens, which are brighter and consume less energy than the older technology LCD screens that started appearing in PC monitors and

taiwan business topics • august 2012

8_CoverStory.indd 24

2012/8/28 11:58:37 AM

tech

Volatility in PC Market Sahres: A Sign of Tough Competition Top 5 PC Companies by Shipments in First Quarter 2012 (prreliminary) Rank Vendor

1Q12 Shipments

Market Share

1Q11 Shipments

Market Share

1Q12/1Q11 Growth

15,714

18%

15,229

17.90%

3.20%

Lenovo

11,703

13.40%

8143

9.60%

43.70%

Dell

10,122

11.60%

10,338

12.10%

-2.10%

Acer Group

8,622

9,90%

8,953

10.50%

-3.70%

ASUS

5,260

6.00%

4,310

5.10%

22.00%

Others

35,691

41.00%

38,164

44.80%

-6.50%

units: shipments are in per thousand figures source: IDC Quarterly Worldwide pc tracker, april 2012

TV screens more than a decade ago. Samsung makes the AMOLED screens in-house and is one of just a handful of companies capable of manufacturing the new technology.

Intel and Microsoft I n t h e m e a n t i m e , Ta i w a n ’s P C makers are counting on two big U.S. companies for innovations to drive their business: chipmaker Intel and software designer Microsoft. “The only bright spots for Taiwan’s PC industry are Windows 8 from Microsoft and ultrabooks from Intel, which basically means the industry’s fortunes depend on Microsoft and Intel,” says an American consultant with broad knowledge of the Taiwan tech sector. “That’s a sad state of affairs. It’s always been that way, but even more so now.” Still, not all is doom and gloom for Taiwan’s PC makers. “Obviously Apple wins in smartphones and tablets,” says Kirk Yang, Barclays Capital’s managing director in charge of Asia ex-Japan equity research for the technology hardware and components sector. “But on the PC side, the Windows camp has a very good chance because 80-plus percent of the world’s PC users use Windows. Windows 8 will give users a new product to buy that will combat Apple.” Additional good news for Asia’s PC

makers is that some in the PC industry expect HP and Dell to gradually exit the business, leaving more room for Taiwan’s top-ranking PC makers. “We believe that Asian PC companies will take larger shares of the market,” Yang says. “In the next two to three years, you’ll see the Asian companies easily gain share. The reason is that U.S. companies are not keeping up in the PC business anymore.” PCs are diluting the operating

The latest models getting scrutinized at the Taipei Computer Applications Show last March. photo : cna

margins for HP and Dell, according to Yang. In its most recent earnings announcement, HP said it attained a 5.5% operating margin for PCs, which would be very good for Asian companies, but it brought down the company’s overall margin, Yang says. HP and Dell make more money from businesses such as cloud computing and storage. Acer President Wong also forsees the gradual disappearance of HP and Dell from the PC business – “not because we think we are much better than they are, but we work much harder [on the PC sector] than they do. For Acer, this is our core business.” Two years ago, Acer was the world’s second-largest PC company by revenue, mainly on the strength of the company’s innovative netbooks – small and inexpensive notebook computers. As Acer’s netbook sales plummeted under the impact of Apple’s iPad, Acer’s board ousted its previous CEO, Giancarlo Lanci, and revamped its top-level management. Now Acer has dropped to fourth place in the PC business after HP, China’s Lenovo, and Dell. Taiwan’s ASUS is in fifth place. “In the last three or four years, w e l o s t f o c u s , ” s a y s Wo n g . “ We used to take a leadership role into new segments,” he says, speaking of Acer’s product innovations such as netbooks. The old management team was always talking about market taiwan business topics • august 2012

8_CoverStory.indd 25

2012/8/28 5:45:31 PM

Cover story share,” Wong notes, referring to the Giancarlo Lanci era. “We are talking more about products.” When Acer reached the No. 2 position in the global PC business two years ago, it followed an aggressive series of brand acquisitions in the United States and Europe. Now, the company aims to fold more of those brands back into Acer. “eMachines has already disappeared,” Wong says of one brand acquisition in the United States. Packard Bell, a brand that Acer bought in Europe, and U.S. acquisition Gateway are going the same way, Wong adds. “Acer in the end is going to be much simpler.” Acer will quickly return to its previous market share gains, says Barclays Capital’s Yang. “Acer has reported two profitable quarters in a row. They’ve been improving quarter on quarter. By the fourth quarter this year, they should be back to normal. The growth margin should be back to 10% and the operating margin back to at least 2%.” Those forecasts are “overconfident,” says Acer’s Wong. “We think the opportunity is good, but because of the macroeconomic situation, we’re taking a more conservative outlook.” Although Acer aims to return to the innova-

tions that made it a market leader, for the time being it’s counting on Microsoft’s Windows 8, which is expected to be formally launched during the second half of this year, and Intel’s ultrabooks. “We see Windows 8 as the chance to open another decade of growth,” says Wong. “Windows 8 is a good innovation. It’s a good beginning for all of us to be more innovative.” Several companies have already unveiled ultrabooks based on Intel’s specifications. Touted as “iPad killers,” ultrabooks are typically less than 2.1 centimeters thick and weigh less than 1.5 kilograms, while providing the same performance and battery life as a larger notebook. They use low-power Intel processors with integrated graphics and carry large batteries to extend the time of use between rechargings. Selling for about US$800, ultrabooks so far are too expensive to make a significant dent in the iPad business, however. “The economic scale is not there yet, but in the longer term the price will come down, as the prices of materials are all coming down. The ultrabook with touch, new form factors, and new convertibility can return us to a healthier situation.” Some 350 PCs are sold world-

wide every year, which Barclays Capital’s Yang notes is still a big opportunity. Acer’s new management team has fixed key problems, he says. “With any restructuring, it takes some time. We have seen some progress.” There are differences of opinion as to whether Acer will again stand out from the pack as it did in the past. “Taiwan companies are more Windowsrelated, and once Windows 8 is out, that will help everyone in Taiwan,” Yang says. “All the companies are focused on ultrabooks. They should all do well.” Acer considers that it still has some distinct competitive advantages, however. “We are different from our competitors in how good we are at focusing on user behavior,” says Wong. He cites another strength as channel coverage. And Acer is edging away from the Intel-Microsoft mold. All the new devices that Acer launched at Taiwan’s 2012 Computex show in June were powered by Intel processors, but Acer plans to offer new mobile computing platforms running processors from U.K.-based ARM by the first quarter of 2013. The ARM-based mobile devices will be cheaper overall, Wong says.

DARKNESS Before the Dawn for Solar POWER? BY WAYNE WANG

hen the aircraft Solar Impulse completed a 4,000mile odyssey and landed in Payerne, Switzerland on July 22, 2012, it marked the first solar-powered round-trip air journey between Europe and Africa. It was also reminiscent of the pioneering intercontinental flight made by Charles A. Lindbergh in May of 1927. Lindbergh’s achievement made possible the modern era of commercial aviation. Similarly, the Solar Impulse flight may signify that mankind is now moving into an era of solar power.

After a development of around 15 years, worldwide photovoltaic (PV) market installations reached a total of 27.7 Gigawatts (GW) in 2011, up 67% from the previous year, according to the European Photovoltaic Industry Association (EPIA). The additional PV connection to the grid in 2011 brings the world tally of installed PV capacity to more than 67.4 GW. After hydro and wind power, PV is now the third most important renewable energy in terms of globally installed capacity. According to a market report by

NPD Solarbuzz, the PV industry generated US$93 billion in global revenues in 2011, up 12% year-on-year even during a time of economic crisis. On the technological front, a unique thermosolar power station was launched last May in southern Spain; the station defies the dark and provides electricity 24 hours a day. True, the PV industry has been reeling from continued oversupply and governments’ move to dial back subsidies. A crash in solar panel prices was caused by Chinese competition that

taiwan business topics • august 2012

8_CoverStory.indd 26

2012/8/28 11:58:38 AM

tech

has decimated pricing power throughout the industry supply chain. And the bloodbath is not going to end soon. Over the next five years, factory-gate module prices are projected to drop between 43% and 53% from 2011 levels. In addition, aggressive cuts in incentives in Germany (a country long regarded as the most stalwart supporter of solar industry) and other European countries are lessening demand for PV installations in those markets. However, the worst of times may also be the best of times. Despite the cloudy skies, research indicates that the solar industry is merely experiencing teething problems rather than writhing in death throes. As the industry is weaned off subsidies, heartening forecasts of expansion are being heard. Over the next two decades, growth will primarily originate from places currently without an electrical grid, from new large-scale power plants, and from users in both the residential and commercial segments. In addition to panels, solar cells, and inverters, demand may also come from the application of complementary energy storage technologies

such as lithium-ion batteries. Some visionaries are capitalizing on the opportunities as governments look for solar as a pillar in their energy mix. For instance, investors ranging from Warren Buffett to Google and Metlife have poured more than US$500 million into renewable energy in the past year. Once so risky that only government backing could draw private capital, solar projects now are making returns of about 15%, according to Stanford University’s center for energy policy and finance. That has attracted a wider community of investors eager to cash in on projects four times those available for Treasury securities. PV systems are generally either panel types or light-concentration types. Taiwan’s PV industry focuses on the former, as it is mainly an extension of the island’s prowess in semiconductors. Taiwan is the world’s second largest producer of crystalline solar cells, with a global share of 12.7% in 2011, far behind China’s 62.8%, but ahead of Germany’s 7%. Taiwan has invested US$1.8 billion in PV, almost two-thirds of it in crystalline cells. But

under conditions of cut-throat competition from China, Taiwan’s PV industry is now suffering steady losses, with no turnaround in sight in the near term. But China itself is facing overcapacity and factory closures, too. As the PV industry landscape changes, the Chinese rivals’ practice of undercutting prices may not be sustainable. At the same time, Taiwan’s signing of an investment agreement with Japan and the increasingly close collaboration in industrial technology between Taiwan and Japan may give the Taiwan PV industry a good chance to upgrade itself. Along with Japan’s introduction of a favorable feed-in tariff in July – one high enough to spur significant investment and expansion within the Japanese PV market – those developments hopefully will provide opportunities for Taiwan’s PV manufacturers to regain their competitive edge.

— Wayne Wang is a researcher at the Industrial Economics and Knowledge Center of the Industrial Technology Research Institute (ITRI)

taiwan business topics • august 2012

8_CoverStory.indd 27

2012/8/28 11:58:39 AM

T A I W A N b u s in e s s

The Unseen Role of Industrial Gases Taiwan’s three producers play a crucial role in many of the island’s most important industries. photo : air products san fu

BY MADELINE BERGNER

n Taiwan’s remarkable industrial development over the decades, one of the unsung heroes has been the industrial-gas business. The sector receives scant public attention – except perhaps for sightings of its tank trucks on the roadways – but it has played a vital supporting role for many of the industries that have been most responsible for Taiwan’s economic success. “Our industry is to other industries like blood is to your body,” says John Tsai, president of Air Products San Fu (AP San Fu). “You need it every day, but usually you’re not conscious of its existence.” He notes that the industry affects people in their day-to-day life, but usually indirectly, so that consumers tend to be unaware of its presence. Three major multinational industrial-gas companies operate in Taiwan: Air Liquide Far Eastern (ALFE), the above-mentioned AP San Fu, and Linde Lienhwa (LLH). ALFE, founded in 1987, is a joint venture between the Air Liquide Group of France (65%) and the local Far Eastern Group (35%). Air Liquide Group employs 46,200 employees worldwide, with annual revenues of almost US$18 billion from operations in 80 countries. AP San Fu was established in 1987 as a joint venture between Air Products, headquartered in 28

8_gas.indd 28

Allentown, PA (75%), and Taiwan’s San Fu Gas (25%). Air Products has annual revenues of US$10 billion, operations in over 40 countries, and nearly 20,000 employees worldwide. In 1985, Britain’s BOC Group and the Lien Hwa Industrial Corp. formed a joint venture called BOC Lien Hwa Industrial Co. (BOCLH). In 2007, BOC merged with the German-based Linde Group to form a 50:50 Asia-based joint venture, Linde Lienhwa. The Linde Group offers products and services in more than 100 countries, employing approximately 50,500 people. It achieved sales of US$16.8 billion last year, and ranks as the world’s largest industrial-gas producer. Some of the many industrial functions requiring the use of gases include cleaning, polishing, and grinding; coating and surface treatment; cutting and welding; freezing and cooling; heat treatment; molding and extrusion; water and soil treatment; and blanketing (preventing oxidation by providing a protective layer of another gas). Besides manufacturing, gases are needed in hospitals (such as oxygen tanks), restaurants and bars (beverage dispensing), and leisure activities (scuba diving and party/advertising balloons). Industrial gases play a key role in

two of Taiwan’s biggest industries: semiconductors and flat panel displays. In semiconductor manufacturing, for example, they are essential in virtually every step of the production process, including etching, doping, deposition, and chamber cleaning. Advanced technology manufacturing of semiconductors and flat panel displays requires high purity gases, and nitrogen is used in production to ensure a clean process environment. LLH President Alex Tong notes that companies like Taiwan Semiconductor Manufacturing Co. (TSMC) require tens of thousands of cubic meters of bulk gases like nitrogen and oxygen every hour. Most of the industrial gases used in Taiwan – including oxygen, hydrogen, carbon dioxide, nitrogen, and argon – are produced on the island, often in air-separation units located on large customers’ own manufacturing sites. TSMC, for example, requires some 900 tons a day of oxygen alone, says Tong, making it much more economical to install an on-site plant than to transport such massive quantities of gas. Aside from these bulk gases, some other products – such as various specialty chemical gases – are usually imported. Also imported is helium, which is extracted from mines in such

taiwan business topics • august 2012

2012/8/28 12:01:24 PM

T A I W A N b u s in e s s

Air Liquide Far Eastern's Air Separation Unit and Electronic Materials Center in Taichung. photo : Air Liquide Far Eastern

locations as the United States, South Africa, and the Middle East. Despite the huge size of the global industrial-gas business, consumers by and large are unaware of the companies involved, not to mention the key role they play in supporting a wide range of key industries – not only semiconductors and flat panel displays, but also computers, food processing, steel production, and chemicals, as well as healthcare services. John Tsai of AP San Fu calls the industry “the backbone of the economy” because so many other crucial industrial sectors rely on industrial gas to operate. “ We s u p p l y p r e t t y m u c h e v e r y industry,” says Michel Darrieus, president of ALFE. “Take any object around you, and if you look into the manufacturing process, you’ll find that industrial gas was involved, whether you’re talking about making steel or glass, or food-related applications like food freezing or preservation, or in the medical world.” Darrieus explains that one reason the industry is so strong in Taiwan is because it spans so many sectors of the economy. “In some countries, you have only electronics or only this or that, but in Taiwan we have practically everything,” he notes. “Every industry is

represented.” In an industry in which there is little differentiation between one company’s products and its competitors, Darrieus continues, the key to success is working closely with customers to provide the best service for their particular applications. “For 150 years, we’ve been selling the same product,” he says. “Our competitors are selling the same product. So the way our industry has developed over the years has been through application. It’s not really ‘my nitrogen is better than the other guy’s,’ but ‘I can help you improve your process, your efficiency, your performance, by using my gases.’”

Main growth drivers There are currently four primary growth drivers for the industrial gas industry: • Energy and the environment. Energy-saving and environmental protection are growing concerns for many industries, and the industrial-gas companies are constantly looking for new ways to help their customers achieve greater sustainability and efficiency. • Advanced technologies. A report

issued jointly by GfK Digital World and the Consumer Electronics Association (CEA) this January forecasts that annual global spending on consumer technology devices will exceed US$1 trillion for the first time in 2012. Industrial-gas companies are seeking to contribute to these technological innovations to help them maintain a strong presence in the ever-changing electronics industry. • Developing markets. The rapidly rising demand for industrial gases in Asia, India, and the Middle East will continue to draw industrial-gas companies to work in these locations. The Taiwanbased joint ventures are involved in supporting the efforts in developing markets to enhance energy efficiency and promote renewable energy. • Healthcare. Added pressure on healthcare systems due to aging populations and the higher incidence of chronic disease also provides the industry with increasing opportunities to play a new role through research and development. In Taiwan, the industry has histaiwan business topics • august 2012

8_gas.indd 29

2012/8/28 12:01:26 PM

T A I W A N b u s in e s s

torically focused most heavily on the electronics and healthcare applications for industrial gas. Growing attention to innovation and R&D, however, has enabled the industry to widen its involvement into to energy and environment, food processing, and other applications. At Air Liquide, over 60% of the company’s global R&D budget goes to projects related to life sciences, the environment, and sustainable development. For the industrial-gas companies in Taiwan, energy-related advances are among the highest priorities. LLH’s Alex Tong emphasizes energy recovery, conversion, and efficiency as principles that his and other industrial-gas companies have incorporated into their processes to increase yield and promote environmental responsibility. Darrieus also refers to the importance of helping customers use less energy. “Of course, it starts with ourselves: how we can reduce our electricity consumption when we produce our gases,” he says. “Every industry is going to have to invest money to reduce the use of energy, and we have some interesting technologies to help them do that.” One way that industrial-gas companies make a contribution toward renewable energy is through the gases they extract, particularly oxygen and hydrogen. Industrial gas-based combustion such as oxy-combustion reduces the fumes and emissions of normal combustion, thus “improving yield and heat transfers while reducing the consumption of fossil fuel and consequently CO2 emission,” according to Air Liquide. “For clean energy, you have probably heard about fuel cells, making possible a vehicle that doesn’t use gasoline, just running on pure hydrogen,” says AP San Fu’s Tsai. Hydrogen-powered cars are considered zero-emission vehicles, a great contrast with conventional models that release carbon dioxide and other pollutants from their exhaust systems. Darrieus says it is exciting to figure out “how we can work with other industries to make the hydrogen-powered car a reality, so that when you drive that car in the street the only thing that comes out is water – there’s no pollution.” 30

8_gas.indd 30

Industrial gas companies like Air Products San Fu have played an important supporting role in Taiwan's industrial development. photo : air products san fu

Industrial-gas companies are also involved in solar technology innovation, specifically in the manufacturing process for solar panels. In October 2010, Air Products signed a Letter of Intent with Taiwan’s Ministry of Economic Affairs (MOEA) to identify promising investment opportunities in the domestic semiconductor and solar-energy industries. A press release at the time quoted Deputy Economics Minister Lin ShengChung as saying: “Taiwan is a world leader in semiconductor, LED, and solar cell manufacturing. With this agreement we have signed today, it is our hope that Air Products San Fu will continue to invest in the petrochemical and semiconductor industries, and advance its efforts into the green energy industry as well.” One of Taiwan’s primary strengths is in electronics manufacturing, both for export and for domestic consumption. “In our [Air Liquide] worldwide portfolio, electronics accounts for less than 10% of our revenues,” notes Darrieus. “In Taiwan, it’s over 50% percent,” he says, due to the development of worldclass companies such as TSMC, Chimei Innolux, and AU Optoelectronics. Of the three multinational industrial-

gas companies in Taiwan, Air Liquide has the largest medical/healthcare business, with over 250,000 patients relying on their medical gases and respiratory support equipment. “We provide oxygen in hospitals and gases with therapeutic characteristics,” says Darrieus. “Then, in the medical world, you also have what we call home healthcare, people who have respiratory problems and need oxygen therapy continuously.” In addition to providing medical gases and services for hospitals, clinics, and ambulances, industrial-gas companies also supply operating-room hygiene products and hospital disinfectants. Looking to the future of the industry, Darrieus sees a continuation of the trend in recent years in which its traditional emphasis on “the industrial side where we supply gases to refineries and big industries” has been gradually declining. “Now I would say that the focus is changing to providing products, applications, and services that really touch people in their daily lives. That makes it very exciting. We’re still industrial gas, but maybe that’s not the right term any longer. We now also have patients, not just customers.”

taiwan business topics • august 2012

2012/8/28 12:01:27 PM

A n A ly s i s

Cross-Strait Ramifications for Multinationals Amway employees from China disembark from cruise ship in 2009.

As economic activity between Taiwan and China increases, issues arise for foreign companies operating here.

photo : cna

BY TIMOTHY FERRY

he past few years have seen reduced tensions and increased economic interchange between Taiwan and China, including the start of direct shipping and air travel across the Taiwan Strait and the signing of an Economic Cooperation Framework Agreement (ECFA) aimed at forging the equivalent of a free trade agreement. Tariffs on a wide array of traded goods have been reduced and many are on schedule to be eliminated altogether, shipping costs and logistics issues have declined, and easier travel has led to greater integration in corporate structures. The twin titles of Amway's Martin Liou – regional VP for Greater China and country manager for Taiwan – reflect the closer ties that are now possible. He says that while Amway Taiwan and Amway China are two separate entities, they share an integrated management structure made possible in no small measure by direct flights between regional centers. For 60 years prior to 2009, direct shipping and flights were banned, and travelers and goods had to transit through a third destination – usually Hong Kong. “Nowadays,” says Liou, “I can take the early flight from Taipei to Shanghai,

walk into my office and chair a meeting, and then at the end of the day fly back to Taipei and catch a late supper with my family.” While these closer ties have certainly benefited cross-Strait trade, significant barriers still remain, however. For one, though Taiwanese now enjoy far more liberalized travel to China, bringing Chinese staff to Taiwan for training, conferences, or short-term assignments is a different matter altogether. The major difficulties appear to be the approval process on the Chinese side, as Taiwan has simplified its requirements and streamlined its procedures. For PRC citizens to apply for an entry permit into Taiwan, the Taiwan government requires only a certificate of employment by the company and an itinerary. “Taiwan doesn’t require a lot,” notes Michael Mou, Procter & Gamble’s associate general counsel. “The real obstacles are from China.” To apply for an exit permit to visit Taiwan, the personnel in China need to assemble an array of documents – including such items as household registrations, sponsorship letters, and even school records – for presentation to the PRC government. The Chinese authorities have even been known to

ask would-be travelers to promise not to address Ma Ying-jeou as “president” should they happen to run into him. Applicants can wait for as long as three months for the approval process to be completed. T h e a l t e r n a t i v e i s f a r s i m p l e r, though possibly risky in that it contravenes the formal mainland regulations. Residents of Shanghai, Beijing, and Shenzhen – which are also areas with a high concentration of foreign-invested companies – are allowed to travel to Hong Kong with relative ease. To circumvent the red tape surrounding travel to Taiwan, many mainlanders reportedly head for Hong Kong without letting on that Taiwan is their final destination. In the meantime, their host company or organization in Taiwan has applied for an entry permit on their behalf and couriered it to Hong Kong awaiting their arrival. Some companies in Taiwan insist that this procedure is “100% legal,” but others who utilize it concede that it is a bit of a dodge. One executive says that PRC travelers who take advantage of this short-cut need to be careful when returning to China not to let on that had been to Taiwan “or they could be in a lot of trouble.” For that reason, taiwan business topics • august 2012

cross strait.indd 31

2012/8/28 12:03:10 PM

a n a ly s i s

many multinational companies that are sticklers for going by the book are reluctant to allow their employees to exercise such “creativity” in making their travel arrangements. Still, legal ambiguities and a tendency to simply look the other way often seem to be par for the course in maintaining the extensive and important cross-Strait ties. Although China and Taiwan officially have yet to end hostilities stemming from the Chinese civil war of the 1940s, the amount of economic activity and volume of travel across the Strait has grown at a staggering pace in recent years. Beijing denies that Taiwan (whether by that name or the Republic of China) is a country, yet representatives of the two sides meet regularly and the island is the source of a big chunk of China’s foreign direct investment. The lack of clarity in cross-Strait travel arrangements simply reflects the ambiguity at the very core of China-Taiwan relations. What this means for multinationals doing business on both sides of the Strait, though, varies widely. Amcham Taipei notes in its 2012 White Paper that multinationals increasingly encounter a need to bring staff from the mainland to Taiwan for meetings, training, and work projects, but “the process is still far more complicated and time-consuming than necessary.” Simon Woollard, HR Director for the Ford Lio Ho Motor Co., says the lengthy process “reduces our nimbleness and our ability to leverage Chinese talent for shortterm assignments, at short notice.” The situation is especially onerous for someone who resides in one of the major cities but whose household registration is actually somewhere else. Under the Chinese hukou system, everyone must be registered in their hometowns, regardless of where they currently reside. Chinese authorities are highly disinclined to change hukou status, meaning millions of people are left in limbo. Unable to obtain employment in their less-developed home regions, they are forced to work in a distant city. But as they cannot obtain legal residence there, they are unable to enjoy many of the privileges granted to urban 32

dwellers – among them, the ability to travel relatively freely to Hong Kong. If a multinational wishes to bring a colleague to Taiwan who is from a rural region, that person must travel all the way to his or her hometown to obtain a copy of the hukou, along with, amazingly, their permanent school records. The applicant must then submit these documents to the relevant ministry – and then wait for the approval process, which can take more than two months. Only upon receiving this document can they apply to the Taiwan government to obtain an entry permit, which can take another three weeks.

Impact on conferences The overly complicated travel procedures bear consequences for tourismrelated industries as well. One Taiwan country manager notes that while his company might prefer to host a conference in Taipei, the difficulties in bringing over Chinese staff mean that “most of the time we move the destination venue from Taiwan to China.” Taiwan’s hotels, convention centers, restaurants, and other enterprises thus lose out on substantial business opportunities. The executive notes that the trick of moving staff from China to Taiwan via Hong Kong, thereby avoiding the need for a Chinese exit permit, is costly and impractical when it comes to potentially thousands of participants heading for a conference. In 2009, Amway made headlines when it brought 9,000 of its top Chinese sales representatives to Taiwan on the first cruises to sail directly from China to Taiwan in 60 years. Now Martin Liou says he hopes to increase the number of Chinese sales reps to be rewarded with a cruise to Taiwan to 15,000. But since the sales figures haven’t been accumulated yet, the identity of those 15,000 is still unknown.

And the clock is ticking. “It’s going to be a lengthy process,” he admits. Although an informal survey of around 30 Amcham Taipei member companies elicited some complaints about the travel-application process as being cumbersome, time consuming, and based on an outdated cold war mentality, such responses were relatively few. More common were general expressions of satisfaction with how cross-Strait economic ties are being conducted. The disparity in attitudes in large part seems to reflect the varying nature of companies’ regional and Greater China corporate structures. Most of the companies having little or no complaint about the entry process said that they rarely seek to bring Chinese colleagues to Taiwan, and in fact a surprising majority of respondents reported rather infrequent connections at all with their sister companies on the mainland. Eli Lilly Taiwan’s general manager, Edgard Olaizola, for example, noted that his company and Eli Lilly China are separate entities with very little cross-Strait interaction. “We do some exchange, but when we send people, it’s from here (Taipei) to there (China), so the process is not too bad,” he said. For some other enterprises, though, the connections between the operations on the two sides of the Strait are much closer. Amway, as mentioned, operates its China and Taiwan subsidiaries under a single management structure. P&G also has a fully integrated management structure, with corporate executives routinely making the trip across the Strait in both directions. The operations of many Taiwanese tech firms are also deeply integrated between the two sides of the Strait, and again travel is a frequent necessity. For the Taiwanese firms, in particular, bringing over colleagues from China for short visits appears to be a

taiwan business topics • august 2012

cross strait.indd 32

2012/8/28 12:03:12 PM

a n a ly s i s

piece of cake. Why are they able to do something easily that others, especially multinational firms, have trouble with? One factor might be different cultural views of law in general. A 2001 essay in the Harvard Business Review, “Doing Business in China,” noted that Western business culture is focused on finding “the truth,” while the Chinese business perspective seeks out “the way.” Perhaps that explains why Taiwanese companies are comfortable with legal ambiguity, while most foreign multinationals feel that their only choice is to follow the law to the letter. A brief canvass of Taiwanese firms exhibiting at the Computex trade show recently revealed that most of the companies’ Chinese employees in attendance had simply traveled from China to Hong Kong and then to Taiwan – adding time and expense to their flight, but saving them the time and headache of obtaining an exit permit for Taiwan from the Chinese authorities. Still, many multinationals say they face few problems with the travel-documents issue. P&G’s Michael Mou notes that “some multinationals will face some delay because they lack knowhow.” He says his company has long established a standard operating procedure for how to deal with entry-permit issues and now it has “no trouble at all.” P&G has become so skilled in this process, Mou boasts, that its applications for work permits are never rejected and other multinationals call them for advice on how to handle the procedures. He suggests that business organizations such as AmCham host forums in which multinationals can share their experiences to help ease the process for everyone. One piece of advice from Mou is to rely on travel agencies only for the legwork in retrieving and submitting documents, but to handle the substance of the processing in-house. The admonitions China places on its citizens traveling to Taiwan seem almost quaint in the modern world. The visitors are forbidden to go to the Chiang Kai-shek Memorial Hall and Chiang’s mausoleum in Taoyuan County or to photograph the ROC flag,

along with the aforementioned warning not to address Ma Ying-jeou as “president.” They reflect an authoritarian regime’s instinct to restrict expression and information.

Restricted imports from China Ta i w a n ’s o w n r e s t r i c t i o n s o n importing some 2,000 items from China imports (mostly agricultural products), on the other hand, reflect the power of Taiwan’s developing democracy – especially the power of interest groups and public opinion. As AmCham has noted in its annual Taiwan White Paper, Taiwanese trade regulations are supposed to limit the reasons for banning a product of mainland origin to “risk to national security and potential serious adverse impact on domestic industry.” Despite these high bars, the Chamber has found that removing a category from the list of banned goods is all but impossible, as the government invariably accedes to pressure from local industry, whether or not a strong evidence of adverse impact has been presented. Last year, AmCham’s Retail Committee sought the lifting of the prohibition for 21 products, but only one was removed from the list. The Medical Devices Committee has had its own similar requests. Some of the China-made products that are prevented from entering Taiwan are actually produced there by international brands using the same standards and specifications as employed in the United States or Europe. Maintaining the ban merely narrows the choices and raises the prices for Taiwan consumers. An issue specifically affecting the pharmaceutical industry is concern that the extremely low reimbursement prices paid to hospitals by Taiwan’s National Health Insurance program will begin to impact the price levels in China. “Our information is that China has already started collecting data on Taiwan’s drug prices and intends to include it within a basket of reference prices from various countries,” says the general manager of a foreign-invested pharmaceutical company in Taiwan. “China is such a big

market that drug manufacturers won’t be willing to see their prices pulled down by comparisons with Taiwan.” He says the result may be more and more frequent decisions by international companies not to launch new products in Taiwan if the price is not satisfactory, and even to withdraw some products already in the market here. Taxes are another issue of concern for multinationals bringing in workers from overseas, particularly the “double taxation” rule that requires foreign nationals staying in Taiwan for more than 90 calendar days to pay taxes on any income derived from Taiwan, regardless of where the income is actually paid. This compensation is prorated, according to the number of days the foreign worker stayed in Taiwan in a year, to calculate the rate of income tax. Cheli Liaw, partner at Deloitte and Touche in Taiwan, notes that many other countries have similar policies. But industry insiders note that the 90-day limit deters companies from bringing staff in for long-term projects, especially since the 90 days do not need to be consecutive and even vacations in Taiwan are counted as part of the total. Liaw adds that the real issue for Taiwan is that “the individual tax rate for resident taxpayers (40% for high earners) is too high.” Taxes on consulting fees are another problem. If a company based in Taiwan brings over staff from its Chinese partner, very often the company is required to pay a further 20% consultancy tax on that worker’s income, beyond the aforementioned income taxes, if the job performed in Taiwan is deemed to be consulting work. The combined effect of these taxes serves to further deter cross-Strait integration and cooperation. Despite the areas of difficulty, most companies approached in the informal survey appeared satisfied with the current state of cross-Strait economic interchange. Given the substantial improvements achieved in TaiwanChina relations in recent years, the two governments would be well advised to pay increased attention to the remaining problem areas. taiwan business topics • august 2012

cross strait.indd 33

2012/8/28 12:03:13 PM

i n t e r v i e w

Stanton Reviews U.S.-Taiwan Relations Before stepping down as AIT Director, Bill Stanton sat down for a talk with Taiwan Business TOPICS.

After a 34-year diplomatic career, including the past three years as Director of the American Institute in Taiwan (AIT), William A. Stanton retired from government service on July 31. He will be remaining in Taiwan, however, joining the faculty of Taipei American School. In early July, two weeks before the Legislative Yuan voted to resolve a trade dispute with the United States by allowing imports of beef containing traces of the leanness-enhancing feed additive ractopamine, Stanton was interviewed by TOPICS Editor-in-chief and AmCham Taipei Senior Director Don Shapiro. Below are excerpts from that conversation.

Hopefully, we are nearing the resolution of the ractopamine issue. What would be the significance of that development if it happens? Getting beyond this beef issue, which has become so politicized, would be a big boost for Taiwan back in Washington. When I’ve talked to legislators here who oppose the import of U.S. beef from cattle that have been fed ractopamine, I remind them that what say publicly is read by people in Washington. When they describe our beef as “poisonous,” it creates ill feelings and doesn’t help the relationship. It also doesn’t help Taiwan break out of a relatively isolationist perspective on trade. Looking at the historical record, it’s clear that this was basically a protectionist gesture. The previous DPP administration backed off on WTO notification [of a Maximum Residue Level for ractopamine] because they were worried that the pig farmers 34

would protest it. As I say to people who tell me that U.S. beef is a minor issue: yes, it’s small in substance perhaps, but symbolically it’s a huge problem. Some people also say beef is a small item in the U.S. trade with Taiwan. True, agriculture accounts for less than 20% of our exports to Taiwan, but on the other hand, all of Taiwan’s agricultural production put together is less than 2% of its economy. So by the same token, I say it’s a very small share of why your country has become prosperous, why you’ve advanced as a trading nation. Is it worth making a big issue about the pork farmers and the fear of pork coming in? If we manage to get the beef issue solved, clearly we’ll renew discussions under TIFA [the Trade and Investment Framework Agreement]. There’s a possibility early-on we could conclude some bilateral agreements, certainly on easier issues like e-commerce, which has

been pending for a long time. Some other issues are still going to remain very difficult. Trade issues are never easy; you have to work at them and you have to negotiate. It’s important that people think not only about the short-term political costs, but also about long-term national interests. And that’s true in Washington too, not just Taiwan. Look, we got the KORUS [Korea-U.S.] free trade agreement signed in 2007 and it wasn’t implemented until 2012. Why did it take five years? Because there were a lot of people in the U.S. Congress who found it very tough to swallow. Rather than ranting and raving about ractopamine, more needs to be done here to educate the public about the advantages to Taiwan of more open markets. It’s not going to be easy, but it’ll be a real shot in the arm for the relationship, because our inability to move forward on trade issues has

taiwan business topics • august 2012

8_interview.indd 34

2012/8/28 12:05:15 PM

interview

been one of the two biggest problems we’ve had. What’s been the other? I would say the second problem is that Taiwan has not been spending enough on defense. It’s quite clear President Ma regards the best self-defense for Taiwan as simply to ensure a good relationship with China. True, that’s very important, but at the same time there’s an argument that if Taiwan spent more on arms, it would provide greater sense of confidence in dealing with the mainland. Polling shows that most people here regard China as a challenge if not a threat, and they think Taiwan should have strong defenses. But that’s a problem in any democracy: nobody’s willing to spend more money for it. The United States has those problems too. Coming back to trade issues, I see a strong possibility that next year we could make a lot of progress. But we have to get the beef problem resolved. The lack of movement has been damaging to our relationship, and it affects attitudes in the U.S. toward Taiwan. The only people who really enjoy watching this are the leaders in Beijing, because it’s such a divisive issue between us. And that’s troubling to me. If you read the Taiwan press for the last three years, you see far more criticism of the United States over the beef issue than you see criticism of virtually anyone else about anything else. There’s very little criticism in the media of anything China-related. For example, China continues to block entry into international organizations at every turn; they try to prevent high-level U.S. visitors from coming here even on issues like trade, agriculture, you name it. But you don’t see that criticized very often. Disputes with other countries also tend to be treated in a pretty low-key manner. But it’s the U.S. – who has always been Taiwan’s best friend – who really gets hammered and that’s uncalled for. As I always remind people, the U.S. and Taiwan share similar values and we’ve got a lot to gain from working together.

What else needs to be done to improve the bilateral relationship? I would like to see both Taipei and Washington pay more attention to one other. China is so dominant now, for both of us – because of the huge trade volume, because of its growing military might, because of its greater sense of self-confidence from becoming more prosperous, a whole host of reasons – that it tends to overshadow everything else. Taiwan is clearly not as big, it’s not as strategically important, all those things. But Taiwan is still a very significant place. If it were located anywhere else [than next door to China], it would get a lot more attention than it currently does. Arms sales would be much larger, it would get a much higher priority. By the same token, President Ma and his administration have – rightly so, because they started out in a very difficult place in terms of relations with the mainland – put a lot of emphasis on having a better relationship with the mainland. That’s a good thing, but sometimes both Taiwan and the U.S. take one another for granted. Any relationship, [former U.S. Secretary of State] George Schultz used to say, is like tending a garden. There are always

weeds cropping up. You have to prune it and give it constant attention; you can’t just leave it alone. Because we’ve both tended to be focused elsewhere more often than not, we haven’t given enough stress to this relationship. That’s why it’s important to resume the high-level visits by U.S. government officials that used to be commonplace. Too many people in Washington just have no idea anymore what Taiwan is like. At the time of the U.S. opening to China, Kissinger and Brzezinski thought that Taiwan would just wither on the vine. Taiwan fooled them. Taiwan prospered and persevered and also transformed itself into a democracy. We need to bring people out all the time and educate them about that. China tends to sees this as a zerosum game – that any visits here by U.S. officials are going to be bad for ChinaU.S. relations. I don’t think so. What are the messages the officials will get? President Ma tells all visitors about how proud he is of the improved relationship with the mainland and how important that is. But at the same time, the visitors will see that we have huge trade interests here, that we have a huge investment in terms of the people and ties we’ve

The Ministry of Interior’s National Immigration Agency not only issued a special Permanent Alien Resident Certificate to William Stanton but also presented him with an enlargement. photo : cna

taiwan business topics • august 2012

8_interview.indd 35

2012/8/28 12:05:16 PM

interview

developed over time. And also that we have a security relationship that has really served to stabilize the situation. Our whole policy is based on non-coercion. There has to be an agreement that both sides behave peacefully, and to do that people have to have a certain confidence that they aren’t just going to be told what to do at the point of the gun. Overall, though, my assessment of the state of the relationship is fairly positive because we’ve made progress in many areas, whether on the visa waiver program, on arms sales and the intensity of the interaction between our militaries, or on a lot of important transnational issues like human trafficking and non-proliferation progress. So in general I’m quite optimistic about the relationship. How should the U.S. deal with China’s complaints about its involvement in Taiwan? China says to us all the time that the U.S. shouldn’t sell arms to Taiwan or send high-level government visitors to Taiwan, complaining that the U.S. is encouraging the forces of splitting and independence. The real answer to Beijing should always be that the solutions to the Taiwan problem have everything to do with China and nothing to do with the United States. The biggest obstacle is your lack of respect for human rights, your lack of respect for rule of law, and the fact that you’re not a democracy. It’s in your hands to solve those problems. Those are the obstacles to unification. The answer isn’t bullying Taiwan, but for China to change and evolve, and to make the kind of progress that Taiwan did. How is the construction of the new AIT complex in Neihu coming along? It’s been a little slower than anticipated, but it’s going great. Putting up a building is the easy part. The harder part is the site preparation and getting the infrastructure done right. When it’s ready, which is supposed to be in the first half of 2015, it’s going to give us more space and more efficiency. And it will be good for the 36

In a ceremony at the Presidential Office, President Ma Ying-jeou bestowed the Order of the Brilliant Star with Grand Cordon on William Stanton and also presented him with an EasyCard to help him get around in Taipei after stepping down as AIT Director. photo : cna

relationship with Taiwan. When it’s done and the Taiwan people see it, it will remind them that the U.S. has a commitment to being here, that we care about Taiwan. I hope I’m here and can see that happen. It will be quite a striking building, giving both Americans and Taiwanese reason to be proud that it has gone up. And it will be the only time ever that a foreign representative office has been purpose-built. Any departing words for AmCham? I think the people in AmCham should be very proud of what you’ve accomplished. You bring great expertise and experience and good judgment to the business issues here in Taiwan. The White Paper is really excellent; it focuses on key issues and is really a template for what needs to be resolved. Every time it’s published, we draw on it to talk to U.S. officials, and I’ve cited it in very high-level meetings. It’s important that there’s a regular dialogue with AIT, so that you point us in the right direction and likewise that

we keep you informed as best as possible about the problems we’re facing. What prompted your decision to stay in Taiwan? When I ask people who are leaving what it is they’ll miss most about Taiwan, everybody always says it’s the people here. That’s really true. One of the great natural resources here is the cultural sort of magic. People just feel very comfortable and welcome here. That’s something the Taiwanese themselves often don’t appreciate enough. Lord knows how many places around the world we’ve wanted to see move toward democracy, to respect human rights, and to institute rule of law, a capitalist economy, and open markets. Taiwan has done all that. It is really a success of American foreign policy, and there’s a lot Taiwan can crow about and ought to crow about. Certainly when visitors come into this room, I always try to tell them why U.S.-Taiwan relations is a success story, and why everybody needs to pay more attention to it.

taiwan business topics • august 2012

8_interview.indd 36

2012/8/28 12:05:17 PM

INDUSTRY

CUS

A Special Report on IPR

Continuing Progress

taiwan business topics â&#x20AC;˘ august 2012

8_IF.indd 37

2012/8/28 12:10:04 PM

INDUSTRY

CUS

Chasing Counterfeits: Changed Evironment The center of production has moved across the Taiwan Strait. Now the problem is imports, not exports. BY TIMOTHY FERRY

IN THIS SURVEY

W • Chasing Counterfeits: Changed Evironment p38

• Music Business in a Bind

p41

• Taiwan’s Innovations at Great Risk

p43

• The View from TIPO

p46

8_IF.indd 38

hen Jeffrey Harris, head of Taipei-based investigations firm Orient Commercial Enquiries first began tracking down counterfeit products 30 years ago, the target was often Taiwan’s factories. Taiwan was in the midst of rapid industrialization, and the go-go atmosphere meant that more than a few factory owners weren’t above making a quick buck from under-the-table production runs. Counterfeit goods such as luxury brands and CDs were not only sold domestically but were exported around the world, and Taiwan was considered one of the global centers of counterfeits manufacturing. Nowadays, though, Harris says much of his work is investigating retail outlets accused of selling counterfeit goods imported into Taiwan. “Most brand holders don’t have as high an interest in Taiwan as they used to, because Taiwan counterfeits are not affecting international markets so much,” he says. “In the past, most clients were looking to shut down counterfeit exporters. Now, most are looking at the internal market.” Much of the change was due to simple economics. As Taiwan’s man-

ufacturing base migrated to the mainland, so did most of the counterfeiting operations. Along with garments and cheap electronics, two other industries that Taiwan once dominated, the island has now largely ceded its counterfeiting crown to China. Stricter laws and more effective law enforcement hurried the shift along. Harris notes that the police, led by a special IPR police unit, have taken their role in shutting down counterfeiting production operations seriously and performed the job well. In 2009, the island was finally removed from the U.S. Special 301 Watch List of nations that do not have adequate intellectual property rights protection. But IPR-related problems still remain. Online piracy of movies, software, and especially music is rampant. Meanwhile, despite Taiwan’s longstanding role as a technology center, insiders say patent disputes often seem to conclude with arbitrary verdicts that don’t measure up to international standards. Businesses, academics, and lawyers are all asking; Is Taiwan doing enough to protect intellectual property? The question divides experts in

taiwan business topics • august 2012

2012/8/28 12:10:06 PM

A Special Report on IPR

the field, partly due to its complexity. IP is defined by the Merriam-Web ster dictionary as “property (as an idea, invention, or process) that derives from the work of the mind or intellect.” Everything from scientific patents to clothing design to recorded music and books, nearly anything emerging from human knowledge and creativity, can be placed under the IP umbrella, which also means the range of violations is also wide. Goods can be counterfeited – manufactured to resemble the original (sometimes by the very same factories) but with profits going entirely to the illegal purveyors. Music and movies, on the other hand, are pirated – copied and sold or more often given away for free to viewers, with once again the actual owners of the copyright and those involved in creating the original work losing out. Other forms of IPR violation might include patent infringement and theft of engineering or other commercial secrets. The damage done by IP violations is often difficult to quantify, but it is estimated worldwide in the billions of U.S. dollars annually. Nations lose customs and tax revenues, while brands suffer from loss of trust in the marketplace when consumers purchase shoddy lookalikes. Even more disturbing is the amount of counterfeit medicines circulating around the world, while replacement parts for everything from autos to planes are also targeted. In recent years, Taiwan has taken a number of actions to strengthen its IP protection, including the establishment in 2008 of a specialized Intellectual Property Court, which thus far has heard over 6,000 cases. The court takes an array of cases related to IP, including trademark, patent, and copyright infringement (including online piracy), as well as theft of trade secrets. Streamlining the process in patent litigation has reduced the time for such cases to obtain initial judgments from three to five years to just 155 days, according to Yulan Kuo of the Formosa Transnational law firm, writing in the journal Intellectual Asset Management. Jerry Fong, a professor at National Cheng-chi University’s Graduate School for Intellectual Property, notes that “in the IP Court, every judge has much fewer cases [than in the other courts], but every

case is much more complicated.” IP violations often involve complex technological issues, where guilt or innocence is not easily determined. Hearing fewer cases should allow judges to devote more time to each case.

Tougher laws in place Laws protecting IP have also been beefed up. Thanks to efforts made by the Taiwan Intellectual Property Office (TIPO) under the Ministry of Economic Affairs, major revisions to the Patent Act and Trademark Act were recently completed to help bring Taiwan’s laws more in line with international standards. According to its website, TIPO is “responsible for the formulation of IP policy, enforcement and inter-agency coordination.” As such, the agency was also instrumental in Taiwan’s revision of its Copyright Act a few years back to provide “safe harbor” status to internet service providers, granting them immunity from legal action as long as they remove pirated materials as soon as they are notified of their existence. “From a legal perspective, our copyright laws are some of most stringent in the world,” Jerry Fong says. He notes that unlike most other countries, including the United States, copyright laws in Taiwan are a mix of criminal and civil sanctions, but fall mostly under the criminal code. Taiwan law now

punishes copyright infringement with prison sentences – up to three years for even first-time violations. Most copyright infringement cases in Taiwan are treated as felonies, whereas in the United States they are treated as misdemeanors when the resulting damages are less than US$1,000. Harris, who is a co-chair of AmCham’s Intellectual Property & Licensing Committee, says Taiwan now has adequate laws in place, and that the burden now rests with the rights-holders to bring action against violators. “You can’t demand tougher new laws on the books if you’re not going to go out and sue,” he says. D e s p i t e t h e a d v a n c e s , h o w e v e r, insiders say the enforcement and judicial process in Taiwan still leaves much to be desired. John Eastwood, an American attorney with the Taipei-based firm Eiger Law, says that judges and their staffs are still overloaded, preventing them from giving individual cases the attention they need and often resulting in what seem to be arbitrary verdicts. He describes situations in which lawyers for the plaintiff rush to provide documentation that the judge demanded be submitted on very short notice, only to find “the very next day the judge issues an opinion which clearly the judge had already written long before the documents were submitted.” He sees the basic problem as one of insufficient budget for the court. “The

taiwan business topics • august 2012

8_IF.indd 39

2012/8/28 12:10:06 PM

INDUSTRY

CUS

IP court has been so massively underresourced that the quality of the justice coming out is not commensurate with Taiwan’s status as one of the most important tech jurisdictions on the planet,” observes Eastwood. Critics also maintain that the full weight of the law rarely falls on the violator. As Jerry Fong explains, Taiwan law defines IP violations so broadly and provides for such severe punishments – penalties that often seem to far outweigh the gravity of the crime – that judges are loathe to actually sentence people accordingly. Even when defendants are convicted, Fong notes that the judge will likely give defendants a suspended sentence rather than send them to jail. “The judge is only human, and any reasonable person will agree this is not such a serious offense,” he says. Harris notes that in his experience, sentences given out for IP-related crimes are generally in line with sentences for crimes of a similar magnitude in other areas of the justice code, and often correspond to sentences meted out in other countries. He says the court cannot be faulted for failing to convict offenders. “There’s almost always a conviction, there’s almost always fine given,” he notes. Besides, he points out, “I don’t know if a guy should get put in jail for selling counterfeit goods on the internet because he may come out a worse citizen. One has to look at the whole situation.” Yet, the leniency of the sentences also means they lack the teeth to effectively deter would-be violators, and lax justice and overcrowded dockets can set off a vicious circle. “If people really went to jail, if people really had to pay lots of compensation, including lawyers’ fees, then there’d be fewer cases” and the quality of justice could be improved, argues Eastwood.

The importance of discovery Complicating the issue is the difference between common law countries such as the United States and Britain and civil law countries such as Japan, Germany, and Taiwan. In common law countries, civil lawsuits can go to arbitration more easily. Also, the discovery process requires both sides of the dispute, under penalty of

8_IF.indd 40

contempt of court, to supply the evidence needed to decide the case. Such is not the case under a civil law system. “We don’t have discovery procedures here,” explains Fong. “If you file a civil lawsuit, everything is up to you. You need to prove the infringement by yourself.” Yulan Kuo, in her article for Intellectual Asset Management, notes that IP Court judges are allowed to issue “an evidence preservation order to examine or preserve the evidence before the plaintiff files the complaint.” She says that theoretically this system works similarly to discovery procedures in the United States, but that “in practice, only 8% of applications have been granted since July 2008.” The situation means that rightsholders are more likely to seek justice under the criminal code rather than through civil procedures. In a criminal case, the prosecutor can compel the presentation of relevant evidence, taking the onus off the plaintiff. This recourse, however, clogs the IP Court with cases that under U.S. law would most likely be settled through arbitration. Eastwood notes that 95% of patent infringement cases in the United States are settled through arbitration, while almost none are settled through that channel in Taiwan. The inconsistent nature of justice in Taiwan is also cited as a problem. Jerry Fong says that in research he conducted for Taiwan’s Supreme Court, he noted that different judges often decided similar cases in very different ways. He notes the example of Taiwan’s original peerto-peer online music sharing site, Kuro. The Recording Industry Foundation of Taiwan brought a case against Kuro in 2000, but the case bounced from district courts to the Supreme Court and back again repeatedly as the case was decided, appealed, and then re-decided, with each judge giving a different interpretation of the facts and their meaning. He notes that the case took over five years before it was finally concluded. International clients seeking to defend patents are also often struck by the unpredictability of the verdicts in Taiwan, Eastwood says. He mentions cases in which a patent was enforceable around the world, from the United States to Germany to Japan, but was ruled invalid in Taiwan, for reasons unknown.

Fong suggests that the Judicial Yuan issue clearer guidelines to judges to help ensure more consistent judgments. He also recommends streamlining the IP Court’s workload by restricting it to taking cases involving “serious, forprofit infringers.” Stretching the court’s resources by hearing the current wide array of cases means “you won’t have the time to do a proper investigation,” he advises. None of these reforms appears likely to be implemented in the near future, however. Harris notes that while counterfeit goods are no longer as prevalent in Taiwan as they used to be, they can still be found in product segments as diverse as printer’s ink, luxury handbags, and hand tools. Most counterfeits originate outside Taiwan, meaning they have to clear customs. Smugglers often accomplish this by mixing counterfeit products in with actual merchandise. The workmanship is such that the goods are virtually indistinguishable, and Harris notes they might have even been made in the same factory. Of particular concern is the sharp rise Taiwan Customs has noted in cigarette smuggling, a surge that may be linked to the country’s recent anti-smoking legislation leading to higher prices for legitimate cigarettes. Harris mentions another possible factor: the deregulation of cigarette importing. Until less than a decade ago, he says, only a few large importers were permitted to import cigarettes. When the law was revised to open up the market to smaller players – some of whom fail to declare every shipment they bring in – the rate of smuggling spiked, says Harris. These illicit cigarettes represent a health hazard, he adds; while they look and taste like the real thing, and even bear authentic-looking tax stickers, they haven’t passed any quality tests or inspections. TIPO notes that many of the counterfeit goods are now entering Taiwan inside small packages sent through the mails, making it very hard to for Customs to detect – but also suggesting that such goods are coming in at a much smaller rate. The mixed negative and positive messages nicely sum up the way the anti-counterfeiting environment has been transformed over the decades.

taiwan business topics • august 2012

2012/8/28 12:10:07 PM

A Special Report on IPR

Music Business in a Bind The rise of the internet has cut deeply into the profits of the recording industry and the musicians. BY TIMOTHY FERRY

nce upon a time, the dream for many young people was to be a rich and famous pop star. Nowadays, with industry profits hitting all time lows throughout the world, they might have to settle for just fame. No other industry has been so devastated by the onset of internet piracy as music. In 1999 – just as the original peer-to-peer (P2P) website Napster was debuting – U.S. music industry revenues from sales and royalties peaked at US$14.6 billion. By 2011, that number had dropped to US$4.6 billion. The story pretty much repeated itself around the world as P2P sites proliferated. The Recording Industry Foundation in Taiwan (RIT) observes that in 1997, Taiwan’s well-developed music industry earned more than NT$13 billion (US$433 million at today’s exchange rates) in revenues. In 2011, the industry earned just NT$2 billion. The reason, of course, is the rise of the internet and the online piracy of music that has gutted profits in the music industry around the world. Industry analysts note that the vast majority of listeners get their music online, and almost never pay for it. In Taiwan, for example, revenues earned from digital sales comprise only 18% of total sales, despite the fact that most people obtain their music online. “It’s shocking,” says RIT’s CEO Robin Lin. “More and more people are listening to music on the internet, and almost all of it is illegal.” Several factors contribute to Taiwan having such a high rate of illegal down-

loading. The first is the depth of internet penetration. The website Internet World Stats estimates that 70% of Taiwanese use the internet – lower than the 80% for the United States, but more than twice the global average of 32%. Meanwhile, 75% of Taiwanese households are linked to broadband. RIT estimates that of Taiwan’s 12 million broadband subscribers, around 8 million download music illegally. Jeffrey Harris, co-chair of AmCham Taipei’s Intellectual Property & Licensing Committee, notes that because people are “unusually highly connected to the internet – especially fast internet – they rely on the internet more than in other countries, especially for downloads of large content.” The other driving factor is of course the price: free. That’s an inducement that few consumers resist, even if they know that their behavior amounts to theft from the artists. The ease of downloading music from the internet has “become their habit,” observes RIT’s Lin. “People don’t have a strong will to pay for music anymore.” Internet piracy extends far beyond Taiwan’s borders and isn’t limited to music. Online piracy of movies and software are also global problems that

Taiwan shares. The Business Software Alliance (BSA) and International Data Corp. (IDC) note that the rate for end-user piracy of business software stands at around 37% in Taiwan, lower than the global average of 42% but still resulting in annual losses of nearly US$110 million to the industry. The international black market for movies was estimated at around US$25 billion in 2011. Nevertheless, 90% of illegal downloads in Taiwan and around the world are for music, and the impact on the industry has been huge. Illegal downloading of music got its start in Taiwan with websites Kuro and EZPeer. Like groundbreaker Napster in the United States, they were platforms that allowed for P2P sharing of music, which they asserted wasn’t covered by copyright laws. As in the United States, the music industry saw otherwise and brought suit. Unlike the United States, though, where Napster was shut down by 2001, Kuro and EZPeer held on for five years before they too ceased operations. Kuro then disappeared, while EZPeer followed Napster’s lead by morphing into a paid service, eventually called MyMusic, that is a fraction of its original size. RIT, which leads the fight against online music piracy, is the local affiliate of the International Federation of the Phonographic Industry. Started in 1986 with a coming together of 11 of Taiwan’s top music labels, both local and international, RIT originally aimed its resources at pirated CDs. Later, however, as Taiwan cracked down on the production and

taiwan business topics • august 2012

8_IF.indd 41

2012/8/28 12:10:08 PM

INDUSTRY

CUS

sale of illegal disks, CD piracy gradually declined until it has all but disappeared in Taiwan. Now RIT focuses mostly on the internet realm where the vast majority of piracy currently occurs. While the organization has seen some successes, its efforts have somewhat resembled shoveling sand against an inexorable tide. Other services quickly followed Kuros and EZPeer, among them Foxy and Kazaa, which RIT also fought and eventually succeeded in closing down. Still more keep springing up, but unlike their predecessors, these sites are often located outside Taiwan, mostly in China, making it far more difficult to take action against them. Online music piracy hasn’t diminished in measurable ways, with Chinese chat and social sites often serving as the conduit for the P2P exchange of illegal music files, and industry revenues have only declined further.

On-campus piracy Even Taiwan’s government inadvertently would up facilitating online piracy. The student intranet site TANnet, sponsored by the Ministry of Education (MOE), became one of the biggest conduits for online piracy. The TANnet system is an island-wide initiative that links all of the nation’s schools into one vast network. Devised primarily as an educational resource, students quickly saw the network as an excellent way to share music and movies online. Started in 2006, TANnet boasts fast speeds and huge capacity, and by 2007 an estimated half of university students used the service to illegally download movies, while 84% had downloaded pirated music. It took three years for the MOE to improve security on TANnet, ramping up its security measures to more closely monitor and prevent illegal downloading. RIT says it continues to keep an eye on TANnet and will notify schools if offending downloads are detected. The overall problem has not gone away, though, and globally and locally, copyright holders continue the fight. Laws in the United States now allow for greater prosecution and lawsuits against violators. Internet service providers (ISPs) are also far more diligent in identifying and sending warning letters to violators

8_IF.indd 42

and will even terminate service. Harris says the U.S. laws have effectively deterred a lot of piracy. “In the U.S., if you’re a college student and you download illegal movies, for example from overseas websites, there’s a good chance you’ll get a letter from your internet company suspending your service and saying we won’t let you subscribe in the future.” After years of pressure from industry groups such as RIT and AmCham, Taiwan in recent years has adopted a series of new laws and revisions to existing laws that substantially beef up its prosecution of online intellectual property. For example, as described in AmCham’s 2012 Taiwan White Paper, in 2009 the government granted ISPs “safe harbor” from liability under the Copyright Act for online infringement by their users, provided that the ISP removes the infringing content after receiving notification from the rights-holder. Robin Lin says that the law has been very successful, achieving a 90% take-down rate. “To deal with 100 cases, before you needed to take 100 different legal actions,” he notes. “Now you just have to send one notice and 90% of the time it works.” Unfortunately, the law has no bearing on P2P-file sharing websites. As Lin explains, the content of P2P sites is not on the site itself, but rather on the PCs of its thousands of different users. “As notice and takedown implies, you need something to take down,” says Alex Chen, RIT’s administrative director. “With P2P, there’s nothing to take down.” And P2P sites are where the vast majority of music is pirated. Further, implicit in the “safe harbor” clause of the Copyright Act was the assumption that a graduated response to all copyright violations would be implemented in the form a “three strikes” rule. Following the American example, individual violators would be given two chances to clean up their act. The third violation would result in termination of the ISP’s right to operate, with no chance of resumption of service. As of now, however, details of the law remain unclear and have yet to go into effect. Lin notes that bills have been drafted that would block pirate websites, or block other websites such as search

engines and payment sites from dealing with them. This pending legislation follows similar initiatives in the United States, notably the Stop Online Piracy Act (SOPA), and like SOPA has stalled in the legislature in the face of criticism that it would undermine innovation and free speech. With regard to the “three strikes” provision, Director-General Wang Mei-hua of the Taiwan government’s Intellectual Property Office (TIPO) says that instead of amending the law to clarify the measure, it would be more effective to work out a voluntary mode of cooperation between the ISPs and rights-holders on how to deal with instances of copyright violations by users. TIPO has recently organized meetings between the two groups, and reports progress toward an agreement with Chunghwa Telecom, Taiwan’s largest ISP.

Taking to court The performance of the courts in IPR cases has also come in for criticism. John Eastwood, a lawyer specializing in copyright protection for Taipei-based Eiger Law, notes what he sees as a flaw in Taiwan’s judicial system in that “defendants are given huge leeway, but rights-holders are expected to prove their cases with information they could not reasonably acquire without violating people’s privacy rights.” That puts rights-holders at a significant disadvantage, raising the bar for successful resolution in the courts, he says. Even when prosecution is effective, the lightness of the penalties imposed on violators dilutes the impact. In nearly all cases that have been brought by RIT, for example, convicted violators received suspended sentences and were asked only to make small donations to charity in lieu of fines. Many question whether the lack of strong penalties reduces the deterrent effect of the law on would-be violators. According to Harris, one reason for the success of anti-downloading legislation in the United States is that the ISP market is dominated by just a few huge cable TV operators. These large industry players “just don’t want to get involved in litigation, which could be either civil or criminal,” he says. I n Ta i w a n , b y c o n t r a s t , s m a l l e r

taiwan business topics • august 2012

2012/8/28 12:10:09 PM

A Special Report on IPR

internet providers play more of a role, and adding to the complexity is the myriad of online chat and social sites emanating from China, which is where much of the illegal downloading activity actually occurs. Harris argues that the laws now in place are sufficient to police the internet, but the problem is enforcement – which he sees as an issue not just for the authorities but also for industry. “There are a number of laws that more than adequately address the question of internet downloads,” he contends. “The associations and the companies just have to start using them – they have to start bringing cases.” He notes that in the United States, much of the success of antipiracy legislation is due to the vigilance of the copyright-holders in monitoring the use of their material. They are quick to spot illegal downloads, he says, and will notify the IPS holders with evidence. Harris acknowledges that industry groups in Taiwan such as RIT do engage in monitoring, but that the ISP is not always responsive when notified of a problem. Eastwood says the phenomenon of convictions resulting merely in small

fines or suspended sentences for the perpetrators is not confined to IPR cases. He notes that in his law practice he sees a similar range of sentencing for IPR violations as for other sectors of the criminal code. “Besides, do you really want to send someone to prison for downloading?” he asks. Some critics of the current system maintain that the music business has simply evolved, and that different business models are needed for the industry to survive in the future. If people are given a low-cost alternative to stealing, they will take it, the critics contend, pointing to the success of iTunes. Taiwan also has similar legal websites at even more affordable prices, such as KKBox, MyMusic, and the domestic iTunes site. There are two major problems with the Taiwan sites, however. First, they are so cheap that musicians and music companies get very little revenue from them. Also, the amount of usage is very low. Robin Lin says that while an estimated 8 m i l l i o n p e o p l e i n Ta i w a n d o w n load music illegally, the two main legal music-streaming websites – KKBox and MyMusic – have a combined customer

base of only 500,000. Concerts are cited as another way for the industry to earn profits, but even here, Taiwanese bands are struggling to make money. The former practice of free concerts performed to promote an album has given way to free albums distributed to promote concerts. At the same time, though, audiences have become more demanding, wanting bigger, louder, more spectacular shows a la Lady Gaga. Producing such events entails ever higher costs, reducing profits. TV commercials and product endorsements are also ways for Taiwanese bands to make money. In a series of sultry commercials, the ever popular Jolin Tsai pushes Taiwan Beer, while workingman heroes China Blue promote Whisbee and tweener heartthrob Xiao Zhu endorses McDonald’s and ubermacho SYM scooters. Still, the industry is caught in a bind. The stricter laws on downloading only alienate the same rebellious market – teens – that might be legitimate consumers. Until a brand-new business model emerges, would-be stars might have to make do with fame over fortune.

Taiwan’s Innovations at Great Risk Measures by government and companies to improve trade-secret protection deserve high priority. BY RICHARD L. THURSTON

rade secrets are defined by Wikipedia as a “formula, practice, process, design, instrument, pattern, or compilation of information which is not generally known or reasonably ascertainable, by which a business can obtain an economic advantage over competitors or customers.” Such confidential information represents the core of industrial innovation in Taiwan. Nevertheless, the protection of those invaluable, intangible assets has been far less established in Taiwan than has been the protection given to other forms of intellectual property rights, such as patents and copyrights.

This article will discuss the current Taiwan environment for protecting trade secrets, our challenges, and what we can do about those challenges. Unfortunately, the approximately 1.3 million trade secrets generated each year by people and organizations in Taiwan are increasingly endangered. Consequently, Taiwan’s global competitiveness is at even greater risk. Such risks are created, for example, by cross-border data flows through the Cloud’s shared pools of information (crossing multiple borders at any one time). Other risks arise from the growing sophistication of technologies taiwan business topics • august 2012

8_IF.indd 43

2012/8/28 12:10:10 PM

INDUSTRY

CUS

used to obtain information improperly. And all of those risks are compounded by the absence of local uniform, transparent, and consistent laws and regulations (including judicial enforcement), without which our trade secrets go largely unprotected from misappropriation and industrial espionage. Because the constantly evolving complexity of technologies enables misappropriators to evade or avoid traditional enterprise security tools, companies must regularly add new security layers to attempt, even marginally, to keep pace with the technological capabilities and tools of misappropriators. (Even such security efforts may be ineffectual when dealing with the rapidly changing application-based world of the Cloud, especially as concerns the tens of thousands of Apps offered by Apple and Android providers for smartphone and tablet products and those offered by social platforms such as Facebook and LinkedIn). But even where security measures are successful in identifying potential security breaches, those increasingly costly protective efforts result in de minimis success when the misappropriation and espionage cases are taken to the courts, such as in a recent renowned case involving the theft of valuable MediaTek trade secrets. Without a doubt, a significantly enhanced protection of Taiwan’s millions of existing trade secrets must become a key and indispensible element of both policy and practices of governmental, academic/institutional, and corporate risk management. Idea protection, whether for agricultural, food service, medical, industrial, or high-tech goods and services, is especially crucial to the successful betterment of our quality of life. Our people’s ideas, and their ultimate capture in the value of our goods and services, are what will drive any future sustainable growth of Taiwan’s economic competitiveness. Without this prioritized focus, our businesses, goods, and services will rapidly lose value globally. Damages annually suffered from trade-secret misappropriations are huge. In one study, conducted by McAfee in 2008 of 1,000 large corporations, surveyed companies estimated an average loss per company of US$4.6 million worth of trade secrets. Similar studies conducted by other firms such as ASIS International have resulted in comparable findings, with the cumulative loss/ damage impact calculated in billions of US dollars per annum. One company alone can often suffer damages in the amount of hundreds of millions of US dollars, such as suffered by TSMC or MediaTek, or as seen in the recent Kevlar trade-secrets case where a U.S. jury awarded DuPont US$919.9 million in damages against Kolon Industries of Korea for theft of Kevlarrelated trade secrets. Beyond immediate financial harm, companies face even more intangible, less quantifiable losses, such as the loss of competitive advantage, loss of core technologies, loss of company reputation, loss of customers who no longer trust that their trade secrets will be protected, loss of business opportunities, loss of profitability and return on investment, loss of shareholder value, and loss of valuable personnel. A key point to remember is that the misappropriation of trade secrets is much more common than most of us realize, and can seriously damage, if not destroy, commercial and other values for anyone creating such intangible assets. These threats

8_IF.indd 44

wear many faces, including foreign government espionage; corporate espionage; theft by current and former employees; misappropriation by customers, vendors, partners, and consultants; misappropriation by academia through joint research projects; violations by the media; and, as we have read in recent press reports, by information brokers and hedge funds in what has been commonly referred to as “insider trading.”

What can Taiwan do? While the global legal environment for protecting trade secrets is deficient, there is not much that Taiwan can do about those international issues other than supporting corrective actions at the WTO. Without waiting for that reform to occur, however, we can and must first address local concerns here in Taiwan. There are four key deficiencies in Taiwan’s trade-secret protection: • Mobility of labor induces greater violations. Current trade secret protection laws in Taiwan do not provide sufficient protection when employees take their employer’s confidential information to a new employer, including companies located in another country such as China. For example, when SMIC hired 250 of TSMC’s employees, SMIC personnel asked each employee to bring a “small present” from TSMC – most often in the form of TSMC trade secrets. • Evidence of misappropriation is very difficult to collect and to establish. By their very nature, trade-secret violations exist in a secretive manner, making evidence hard to collect. Establishing solid proof of trade-secret misappropriation usually requires extensive litigation discovery, which recourse is generally not available in the Taiwan legal system. For that reason, in part, TSMC sued SMIC in the U.S. courts. • Criminal penalties are either non-existent or too light. As in the recent MediaTek case, offenders get off far too lightly. And legal entities that encourage the taking of trade secrets are not punishable. Furthermore, if a former employee were to flee to China after the commencement of Taiwan litigation, the case cannot proceed in abstentia, as we have discovered at TSMC in the case of the litigation against Katy Liu. • Courts conservatively interpret criminal statutes. Judges narrowly construe Taiwan’s criminal code against punishing offenders. Low civil fines and damages are inadequate deterrents. Punitive damages are relatively unheard of in Taiwan. The good news is that something is now being proactively done about these issues. For example: • Taiwan’s National Science Council held talks in February 2012 with high-tech industry leaders (including TSMC, MediaTek, AUO, and Corning Taiwan) and over 10 Taiwan authorities (including the Judicial Yuan and Ministry of Justice) to discuss the inadequacy of the existing trade-secret protection laws in Taiwan as compared with other jurisdictions. • Having concluded that the current trade-secret protection regime is inadequate, the Taiwan Intellectual Property

taiwan business topics • august 2012

2012/8/28 12:10:10 PM

A Special Report on IPR

Office (TIPO) proposed revisions to the current Trade Secrets Act for comment. • The American Chamber of Commerce in Taipei has actively supported this trade-secret legal reform. • A number of Taiwan legislators have rallied behind tradesecret reform, in some cases proposing their own reform legislation. • Taiwan’s Ministry of Economic Affairs has said it will make trade-secret reform its top priority at the next session of the Legislative Yuan, supporting TIPO’s proposed legislation. TIPO proposes the following key elements of reform: • Add criminal penalties to the Trade Secrets Act for trade secret violations – up to five years’ jail time and from NT$50,000 to NT$10 million (about US$1,667 to US$333,000) in fines. • Heighten the penalties if Taiwan-origin trade secrets are disclosed to foreign persons or used overseas. • Permit the injured party to severally prosecute trade-secret offenders. • Punish any legal entity that encourages the taking of any trade secrets. • Require every trade-secret defendant to present evidence to rebut claims of trade-secret theft.

What else should be done? All Taiwan corporations and organizations involved in innovation creation should support trade-secret legislation during the next Legislative Yuan session. Additionally, Taiwan’s companies and organizations – whether large, medium, or small – can take steps to protect their valuable proprietary information. Those efforts should be customized to meet the organization’s unique requirements. Such initiatives should include organizational, technical, and people solutions, such as: • Strengthening the organization’s internal trade-secret policy and procedures. • Installing IT systems and software with monitoring and tracking capabilities. • Establishing and enforcing controls over removable storage media within all facilities. • Imposing restrictions on the ability of employees to freely print and photocopy proprietary information. • Imposing controls over employees’ external internet/web access; • Establishing systems and procedures for the proper classification, retention, and disposal of proprietary information. • Establishing and enforcing restricted access to proprietary information on a “need-to-know” basis only. • Requiring employees at a certain job level or with access to proprietary information to sign non-compete agreements with adequate compensation. • Conducting ongoing corporate risk assessment and management; • Establishing a mandatory training program for all employees, including creating an e-Learning course on trade secret protection, such as: - Definition of trade secrets (including its key elements

and the relevant laws); - The worldwide threat of industrial espionage and the serious damages and impact caused; - What every employee should know about trade secrets; - What departing employees should know about their trade secret obligations; - The consequences of violating trade-secret laws; - Enhanced penalties for violation of corporate policies and procedures, including possible termination and criminal action by local authorities. We have entered a new era of exponential growth in risks of trade-secret misappropriation spurred on by new information technologies. This Post-Computer era requires redefinition of our laws, regulations, judicial enforcement, as well as creating new social and business structures to secure and enhance the protection of trade secrets. While Taiwan seriously lags behind the rest of the world in quality patent prosecution, trade-secret protection in Taiwan is even further at risk when compared with the rest of the developed economies. What we need today is for all Taiwanese first to recognize the importance of the protection of trade secrets to Taiwan’s economy, and then to assist our corporations, institutions, academia, and individuals to better protect their most valuable assets here and across all borders. We must expand the protection of proprietary information wherever our innovators, big and small alike, can profit from their ideas, innovations, and inventions. Of course, this must be done on a pro-competitive basis, ensuring there is a net benefit to society. We must establish more commonality and predictability in the basic approach to protecting trade secrets and other proprietary information. Now is the time to act! We cannot wait any longer.

— Richard L. Thurston is Senior Vice President and General Counsel at the Taiwan Semiconductor Manufacturing Co. (TSMC). This article draws on a Chinese-language article the author is preparing on the state of patent development in Taiwan, a speech he presented to the IP Committee of AmCham Taipei in July, and a speech by TSMC Chairman and CEO Morris Chang to the APEC Conference on Innovation, Trade & Technology in San Francisco on September 19, 2011.

Richard L. Thurston making a presentation on trade-secret protection to AmCham's Intellectual Property & Licensing Committee in July.

taiwan business topics • august 2012

8_IF.indd 45

2012/8/28 12:10:11 PM

INDUSTRY

CUS

The View from TIPO Director-General Wang Mei-hua of the Taiwan Intellectual Property Office, a division of the Ministry of Economic Affairs, recently accepted an interview with Taiwan Business TOPICS Editor-in-chief Don Shapiro and Contributing Writer Timothy Ferry. Excerpts follow. In response to industry’s call for strengthened trade secret protection, TIPO has been helping to draft new legislation. Could you explain what the new law would entail and what the progress has been in preparing it? This is something of the utmost importance for Taiwan’s R & D environment. Industry has found that the impact from the misappropriation of business secrets is a very, very big problem, much more serious than other forms of theft in terms of the value of the loss. But in the handling of trade secret cases, the courts encountered some difficulties with the law as currently written. One aspect is what constitutes a serious offense under the criminal code. For example, there are some gaps between what judges consider to be such an offense and industry’s understanding. Some sections of the criminal code call for punishment of less than one year’s imprisonment. In Taiwan, the prosecutors are less likely to make much effort to assist you in such cases. Crimes punishable by more than five years in prison are felonies in Taiwan, and those carrying prison terms of less than one year are regarded as relatively light crimes. So first, the law was not so effective to apply, and second these cases were treated as relatively unimportant ones. Plaintiffs found that in cases of stolen trade secrets, there was no way to be well protected, so we see a definite need to revise the trade secret law. As a result, in the proposed amendment we are increasing the criminal penalties, because Taiwan was rather unique in having a separate Trade Secrets Law that involved only civil responsibility. Therefore industry has hoped that we could add criminal liability. With

8_IF.indd 46

regard to the proposed criminal provisions, we have held public hearings to let everyone have the chance to express an opinion. After that, the most important thing was to coordinate with the Judicial Yuan and the Ministry of Justice to see whether they had any opinions on increasing the criminal liability. As to the progress, the Judicial Yuan and Ministry of Justice have already given us their feedback, which we used as reference in modifying portions of the draft. Now this bill has been sent to the [MOEA] Minister, and we hope that it will quickly go on to the Executive Yuan, where it will be further reviewed by various agencies. A Minister Without Portfolio will convene a meeting, which the Ministry of Justice will attend, as will the Judicial Yuan. If this process goes smoothly, the bill should be sent to the Legislative Yuan during its next session. Currently this bill is the only one designated by the MOEA as a priority for consideration in the coming legislative session. Do the Ministry of Justice and Judicial Yuan still have some concerns? TIPO has no problem dealing with purely IPR issues, but when it comes to setting criminal law, frankly we need to pay attention to their opinions. In the first round, we made some responses to their opinions. When we report to the Executive Yuan, that will also come up, and we’ll see whether through discussion we can reach a smooth conclusion. We’ll be making that effort, because the principles of criminal law and of civil law are quite different. Criminal law is more rigorous, so I hope we can persuade them. If the bill can be approved smoothly

by the Executive Yuan, we hope that the bill can be sent to the Legislative Yuan before the new session begins on September 18. A lot of lawmakers are very concerned to get the bill passed quickly, so we feel the pressure. Compared with five or 10 years ago, how has the IPR environment in Taiwan changed? What has improved and what are the new challenges? Since five years ago we have added special IPR police and the IPR Court, two excellent mechanisms. We not only hear from Europeans and Americans that they very much welcome Taiwan having a dedicated law enforcement for IPR crimes, but also from China. These few years we’ve had a lot of contact with the China mainland, and they are extremely envious that Taiwan has this kind of IPR police. Other agencies like the prosecutor’s office and the Customs administration work very well with the IPR police in carrying out the IPR action plan. We periodically check the results – we hold two meetings a year for that purpose – so we know that it’s working very smoothly. No problems. We also hope that Taiwan will continuously maintain this high-level performance. If rights-holders give us any response that they need enforcement to be strengthened, we will certainly attach great importance to their opinion. Another area in which Taiwan currently is actually encountering a comparatively big challenge is patent litigation. In foreign countries, especially in the United States, there has been a lot of this kind of litigation. Besides smart phones, it has affected a number of other industry sectors. Taiwan companies have frequently felt a lot of difficulty in being

taiwan business topics • august 2012

2012/8/28 12:10:12 PM

A Special Report on IPR sued in U.S. courts, which entails a great deal of expense. They want to gain a better understanding of American regulations and judicial procedures. In this respect, besides the help that various other government agencies can provide, TIPO recently has also been supplying reference materials to the private sector, such as explanations of how the U.S. legal system works. More specifically, for some particular cases – such as a recent introduction of the special characteristics of iPhone’s invention and design patents – we pointed out what Taiwan companies should be paying attention to. We offered some analysis for the sake of the industry’s understanding of these issues. Is this done by conducting workshops? Exactly. Through these workshops we want to let them know what they need to be watching out for. Another type of problem that Taiwan companies are encountering is how to determine what are good patents. Besides applying for a large number of patents, they need to be able to assess whether a patent is good or bad. In this respect, we tell companies it is not only quantity that matters, but also quality. In light of the competitive challenges Taiwan faces in the international market, TIPO has needed to consider what we can do to help, especially since patent examination is part of TIPO’s job. Because we have a substantial backlog of applications to handle, which means that the examination process takes a long time to complete, the government has agreed to

increase our headcount for patent personnel. We want to be faster. Currently it takes an average of 46 months to complete a case; we’d like to reduce that to 22 months by 2016. How much staff will you add? We’ve already brought in 170 new people as of March this year to staff a newly established patent search center to help us conduct searches. We hope that next year we can add another 39 patent examiners through a national examination. All of these new staff should have a polytechnic background; most of them have Master’s degrees from Taiwan universities, so their quality shouldn’t be a problem. After they start work, they will get a lot of further training. In the past few years the most urgent task for TIPO has been to clear up this backlog. We want to resolve it quickly. Since September last year we have also been cooperating with the U.S. Patent and Trademark office on the Patent Prosecution Highway (PPH) program. If the United States has approved a patent, evidence of that can be submitted and Taiwan will expedite the examination process here. This May we signed a similar PPH project agreement with Japan. The agreement with the U.S. was signed on the basis of a one-year trial, which expires next month. Because we think it has worked well, we ought to make the program permanent, and also extend it to additional countries. Taiwan has entered into an IPR agreement with mainland China, so we already have

Key participants in a recent international symposium on patent law and patent strategies included TIPO Director General Wang Mei-hua and TSMC Senior Vice President and General Counsel Richard L. Thurston, fourth and fifth from the right.

close cooperation with them in the area of patents and trademarks. That’s very important, considering that the number of mainland Chinese applications for Taiwan patents and trademarks has been increasing rapidly, and the volume of Taiwanese applications in China has been very high for some time. To r a i s e t h e q u a l i t y o f Ta i w a n patents, would you say that is the responsibility of both the applicant and the patent examiners? Quite so. The applicants need to raise their quality, and the quality of the patent examination is also an issue. That’s very important for Taiwan. It has to be a long-term development – not just to apply for a lot of patents when many of them may not be very significant. You mentioned the IPR court. How well do you feel that has been operating? Some people seem to feel that the IPR Court has not been very protective of rights-holders – that its rulings have often revoked patents. But personally I feel that the quality of the court’s decisions has been quite good and it has considered a wide range of opinions. Apparently there has been a high rate of cases in which suits were brought against defendants for infringement and then the IPR Court ruled that the patents were invalid. Consequently we did some analysis, including putting together some statistics. Simply stated, we didn’t find a problem, since in more than 10% of the cases, the two sides came to a settlement inside the court. Very likely those settlements should really be considered as victories for the rights-holders, but they don’t get counted as cases in which the IPR Court ruled in favor of the rightsholder. Rather, the data gets hidden. If you add the number of cases of settlement to the ones that were outright victories for the plaintiffs, the proportion would be about the same as in other countries, such as Japan and the United States. In handling patent cases, the IPR Court judges have the benefit of a staff of technical review officers to help them, and as a result the court is becoming more and more professional in its judgments. The situation is a great improvement from before we had an IPR Court. It’s a very positive direction.

photo : tipo

taiwan business topics • august 2012

8_IF.indd 47

2012/8/28 12:10:13 PM

s e e i n g ta i w a n

Whatever the Season, it’s Time for Tea in Taiwan

ea has been grown in Taiwan for at least 300 years, and e x p o r t e d t o t h e We s t f o r a century and a half. Long before “Made in Taiwan” products were commonplace in North America and Europe – before, in fact, Westerners thought of the island as Taiwan – tea aficionados in the United States and Great Britain were snapping up packets of “Formosa oolong.” The 21st century has seen a revival of Western interest in East Asian infusions, in particular green teas. In part, this development is because scientists over the past two decades have begun proving what practitioners of Chinese traditional medicine have claimed for thousands of years – that drinking green tea has major health benefits. Studies have found that the regular consumption of green tea can significantly reduce the risk of certain cancers. The beverage has an abundance of catechin polyphenols – especially epigallocatechin gallate (EGCG) –

which appear to inhibit the growth of cancer cells. Research also indicates that a green-tea habit can lower one's cholesterol level, and make losing weight easier by boosting one's metabolic rate.

Of course, there are many people who care not a jot what researchers say about their favorite beverage – they drink the stuff simply because they love it. Now Taiwan's Tourism Bureau has created six routes that tourists can follow to explore the island's tea-growing and tea-drinking traditions, giving those people yet another reason to visit the ROC. Two of the routes are in northern Taiwan: Pinglin and Shiding in New Taipei City, and Emei and Beipu in Hsinchu County. Two are in Nantou County in the central part of the island; one is Sun Moon Lake – a destination so well-known it needs no introduction – while the other is Lugu and Xitou, both of which are accessed via the very scenic Highway 151. In southern Taiwan, there is Chiayi County's “Tea Road,” which runs through Zhuqi, Fanlu, and Alishan townships. Eastern Taiwan is represented by the hot-springs township of Ruisui in Hualien County. All of these places are familiar to

交通部觀光局廣告 TTB AD

taiwan business topics • august 2012

8_SeeTW.indd 48

2012/8/28 12:14:07 PM

s e e i n g ta i w a n Taiwan's tea fanciers, a cohort that invests as much time and money in its passion as do France's wine connoisseurs. Almost all of Taiwan's teas – be they green or some other variety – are made from the leaves and leaf buds of the Camellia sinensis var. sinensis, a sub-species of the tea plant native to south China. Indian teas, by contrast, are made from what is variously called the Assam or Indian Tea Plant (Camellia sinensis var. assamica). In botanical terms, the vast majority of tea plants grown in Taiwan are identical. The conditions in which the plant grows and the manner in which the leaves are processed determine the character of the end product. Oolong is not a single tea but rather

a category. All oolongs are withered under the sun and allowed to partly oxidize. However, the degree of fermentation varies greatly. Notable oolongs include Formosa Wenshan Pouchong, named for what is now Taipei City's Wenshan District. These days, much of Taiwan's pouchong crop is grown several kilometers to the east of Wenshan, in Shiding and Pinglin. One of Wenshan's most popular tourist attractions is Maokong, a patch of hills where tea has been grown for generations. The best way to enjoy Maokong's scenery is to arrive by cable car; once there, visitors can hike along nature trails and sample local teas. Formosa Wenshan Pouchong is also used to make tea-flavored egg rolls and nougat, and even tea-scented soap. Another oolong goes by the name of Oriental Beauty, and is closely associated with Emei and Beipu. More fermented than other oolongs, it has a

fruity aroma and a sweet, honey-like flavor. No pesticides are sprayed on the plants because a tiny insect called the tea-green leafhopper plays a key role. It feeds by sucking juices from the leaves, stems, and buds of tea plants, subtly altering the flavor and causing the edges of the buds to turn white. As a result, some people call this tea “white tip oolong.” Oriental Beauty (a name said to have been chosen by Queen Victoria of England, who apparently had adored the tea since her very first sip) is harvested only in the summer, unlike Pouchong, which is gathered year-round. The tea is used to flavor a number of foods, including tangyuan – a traditional dessert that consists of small balls made from glutinous rice flour and filled with something sweet. Lugu's Dongding tea is an excellent example of a variety where geography is all-important. Mount Dongding (the name means “frigid peak” in Chinese) is a 743-meter-tall mountain often shrouded in fog, which helps keep the leaves tender and rich in flavor until they are picked. This kind of oolong is much sought after, and prize-winning vintages often sell for well over US$1 per gram. Anyone who studies Mandarin Chinese soon learns that what English speakers call “black tea” is known to Chinese speakers as hong cha, literally “red tea” (the leaves are a reddish brown). The Sun Moon Lake region is a leading producer of black tea – which differs from oolong is that it is fully oxidized – with around 300 hectares devoted to the crop. Locally-made black-tea ice cream has won a nearunanimous thumbs-up from those who have tried it. Ruisui, where tea plantations cover 150 hectares, is famous for a particular kind of hong cha called

Honey Black Tea. Alishan is Taiwan's most famous high-altitude resort, as well as the center of a major tea-growing region with 1,200 hectares devoted to the crop. Its Alpine Tea is a lightly oxidized oolong grown more than 1,000 meters above sea level and harvested in winter. The bright emerald-green leaves are not only consumed by drinking, but also used in the creation of exquisite fish, shrimp, and other dishes. To l e a r n m o r e a b o u t Ta i w a n ' s tea, tourists can click on the followi n g w e b s i t e : w w w. t a i w a n . g o v. t w / mp.asp?mp=12. For additional information about some of the places featured in the six routes, go to the websites of the Alishan National Scenic Area (www. ali-nsa.net), Sun Moon Lake National Scenic Area (www.sunmoonlake.gov. tw) and East Rift Valley National Scenic Area (www.erv-nsa.gov.tw). For all kinds of travel information, call Taiwan's 24-hour tourist information hotline 0800-011-765 (free inside the ROC), or go to the Tourism Bureau's official website: www.taiwan.net.tw .

taiwan business topics • august 2012

8_SeeTW.indd 49

2012/8/28 12:14:13 PM