Taiwan is the best-kept secret of the global computer industry. Not many people know the extent to which this island dominates the global value chain of the computer hardware industry.
Yet it is difficult to find a single computer assembly anywhere in the world that does not employ at least some part of it as ?Made by Taiwan? brand. That is easy to understand when one looks at the percentage of the global manufacture this nation of 23-million dominates. Taiwanese companies prepare 99% of the world motherboards and control over 86% of the notebook market. That means the island produces a notebook every 0.5 seconds!
Some of the Taiwanese companies are the top two or three global manufacturers of these products, or they are the silent back room boys, working as the original equipment manufacturers (OEM) for companies like Lenovo, Apple, Dell, HP and Sony.
?The output of just the Taiwan semiconductor industry is pegged at $48 billion in 2007,? says Yuen-Chuan Chao, president and CEO, Taiwan External Trade Development Council (TAITRA). To put it in perspective, the entire Indian IT industry is about $ 50- billion in 2007.
How did this occur? The success formula is worth understanding because Taiwanese companies, unlike the US and the Europe-based companies, developed from small-scale ventures in government labs and garages. A look at their massive scale of operations could also throw up some valuable lessons on why Indian companies missed the bus, especially those in the electronic sector.
Strangely it is the country?s government, which played a key role in getting the act together. This was especially true for very high-tech companies. For example, TSMC and UMC, the world?s two largest semiconductor foundries (i.e. contract manufacturers) were both spun out of the island?s largest high-tech research institute, called the Industrial Technology Research Institute (ITRI).
The institute receives roughly half of its budget from government projects and sources to refine and improve production processes, then passes this knowhow to the Taiwan industry. In fact, ITRI conducts research only in industries and areas, where it can create true production value (as opposed to pure research).
In fact, Nicolaus Wilk of Golin Harris?the agency which works closely with TAITRA?says the country innovated the foundry model, a contract production process, opening up the door for fabless design houses (without fabrication production plants) where chips of iPods are crafted today.
However, contrasting some of these high-end technology companies were the companies that begun as small enterprises in the late 1970s and early 80s. Acer Inc was founded in the garage of Stan Shih, following in the path of many well-known Silicon Valley IT companies. Acer has now grown to become the world?s fourth largest PC brand, and is looking to overtake Lenovo to become Number 3 in the future. Many other companies have followed this model, starting as a group of engineers from a larger western or Taiwanese company that focus on one particular area and grow to strength.
It was about the same time the Indian electronics industry was developing its muscles, seeking to recreate the products from abroad. But the key difference was that the Taiwan government decided it had to take on global competition head on.
The Indian government fell for the bait of infant industry and created a protective cocoon, from where our Indian companies could never emerge. When the markets were forcibly opened by the multinationals in the 1990s, the domestic companies simply got wiped out. But the Indian software companies, who also took on global competition a la the Taiwan model, scripted a similar success story.
To return to the Taiwan story, their companies got their start in the 1980s, but really grew in the 1990s as international demand rose. A cheap production base, economies of scale, and willingness and ability to make anything proved to be a winning formula. So as a logical development, the companies shifted up a gear from OEM (contract manufacturing) to ODM (contract design & manufacturing), and now a shift to ?knowledge-based economy? and own brand manufacturing (OBM).
What is the scale of that development? As of today, the island has four billion dollar plus companies in Trend Micro, Asustek, Acer and HTC, with several others snapping at their heels.
So where do the winners spring from? As the Taiwan story shows, the essential factor is to keep the story simple. For instance, in 2002, its ministry of economic affairs devised a six-year economic plan, that just identified two goals and two key industries with the slogan??Two Trillion, Twin Stars?.
The result?its semiconductor and flat panel display industry output value has reached New Taiwanese dollar 1 trillion apiece. The postscript: the island is now developing its two new stars?biotechnology and digital content industries, identified as its future growth primers.