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It looked like the coming of age for Taiwan's tech industry. In 1995, the country's Acer Inc. introduced a series of PCs that stood in stark contrast to the typical boxy, beige computers. Sleek and stylish, they came in slate black and emerald green. Sales shot up 80% in the U.S., its most important market.

But Acer, like Taiwan, is just getting the hang of innovation. As the company's emphasis on form beyond function was imitated last year by Hewlett-Packard, Sony, and Toshiba, Acer tumbled to the 10th-largest U.S. PC vendor, from No.7 in 1995. Other Taiwanese firms want to avoid Acer's missteps, but the country's government thinks the lesson is clear: The island's companies need to develop the creative gene, and fast. ''We can't enjoy success forever if we are just a good, fast follower,'' says Steve Hsieh, former director general of Hsinchu Science-based Industrial Park. ''The next stage is to develop our own technology through research.''

The Taiwanese government is trying to do just that. To foster more innovation, Taiwan is offering tax breaks and grants to push up national research spending from 1.8% today to 2.5% of gross domestic product by 2000.

Critical to the effort will be Hsinchu itself, a sprawling 1,430-acre technopark overflowing with electronics companies. Since its founding 17 years ago, Hsinchu has become the heart of Taiwan's technology industry, boasting 221 companies with 60,400 employees and revenues of some $12 billion. That has helped to drive GDP growth to an annual average of 6.3% in the past five years.

The park's origins date back to 1973 when K.T. Li, then minister without portfolio, set out to build Taiwan's version of Stanford University. He used government money to set up the Industrial Technology Research Institute (ITRI) with the mission of developing hardware and semiconductor technologies that could fuel startups. ''I was very interested in the association of [Stanford] with the tech industry there,'' Li says. ''We thought this could work in Taiwan.''

STEEP PRICE. It has. Located in Hsinchu, ITRI has been responsible for some of Taiwan's most successful companies, including United Microelectronics Corp., now a $1 billion semiconductor manufacturer. Success hasn't come cheap, though. Taiwan pays annual subsidies of $420 million for ITRI and its sister institute for software research.

Some are skeptical that the government activism that helped build Hsinchu can now spur innovation nationwide. Given their success in manufacturing, a lot of companies are reluctant to spend heavily on research and development. ''They are willing to spend money on improving production capacity, but not on R&D,'' says Chitung Liu, electronics analyst with SBC Warburg in Taipei. That formula has worked well so far, but competition from neighbors such as Malaysia and China could make that attitude as obsolete as yesterday's PC.

By Jonathan Moore in Hsinchu, Taiwan

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Updated Aug. 7, 1997 by bwwebmaster
Copyright 1997, Bloomberg L.P.
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