BUSINESSWEEK ONLINE : NOVEMBER 27, 2000 ISSUE
INTERNATIONAL -- ASIAN COVER STORY Minds over Matter (int'l edition) To combat industrial flight, Taiwan must transform itself into a knowledge economy Over the past five years, First International Computer Inc., like many Taiwanese electronics companies, has been moving its production to China. The PC and peripherals maker now produces most of its motherboards on the mainland and is building an industrial park in Guangzhou that will make everything from PCs to Internet appliances. Is there anything FIC doesn't make on the mainland? Well, it still does research and development in Taiwan--but maybe not for long. The company thinks China has enough talent to handle that as well--at a third of the cost. Before long, FIC's sole Taiwan presence may be its headquarters. And many of its corporate counterparts may follow it across the Taiwan Straits. This is one of Taiwan's worst nightmares. While it survived the exodus of its shoe, toy, and sporting goods factories in the 1980s, the loss to China of high-tech manufacturers is worse. Taiwan weathered the Asian financial crisis of 1997-98 thanks to its role as a manufacturing center for the likes of Dell ( DELL), Compaq ( CPQ), and IBM ( IBM). But even then, a relentless hollowing-out of the industry had begun. Last year, only half of Taiwan's $40 billion worth of PCs, peripherals, and semiconductors were made at home. Now that China is taking over that role, Taiwan policymakers hope to marshal the island's brainpower, entrepreneurial skills, and capital to build an economy of ideas--specifically in software and biotech. ''Taiwan does not have any choice,'' says Stan Shih, chairman and CEO of the island's top PC maker, Acer Group ( ACRRF). By decade's end, Shih wants Chinese-language software to account for a third of profits. COLLEGE TRY. To facilitate its ambitious transformation, the government is pouring hundreds of millions of dollars into research facilities and industrial zones. Last year, it opened a software park outside Taipei; a biotech park is to open next year near Hsinchu, where Taiwan's high-tech industry started life in the 1970s. University budgets are up 11% this year. And the government plans to boost R&D spending from 1.9% of gross domestic product to 3% in 2010, compared with 2.7% in South Korea and 3.2% in Japan. ''We hope [universities] will become the centers for knowledge transfer to industry,'' says H. Steve Hsieh, vice-chairman of the National Science Council. The government also is throwing money at companies. The state-backed Industrial Technology Research Institute (ITRI) has invested in several new startups. One is U-Vision Biotech Inc., a company that specializes in tests that divine genetic predisposition to a variety of diseases. Jerry Huang, U-Vision's chief operating officer, says Taiwanese biotech startups can get world-class scientists for half the salary paid in the U.S. But Taiwan will need more than just a cost advantage. That's why some companies are trying to leverage the island's manufacturing prowess and its ties to Silicon Valley. Earlier this year, Terry Chen, 41, launched a Silicon Valley startup, Timogen Systems. It makes supply-chain management software that integrates multinationals with their Asian suppliers. Two-thirds of Chen's 60-member staff works in Taipei. Why? Because, he says, Taiwanese ''know how to manage manufacturing better than anybody else in the world.'' Likewise, researchers at ITRI's Hsinchu labs are trying to develop biochip products that build on Taiwan's prowess in semiconductor fabrication. It's all encouraging--yet Taiwan faces daunting odds. For starters, South Korea, Singapore, and China also have software and biotech ambitions. And the latter is a notoriously difficult business. Moreover, while Taiwan's software industry is likely to grow 25% this year, the hardware business is 10 times the size. Despite their past successes, the Taiwanese may find their edge in hardware manufacturing won't easily translate into the new knowledge industries. By Bruce Einhorn, with Macabe Keliher, in Taipei _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS Asia's Future (int'l edition) COVER IMAGE: Asia's Tech Future TABLE: The Tech Future Beyond the Lab (int'l edition) CHART: Startup Explosion The Chips Are Up (int'l edition) TABLE: Betting Big Chasing the Dream to Shanghai (int'l edition) Minds over Matter (int'l edition) CHART: Going, Going... A Biotech Hub (int'l edition) CHART: Genetic Express Rewriting the Rules (int'l edition) TABLE: Vietnam's IT Plan INTERACT E-Mail to Business Week Online

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