California's Silicon Valley has lured talent from all over the globe, and Taiwan can boast its fair share of top players in the world's high-tech capital. Who are they, and what effect has their success had on Taiwan's explosive growth?
Nearly a century ago, a large tract of land southeast of San Francisco earned the nickname "Valley of Heart's Delight," and was famous for its quality orchards. Fast-forward to the early 1970s, and most of the farms that once grew fruit had been replaced by high-tech firms producing microchips. Many of the successful enterprises in what is now known as Silicon Valley were founded by people who originally came from Taiwan or other parts of the region. In 1998, Asian-backed technology start-ups accounted for 29 percent of the area's total. Some 23 percent of the engineers working there have Asian origins, while ethnic Chinese in Silicon Valley's nearly thirty cities have established around 50 venture-capital firms and 1,200 companies.
"In the past, Chinese came to the United States to open restaurants and laundries, but that hasn't been the case at all during the last decade," says Edward Yang, a vice president of Hewlett-Packard. "From engineers to senior managers to corporate owners to professional venture capitalists, we are now an indispensable human resource for America's high-tech nology industries."
Yang himself is a prime example of the new breed of Silicon Valley's highly educated, upwardly mobile Taiwanese immigrants. He came to the United States in the 1970s to pursue advanced studies, and has been working for Hewlett -Packard for over two decades. How did this foreigner manage to penetrate the upper ranks of one of the world's largest technology companies? By acquiring the local mindset. "The common value here is that the more you fail, the more you learn, and this goes for research and development as well as business models," Yang says.
If ever there was anyone whose Silicon Valley career reads like a textbook of learning from failure, it has to be Frank Lee, vice president and chief technical officer of Cypress Semiconductor. Back in 1980, Lee, at that time working for Hewlett -Packard, came to see CMOS (complementary metal-oxide semiconductors) as the wave of the future for making static random access memory (SRAM)-based products. Although the technology promised to save energy and boost speed, few companies showed any interest in it, and Hewlett-Packard was not among them. Lee decided to leave the company and fulfill his dream of cornering a niche market.
His first venture, Integrated Device Technology (IDT), formed with two other partners in 1980, proved an enormous success. It was listed on the NASDAQ four years later and, along with IBM and HP, was nominated by Cisco Systems for a vendor appreciation award. "For a company to succeed, the market is what is most important, more important than technol ogy," Lee says. "First you look to see if the market will grow or not, then ask if you have the technology to churn out zero -defect products in record time at a competitive price."
But he soon became disillusioned with the administrative side of running an SRAM company. He missed the technologi cal aspects of the business, so in 1987 he left IDT and established Paradigm, a high-density SRAM manufacturer. This time Lee took control of all the R&D and let other people handle the paperwork. The company was successful in obtaining a number of important patents, but its capital-heavy wafer fabs brought in lower-than-projected profits.
In 1994, Lee set up his third company, Galvantech, to spearhead the production of SRAMs earmarked for data commu nication applications. He recalled the lessons he had learned at Paradigm and this time decided to go "fabless" by buying wafers from Taiwan Semiconductor Manufacturing Co. (TSMC). "We rely on their technology for cost-effective, high -quality products without having to set up expensive wafer plants," he says. The strategy worked well.
In an interesting trend reversal, Galvantech also set up operations at the Hsinchu Science-based Industrial Park in order to work closer with its Taiwanese partners and provide further support for its manufacturing, testing, and R&D activities. Around six months ago, Galvantech was acquired by integrated-circuit firm Cypress Semiconductor.
Lee sees that as a positive deal for customers, employees, and shareholders, especially since Galvantech stocks in creased in value nearly seven times after the deal. "The way to success in the high-tech world is to find a niche market, know what you are good at, and just be persistent," says Lee, who now serves as vice president and chief technical officer of Cypress's memory products division.
Only a handful of today's high-tech entrepreneurs have been lucky enough to scale the heights without suffering a few knocks on the way. Jack Chang, who immigrated to the United States with his family after graduating from high school in Taiwan, is a member of this elite. He first earned degrees in electrical engineering from the University of California at Berkeley and Stanford University, then worked for Siemens Rolm for eight years as a group manager, ending up on the team that developed the world's first voicemail system. With that already behind him at the age of thirty, Chang felt he had reached a glass ceiling and so he decided to start his own business.
In 1990, with the help of US$600,000 in seed money from two Taiwanese computer firms, he set up a corporate voicemail provider called Carmel Connection, Inc. "Here in Silicon Valley, many people think about starting their own companies, but the number who actually do it is limited, mostly because of the high failure rate with start-ups," Chang says. "But I felt I had nothing to lose. If I failed, I could just find another job, but I was confident in my technology skills, and the timing was right."
Carmel Connection did well, enabling Chang to seek a further US$2.4 million from two Taiwanese venture capital firms. He used the money to set up another company, Blue Silicon, an international unified messenger, in 1997. Earlier this year, Blue Silicon successfully spun-off its Asian operations by setting up UniCONN in Hong Kong, building it into a strong consumer messaging service for the Asian region, with over 1.5 million subscribers and network coverage of thirty cities in eight countries. Blue Silicon plans to go public next year.
"There are more than a hundred companies offering unified messaging services, so how come my company does so well?" Chang asks. "The answer is simple--our business model and technology are innovative, and our services are appeal ing." Corporate subscribers pay Blue Silicon US$10 a month for the ability to send and receive e-mail, voicemail, and fax messages through browsers, e-mail clients, fax machines, pagers, or telephones. Services such as this enable corporations to concentrate resources on their own businesses without having to spend a lot of money on creating an information infrastruc ture.
It took a long time for Silicon Valley's Taiwanese community to marry up pure research with management prowess. In the 1970s and 1980s, the decades when the valley was really starting to take off, most Taiwanese went to the United States to study engineering. Few of them showed any interest in less "sexy" subjects like management or sales and marketing. In contrast, students from China were getting involved in more diverse fields, ranging through banking, engineering, law, management, and marketing. As Silicon Valley grew, the companies that powered it found they needed not only engineers, but also money and people who knew how to manage it. The valley became a magnet for funds, to the point where it now absorbs around one-third of the United States' total venture capital.
Jim Sha, a graduate of National Taiwan University with a master's degree in computer science from the University of California at Berkeley, learned the art of brokering commercial marriages between high-stakes investors and ambitious entrepreneurs. He sits on the boards of ten companies, four of them listed on the NASDAQ, and his investments range in size from hundreds to millions of US dollars--not bad for someone who has been in the business for only a little over two years. But success did not happen overnight. Sha spent the previous two decades working for companies like Intel, Netscape, and Oracle, earning the experience that gave him the ability to attract funds and run companies. "Sometimes the advice a venture -capital firm gives isn't very practical, since most of them are so finance-oriented," he says. "Individuals like me who were involved in business operations can offer start-ups more down-to-earth advice."
Joseph Sun moved to California from Taiwan twenty years ago, and he knows all about the importance of balancing financial savvy with technical skills. Sun set up shop in the valley in 1988 when he opened E-21 Corp., an integrated marketing firm. A keen observer of the 1990s computer boom, he has seen many Taiwanese companies fail because of poorly planned marketing concepts. According to Sun, many Taiwanese businesspeople come to the United States with ambitious plans to break into the world's biggest market, only to be forced out in eventual disillusion. "Here in the States, businesses talk about market share, but many Taiwanese like to think in terms of 'dominating' the market and eliminating competitors, which is scarcely realistic," he says.
But that is not to say that North America should be ignored. It is the world's largest electronics market, accounting for one-third of the global total. "If you bypass this market, you're as good as eliminated," says Fred Cheng, vice president of the American arm of IC giant Winbond Electronics. But for Winbond, which opened its US branch in 1990, three years after it was incorporated in Taiwan, it is also a matter of being closer to customers. "High-tech products are strictly designed to customer specifications, and post-sales service is a must. It was obviously necessary for us to have a presence here."
For Cheng, having fabs in Taiwan and a base in Silicon Valley has brought the company the best of both worlds. Winbond's Taiwan operations can take advantage of ample investment capital, excellent mass-production facilities, and relatively low production costs. The advantages come mostly courtesy of the ROC government in the form of investment incentives for firms that establish themselves in the Hsinchu Science-based Industrial Park.
Cheng recognizes that the United States is one of the forerunners in technological development for memory products, wireless communications, and software programs, and Winbond's Silicon Valley office benefits from this. "When a company grows to a certain level, it must opt for globalization," Cheng says. "The establishment of our branch in Silicon Valley has helped with expansion, product lines, and technological development."
Winbond's US subsidiary did not show a profit until 1994. "The biggest lesson we learned from our years of pain is that we needed to shorten the time it took to get things to the market," Cheng says. "Research, building sales channels, and getting samples to customers for testing all needed to be done faster." Winbond's American arm duly learned its lesson, and in 1999 its sales amounted to nearly US$200 million, accounting for 20 percent of group sales worldwide. Cheng admits that Taiwan is a little slower at product development than the United States, and the island still does not have all the high-tech talent it needs, but its location in Silicon Valley has enabled Winbond to offset Taiwan's shortcomings by recruiting topnotch people and transferring technology back to the island.
Cheng points out that the biggest difference between Silicon Valley and Taiwan's Hsinchu is that the ROC government took the initiative in the development of the island's high-tech industry. "What's special about the US is that the government takes a back seat, working mainly to supply the infrastructure," he says. "The industrial sector is left to develop on its own, but I think what's most important for the development of a country's high-tech industry is basic infrastructure, not protective policies. Taiwan needs to address its electricity and water problems, if it wants to reduce unnecessary losses and maintain competitiveness."
Despite these reservations, many Taiwanese companies have managed to join the league of world-class technological giants. Taiwan Semiconductor Manufacturing Co. is a prime example. When the company was set up in 1987, a decision was taken to forgo design and concentrate on foundry operations, a move many considered risky at that time. But the company's hunch proved sound, and TSMC currently accounts for 45 percent of the world's semiconductor foundry business.
Does having a presence in Silicon Valley help? "As far as the foundry business is concerned, close cooperation between sales offices and customers is of great importance," says Lai Pan-wei, vice president in charge of business management at TSMC North America. "It's through this office that we can better understand what our customers need, and at the same time help them understand our capabilities."
The company estimates that its insight into its customers should translate into worldwide net income of US$2.1 billion this year which, if achieved, will represent an increase of 160 percent over 1999. The company's Silicon Valley branch is set to account for 58 percent of that. "Our customers' needs have become greater and greater," Lai says. "Growing as fast as they do has been our biggest challenge."
This is a business where commercial success, however impressive, rarely translates into fame. TSMC may be an inter national leader in the semiconductor foundry business, but it is not exactly the first company that pops into the minds of North Americans when asked to name a major IC manufacturer. Many of Taiwan's best high-technology companies remain largely invisible to everyone except industry insiders.
Scanner maker UMAX Technologies is one Taiwanese company that managed to break the mold. Seven years ago, scanners cost US$700-800 and were far from being household appliances. In an effort to position itself in the US market, UMAX decided to concentrate on manufacturing affordable, user-friendly products. As a result, its scanners are now priced at around US$120 and can be purchased at many major warehouse stores. The company believes that the key to its success is product reliability. One roadblock many Taiwanese companies face is the consumer protection Americans enjoy, reflected in the country's "return and refund" culture. "It takes a lot of work to impress customers with a new brand, but the most effective way is to emphasize its quality," says Tenny Sin, executive vice president of UMAX.
Another lesson the company learned was the absolute necessity of forging cooperative links with large chain stores. "The building of appropriate sales channels is a task that never ends," Sin says. The company has expanded its market share from a mere 2 to 3 percent seven years ago to its current 26.7 percent, and now it lags behind only Hewlett-Packard in the United States' scanner market.
UMAX is another Taiwanese success story, taken from a very big book that records its fair share of failures also. But setbacks are unlikely to faze entrepreneurs who grow up in a culture of small- and medium-size enterprises--a culture where, if something doesn't work, it is quickly replaced with something that does. As long as the opportunities are there, Taiwanese will find a way of maximizing them. "The United States features the world's freest society. If you have determination, you will surely find a niche here," says Hewlett-Packard's Edward Yang, and Taiwan's high-tech gurus have certainly found their own niche. They now look set to become one of Silicon Valley's most reliable resources for years to come.