Early last year, two government bodies—the Institute for the Information Industry (III) and the Industrial Development Bureau (IDB)—jointly worked out a five-year plan projecting yearly output of Taiwan's information industry for US$4.6 billion by the end of the 80s. Of the projected figure, which is two percent of the estimated world market, US$700 million applies to the software segment, with domestic sales and exports splitting the amount down the middle.
Calendar year 1984, in contrast, racked up a minimal score for the software sector. Its annual generation was merely US$10 million, hardly off the ground, while its hardware counterparts shipped a record US$1 billion of goods to the international marketplace—reflecting a growth rate of more than 180 percent over 1983. The export percentage generated by the local software companies was negligible.
CMS President Nelson An-ping Chang.
Even with the "Big Five" in software—an integrated package of five major programs (including a Chinese-language word processing system, an electronic calculation sheet, a file management program, a graphics system, and a communications system)—thee pace shows no sign of pickup. Developed jointly by III and 13 local leading computer manufacturers, the programs are intended to support the export marketing of Taiwan-made computers and nurture local software production technology. Considering the track record to date, it is not surprising that computer industry insiders are not wildly optimistic. The original projections envisaged export of 26,000 sets of the packages in company with locally-manufactured computer hardware products this year.
In fact, many insiders are skeptical that the situation will have changed enough by 1990 to approach the official US$700 million target. "The government goal for the software industry now appears too high," opines Andrew Chen, manager of Sertek International Inc., a leading ROC software house. According to Chen, the industry is troubled by three major problems: the absence of sincere cooperation between software and hardware companies; the locally-prevalent, "incorrect attitude" down-grading the value of software; and a tendency to copy.
"Computer hardware development always leads software," said Chen, "but sound software programs can help to perfect the computers' machine functions and thus promote their development and use. The segments, in reality, supplement each other's development."
Sertek manager Andrew Chen.
But hardware and software manufacturers only reluctantly cooperate, and this has significantly inhibited development in the software sphere, he said. "Software companies are afraid of being entrapped—betrayed—by their burgeoning, better financed hardware counterparts; hardware manufacturers, in turn, fear being mired down, should it happen that the software houses get into financial hot water. This mutually-suspicious attitude is in sharp contrast to the harmonious cooperation between hardware and software in software innovating countries."
Another major obstacle, Chen noted, is that the local computer market does not appreciate the value of software, and end users do not really understand the function of the software or know what kind of software they really need. Many end users tend to view software as merely an accessory to computer hardware, particularly in the area of microcomputers. They are, hence, unwilling to pay reasonable prices.
While customers do and have paid higher prices for custom-made software, failing to sufficiently understand the possibilities and limitations of software, more often than not, they end up in disputes with the software houses: they expect the software firms to meet their demands beyond the capabilities of the involved hardware.
A third roadblock, perhaps related in some degree to people's concepts of software, has been the practice of copying existing software programs. "Such malpractice handicaps software industry development both by scaring off sizable investments in R&D here, and by precluding sales of such production on the international market," Chen stated. As a result, he added, the distributors find no reasonable profit margins in software sales, and the customers, consequently, do not receive satisfactory after-sale services—a vicious cycle afflicting this country's software industry.
III President Irving Ho.
III President Irving Ho, however, attributes the current stagnation in software industry development mainly to the fact that the industry has yet to build up the requisite goodwill for its products in the world marketplace—the only arena in which Taiwan's software industry can thrive. He contends that the ROC software industry has achieved an acceptable level of design capability over the past several years: "But, we have to let foreign buyers know what we can produce before they will lay in orders for our products."
The establishment of such goodwill requires the joint efforts of government and the private software houses. A priority prerequisite is perfecting the local infrastructure.
Currently, relative to domestic market size, the industry is overburdened with companies—more than 100 software houses. And, even worse, most of them are under-capitalized. According to the latest III survey, over half the local software firms have a paid-in capital of less than US$1.25 million.
Avers Nelson An-ping Chang, president of China Management Systems Corp., Taiwan's leading software house, "Software is, by and large, a capital and technology-intensive industry. Small enterprises are not likely to run a software business well." And obviously, the situation has frequently resulted in vicious competition among the small companies, obstructing development of the industry.
The government has encouraged mergers among the small concerns to ease the problem. The outcome has been disappointing, however, and Ho says the government's alternative is to push cooperative ventures among manufacturers on a project basis, and he gave the "Big Five" software project as an example. "The ROC, after all, is a free country. The government cannot mandate amalgamation of private companies," he added, a bit wryly.
The CMS offices.
Government policy is now concentrated on upgrading the software industry's technological level, according to Ho. In order to encourage the development of unique products, IDB has set up matching funds to help finance promising private software projects: If a venture is successful, the software company is obliged to return the IDB investment; if the project fails, return payment is excused.
The Ministry of Economic Affairs, in an attempt to assist the software industry to open up international markets, is now considering establishing a US$2.5 million market development fund to assist local software houses in overseas marketing research.
In the private sector, Multitech Industrial Corp., a leading local micro-computer manufacturer, last May set up Multisoft Co., the first comprehensive software distributor in this country; Sertek manager Chen serves as its director.
Multisoft offers a wide spectrum of· both locally-made and imported software, including operating systems, language processing, and system utilities and application systems—all copyrighted products. It also provides consulting services to potential customers, advising them on combinations of software and hardware to best suit their needs. According to Chen, Multisoft's two major goals are to promote Taiwan-produced software products domestically and abroad, and to promote software copyrighting in this country. "We view ourselves as a pioneer in legitimizing Taiwan's juvenile software industry," Chen declared.
To boost domestic sales, Multisoft is building an island-wide sales network—Infoland, comparable to the U.S. Computerland. To date, 20 Infoland stores are in business; a total of 50 to 60 is the final vision.
The ROC does enjoy potent edges in developing a software industry. A major boon is the country's pool of well-educated, highly-dedicated talent. For a populace of 19 million, the ROC supplies 100 public and private universities and colleges, 42 with departments or programs in the computer sciences. Thus far, the education system has turned out more than 11,000 graduates for the computer industry, and 7,800 more are in the active pipeline. In addition, a large portion of the 5,500 ROC students annually leaving for study abroad are choosing the computer sciences as their major field of study. Pointed out Ho, "We enjoy a higher ratio of engineering and computer science graduates to population than in the United States."
Another competitive advantage is in the lower costs of talent here. Although software is a both capital and technology-intensive industry, wages account for a large portion of basic costs. This points up the magnitude of competitive advantage, since a qualified engineer on Taiwan is paid one-fourth as much as in the United States.
Local companies also enjoy an obvious developmental vantage for Chinese "alphabet" software—important throughout the Far East. As Chen see it, "The unique characteristics of pictographic Chinese characters is actually both a liability and an asset to us. It has cost us a great deal of effort and resources in R&D to apply Chinese characters to computers, but that has also offered the local computer industry a harbor, to some extent protecting a major product line from relentless foreign competition." Future technical advances in Chinese-language software could assure for the local industry, a huge potential market, he adds.
Looking into the future, Ho sees the world software market as "a rapidly expanding pie."
"IBM last year reported a turnover of US$46 billion, a figure projected at US$100 billion in 1990, US$185 billion in 1994. Notably, if that multinational computer giant is to achieve its goals, it will have to rely on software products.
"I, for one, am thus quite confident that ROC software will fulfill its US$700 million target by the end of 1989," he continued. "Over recent years, experts of ROC electronic and computer hardware products have increased by leaps and bounds. I believe ROC software will grow likewise through the remaining years of this decade." He acknowledged, however, that local software houses will have to devote more effort to both R&D and marketing before that occurs.
Less optimistic, China Management Systems' Chang maintains that the future hinge of Taiwan's software industry pivots on the prospects for success in the efforts of local companies to develop significantly advanced products and to acquire sufficient marketing expertise and build their own marketing networks in the international arena. "It takes time, effort, and money to open world markets," Chang stressed. "Taiwan software may well take a neat slice of the world pie, but no way in the foreseeable future."
Chang suggested that an improved situation would result if the government would contract out its big projects to private software companies, rather than entrusting them to government-sponsored institutions as it does now. That would help the technology take root in the industry, he said.
He pointed out, also, that while the ROC has a great number of basic computer programmers and other technicians, it is short of talent in planning, management, and marketing. He proposed enhanced cooperation now with foreign computer firms, to learn from their management and marketing experience.
Also, looking at software from a rather different angle, Chang indicates it could and should play a more significant role in this country's economic development than just boosting overall export figures. He maintains that Taiwan's software industry should focus on helping other local industries boost their productivity by streamlining management and operational functions.
"If we let software here give full play to its basic function, that will be far more important to us than a few hundreds-of-millions in software exports," Chang said. "The key market for our software industry should be right here in domestic sales, not overseas. I just don't understand why so many people focus on the world market as the fundamental home for our software."
Whether Taiwan's software industry will achieve the formidable official goals by the turn of the decade remains to be seen. But it seems safe to say that if software is to play a more essential role in future ROC economic development, the ferment now suffusing the industry will have to be more appropriately channeled by both the government and private sectors.