Taiwan Today

It could have been Patrick Wang's response to mid-life crisis. At the close of the 1970s, the microwave engineer and R&D manager at Hewlett Packard in San Francisco was in his early forties, and was beginning to evaluate his life and career. He had left for the U.S. in 1963, soon after graduating from National Taiwan University with a major in English literature, to study electrical engineering at Stanford University.

Seventeen years of hard work and striving had passed between the completion of his master's degree and his present position at the major American corporation. He was making a good salary, and owned his own home in north San Francisco. He had everything that young people back home in Taiwan longed for. But in his heart, Wang was agonizing about his future. He had accepted that, as far as his career was concerned, advancement was limited. Yet he could not resign himself to merely waiting for retirement. He knew there was a new opportunity out there for him.

Then he heard that Taiwan was recruiting overseas Chinese scientists and engineers to participate in establishing hi-tech industries in the Hsinchu Science-Based Industrial Park outside of Taipei. He discussed the possibility of setting up at the park with seven overseas Chinese friends, all of whom were microwave engineers working at noted electronics companies in San Francisco. For the next two years the friends plotted their return, growing increasingly confident about their plan to sow the beginnings of Taiwan's microwave industry. The U.S. microwave industry itself was just emerging, and was showing promising market potential. But production entailed large numbers of technical workers; exactly what Taiwan had an abundant and cheap supply of.

In 1982 the group made its decision to return home. The stakes were extremely high. They had to give up their handsome salaries and benefits. Not only did they chip in with their life savings, they were also going to borrow heavily from Taiwan banks upon their return. They also had to persuade their wives to abandon their comfortable suburban lives in the U.S. An additional concern was whether their children could fit into Taiwan's educational system.

Fortunately, the industrial park project included assistance in securing capital from government-run financial institutions such as the Bank of Communications, the China Development Corporation, and the Development Fund of the Executive Yuan. Together, these institutions as shareholders contributed 40 percent of the new company's NT$50 million capital (approximately US$1.25 million at the exchange rate then). In November 1982, Microelectronics Technology Inc. was formally established in the park, with Wang as chairman. It began operation that following July.

Initial difficulties went far beyond the group's expectations, although they had divided the areas of engineering, management, finance, and marketing among themselves. The absence of support industries contributed to problems in product development and manufacturing. Marketing proved even tougher. Most of the foreign buyers Microelectronics approached refused to believe that Taiwan had the capability to manufacture micro wave products. "We had no place to return to," says Wang. "So we worked desperately hard, typically sixteen hours a day, to achieve a breakthrough."

The staff rejoiced when finally the company shipped the first batch of 200 units of satellite TVRO (television receiving only). The TVRO is the key component in TVRO-DBS (direct broadcasting system), the receiver for satellite TV programs. But the celebration had hardly died down when the message arrived that the shipment would be sent back. The units had failed to meet quality standards. It was a hard blow, but it led to more stringent quality control.

A strong boost came in 1986, when Hewlett Packard became an investor, contributing 22 percent of the company's capital. According to Wang, Hewlett Packard's involvement was critical in gaining greater credibility for the quality of the company's products. Today, Microelectronics Technology Inc. is a world leader in the microwave industry. Its satellite TVROs occupy 50 percent of the world market. It is listed on the Taiwan Stock Exchange, with current paid-in capital standing at US$28 million, and a market value of US$480 million as of October 1991. The company has 800 employees, including 120 R&D engineers. In 1990, it registered a revenue of US$64 million, and an after-tax net profit of US$10 million. R&D spending for that year topped US$6.4 million.

Products developed by Microelectronics literally made world headline news. At the 1990 summit meeting between President Bush and President Gorbachev in Malta, the TCS-2000, a satellite communications system, was in stalled on the United States flagship. And during the Gulf War, when all external communication lines from Iraq were cut off, CNN correspondent Peter Arnett in Baghdad relied on Microelectronics's portable satellite telephone to transmit news of Iraq to the outside world. The telephone weighs only 30 kg and retails for US$50,000.

The history of Microelectronics makes for an impressive success story. But it is also the story of many of the other startups in the park, and is a typical example of the role that returning overseas Chinese professionals have played in building the success of the Hsinchu Science-Based Industrial Park. These returnees have contributed immensely to making the park the showcase of Taiwan high technology, and to directing the island's industrial development.

The idea of setting up a high technology industrial park was conceived by the ROC government in the late 1970s. It seemed to be an imaginative yet promising solution to breaking the bottleneck that international protectionism and growing competition from developing countries had caused in the island's labor-intensive industries. Hsinchu city, an hour's drive from Taipei, was chosen as the site because several leading scientific and industrial institutions were already situated there, among them National Tsing Hua University, National Chiao Tung University, and the semiofficial Industrial Technology Research Institute. The presence of these institutions assured a ready supply of scientific and technical personnel. The city was also only a forty-minute drive away from the Chiang Kai-shek International Airport.

In December 1980 the park was formally opened, with only seven companies occupying the grounds. The National Science Council, an organization under the Executive Yuan whose primary role is to encourage scientific and technological development, supervised the overall development of the park. Its responsibilities continue to include financing the construction of the park's infrastructure and public facilities, and screening applications from companies wishing to set up factories in the park. The Science Park Administration runs the daily administrative affairs of the area.

At the initial stage, investors were reluctant to throw in their lot with the hi-tech startups. Used to labor-intensive industries, they viewed the hi-tech companies as too adventurous an investment. The park consequently designed an attractive incentive package. Among its provisions were a four or five-year tax holiday; government participation, through institutions such as the Bank of Communications and the Development Fund of the Executive Yuan, of up to 49 percent of the capital needed; lower business income tax; accelerated equipment appreciation; and tariff bonding status for exports. Park representatives also went to the U.S. to entice overseas Chinese managers and engineers to return and set up their own companies in the park. The response was good, especially among the overseas Chinese engineers who make up 30 percent of the total number of engineers working in Silicon Valley.

By 1987 it was clear that the Hsinchu Science-Based Industrial Park was going to make it. The number of companies increased to seventy-nine, from fifty-eight in 1986. Their total revenue jumped to US$947 million, an almost 60 percent jump from the US$597 million recorded just the previous year. The number of employees also soared to 12,000 from 7,300 in 1986. Says Hsia Han-min, chairman of the National Science Council, "The park developed like a venture capital firm, which normally needs five to six years for business to take off."

Today, the park has become an internationally recognized center for hi-tech industries. Its companies continue to sustain exceptional revenue growth, in contrast to the mainstream labor-intensive industries, which are struggling uphill against soaring labor costs and the steep appreciation of the NT dollar. Located on a tableland of almost a thousand acres, the park as of October 1991 had 134 companies, with a total paid-in capital of US$1.8 billion and 22,000 employees. Growth has been astounding. In 1990, total revenue was US$2.4 billion, but by the first half of 1991, it increased by 34 percent to US$1.46 billion.

Based on 1990 figures, computer and computer peripheral manufacturers dominate the park, with forty-four companies, total capital of US$480 million, and US$1.4 billion in total revenue. The integrated circuit (IC) sector comes second, with thirty-five companies, total capital of US$1 billion, and total revenue of US$540 million. The telecommunications industry takes third place, with twenty-three companies, total capital of US$160 million, and revenues totaling US$420 million. Optical electronics follows, with sixteen companies, total capital of US$60 million, and US$40 million in total revenue. Ranked fifth, the automation industry has twelve companies, US$36 million in total capital, and US$29 million in total revenue. The park also has four biotechnology companies.

The computer companies in the park now account for 60 percent of Taiwan's PC production. Last year, they turned out 2.5 million PCs, or 10 percent of the global output. They have contributed to making Taiwan the sixth largest producer of information products. All of Taiwan's output of ICs, the central component of the information industry, comes from the park. Increasing investment is expected to bring Taiwan up to the fourth or fifth ranking among the world's largest producers of integrated circuits.

In fact, many of the companies in the park hold ranking positions in their areas of specialization. Logitech Far East Co. Ltd., for instance, fills up 50 percent of the world's mouse market, while Guts Inc. occupies 70 percent of the world market for hand-held scanners. Microtek International is the world leader for computer emulators. Its color scanner, Tecom's private telephone switching system, and E-Tech's high-speed modem, occupy niche markets and have won various international awards.

The park's growing success has achieved recognition overseas, and serves as a model for hi-tech parks. In recent years, it has been the subject of features that have appeared in the New York Times and the Wall Street Journal. BBC, ABC, and NHK have also done stories on the park. H. Steve Hsieh, director general of the Science Park Administration, reports that the vice president of Moscow University, which is planning to set up its own park, was a recent visitor. He adds, "The International Association of Science Parks has 230 members. Our park stands out in terms of number of companies and employees, and total revenue. Many science parks are primarily research oriented, and consist of mainly research institutions."

The companies at the Hsinchu Science-Based Industrial Park have made substantial contributions to the island's industrial development. They brought in hi-tech industries to the Taiwan economy, and continue to give technical assistance to over 400 support factories outside the park. And more important, personnel turnover has resulted in technical skills and management dissemination, raising the island's overall industrial level. The park has also led to increased interest among local companies to invest in hi-tech lines. Says Hsieh, "Many big companies involved in labor-intensive production have begun to invest in the hi tech field. For example, Walsin Lihwa Electric Wire & Cable and Hualon Corporation have recently made huge investments in ICs, and a large footwear manufacturer has just established an optical electronics firm."

The success of the existing firms and the park's worldwide fame have attracted more investors and companies to the park. "We have reached the point where the park is propelled by its own momentum," says Hsia Han-min of the National Science Council. But other factors count more than the handsome tax incentives the park offers. Companies come because of the park's efficient administration and the extensive support services it offers. For example, banking as well as customs clearance procedures can be done at the park. The companies can also secure subsidies allocated by the Science Park Administration, which in FY 1991 (ending in June 30,1991) spent US$1.9 million for that purpose. The administration also sponsors training programs in optical electronics, sub-micron IC, and telecommunications technologies, and in management techniques. Moreover, an address in the park lends to a company's product reputation.

The park is a community within it self. Standing on its serenely landscaped grounds are a post office, staff dormitories, clinics, sports facilities, a supermarket, restaurants, a theater, and schools from kindergarten to senior high with classes in English and Mandarin. An artificial lake provides recreational fishing and picnic grounds. A Chinese-style garden was just completed early this year. But most important, the concentration of so many outstanding hi-tech managers and engineers has made the park a conducive environment for invention and competition.

Returning professionals have played an essential role in the park's success, founding sixty-eight of its total 134 firms. The majority of the entrepreneurs came from the San Francisco Bay Area. Aside from Microelectronics, other internationally renowned firms in the park such as Microteck, Tecom, and E-Tech were established by the young men who in the 1960s left Taiwan as students and stayed on in the U.S. to pursue their careers. Patrick Wang of Microelectronics believes that, with their veteran experience in the hi-tech field, the returnees have contributed not only by introducing new technologies. They have also given direction to product development and brought in innovative production methods for hi-tech industries, as well as more sophisticated marketing strategies.

Hower Tong, chairman of Microscience International Ltd., a producer of hard disk drives, describes the early days. He says: "When we set up our company in the park in early 1987, there was no hard disk drive industry in Taiwan. We had to translate the technical materials and production procedures into Chinese. We had to train our own technical staff. The factory we had contracted to forge the parts could not meet our requirements, so we stationed one of our engineers at the factory for six months to maintain quality control."

The park continues to attract larger numbers of overseas professionals, who have come to set up their own companies or join existing ones. At present, there are 600 returnees working in the park, 166 of whom came back in 1989, and 136 in 1990. They have returned for a variety of reasons, but are primarily encouraged by their predecessors' successes.

Among the other factors returnees cite are the maturity of Taiwan's industrial environment for hi-tech industries. Technical personnel and capital are relatively easy to acquire, and support industries already exist. And in contrast to the recession in Silicon Valley, Taiwan seems to offer a bounty of opportunities. Moreover, the appreciation of the NT dollar has narrowed the salary gap between Taiwan and the U.S.

Miin Wu, president of Macronix International Co. Ltd., for instance, says he had foreseen that IC production would gradually shift to the Far East. "So I approached a Taiwan-based venture capital firm," he says. "I managed to win financial support to set up a company that will introduce IC design technology into Taiwan."

Kin and cultural links are also a powerful draw. Says Hower Tong of Microscience: "In a U.S. company, Chinese engineers can only climb to a certain level before they begin to face difficulties limiting the development of their careers. Often they are caused by the language barrier, cultural differences, and the lack of a place in the social network. So when opportunities open up back home, they naturally want to come home to advance their careers, be with their relatives, and contribute in some way to their homeland."

The returnees often come in teams, bringing with them vanguard technologies. For example, thirty senior engineers from the U.S. founded Macronix International Co. Ltd., which designs and produces ICs possessing non-volatile memory, mask ROM, and flash EPROM. Two engineers from the U.S., in cooperation with Japanese engineers, set up Mototech International Corp, becoming one of the two firms in the world to produce high-precision motors for personal computers (the other is a Japanese firm). Etron Technology Inc. was the work of five engineers from the U.S. The company designs submicron ICs. And three engineers, each with thirty years' working experience in the U.S. defense industry, founded Coast Hitech Corporation, which manufactures defense-related products such as the satellite earth station receiver and transmitter.

Many of the returnees are bringing back technologies in optical electronics and telecommunications, two of the park's priority industries. According to Hsia Han-min of the National Science Council, the ROC hopes to become the third largest producer of information products by 1996, behind the U.S. and Japan, and overtaking the United Kingdom and Germany. But to achieve that, Hsia adds, Taiwan will have to establish its own supply of components, such as liquid crystal displays for notebook computers. Most of the components Taiwan uses come from Japanese manufacturers.

The IC industry occupies a pivotal role in the information industry, and it is the object of consolidated promotion. H. Steve Hsieh reports that the Science Park Administration has reached an agreement with the park's leading IC makers, who have promised that in the next five years they will spend 10 percent of their revenues on R&D. In return, the administration will match 50 percent of the companies' R&D expenditure. Half of this amount is subsidy, the other half is a no-interest loan. During the five-year period, the companies are expected to spend US$900 million, plus the administration's fund of US$450 million, on their R&D projects.

As existing firms expand and new ones enter the park, the Science Park Ad ministration is hoping to achieve by 1996, total personnel of 50,000, with annual per capita output of NT$3.5 million, and NT$180-200 billion in total output. By the year 2000, personnel is expected to increase to 60,000, and total output to NT$350 billion. By then, the park will account for 7 percent of Taiwan's total manufacturing output and 15 percent of the manufacturing industry's total exports. Annual R&D spending will total US$769 million, with 7,000 personnel involved in R&D.

One major obstacle, however, stands in the way of the park's goals: soaring land prices. The original plan was to expand the park by about 250 acres and set up a 120 acre branch park, also in the Hsinchu area. But real estate speculation in the last few years has led to an asking price of up to US$730,000 per acre, compared with US$16,000 fifteen years ago. With its offer of US$244,000 per acre, the park was only able to secure a little over 80 acres, which can only contain the parks expansion in the next five years. Construction on the new plot has already be gun, and is scheduled to be completed by June 1993, to accommodate another 20,000 personnel.

In view of the park's critical role in Taiwan's technological development, the ROC government has decided to set up a second park at another location on the island. The project is included in the Six Year National Development Plan. Also included in the development plan is an even more ambitious project to build a science city in the Hsinchu area. With a projected coverage of 776 sq. kilometers (slightly larger than Singapore), and a population of 1 million, the city will combine the economic momentum of the Hsinchu Science-Based Industrial Park; the technological know-how of the Industrial Technology Research Institute (with 25,000 research engineers and staffers), National Chiao Tung University, and National Tsing Hua University; and the resources of Hsinchu city (population: 300,000). An inter-ministry panel is already working on the project. Its ultimate goal is to develop the city into an international hub for technological exchange. The city will also be equipped with cultural facilities.

Central to the realization of the city are the overseas Chinese professionals. Patrick Wang of Microelectronics believes that more of them will follow the call to return. Says Hower Tong of Microscience, "The overseas Chinese engineers in Silicon Valley will be Taiwan's greatest asset for its hi-tech development. "

In essence, the Hsinchu Science Based Industrial Park has stopped up the brain drain. For decades, Taiwan witnessed the migration of large numbers of its best scientific talents to the U.S. Now it sees them returning and investing their future in the island's technological development.—Philip Liu (劉柏登) is editor-in-chief of Business Taiwan, an economic weekly newspaper published in Taipei. •