Traditional family control patterns characterized by rigid hierarchies must be jettisoned in favor of modern management techniques to ensure competitiveness, innovation, and speedy adaptation to market trends. When this does not happen, businesses collapse or are bought out by those firms streamlined by modern management.
Chen Jhitang, a close observer of Taiwan's entry into the computer field and its subsequent progress, has witnessed both success and failure; in the following article he analyzes the causes of both and suggests future directions for local entrepreneurs.
To many people engaged in high-tech research and production in San Jose, Silicon Valley is a paradise where fantastic dreams are almost routinely realized. But for others, this warm, rather small area amply stocked with Ph.D.s and computer whizzes becomes a hell where dreams turn rapidly into nightmares.
While no one can satisfactorily explain why Silicon Valley suddenly appeared on the map and became one of the world's focal points for high technology, it remains a haven not only for U.S. firms, but for others from around the globe. One of these, Cogito Inc., had its roots in Taiwan.
The company was founded by the Sanyang Group in the spring of 1982. Specializing in the manufacture of a new type of computer disk drive, the group later bought out Magnex Co. from Exxon Oil Company and began producing micro-magnetic heads for large-scale computers. At home in Taiwan, the company's moves were regarded as a landmark achievement, demonstrating that local enterprises could enter the computer field and carve out a place for themselves at the core of American high technology. "We have to push ahead toward high-tech and to develop our business overseas," Kuang Shih-hui, president of Cogito, said at the time. "Taiwan has limited land and is over-populated. Aside from human brain power, it has almost no resources." While Kuang's words rang true, his underlying optimism was premature.
Despite the support and high expectations from people in Taiwan, the Sanyang Group experienced a fiasco in Silicon Valley. In the summer of 1987, Cogito and Portog Company, an associated firm that was manufacturing stepping motors, jointly announced closure of business. The action prompted considerable Monday-morning quarterbacking among Taiwan's business analysts.
Many people agreed with the commentator who said "Kuang (who is a physician by training) knows about the human body, but not about human nature." While the accusation may not be altogether fair, it nevertheless pointed out the weakness of Cogito's approach to management. Sanyang's major problem was in its failure to make its employees feel "at home," because it followed a closed family-style system of management that kept non-family members in the dark. The company instead gave people the impression that the boss and the workers did not care about one another, and this is seen as a primary cause of its eventual collapse. It is safe to say that Taiwan's traditional management style as exercised by Cogito is unrealistic for success in Silicon Valley.
But all is not dark on the Taiwan management scene in Silicon Valley. There is a sharply contrasting story to be told. The rising star is called Acer Company, formerly known as Multitech. With its "young and vigorous" workforce, Acer has been able to achieve unusually strong success in overseas markets. After eight years in existence under the leadership of Shih Chen-jung, last year Acer bought Counterpoint Inc., one of the biggest computer firms in Silicon Valley. Meanwhile, Acer also made a breakthrough in key technological aspects of personal computers, soon afterwards expanding to include mini-computer production.
Counterpoint was originally founded by a Chinese-American to produce the 68020 UnixBseD computer system, which can be used simultaneously by up to 128 people. After merging with Acer, two Counterpoint minicomputer models were renamed Acer 19 and Acer 21, while Acer's self-developed 80386 32-bit computer sells as the Acer 15. This high-tech group, which began business by producing Zilog z-80 micro computer processors, has intentions similar to those of now defunct Cogito Inc. Shih says the group intends "to enable Taiwan's high-tech industry to plunge into overseas markets and to accelerate Taiwan's grasp of mini-computer production technology."
The most important factor in Acer's success is "people"—its highly motivated employees. The company has made every effort to make its employees feel as though they "belong to the family." Its managerial model takes into account the conditions of the host country, and includes programs designed to encourage employee loyalty and promote a sense of employee possessiveness of their plant so that they treat it much as they would their own homes. One of Acer's most effective measures in this regard has been its program of encouraging employees to purchase company stocks. More than 1,000 employees now have shares in Acer, and many of them hold 20,000 shares or more. As share-holders, employees obviously have a greater stake in the company's future.
The "human factor" is a key to high-tech success, especially in management's relations with its highly skilled employees.
Acer's success and Cogito's failure in Silicon Valley illustrate the importance of the human factor, and the same lessons apply to high-tech investors in Taiwan's Hsinchu Science-Based Industrial Park. The site, only 50 miles southwest of Taipei, is slated to become the Silicon Valley of Asia, at least if local planners, businessmen, and governmental figures have their way. Various incentives have been provided to attract Chinese-American engineers to set up plants, and there is considerable optimism about the site's high-tech future. Lee Tso-hsien, the Park's director, says "The incentives for establishing plants here are so good that each returned engineer dreams of becoming a Steve Jobs of the Orient one day." His statement reinforces the popular feeling locally that the investment climate in Taiwan is good for ambitious entrepreneurs.
Generally speaking, Taiwan has made a reputation for being a place where small-scale businesses can make sizeable profits. The high-tech industry is seen as another direction that comfortably fits with past experience. Many local small and medium high-tech plants already specialize in specific products, and a large portion of them do enjoy healthy profit margins.
But there is more to the Science Park's success than creative entrepreneurs and computer wizards. Taiwan's high-tech industry enjoys unusually strong governmental support, which translates into extending excellent infrastructural and financial support to all qualified firms in the industrial complex. For instance, the government may provide up to 49 percent of start-up capital, and all plants in the Park are given a five-year tax holiday.
In view of overseas market demands, the government has also started to build a US$270 million Very Large Scale Integrated Circuit plant as the domestic production center for computer chips. The government holds 48 percent of the total shares and the Philips Company (Netherlands) has also invested heavily in the project.
The Park's environment is ideal for making profits, as some of the earlier engineers-turned-entrepreneurs in the complex have already learned. Mitac Inc. board chairman Miao Feng-chiang, formerly an engineer at Intel Company in Silicon Valley, is a representative success story. He returned to Taiwan in the 1970s and quickly cornered the local market in personal computers when it was just beginning to bud. Early achievements only fueled other entrepreneurial feats. His Mac 160 Viso, an earlier product, is still very popular, but aside from producing small computers, Mitac has kept an eye on larger horizons. Currently it is seeking further collaboration with foreign companies to design new computer systems for special applications. Behind it all is Miao's own vigor backed with government support.
There are many cases of similar success in Taiwan, and they are not necessarily confined to the larger firms. Copam Electronics Corp., for one, has already become a legend in Taiwan's young high-tech market. Copam, which specializes in personal computers, is fairly new in the trade. It has roots in rather murky waters, having started by pirating video game machines. When the government stepped in and put a stop to that business orientation, Copam directed its efforts toward producing personal computers. Habits die slowly, and the firm soon found itself being sued by IBM for infringement upon the latter's copyrights. A satisfactory settlement over the dispute followed, and Copam has since made its peace with IBM, established a solid research unit, and built itself into a respectable major international provider of computer supplies.
Some Hsinchu employees have an additional financial stake in company success—they own stock.
Any observer of the scene in San Jose over the last ten years can relate tales of soaring successes and crashing failures in the intense atmosphere of Silicon Valley. This volatile environment where a large number of firms are now buried, and not in peace, has led some people to suspect that Silicon Valley is indeed a "death valley" and a high-risk perhaps not worth trying to replicate. It must be remembered, however, that it is the nature of high-tech industry itself to be extraordinarily risky. Innovations that can alter the market literally overnight are routine. But the rewards are substantial, and the market is clearly growing as the world moves at break-neck speed to "information society" status.
As a result of this international transformation wrought by computerization, there are substantial related markets that are ideal for the sort of abilities and entrepreneurship common in Taiwan. The opportunities in the high-tech field are simply astounding. As Matsushita Sachinosuke, the Japanese business tycoon, puts it: "the sphere of further development is unlimited." And there is plenty of room for Taiwan's businesses in the field. Silicon Valley and Hsinchu Science-based Industrial Park are different places with similar goals. And there are lessons to be learned from San Jose that could well ensure even greater success in Taiwan's home-based high-tech center. —(Dr. Chen Jhitang is an associate professor of applied mathematics or National Tsinghua University, Hsinchu City.)