"Silicon Siblings" Taiwan Links up with Silicon Valley

In the spring of this year, the West Coast chapter of the Monte Jade Science and Technology Association, located in the southern San Francisco Bay area's Silicon Valley, was holding one of its monthly meetings. Donald P.D. Weng, vice chairman of Sun Moon Star, which was established in the Valley back in the early days, was speaking on "Points of Opportunity for the Technology Industries of Taiwan and Silicon Valley." The audience of high-tech professionals, including many ethnic Chinese, heard him explain the investment incentives offered by the government on Taiwan.

The Electronics Research and Service Organization (ERSO) of the Industrial Technology Research Institute (ITRI), which promotes Taiwan's high-tech industries, has been working towards turning Taiwan into a "Silicon Island," offering information on Silicon Valley's various industries and methods of technology development in the hope of transplanting them to the island.

Taiwan and San Francisco

"Silicon Island"? The "Silicon Siblings"? These expressions do make one curious. For the last 20 years, Taiwan has been right on the heels of Silicon Valley, forging its own electronics and information technology industry and creating a second "Taiwan Miracle." Looking ahead, Taiwan's future remains intimately linked to that of Silicon Valley.

Sitting in an office building on Taipei's Chungshan North Road, Donald Weng asks spiritedly, "Who involved in high-tech in Taiwan isn't linked to Silicon Valley?" Not only does Weng make the trip between Taiwan and San Francisco once a month, but whichever side of the Pacific he is on, he is always working for both.

Jeremy Liang, chief information officer at Trend Micro, which sells its PC-cillin virus-protection software worldwide, is in the same boat. Liang is an inveterate flyer. When the clock strikes five, the employees at most companies begin looking at their watches and thinking about going home. But when Liang is working in the Valley, there is another clock in his mind which is just getting wound up-5 p.m. in San Francisco is 9 a.m. in Taipei. At this time every day, Liang must catch up on the latest developments at the company's Taipei research department.

And Liang is just as busy when he comes back to Taiwan. "My colleagues at the US offices all know that I don't go to bed before 1 a.m. and that they can call me or e-mail me at my home in Taipei until then," he says.

Trend's R&D requires a lot of coordination since Silicon-Valley- and Taiwan-based research personnel work on different products. Those in the US handle Internet virus protection and those in Taiwan focus on protecting PCs and servers. But obviously the arrangement works: The "scan engine" of Trend's virus protection software is unique in that it can be used on any platform, so there is no need to switch between various programs.

Just off of Silicon Valley's Fremont Boulevard there are several connected buildings around which seabirds are always wheeling. These buildings are the headquarters of Umax Technologies, a US subsidiary of one of Taiwan's largest manufacturers of scanners. Bobby Chao, the bearded vice president of marketing in the US, says with a smile that even if his company had the most advanced video-conferencing equipment, he still couldn't avoid receiving occasional orders from his boss in Taiwan along the lines of: "We can't talk about things from this distance. Come back and we'll talk about it." When he gets such calls, he hops on the next plane to Taiwan. His colleagues are so used to his disappearing for three or five days at a time that they don't think anything about it. In the industry, this kind of jetting off all the time is so frequent that if, while in Hsinchu, he happens to run into a friend who is "in the business," invariably one of them has to leave town the next day.

It's made in Taiwan. It must be good!" says Microsoft founder Bill Gate s in a symbolic ad which he found time to make during his last visit to Taiwan. （courtesy of CETRA）

Ethnic-Chinese links

The bridge between the Taiwan and Silicon Valley is largely made up of the links between ethnic Chinese.

According to unofficial statistics, one of every five workers in Silicon Valley is an ethnic Chinese. Most of these are Taiwanese who went to the US to study, then remained to work.

Chen Wen-chi left Intel six years ago and returned to Taiwan at the invitation of the Formosa Plastics Group before becoming the president of VIA Technologies. Chen says, "It is the black-haired, yellow-skinned Chinese who are always the most eye-catching members of the research and development staffs of American [technology] firms, whether they be giants like Intel, Hewlett-Packard and IBM, or tiny IC design houses." He says that about half of his old classmates from National Taiwan University's (NTU) electrical engineering department are now in Silicon Valley, and jokes that it's more convenient to hold a class reunion there than in Taiwan.

Silicon Valley is an entrepreneur's paradise and Chinese are born with the entrepreneurial spirit. In the dog-eat-dog business environment of the valley, there is no lack of Chinese.

According to statistics, there are approximately 7500 businesses in the 30 cities and towns which make up Silicon Valley, of which some 1500 are run by Asians. And Chinese in the valley say that at least 300 of the 800 high-tech firms located in the Valley are run by ethnic Chinese. These are largely comprised of two basic types: fab-less IC design houses and small firms which sell PC components and handle systems integration.

David S. Lee, who, together with Tien Chang-lin, sits on the University of Califor-nia's Board of Regents as well as being the chairman of a number of companies, is undoubtedly the most respected of these ethnic Chinese entrepreneurs. In 1973 he founded Qume, which soon became the fastest growing small company in the United States. Five years after its founding, Qume was acquired by ITT at a premium and Lee took an important position at ITT.

At that time, Taiwan's electronics industry was just getting off the ground. Matthew F.C. Miau, chairman of the Mitac Group, was among the first generation of Taiwanese to study in the US before returning to Taiwan. While in the US, he was one of the team of five that produced Intel's first microprocessor. But 22 years ago, Miau gave up a bright future at Intel to return to Taiwan, where he was just in time to be a part of the earliest stage of the domestic information industry's development.

"At that time, the so-called 'personal computer' had not yet been developed. Mitac was only able to bring in some Intel microprocessors and IBM machines, doing business as an import agent," remembers Miau.

The outstanding efficiency and yield of Taiwan's semiconductor industry are world renowned. Though currently in a slump caused by low prices for chips, the industry continues to rapidly expand its capacity. （photo by Diago Chiu）

The first order

Just a few years later, the prototype of the PC was developed. Both Acer and Mitac wanted to jump in and give PC manufacturing a try. In 1984, the two companies received their first order, an OEM order from ITT which was split equally between them. Interestingly, the decision to place the order with these two unknown Taiwanese companies had been made by the then vice president of ITT-David Lee.

After receiving that first order from Lee, Acer and Mitac took off, growing into two of Taiwan's largest PC manufacturers. And the results of this cooperation between the ethnic Chinese of Silicon Valley and the Chinese who had studied there before returning to Taiwan are still talked about today. More than 10 years after the fact, Matthew Miau still frequently remembers the favor with gratitude.

"As kids, we always read about how the Chinese invented the compass and gunpowder. But this is the first time the Chinese have been on the leading edge of a global technological revolution, the first time we have been a focus of global attention. This situation is the result of the labor of many Chinese both at home and abroad," says Miau, his chest swelling with pride.

This first order was Taiwan's passport to the international stage, and fortunately, the island didn't bungle its lines.

"Taiwan used to be known for producing TVs, so there were a lot of people working in electronics on the island and there was a great deal of production experience," says Genda Hu, head of the ERSO. Hu says that under the guidance of former Premier Sun Yun-hsuen and presidential advisor Li Kuo-ting, the government put forward a number of measures including the establishment of the ERSO and the Hsinchu Science-Based Industrial Park. A number of methods for providing incentives to investment were also implemented, creating a favorable environment which many local firms used to their advantage.

（left） Looking down the length of Silicon Valley from San Jose, one can take the pulse of the global IT industry.

Economic miracle V2.0-PCs and ICs

In the 15 years since then, the IT industry has taken off. In trying to grab a piece of the international market, many firms and many countries have been frustrated again and again before finally giving up in despair. For Taiwanese firms, however, it has been a different story. With the help of overseas Chinese networks, Taiwan has kept close on the heels of Silicon Valley's explosive growth.

According to statistics from the Institute for Information Industry's Market Information Center, if production from overseas subsidiaries is included, the ROC was the world's leading producer of a number of IT products last year in terms of volume. Of these, most were PC parts or peripherals. Taiwan produced more than 60% of the world's motherboards and more than 50% of its image scanners, mice and monitors. Taiwan also produced about 30% of the world's interface cards, including graphics cards and network cards. In addition, Taiwan ranked second in production of notebook PCs, manufacturing more than 30% of the world's total. And these figures are still growing.

Taiwan's IC industry is another high-tech industry which has surged forward in recent years. Taiwan Semiconductor was the first to set up chip foundry operations and handles approximately 45% of the world's foundry work. In addition, Taiwan is also in the vanguard in the areas of chip design, manufacture, packaging and testing. The island lags behind only the US and Japan, and is on a par with Korea.

Many ethnic-Chinese engineers who went to the US for graduate study now occupy important positions at major companies and serve as a link between Taiwan and the US. The photo shows Intel chairman Andy Grove on a recent visit to Taiwan. Beside him are a number of ethnic Chinese including Intel vice president Albert Yu （at left）.

Interdependence

Whether it be PCs or ICs, the newest technologies and standards all come out of Silicon Valley. What is the relationship between Taiwan and Silicon Valley? And what is the division of labor between the "Silicon Siblings"?

Minister of State Yang Shih-chien, who currently guides the formation of Taiwan's high-tech industrial policy, describes it as "interdependence creating a single whole." Yang says, "Silicon Valley does basic research and creates standards for new products. Taiwan designs and builds these products, and then sells them back to the US market. The two sides are tightly linked and have a synergystic relationship."

"Big firms need only give us their specifications: what kind of machine with what particular capabilities; what kind of structure (whether an Intel- or AMD-made CPU); what kind of look it should have, retro or trendy; and maybe what kind of special chips should be included. We can take such general specifications and use them to design and produce a machine," says Miau, whose Mitac Group has made big profits over the last few years by building machines to order for Compaq, the world's largest PC maker.

Taiwan's secret formula for success in the information industry has been: speed (grasping the first opportunity to design a product); competitiveness (always pricing products lower than others in the same industry); and quality (meeting clients' standards).

Jeff Hsue, director of R&D at First International Computers, a Taiwanese firm whose principal products are motherboards, uses motherboards to illustrate the point. He says that the many different functions built into the motherboard each require a different chip. All of these must be matched to the heart of the computer-its CPU. If you change the CPU, you must also swap most of the chips on the motherboard. Before the specifications for a new motherboard are revealed, Taiwanese firms will have already acquired a pretty good idea about what they will be through the "Silicon Siblings" grapevine. These firms will then produce designs for each of the possibilities rather than wasting time by waiting for the specifications to be officially released.

In other words, if you do what US firms do, going step by step through all their various procedures, it takes about six months from the time specifications for a new CPU are revealed to complete a design for a mother-board. But Taiwanese firms can put out a design in only three months. This is much more efficient and reduces the time it takes to get new products to the market.

Hsue says, "We design first to get the first shot at doing business. The big firms which come to Taiwan to purchase [motherboards] don't really care if the design is correct or not. There are a lot of motherboard manufacturers in Taiwan, so these companies don't have to worry about not being able to find something they like." He says that Taiwanese firms don't lose out by working in this way, either. "As long as your product is good, even if it isn't appropriate for one client, another one will buy it. Sometimes, you can begin production after making only a few small changes. This little bit of investment risk is necessary to get that first shot at doing business."

The Monte Jade Science and Technology Association, which already has more than 400 members, is one of the most important means of networking for Silicon Valley's ethnic-Chinese engineers. The atmosphere is always lively and upbeat at its monthly meetings.

Versatility

Grasping the first opportunity is necessary because obsolescence comes extremely quickly in the world of high-tech and prices fall just as fast. In order to get their products to market quickly, more and more American companies are relying on Taiwanese firms to design and produce them. This has made Taiwan into an indispensable ODM (original design manufacturer) partner for Silicon Valley.

In San Francisco's South Bay area sits the headquarters of one of the Valley's giants-Hewlett-Packard (HP). Ed Yang, head of R&D at HP's Personal Information Product Group, says that the success of the ODM strategy has allowed HP to rely on Taiwan more and more. Yang smiles, remembering the many typhoons which struck Taiwan last summer. He says that when typhoons strike, production and shipments stop for the duration, meaning that for two or three days, nothing gets sent out of the factory. Such stoppages have a very real impact on the company. The frequent typhoons had high-level executives at HP as nervous as the people in Taiwan and made the island's weather a topic of conversation even among Americans.

The speed of change within the technology industry, which is a challenge to the operations of most firms, actually plays right into the hands of Taiwanese firms, which are used to working in short bursts and changing directions whenever the wind changes. For example, three years ago 16 megabyte DRAM was selling for around US$50 per chip and people were fighting for it at that price. Now it's down to about US$2 per chip. The steep slide in prices was too much for even Intel to bear and it pulled out of both the SRAM and DRAM markets. Taiwanese firms, without nearly the resources of Intel and unable to earn money from the production of these standard products, were forced to go into the foundry business. Here, they make chips to clients' specifications and have relied on increasing the efficiency of their operations and improving their yields to maintain profits.

"Whether it be in terms of technology, diligence or size, Japanese and Korean firms are not only not behind Taiwan, they lead it," says Chen Wen-chi. But Chen says that Taiwanese firms are extremely flexible. Moreover, with everyone wanting to be their own boss, there is a profusion of small- and medium-sized businesses on the island, each always right on the heels of the one ahead of it. This situation has made for "genuinely world class" competition among local firms.

Marcel Liang, president of ASI, one of America's top 15 wholesale distributors of computer hardware and software, has great respect for the vigor and drive of Taiwanese firms. He contrasts them with the Indians: "In Silicon Valley, the Indians are as noticeable as the Chinese and their influence in the information industry is undeniable. It's just a shame that they do nothing much outside of software. It limits their development."

The giants of the industry, including Compaq, IBM, Intel and Microsoft are all well aware of how to use the competition that exists between Taiwanese firms to lower their prices and get speedier service. And Taiwanese firms are willing to let themselves be shaped by these foreign firms, reasoning that by providing them with excellent service, they will be reluctant to go elsewhere. "The result is that each leads the others and everybody advances to a higher level," says Chen Wen-chi.

In addition, the last two years have seen the ascendance of the low-priced computer. It began last year when buyers who used to pay US$2000-3000 for a PC suddenly found themselves getting change from US$1000. This year, prices have gone as low as US$799-899. The declines have been startling. Yet this awful business climate has made Taiwan's advantages all the more apparent.

David S. Lee passed along many manufacturing orders to Taiwan while serving as an economics advisor to US presidents Bush and Clinton, providing Taiwan with a passport into the international marketplace.

Doing it all

In the opinion of Hsu Ta-lin, chairman of H&Q Asia Pacific, a subsidiary of America's Hambrecht and Quist, it is impossible for the big multinationals to manufacture low-priced PCs themselves because their costs are too high. Hsu even goes so far as to predict that the major US manufacturers like Compaq, IBM and HP will all metamorphose into a form similar to that of Japan's large trading houses. They will define specifications, and price and delivery terms, but turn over design, production and even the selection and purchase of the CPU, hard drive and chipsets to Taiwanese PC manufacturers. These Taiwanese firms will be the ones actually doing everything.

Hsu explains that competition in the high-tech industry is extremely intense. Every step, from product conception, design and production to delivery into the customers' hands, must be must be executed perfectly and cheaply if the product is to have a chance of succeeding. For this reason, high-tech firms must exploit every global advantage they can, dividing production up among different areas of the planet. "The only concern of all economic activity is cost; the country itself makes no difference." Taiwanese firms are quite happy to be "exploited" by these multinationals, and they have learned Silicon Valley's lesson about "global production" very well. Acer and Mitac's respective promotions of their "global logistical management systems" over the last two years are a case in point.

Ed Yang shares this view: "Taiwan's high-tech firms have long been interested in globalization. In fact, they have been ahead of Japan and South Korea in setting up factories all over the world." Within one year of being established, Acer opened a US subsidiary. And it currently has six assembly plants in Latin America alone. Mitac's strategy has been similar. The company currently has around 4000 employees, double its Taiwan-based workforce, working at eight overseas production facilities.

Under the global logistical management system, when a Taiwanese PC manufacturer receives an order, it is automatically separated into pieces. The monitor is probably shipped by the Acer Peripherals' plant in Malaysia, while the case and keyboard are sent from the mainland. The hard drive is shipped by the American firm Seagate's Singaporean subsidiary. After all the parts arrive in San Francisco, a PC is assembled with whatever peripherals and equipment are required by the North American market. Thus, a computer meeting the client's standards is delivered to him in the shortest possible time at the lowest possible price.

"Anyone who still thinks Taiwan is just a production site is just plain wrong," says Matthew Miau. According to Miau, focusing on production is something very different from handling "global production management" for multinationals. For one thing, profits from the latter are much greater. Global production management is also how Taiwan has managed to keep a leg up on Southeast Asian nations with cheaper labor and stay on top of the PC industry.

Although global economic growth has slowed this year, Taiwanese firms have seen tremendous growth in orders. In the first quarter, both the volume and production value of desktop PCs were up more than 60% from the same period last year, proving the power of the "global logistics" model of business.

（right） The "made in Taiwan, sold in the US" model under which manufacturing is done in Taiwan, while assembly and sales are done in the US, is becoming the norm. The picture shows a warehouse belonging to Umax Technologies, the US subsidiary of U max Data Systems.

Who sets the standards?

Taiwan's position as Silicon Valley's production partner is already firmly established; however, the island's status remains well below that of the Valley. The key reason is that the power to set standards and define specifications in the information industry remains firmly in the grasp of American firms. When will Microsoft release its new Windows 98? Why did Intel abandon its Pentium line of microprocessors to start up a new Pentium II line which is completely different from everyone else's? Taiwanese firms can only guess. Performing on a stage where they can only dance to others' tunes, Taiwanese firms are often left standing in the wings while they wait for new standards to be set. They thus have no chance to take the first stab at winning a market.

For the last two years, Chen Wen-chi, president of VIA, the second largest manufacturer of chipsets in the world after Intel, has been invited to attend the proceedings of the International Standards Committee. Chen says he hopes that in the future Taiwan will have more of a voice in setting global standards, but he admits, "This is a long row to hoe. Even Japan still has a ways to go."

Chen believes, "Those who have a market have a voice." And looking around the world, it is the 1.2-billion-person mainland Chinese market which has the most chance of competing with the North Americans for this power. "If we could bring together Taiwan's capital and technology and the mainland market, we would have enough of a voice. We could participate in the setting of global standards." Though he knows it to be nothing but a daydream, Chen holds on to this hope.

Taiwan and Silicon Valley are currently mutually dependent. But Silicon Valley, possessing such a broad, deep and up-to-date technological foundation, is the world's technology capital. Over the last two spring vacations, Wu Se-hwa, director of Chengchi University's Graduate Institute of Technology and Innovation Management, has taken graduate students to see Silicon Valley first hand. He reminds the local industry: "If Taiwan hopes to continue to advance, it must continue to import people and experience from Silicon Valley."

Generally speaking, Silicon Valley's Chinese community also has a high degree of interest in returning to Taiwan. In April of this year, the National Youth Commission and the National Science Council increased their activities aimed at bringing people in the high-tech field back to Taiwan, putting the word out across America via the Internet and Chinese media. Since doing so, they have received 5-600 resumes from the San Francisco area alone.

Taiwan has been exploiting the "global logistics management" model for the last two years, allowing the island's IT manufacturers to "do it all." An example is the Mitac group, which currently has some 20 assembly and distribution points scattered around the globe.

Knowledge creates wealth

"There are few engineers in Taiwan with more than 10 years of experience, but in Silicon Valley, engineers with more than 20 years of experience are everywhere. And when they come to interview for jobs, it is usually because they want to return to Taiwan, not because they are seeking a higher salary. They are much more stable [than younger engineers]," says the ITRI's Genda Hu, who went to the States with a number of Taiwanese firms to recruit job applicants.

According to First International Computers' Jeff Hsue, who has also traveled to the States himself to interview applicants, Taiwan's ability to design and produce products is hard to beat. But he says that few Taiwanese firms are involved in taking product design to a higher level, whether it be through technological developments, preliminary research or even fundamental academic research, because of the difficulties and risks involved.

"It's not that we don't know that the success of more advanced research means greater profits, and that once you develop something, you can just sit back and watch the money roll in from technology transfer fees," says Hsue. But he says that there simply aren't enough high-level people and there isn't enough capital. Many local PC firms have more than 100 people in their research and development departments, but most staff work on product design. Fewer than 10% actually work on technology development.

On his most recent interviewing trip to Silicon Valley, Hsue hoped to find people for areas where Taiwan is weaker. "Those working in Silicon Valley understand it best. So even when they come back, the object of their research remains in Silicon Valley." Hsue says that there are any number of companies, both large and small, working on preliminary research. Hsue wants to know what kind of research they are doing and which research might be related to products made by First International. He would also like to know which might succeed. By carefully considering the answers to such questions, he can shorten the time that First International spends groping in the dark and reduce the chance of trials that fail.

Knowledge is key in the IT industry and knowledge is tied to people. But the industry also has a very high staff turnover rate. Taiwan relied on a treasure-trove of overseas talent to get its high-tech industries off the ground. But, looking ahead, this reliance is one of these industries' greatest worries.

Hoping for closer links

"Things have been good for the Taiwan information industry over the last couple of years. Science and engineering students get several offers of good jobs as soon as they graduate, and it's difficult for young people to resist the lure of cash and stock bonuses," says Wu Se-hwa. Wu feels that Taiwan's growing wealth is also a problem because it means far fewer students are receiving financial help from graduate schools in the US. Moreover, the number of students willing to suffer through 10 years of schooling for a PhD is falling. In less than 20 years, this "treasure-trove" of overseas talent will have disappeared.

Wu worriedly contrasts this with the situation in mainland China: "Over the last few years, the number of students from the mainland going abroad to study has increased rapidly. In terms of entrepreneurial spirit, intellectual quickness and willingness to work hard, the mainland Chinese are on a par with Taiwan. When these students return to the mainland in 20 years, it's going to be a whole new ballgame."

Hsu Ta-lin looks at the influence and contribution of Silicon Valley talent on Taiwan from a more strategic perspective. More than 10 years ago when he was working for IBM as an information manager for a high-level research and development team, Hsu often visited Taiwan to meet with government officials and discuss technological development strategy.

"At that time, there were few important conferences in Taiwan. Now there are conferences like the Modern Engineering Technology Seminar and the National Development Conference. Although there were a number of things which prevented many of Taiwan's students overseas from coming home and serving their country, they were able to spend a few intensive weeks passing on the newest technology and ideas by talking to people in Taiwan," says Hsu. He reminisces, thinking back to some of the measures that led to Taiwan's current level of development. All of these policies, whether the all-out effort to develop the local IC industry, the establishment of the "one-stop shopping" science-based industrial parks, the importation of the concept of venture capitalism or the incentives to high-tech investment that the government provided, were hammered out in discussions between government strategists and Chinese who had studied and worked overseas.

Hsu says, "These days, a lot of people have returned from Silicon Valley, but their influence isn't as great as it used to be." In his opinion, the key to Taiwan's future progress will be bringing together talent from both of the "Silicon Siblings" and exploiting it effectively.

Now, with Taiwan solidly established as the world's third information industry "power," how do we go about making an even greater impact on the world's technological stage? How do we link the "SIlicon Siblings" more tightly and realize the ambition of turning Taiwan into "Silicon Island?" There is still a great deal of work to be done.

In spite of the combined pressures of a weaker economy and slumping prices, Taiwan's IT firms are expanding their production capacity to protect their position as the world's third largest producer of IT products.