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Tag: Silicon Valley

Replicating Taiwan’s Success

I’m always a fan of stories/articles highlighting the importance of Taiwan in the technology industry, so I was especially pleased that one of my favorite publications recently put out an article highlighting the very key Computex industry conference, the role of the Taiwanese government’s ITRI R&D organization in cultivating Taiwan’s technology sector, and the rise of Taiwan’s technology company stars (Acer, HTC, Mediatek, and TSMC).

Some of the more interesting insights are around two of the causes the article attributes to Taiwan’s disproportionate prominence in the global technology supply chain:

Much of the credit for the growth of Taiwan’s information technology (IT) industry goes to the state, notably the Industrial Technology Research Institute (ITRI). Founded in 1973, ITRI did not just import technology and invest in R&D, but also trained engineers and spawned start-ups: thus Taiwan Semiconductor Manufacturing Company (TSMC), now the world’s biggest chip “foundry”, was born. ITRI also developed prototypes of computers and handed the blueprints to private firms.

Taiwan’s history also helps make it the “best place in the world to turn ideas into physical form,” says Derek Lidow of iSuppli, a market-research firm. Japan colonised the island for half a century, leaving a good education system. Amid the turmoil of the Kuomintang’s retreat to Taiwan from mainland China, engineering was encouraged as a useful and politically uncontroversial discipline. Meanwhile, strong geopolitical ties with America helped foster educational and commercial links too. Western tech firms set up shop in Taiwan in the 1960s, increasing the pool of skilled workers and suppliers.

It also provides some interesting lessons for countries like Russia who are struggling to gain their own foothold in the lucrative technology industry:

  • image Facilitate the building of industrial parks with strong ties to R&D centers of excellence. Taiwan’s ITRI helped build the technical expertise Taiwan needed early on to gain ground in the highly competitive and sophisticated technology market by seeding it with resources and equipment. The government’s cooperation in the creation of Hsinchu Science and Industrial Park near ITRI headquarters and two major universities helped erect the community of technologists, engineers, and businessmen that’s needed to achieve a self-sustaining Silicon Valley.
  • Make strategic bets on critical industries and segments of the value chain. Early on, ITRI recognized the strategic importance of the semiconductor industry and went out of its way to seed the creation of Taiwan’s foundries. This was uniquely far-sighted, as it not only allowed Taiwan to participate in a vital industry but it also helped create the “support network” that Taiwan needed for its own technology industry to flourish. While semiconductor giants like Intel and Samsung can afford the factories to build their own chips, small local companies are hard-pressed to (see my discussion of the foundry industry as a disruptive business model). Having foundries like TSMC nearby lets smaller local companies compete on a more even footing with larger companies, and these local companies in turn will not only grow but also provide the support basis for still other companies.
  • Build a culture which encourages talent (domestic and foreign) to participate in strategic industries. This is one example where it’d be best not to imitate Taiwan. But, as the Economist points out, the political turmoil in Taiwan until the mid-80s made politically neutral careers such as engineering more attractive. In the same way that “culture” drove a big boom in technology in Taiwan, the environment which fostered smart and entrepreneurial engineers helped bring about the rise of the Silicon Valley as a global technology center (with the defense industry playing a similar role as Taiwan’s ITRI). Countries wishing to replicate this will need to go beyond just throwing money at speculative industries, but find their own way to encourage workers to develop the right set of skills and talents and to openly make use of them in simultaneously collaborative and entrepreneurial/business-like ventures. No amount of government subsidies or industrial park development could replace that.
  • image Learn as you go. To stay relevant, you need to be an old dog who learns new tricks. The Taiwanese technology industry, for example, is in a state of transition. Like Japan before it, it is learning to adapt to a world in which its cost position is not supreme and where its historical lack of focus on branding and intellectual property-backed R&D is a detriment rather than a cost-saving/customer-enticing play. But, the industry is not standing still. In conjunction with ITRI, the industry is learning to focus on design and IP and branding. ITRI itself has (rightfully) taken a less heavy-handed approach in shepherding its large and flourishing industry, now encouraging investment in the new strategic areas of wireless communications and LEDs.

Jury’s still out on lesson #5 (which is why I didn’t mention it) – have some sort of relation to me – after all, I was born in Taiwan and currently live in the Silicon Valley… 🙂

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Russia dreams of Silicon Valley sheep

image The Economist has an interesting article on the Kremlin’s latest push to modernize Russia’s economy and kick-start a wave of innovation which would supposedly lead to a “Russia with nuclear-powered spaceships and supercomputers.”

Far-fetched as this premise sounded, the article raised many thought-provoking questions on whether or not (and how) Russia could hope to build an innovation hub similar to the US’s Silicon Valley. One tidbit I found very interesting was that this isn’t the first time the Kremlin has tried something like this. Apparently, the Soviet Union, had attempted something similar in the past with very interesting political ramifications:

In the 1930s leading Soviet engineers arrested by Stalin laboured in special prison laboratories within the gulag. After the war, when Stalin required an atomic bomb, a special secret town was established where nuclear physicists lived in relative comfort, but still surrounded by barbed wire. Subsequently hundreds of secret construction bureaus, research institutes and scientific towns were set up across the Soviet Union to serve the military-industrial complex. They also spawned a technical intelligentsia. In the 1980s it was this class of educated people—permitted more freedom and better food than the rest of the country, but still poorly paid and not allowed to go abroad—that became the support base of perestroika [former Soviet Leader Mikhail Gorbachev’s attempt to liberalize/open up the Soviet Union which ultimately resulted in its collapse].

Russia’s rulers, however, seem keen on breaking this link between political openness/democracy and innovation:

Yet the experience of Mr. Gorbachev’s perestroika—which started with talk of technological renewal but ended in the collapse of the Soviet system—has persuaded the Kremlin to define modernisation strictly within technological boundaries. Hence Mr Medvedev’s warning not to rush political reforms. His supporters argue that only authoritarian government is capable of bringing the country into the 21st century. “Consolidated state power is the only instrument of modernisation in Russia. And, let me assure you, it is the only one possible,” said Vladislav Surkov [the Kremlin’s “chief ideologist” who put forth the current plan]

Is Surkov right about the lack of importance of democracy and political freedom? It’s hard to say for sure, but the success of the Asian tigers (esp. Korea, Taiwan, Singapore, and China) in this arena suggests that, at first glance, Surkov is right. Innovation and rapid economic growth do not require democracy so much as:

  1. effective and (relatively) un-corrupt governments
  2. free market systems which allow for consumer/business choice and property rights protection
  3. government investment in “innovation hubs” (e.g., Silicon Valley) where companies/universities/individuals readily share insights and collaborate

Of course, the flip side of the argument, is that its pretty rare for (1) and (2) to exist without democracy and at least basic political systems in place around due process and the respect for individual rights.

imageA successful attempt on (3) is difficult, regardless of the type of government authority (think of the countless failed attempts by cities, states, and countries to replicate Silicon Valley), but is especially difficult for “command regimes” in attempting to encourage innovation. It’s much simpler for an authoritarian government to find ways to double steel production (a la the Soviet Union’s Five-Year Plans) than it is for an authoritarian regime to encourage the trial & error, open exchange of ideas, and “disorganized” development which is necessary to drive innovative technology disruptions (which by definition can’t be “commanded”).

I’ve even heard it theorized that one reason the Soviet military elite allowed the perestroika which helped lead to its eventual collapse was their recognition that authoritarian regimes were not effective at encouraging the sort of innovation needed to build the computer technology which was giving (and still gives) the US its military advantage over the rest of the world.

But the harshest (and snarkiest) indictment of Russia’s short-sighted strategy here comes at the end of the Economist piece:

Mr Surkov is quite right when he argues that democracy would not stimulate technical innovation. The reason for this, however, is that under democracy a country with a declining population, a frighteningly high rate of birth defects, crumbling infrastructure and deteriorating schools might find a better use for taxpayers’ money than pouring it into Mr. Surkov’s Silicon Valley dreams.

Russia’s economy will likely grow quickly, regardless of the success of the Kremlin’s latest plans, by virtue of its resourceful population and economic convergence, but I suspect its future in terms of quality of life and innovation depends on whether it ever gets around to its much-needed political reforms.

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