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Ãâó : Forbes (6-1-98) Silicon dreamin'
http://www.forbes.com/forbes/98/0601/6111122a.htm






Taiwan, almost alone in Asia, remains
economically healthy. The little island has much to
teach Japan and Korea—and even the U.S.

Silicon Valley East

By Andrew Tanzer

"WHEN I WAS AT INTEL, I dreamed about starting
my own company," recalls Miin Wu. That's hardly
an unusual sentiment these days, and like // ÀÎÅÚ Å»Ãâ
thousands of other people, Wu realized his
dream.

But not in Silicon Valley and not in the U.S. The
Stanford-educated Wu recruited a group of 28
ethnic Chinese engineers and raised startup
capital from Hambrecht & Quist and went home // H&Q ¾ð±Þ
to Taiwan. There, in 1989, in Taiwan's Hsinchu
Science Park, Wu and his recruits established // ½ÅÃß°ø´Ü
Macronix International Co., Ltd. to manufacture
high-end computer chips. "We mixed a U.S. // ¸¶ÀÌÅ©·Î´Ð½º
technology base with Taiwanese manufacturing
technology," explains Wu. Today Macronix has a
stock market capitalization of $2 billion.

The story is not unique. Combinations of U.S.
know-how and Taiwanese entrepreneurship, // Àα¸ 2100¸¸
engineering and manufacturing skill are creating
enormous new wealth on this island of 21 million.
Taiwan bustles with high-tech activity—almost a
trans-Pacific replica of Silicon Valley. In this it
differs significantly from, say, Japan and Korea,
which built their late-20th-century prosperity on
mass manufacturing. // Çѱ¹°ú ´Ù¸§

While much of Asia is mired in recession, Taiwan
thrives. This year economic growth should top
5%. "If Taiwan didn't have high-tech industries
the last three to four years, it would be in bad
shape, too," asserts Ta-lin Hsu, Taipei-based
chairman of H&Q Asia Pacific. // 5% ¼ºÀå·ü - ÇÏÀÌÅØÀ¸·Î

Many of these firms, clustered in a 60-mile
corridor between Hsinchu and Taipei, are run by
some of the tens of thousands of Taiwan-born
engineers and scientists who have returned from
the U.S. with skills, experience and contacts.
"They've tried to clone what's gone on in the
U.S.," explains Diahann Brown, a Hong // ¹Ì±¹ÀÇ ¸ð¹æ
Kong-based senior fund manager at Dresdner
RCM Global Investors (Asia) Ltd.

The electronics sector of the Taiwan Stock // 18 °³¿ù°£
Exchange has surged 170% over the past 18 // 170% ¼ºÀå
months and the country's over-the-counter // Àå¿ÜÁÖ½Ä
market bulges with new computer-related listings.
There's a roaring, unregulated trade in "gray
market" unlisted technology shares, and billions of
dollars have flowed into the island's vibrant
venture-capital industry. // º¥ÃÄ¿¡ ¼ö½Ê¾ïºÒ À¯ÀÔ

"There's a high-tech gold-rush feeling here," // °ñµå·¯½Ã
muses Wen Ko, a wealthy venture capitalist and
former Hewlett-Packard executive. "Very few
countries have so many people willing to put
money into high-risk startups." After the U.S.,
probably no country has created as much new
wealth in the personal computer industry as // ¹Ì±¹ ´ÙÀ½
Taiwan.

Taiwan's electronics industry is spawning new // ºô¸®¿À³×¾î
U.S.-dollar billionaires. Among them: Hon Hai
Precision's Terry Kuo, Advanced Semiconductor
Engineering's Jason Chang and Winbond
Electronics' Chiao family.

The wealth created has been widely shared. // â¾÷ÁֽĹè´çÀº
Stock options are illegal in Taiwan, but Taiwan // ºÒ¹ý
startups compensate for low salaries with // ¹«»óÁֽĹèºÐÀ¸·Î
generous grants of stock to most of their workers. // ÇØ°á
A booming stock market has done the rest.

At phenomenally profitable Taiwan // TSMCÀÇ ÁÖ½Ä º¸³Ê½º
Semiconductor, engineers have reportedly earned
$400,000 to $500,000 a year over the past // 40-50¸¸ºÒ
couple of years because of lucrative stock
bonuses. Even janitors have grossed $50,000 a // û¼Ò¿øµµ
year. This, in a country with a per capita income // 5¸¸ºÒ
less than half that of the U.S. You can see the
prosperity in the comfortable new homes
springing up in such places as Hsinchu and Taipei.

A bubble? The stock market may be overheated, // °æÁ¦±âº»Ã¼·Â
but the fundamentals are solid. The small island is // ư½ÇÇÔ
the world's largest supplier of a laundry list of
high-tech gear: computer monitors, modems, // ¸ð´ÏÅÍ, ¸ðµ©,
motherboards, keyboards, power supplies, // ¸¶´õº¸µå, Űº¸µå,
scanners, pointing devices, desktop and // Àü¿ø, ½ºÄ³³Ê,
notebook computers. // Ç¥Áö±â±â, µ¥½ºÅ©Å¾, ³ëÆ®ºÏµî

No wonder Taiwan's treasury bulges with foreign
reserves of $84 billion: 95% of the country's // ¿Üȯº¸À¯
high-tech output is exported. "We're the // 840¾ïºÒ
manufacturing center for the American personal // ÇÏÀÌÅØ »ý»êǰ
computer industry," asserts Eric Wu, chairman of // 95% ¼öÃâ
Taiwan Securities Co., Ltd.

The brand on your desk may say Compaq, HP or // OEM »ý»ê
Dell, but it's probably made in Taiwan by an
entrepreneurial firm such as Compal, Acer,
Inventec or Mitac. "Taiwan has become an
extension of the U.S. high-tech industry," explains
Peter Shen, general manager of IBM Taiwan
Corp.



"There's a gold rush feeling."
After the U.S., no one has
created as much new wealth in
PCs.

WEN KO



Profits? According to Peter Kurz, director of // 26%ÀÇ
Merrill Lynch Taiwan, the average return on // ÅõÀÚ ÀÌÀÍÀ²
equity for a listed electronics company is
26%—the sort of profitability rarely seen in Japan
or South Korea.

Taiwan's decentralized economic model deserves // ºÐ»êÇü °æÁ¦
a good share of the credit. Whereas Japan and // ¸ðµ¨
Korea are dominated by giant firms, Taiwan is
packed with thousands of agile, entrepreneurial
manufacturers. A Hitachi will make everything // Áß¼Ò±â¾÷À§ÁÖ
from nuclear reactors to electric razors, a
Samsung everything from semiconductors to // Çѱ¹°ú ¹Ý´ë
automobiles. The typical Taiwan firm does one or
two things and does it very well. The // º¯È­¿¡ ½Å¼Ó ´ëÀÀ
decentralized Taiwanese economy is well adapted
to the bewildering change of computer
technology. "When product cycles [in PCs] are
so short, only the fastest survive—and the
Taiwanese are the fastest," asserts H&Q's Hsu.

And cheapest. Tapping its rapidly expanding // Áß±¹ÀÇ Àú·ÅÇÑ
low-cost production base in China, Taiwan's // »ý»ê°¡ ÀÌ¿ë
market share of PC-related equipment is rising as
product prices come down worldwide and only // ¾Æ¿ô¼Ò½Ì ¼º°ø
the most efficient survive. The Taiwanese have
greatly benefited from the industry trend toward
outsourcing.

"The Taiwanese can lower costs faster than // õºÒ ¹Ì¸¸ PC
anyone else," says Kurz. "Sub-$1,000 PCs have // »ý»ê±âÁö·Î
forced Compaq and IBM out of manufacturing,
which they've turned over to the Taiwanese."
IBM, for instance, has boosted purchases from
Taiwan from $300 million in 1994 to an estimated
$1.8 billion this year. Compaq buys even more,
and Dell will source all of its notebook computers
from Taiwan this year. // IBM, įÆÑ, µ¨ ¼öÁÖ

But it's not just contract manufacturing the
Taiwanese are providing these days. PC // »ý»ê ¿Ü
companies such as IBM are increasingly turning // µðÀÚÀÎ,
over to Taiwanese partners the whole chain of // â°í¿ªµµ
design, engineering, production, inventory
management and worldwide logistics of their
machines.

All this makes Taiwan a perfect partner for // ½Ç¸®ÄÜ ¹ë¸®¿Í
Silicon Valley. "The U.S. is strong on the research // ¸ÅÄ¡
side—ideas and creation—and marketing,"
explains IBM's Shen. Taiwanese have positioned
themselves in the middle as the production
partner. Adds H&Q's Hsu: "Anything that comes
out in the U.S. we can do better, cheaper and
faster."

Unlike the Japanese and Koreans, the Taiwanese // Çѱ¹Àº
don't compete with their own brand names. This // ÀÚ»ç ºê·£µå·Î
makes them ideal partners for U.S. firms seeking // °æÀï (?)
efficient, low-cost manufacturing. "You're going to
see more and more U.S. [PC] companies buying
from Taiwan," predicts Shen. "Even the Japanese,
proud as they are, are buying here."

Why is Taiwan emerging as the strongest /ºÐ¼®
economy in Asia? Two decades ago, capable
technocrats in the Taiwan government pondered
the future. The island had gone from poverty to
prosperity on fast-stepping, low- cost
manufacture of such consumer items as garments,
toys, footwear and sporting goods. "By the late
1970s and early 1980s we had reached full
employment and the labor-intensive industries
could no longer survive," recalls K.T. Li, 88, an // ¹°¸®ÇÐÀÚÀÇ
architect of Taiwan's economic miracle and today // ºñÁ¯
senior adviser to President Lee Teng-hui. Li, a
Cambridge University graduate and a physicist by
training, is a Taiwan legend.

As Li describes it, the government did not draw // Ãʱ⠱³À°ÅõÀÚ
up elaborate economic plans. Instead it invested
heavily in science and engineering education
(today more than 10,000 engineers a year // Àü°øÀÇ ÀÚÀ¯¼±ÅÃ
graduate from Taiwan universities). At a time
when the private sector lacked capital for R&D,
the government funded semiconductor- and // °üÁÖµµÇü ¿¬±¸¼Ò ¹×
computer-research projects, which helped to train // ÅõÀÚ
engineers. In short, the government prepared the
soil but left it to others to till.

As the government-funded research projects
began to produce results, the government spun // º¥ÃÄ ±â¾÷Çü¼º
them off to private entrepreneurs. The island's
two largest semiconductor firms—Taiwan // ±¹¿µ ¿¬±¸¼Ò·ÎºÎÅÍ
Semiconductor Manufacturing Corp. (TSMC)
and United Microelectronics Corp. (UMC),
which have a combined stock market value of
$25 billion today—were originally spinoffs from
government laboratories.

Li says he studied Silicon Valley; Research // °ø¾÷/¿¬±¸´ÜÁö Á¶¼º
Triangle, N.C. and Route 128, Mass. before he
helped set up Hsinchu Science Park at the end of
the 1970s. In earlier years many of Taiwan's
brightest young people went to the U.S. for // Ãʱâ À¯Çлýµé
education, often financed by scholarship money, // ¹Ì±¹ ÀÜ·ù
and stayed there because their native island's
rather rudimentary manufacturing offered them
little opportunity or challenge.

Hsinchu Park marked a turning point. Located // »êÇÐÇùµ¿
near top universities and government research
institutes and offering low-cost land, green vistas
and a minimum of bureaucracy, the technology
park helped to reverse Taiwan's brain drain. // ºê·¹ÀÎ µå·¹ÀÎ
Today Hsinchu Park, with more than 200 // ¹ÝÀü
companies and 72,000 workers, is overflowing.
The government is building a second, larger
science park near the southern city of Tainan.

"We stored hundreds of thousands of scientists
and engineers in the U.S.," says H&Q Asia // À¯Çлýµé ±Íȯ
Pacific's Hsu, a former IBM scientist. When this
talent came back, many of them with work
experience, they transplanted technology, ideas
and the Silicon Valley spirit to Taiwan.

To stimulate the high-technology sector, the
government employed some supply-side // °ø±ÞÃø¸éÀÇ °æÁ¦ÀÌ·Ð
economics, showering the industry with tax // 1980 ÀÌÈÄ
concessions from the 1980s. To begin with, there
is no capital gains tax in Taiwan, but the // Àç»êÁõ½Ä¼¼ ¾øÀ½
government also granted tax holidays and // ¼¼±Ý ÈÞÀÏ(???)
investment credits to high- tech companies. "The // ÅõÀÚ Å©·¹µ÷
semiconductor companies have 40% to 50%
margins, but pay no tax," marvels Gary Tseng,
chief financial officer of UMC. But they return to
their society in jobs and exports many times what
the foregone taxes would have brought. Minister
of Finance Paul Chiu tells us he doesn't worry
about the lost corporate taxes because of all the
employment, personal income and stock // ¼¼±Ý´ë½Å Á÷¾÷ ¾ç¼º
transaction taxes generated by the booming
computer industry.

Face/Off

SILICON VALLEY
TAIWAN
Public tech
companies
Public tech
companies
240
120
IPOs in 1997
IPOs in 1997
39
24
Market cap
Market cap
$534 billion
$100 billion
Total sales
Total sales
$169.5 billion
$27 billion
Total profits
Total profits
$13.7 billion
$3.48 billion
Employees
Employees
(Hsinchu Park)
377,596
72,000
Tech billionaires
Tech billionaires
33
3
Sources: Media General and Joint Venture: Silicon Valley
Network; Derek Tien, analyst; Merrill Lynch in Taiwan; Peter
Tsao, analyst, ING Barings in Taiwan.


In the early 1980s K.T. Li surveyed Taiwan's
nascent computer industry and decided the // º¥ÃÄ Áö¿ø±Ý
missing ingredient was venture capital. He pushed
through the necessary legislation and invited H&Q // ¹Ì±¹½Ä
to help set up a venture capital organization. Key
tax incentive: Investors in venture capital funds
may credit 20% of their investment against their
income taxes. // °³ÀÎ ¼ÒµæÁß º¥ÃÄ Áö¿ø±ÝÀº 20% °¨¼¼

"Today there's a stampede," reports H&Q's Hsu. // ¹Î°£ º¥Ãıâ±Ý
"Everybody and his brother is trying to set up a // Æø¹ß
venture capital fund." Wen Ko, chairman of WK
Technology Fund, which has $220 million under
management, adds: "I didn't have time to print up
a prospectus before my sixth fund was
oversubscribed." When Charlotte Kuo, an
investment manager at Pacific Venture Partners,
called on a young liquid-crystal-display maker in
Kaohsiung, she discovered that she was his 30th
potential investor.

Contrast this with Japan and Korea, where
venture capital scarcely exists. // Çѱ¹´Â º¥Ãıâ±ÝÀÌ ºÎÁ·

The benefits of venture capital aren't all that
Taiwan has to teach the rest of Asia. Southeast
Asia lacks Taiwan's abundant pool of skilled // ±â¼ú·ÂÀÇ ¿ì¿ù
engineers and its deep technological and industrial
base. Thailand had an expensive flop in // ŸÀÏ·£µåÀÇ ½ÇÆÐ
semiconductors because it lacked the supporting
industries that abound in Taiwan.

Japan and Korea have technology and highly
educated workers, but they lack the // Çѱ¹Àº â¾÷ÀÇ¿åÀÌ ºÎÁ· (?)
entrepreneurship and risk-capital system of
Taiwan. "This is a more open, dynamic society,"
says Pierre Chen, who, with his brother, built up
Yageo Corp., a passive-components maker, and
has amassed a $600 million family fortune. "It's
heavily influenced by U.S. culture."

Literally everyone in Taiwan wants to be his or
her own boss."We have more of an // ´ë¸¸ÀÇ Ã¢¾÷ÀÇ¿å
entrepreneurial spirit," concurs Paul Wang,
chairman of Pacific Venture Partners and a
former IBM executive. Wang contrasts this with
Japan: "You don't see many people quitting
Fujitsu to start their own companies. There are
new ventures set up here every day. It's even
more dynamic than Silicon Valley."



"The capital market is very
democratic in Taiwan. Capital
doesn't just flow to the strong."

ERIC WU



A local joke making the rounds in the industry: If
a roof falls down in Taiwan, it will kill at least four
chairmen of electronics companies. // ÁöºØ Çϳª ¹«³ÊÁö¸é
// ÀüÀÚ¾÷ »çÀå ³ÝÀÌ ±ò¸²
In Japan and much of Asia, capital flows to // ºÎÀÇ ÆíÁßÇö»ó
capital. In Taiwanas in the U.S. to a degree
capital flows to talent. "The capital market is very
democratic in Taiwan," comments Taiwan
Securities' Wu. "Capital doesn't just flow to the
big, strong companies." // ´ë¸¸¿¡¼­´Â ±â¼ú Àִ ȸ»ç·Î

With plenty of equity capital available, Taiwan
companies can avoid the debt burdens that now
weigh so heavily on most other Asian companies.
Finance Minister Chiu calculates that the // ºÎäºñÀ² ºñ±³
debt/equity ratio of the top 100 Korean industrial
companies is five times higher than a similar
spectrum in Taiwan. In fact, Taiwan's electronics
industry bears a lower debt burden than its // ¹Ì±¹º¸´Ù ¿ì·®
counterpart in the U.S., according to Lily Wu,
Asia technology analyst at Salomon Smith
Barney.

Where does this abundant capital come from? At
the startup stage it traditionally came from the
savings of family and friends. Now it is a // ÀÚ±ÝÀÇ À±È¸(?)
self-reinforcing flood. "These rich engineers put
seed money into high- tech prospects because
they're young, willing to take risks, and they don't
know of any other way to use their money,"
explains venture capitalist Wen Ko. "They invest
in what they know best."

Helping make investment attractive is the // ÁÖ½ÄÅõÀÚ È°¼ºÈ­
tremendous liquidity in the system. Take the
Taiwan Stock Exchange. Last year its trading
volume, 90% retail-driven, was $1.3 trillion,
greater than Tokyo's and the third largest in the
world after New York and London. About 30%
of Taiwan's population holds stocks, compared
with estimates of under 10% in Japan and Korea.
Figures such as Acer's Stan Shih and TSMC
boss Morris Chang are as much folk heroes in
Taiwan as Bill Gates and Steve Jobs are in the
U.S.

Over Taiwan's future, of course, hangs the // Áß±¹°úÀÇ °ü°è
question mark of its relationship with China,
which claims the island as an errant part of the
motherland. But for the moment the relationship
with China is an asset, not a liability. Although the
two governments do not even recognize each // ±ØÈ÷ Çö½ÇÀû
other formally, economic relations are close.
Access to the Chinese labor force mainland wage
rates are a tenth of Taiwan's enables Taiwanese // 1/10 ³ëµ¿°¡
companies to counter falling prices with steady
cost reductions. Yageo, for instance, revitalized
its thin-film resistor line and doubled gross
margins to 28% to 30% by shifting output to
China. Taiwan's PC-related manufacturers have
invested in literally thousands of factories in
Dongguan (Guangdong province) and Suzhou. // ³²ºÏÇÑÀº ???

That's good news for Beijing, too, which reaps
benefits in jobs and foreign exchange. Looking
down the road, there may well be some sort of
rapprochement between Taipei and Beijing. But
for now both sides are too busy making goods
and making money to let politics upset the
applecart. Which means that for the foreseeable
future Taiwan stands as a model to the rest of
Asia on how to modernize an economy.

Sidebars:

Taiwan's Valley Boys
Seizing an opportunity

| back to top |

Read more:

By Andrew Tanzer
On The Cover
From June 1, 1998 Issue






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