Taiwan s high tech industry at the turn of the century
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Taiwan’s High-tech Industry at the Turn of the Century. Chi Schive President Taiwan Academy of Banking and Finance Advisor Council for Economic Planning and Development. Industrial Restructuring in Asia Thammasat University September 18, 2000. High-tech Development in Taiwan. Outline

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Taiwan s high tech industry at the turn of the century

Taiwan’s High-tech Industry at the Turn of the Century

Chi Schive

President

Taiwan Academy of Banking and Finance

Advisor

Council for Economic Planning and Development

Industrial Restructuring in Asia

Thammasat University

September 18, 2000


High tech development in taiwan

High-tech Development in Taiwan

Outline

I. Introduction

II.Status of Taiwan’s high-tech industry

III.Development of high-tech industry in Taiwan - the case of semiconductor industry

IV.Policy for developing high-tech development industry in Taiwan

V.The foundation of the high-tech economy

VI.Global logistics in Taiwan’s high-tech industries


Industrial structure

Industrial Structure

%

Source: Ministry of Economic Affairs, Promotion Plan for Asia-Pacific Manufacturing Center, July 1998.


World s no 1 producers in taiwan

World’s No. 1 Producers in Taiwan

Sources: Cosmos Magazine, Oct., 1984; Ministry of Economic Affairs, ITIS project.


High tech share of taiwan s exports

High-Tech Share of Taiwan’s Exports

%

52.1

26.0


Policies relevant to high tech industry in taiwan

Policies Relevant to High-Tech Industry in Taiwan

Preparation (1960-80) - Technology development

  • Development of core-satellite industrial grouping

  • Establishment of Industrial Technology Research Institute (ITRI ,1973), Institute for Information Industry (1979), Development Center for Biotechnology (1984)

    Seedling (1981-90)

  • Establishment of Hsinchu Science Park (1981)

  • Encouraging venture capital business and providing tax incentives to high-tech firms (1984)

  • Foreign exchange and financial liberalization

  • Environmental protection


Policies relevant to high tech industry in taiwan1

Policies Relevant to High-Tech Industry in Taiwan

Expansion (1991- )

  • Promoting “ten emerging” industries - Statute for Industrial Upgrading (1991) providing tax holidays or tax credits

  • Subsidy (1991) to product development up to 50% of R&D spending

  • Subsidy (1997)to technology development

  • Promoting NII (national information infrastructure) (1996)

  • Setting up venture business incubator in universities and research institutions (1998)

  • Granting property right of government-funded research output (1999) to research organizations


Then rise of it industries in taiwan

Then Rise of IT Industries in Taiwan

  • As the market for black and white televisions shrank, Taiwan’s prosperous television industry switched to produce monitors, which was a readily available alternative.

  • Local firms entered the industry in five ways

    • People with first-hand experience, such as university professors and former game television manufacturers who lost business after the government closed television game playhouses

    • Former marketers for foreign multinationals

    • Local companies organized by large multinationals

    • Start-ups with government contribution of funds and technology

    • Local firms seeking to expand product lines


Then rise of semiconductor industries in taiwan

Then Rise of Semiconductor Industries in Taiwan

  • Subsidiary established by General Instrument (1966), Texas Instrument, RCA, and Philips (1969-71)

    • helped develop skilled labor and technicians and managers

    • introduced packaging and resting technology, and quality control system

  • Laboratories established within educational and research institutions

  • Electronics Research and Service Organization (ERSO) established 1974 developed a technology with good market potential and competitive cost

  • United Microelectronics Corporation (UMC) was jointly formed by the government, public bank and private enterprises.


Taiwan s high tech industry at the turn of the century

The Foundation of the High-tech Economy

ICT

Capital

Labor

Venture Capital

R&D People

Institutional Setting


Taiwan s high tech industry at the turn of the century

Merits of Taiwan’s Financial Market

Indirect Finance

Finance

Venture Capital

Note: Indirect finance refers to change in lending and investment by financial institutions; direct finance refers to change issuance of stocks, notes, and bonds.

Source: Central Bank of China.


Industrial structure of selected stock markets

Industrial Structure of Selected Stock Markets

Sources: Stock exchanges of Taiwan, Hong Kong, Singapore, and Thailand.


What financial system did for taiwan s ict industry

What Financial System did For Taiwan’s ICT Industry?

Continuous, steady financial liberalization in appropriate sequence since the late 1970s

  • Floating exchange rate regime was implemented in 1979.

  • Limits on interest rate change were abolished in 1989.

  • The ban on establishing new banks was lifted in 1990.

  • Stock and money markets have been steadily expanding and improving.

  • Capital market was opened to foreigners in three phases since 1983.

  • WTO-GATS commitments.


What financial system did for taiwan s ict industry1

What Financial System did for Taiwan’s ICT Industry?

As a result

  • Taiwan posted the least spreads between lending and deposit rates on the list of the IMD global competitiveness list. Capital adequacy ratio is far above the required 8% by BIS.

  • Investment efficiency and quality rose due to increasing competition of the financial market.


Taiwan s high tech industry at the turn of the century

Increasing Number of Banks in the 1990s

New Banks

Reorganized form trusts

Reorganized form cooperatives

Reorganized from trusts

Source: McKinsey&Company.


Growth in the stock and otc markets

Growth in the Stock and OTC Markets

Source: Securities, Exchange, and Futures Commission, Ministry of Finance, June 1998.


Increasing openness of taiwan s financial sector

Increasing Openness of Taiwan’s Financial Sector

Source: Central Bank of China, Ministry of Finance.


Taiwan s high tech industry at the turn of the century

Knowledge

Capital Market

Banks

Innovations

V.C.

SMEs

?

Large firms

Commercialization

TSMC, Winbond, and Micronix were established with v.c.


Taiwan s high tech industry at the turn of the century

An Alternative to Industrial Policy

Tax incentives (no more today)

Venture

Capitalists

Investors

Innovators

High-tech industries

Good projects

Banks

Insurance companies

Institutional investors


Sectoral distribution of venture investment

Sectoral Distribution of Venture Investment

Source:Taipei Venture Capital Association, Venture Capital Report, No. 19, 1998.


Performance of v c firms

Performance of V.C. Firms

Earnings Per Share

NT$

6.33

Top 10

1.81

0.12

Average


Taiwan s high tech industry at the turn of the century

Growth of VC Firms in Taiwan

Source: Taipei Venture Capital Association (June 2000).


What fiscal sector did for taiwan s ict industry

What Fiscal Sector did for Taiwan’s ICT Industry?

  • Income taxes were moderate.

  • Fiscal surplus as a percent of GNP was 6.6% in average during 1974-81.


R d indicators

R&D Indicators

%

Source: National Science Council, Indicators of Science and Technology, 1999.


R d spending as a percent of gdp

R&D Spendingas a percent of GDP

Source: National Science Council, Indicators of Science and Technology, 1999.


Researchers per 10 000 population

Researchers per 10,000 Population

Source: National Science Council, Indicators of Science and Technology, 1999.


No of patents granted in the u s

No. of Patents Granted in the U.S.

Rank

77 7 7754

Source: U.S. Patent and Trademark Office, U.S. Department of Commerce.


Employment by level of education

Employment by Level of Education

%

Source: Directorate-General of Budget, Accounting & Statistics, Monthly Bulletin of Manpower Statistics, 1999.


Higher education graduates by discipline

Higher Education Graduates by Discipline

%

Source: Ministry of Education, Education Indicators, 1999.


Behind the emergence of global logistics

Behind the Emergence of Global Logistics

  • Production fragmentation - Classic trade theory

    To push cost down, vertically integrated production processes are taking place across country borders around the world.

  • New phenomenon

    Shortening product cycle is generating inventory pressure.

  • New phenomenon

    Technology change improves the cost of information transmission and goods transportation.


Changes in local operations

Changes in Local Operations

Before the mid-1980s

In the late 1980s and early 1990s

After the mid-1990s

: Local operations


Taiwan s high tech industry at the turn of the century

Taiwan’s International Division of Labor

I:Investment

M:Materials/Intermediates

Q:Finished product/commodity

S:Strategic alliance

Japan

S

Q

I&M

I&M

Taiwan

U.S.

Q

Q

S

I&M

Q

Before the mid-1980s

Late 1980s and early 1990s

After the mid-1990s

Q

M

ASEAN

China


Procurement order sharing by taiwan firms

Procurement Order Sharing by Taiwan Firms

%

Source: Ministry of Economic Affairs, Statistics Department, Survey on Manufacturing Activities,July 1999.


Production sharing of taiwan s information industry

Production Sharing of Taiwan’s Information Industry

%

* Estimates.

Source: Market Intelligence Center, Institute for Information Industry.


Taiwan s high tech industry at the turn of the century

Taiwan as a Global Logistics Center

1. DELL sends a request to Taiwan upon a Singaporean client order

2. The U.S. firm sends CPU to Taiwan

3. China sends cases and power supplies to Taiwan

4. China sends semi-assembled parts to Taiwan

5. Malaysia sends PCB to Taiwan

6. Taiwan sends DRAM mainboard and semi-asembled parts to Singapore

7.China send monitors to Singapore

8. Singapore assembles and sends the finished PC to the client

9. DELL sends the payment to Taiwan

China

U.S.

DELL

2

CPU

MONITOR

7

4

9

Order

3

1

Taiwan

Singapore

6

DRAM main-board

PC

8

5

PCB

Malaysia

Steps 1 to 8 take 2 to 5 days to complete

Source: Prepared by CEPD.


Taiwan s high tech industry at the turn of the century

Building Global Logistics Capabilities

GLC

Cash

Information

Products

Logistics

Financial

Telecom

International funding and payment

Fast data transmission and management

Manufacturing

Sea/Air

Main supplier on the global market - tech and mfg capability

Customs clearance and fast delivery

Macroeconomic

Free flows of 4 I’s (industries, investment, individual, information)


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