April 23rd 2005

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Articles from this issue:


EDITORIAL: Telstra: the latest push for privatisation

CANBERRA OBSERVED: Howard to use Canberra power against states

EDUCATION: Cutting university places in the not-so-clever country

TRADE: Where do we go next with Japan?

FAMILY LAW: 'No-fault' principle undermines marriage

HISTORY: The Vietnam War - 30 years on

STRAWS IN THE WIND: A society of hoons? / The Nobel committee's Syllabus of Errors / The triumph of Roma

ASIA: China's burgeoning naval power

ECONOMIC DEVELOPMENT: Taiwan's high-tech industry: lessons for Australia

INDONESIA: Obstacles to an Indonesian partnership

CLIMATE: Kyoto: why we should be sceptical

BOOKS: FORGOTTEN ARMIES: The Fall of British Asia, 1941-1945

BOOKS: Despite the Barking Dogs, by Stanislaw Gotowicz

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Taiwan's high-tech industry: lessons for Australia

News Weekly, April 23, 2005
One of the nations which, over the past 50 years, has shifted from a predominantly agricultural to a sophisticated post-industrial economy is Taiwan. Unlike Australia, which runs chronic trade deficits and relies increasingly on a service industry economy, Taiwan records massive trade surpluses through exports generated by high-tech industries.

One of the fastest growing sectors of the new economy is in optoelectronics, which includes liquid crystal displays, solar cells, optical storage devices and digital cameras.

This happened because 20 years ago, Taiwan's forward-looking government put money and resources into the development of the industry, as Owen Chu reported recently in the Taiwan Journal. Australia should look at what Taiwan has done, and use the same approach to develop Australian industries.

According to a report by Taiwan's non-profit Photonics Industry and Technology Development Association (PIDA), in 2004 the production value of the nation's photonics industry-makers - mainly of optoelectronic products involving the use of light for data-transfer and communications purposes - was about US$28.7 billion (Aus$36 billion), an increase of 36 per cent over 2003.

Taiwan manufacturers commanded 13 per cent of the global optoelectronics market last year.

Taiwan's optoelectronics industry has experienced meteoric growth. In 1996 its production value was about US$3 billion. By five years ago, it had increased to around US$5 billion, and last year it reached US$28.7 billion. This year it is expected to top US$30 billion. How did this happen?

Pivotal player

A pivotal player in the story is Peter Shih, PIDA founder and executive secretary of the optoelectronics division at the National Science Council. About 20 years ago, when he was still working in the United States, he was invited by the Taiwanese government to come back to help boost Taiwan's technological development.

At that time, the science of photonics and its applications were largely ignored by industry, educational institutions and government policy-makers. Based on experience gained while working in the United States, however, Shih saw tremendous potential for commercial optoelect-ronic applications. He urged the government to put optoelectronic manufacturing on its list of industries deserving top-priority government promotion. His proposal was accepted, and his team was asked to draw up a blueprint for developing the industry.

Twenty years ago, hardly anybody in Taiwan had even heard of CDs. It was next to impossible for Shih to convey to the layman the nature and importance of laser and other photonic technologies and their commercial potential. So unfamiliar with such matters was the public that when he gave a little talk introducing a CD player he had brought back from Japan, it became sensational first-page news.

With the government's full backing, Shih and his team set out to get the advice of top-flight experts and introduce advanced technologies to Taiwan. Consequently, they decided first to focus on the development of optoelectronic semiconductors, liquid-crystal displays and laser discs, among others items. They drew up a long-term, multistage plan covering education, importation of advanced technologies, coordination of upstream and downstream industries, and improvement of Taiwan's research and development (R&D) environment.

The first important Taiwan-made optoelectronic products to be developed and make a name for themselves, over the period 1984-1994, were foolproof cameras and light-emitting diodes (LEDs). Next to come onto the market, beginning in 1995, were Taiwan-made personal computer peripherals such as laser discs and disc drives, scanners and digital still cameras. In 2000, the focus shifted to flat-panel displays.

With respect to the practical tasks of R&D and helping the private sector re-tool, obtain patent licences and locate necessary talent, it was the government-supported Industrial Technology Research Institute (ITRI) that has played the most decisive role in developing virtually every sub-sector in the industry. In 1987 it established the Electro-Optics and Peripherals Development Center, which a couple years later became the present-day OptoElectronics and Systems Laboratories.

Indeed, it is no exaggeration to say that without ITRI's thousands of scientists, legal experts and liaison staff, in addition to extremely generous tax holidays, free land rent and outright government subsidies, none of Taiwan's now outstanding hi-tech industries would have got off the ground.

There are around 1,000 optoelectronics firms in Taiwan today, of which about 900 are Taiwanese-founded and operated, including about 700 manufacturers and 200 distributors. Except for liquid crystal display (LCD) makers, most of them are agile and highly competitive small and medium-sized enterprises.

Shih said that technological competition among countries is very fierce. Although Taiwan has established a solid foundation in the fields of information technology and photonics, other countries are advancing as well. To maintain its competitive edge, he stressed, the local photonics industry must create higher value-added products by investing much more in core technology R&D and forming cooperative partnerships with players in a diverse array of fields, including academic researchers, to explore new applications.

The Industrial Development Bureau of the Ministry of Economic Affairs launched in 2003 a four-year plan to provide support and consultation services to local photonics manufacturers. Under this plan, both local and foreign investment in the industry are encouraged, and several international information exchange meetings have been held. Moreover, since 2003 more than 3,000 optoelectronics technicians have been trained in schools and on the job.

Though Taiwan's optoelectronics industry is often ranked as number two in the world next to Japan, it is qualitatively far behind Japan and other countries when it comes to investment in relatively basic R&D facilities and talent. Most of the Taiwanese players' innovations are limited to incremental refinements in production processes.

If they want not only to survive but get a bigger return on their investment, Taiwanese entrepreneurs must be willing to take bigger risks and invest in R&D that will produce genuinely innovative technologies clearly distinguishable from and superior to anything on the market, observers say.

Proactive government

The swift rise of the photonics industry in Taiwan, then, is mainly attributable to an extremely proactive government, which prodded basically passive business people to do what they should have been doing in the first place by luring them with dazzling incentives and giving them the benefits of the formidable ITRI's R&D and consultation services.

However effective this model of development may have proven to be in some cases, in a basically capitalist Taiwan, and in a global society where advanced competitors are willing to spend a huge percentage of their revenue on R&D, Taiwanese entrepreneurs cannot afford to be lazy or look for handouts.

Nor can they afford to care only about making short-term profits and, as a consequence, plough all their surplus capital into expanded production by building factories in China or other countries merely to produce more of the same old products and win bigger market share through exploitation of cheap labour. They must be self-starting and determined to be more than copycats, to stand out above the competition.

The government might best promote that end by funnelling more of its money into basic, genuinely innovative research and less into incremental research aimed only at bringing look-alike products to market. Companies that enjoy quick growth thanks to government assistance - out of taxpayers' pockets - must understand that their first duty is to pay back the Taiwanese people by investing in Taiwan. Perhaps of even greater importance, the entire philosophy and atmosphere of education in Taiwan must be changed as swiftly as possible to end the emphasis on rote memorisation and test-taking and develop the basic ability of original, creative thinking.

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