Prospects for taiwans Electronics Components industry
11/01/1997
Prospects for Taiwan`s electronics components industry
Michael Pecht, CALCE EPRC, University of Maryland, College Park, Maryland
Chung-Shing Lee, Heiden Associates, Washington, D.C.
Since the early 1990s, several major changes have occurred in Taiwan`s electronics components industry. First, firms have optimistically and aggressively increased investment and expanded facilities. Second, several major electronics firms (e.g., UMC and TSMC) have begun to participate in the high-value-added market for strategic IC components, such as CPUs and DRAMs, which they had previously shied away from due to inadequate capabilities. Finally, nonvolatile memory, a specially designed technology, has increasingly become a hotly pursued product in Taiwan`s semiconductor market. The potential for future development of Taiwan`s electronics components industry remains excellent; in fact, the island has several advantages.
Strategic advantages
Strong ability to learn, develop, and diffuse new technology. Since the Electronic Research and Service Organization (ERSO) first transferred MOS manufacturing process technology from RCA in 1976, Taiwan has developed a complete technological infrastructure for the electronics industry. Much of the IC manufacturing, design technology, and core technical team were transferred from ERSO. UMC was the first IC manufacturer spin-off from ERSO in 1980, followed by TSMC (1987), Winbond Electronics (1987), Hualon Microelectronics (1987), and IC design company spin-offs, including Syntek (1982), Princeton (1986), SIS (1987), and Proton Electronic Industrial Co. Ltd. (1985). The strong ability to learn and develop new technologies reflects the excellent quality of technical personnel in Taiwan. Highly educated personnel continually enter the emerging high-technology industries. The ability to diffuse technology with high payoffs has also promoted capital investments.
 |
Figure 1. Mechanism for ERSO to diffuse its technology.
Taiwan`s electronics industry incorporates many visionary entrepreneurs and excellent business management personnel. Many Taiwanese entrepreneurs were able to identify and take advantage of unique opportunities to invest in the electronics industry. For example, UMC`s and TSMC`s successes depended on the vision and management skills of their founders.
A strong downstream personal computer industry supports the upstream research and technology development. Taiwan`s companies are perhaps currently less capable in either design or process technology than American and Japanese firms. However, Taiwanese firms do possess both countries` strengths in many product areas. In the memory IC area, such as SRAM, Taiwan has UMC and Winbond; in the chipset category, Taiwanese manufacturers, such as SIS, ALI, UMC, and VIA, all have balanced technology and product developments. This unique characteristic has made it very difficult for South Korea - Taiwan`s chief competitor - to compete in the global electronics or semiconductor markets. In addition, Taiwan has a strong downstream PC industry to support the further development of the semiconductor industry; this is a strength that many of Taiwan`s competitors do not possess.
The industry has easy access to a low-cost capital supply from Taiwan`s financial market. The country`s semiconductor manufacturers have been riding a wave of economic expansion since 1990; consequently, most of them have accumulated a large amount of capital over the years, and are ready for reinvestment. The diversity of Taiwan`s capital market also contributed to the development of the electronics industry. Publicly traded electronics companies can easily obtain cheap capital for investment, reducing the cost of operation. Moreover, firms are able to control their own investment opportunities.
 |
A technician at Mitac International Corp. in Taiwan displays a printed circuit board. (Photo courtesy of Taipei Economic and Cultural Office)
High-quality human resources are sufficient to develop high-technology industries. Over the years, Taiwan has sent thousands of students to study abroad, especially in the US. After they became scientists or engineers, many returned to Taiwan and contributed to the high-technology development of Taiwan`s electronics industry. Recently, after the establishment of Hsinchu Science-based Industrial Park (HSIP), more overseas well-educated Chinese have returned to Taiwan (most in the fields of electrical engineering and computer science). This "reverse brain drain" is expected to continue, and further strengthen the technological and industrial capabilities of Taiwan. In addition, a large number of science and engineering graduates are coming out of the local universities every year. This large pool of high quality human resources provides a solid foundation for future development of high-tech industries in Taiwan.
Strong R&D support, in terms of electronics technology acquisition, transfer, and dissemination. The government`s ERSO has played the lead role in Taiwan. Most companies having industrial and technological potential are located in the HSIP, 80 km south of Taipei. Without its steady support, Taiwan`s semiconductor industry would probably not have been able to develop to its present effectiveness. In four domestic research projects, technological competence was gradually developed in all phases of the IC production process and passed on to private industry via spin-offs or through other channels (Fig. 1). The heavy support for the design process is remarkable. The DRAM shortage in the late eighties first brought about a greater concentration on the capability for integration and kicked off the current "submicron" project [Liu, 1993]. ERSO does not plan continued commitment to 64-Mbit DRAM/16-Mbit SRAM technology; efforts are to be autonomously continued by the industry, which has grown to industrial maturity (ERSO shouldered the total costs of the first three projects). In the "submicron" project, UMC and TSMC (plus symbolic contributions from Etron, Holtek, MXIC, Mosel Vitelic, and Winbond) are sharing half of the current costs for the first time; these companies have received low-interest loans for this purpose. ERSO is making its laboratory and 100 development scientists available, and is financing the acquisition of equipment and devices. At present, alongside the "submicron" project are a number of other domestic research projects targeting industrial development of semiconductor technology or applied technologies, under the overall leadership of ERSO or other institutions.
 |
Computer quality control is monitored at AST Taiwan Ltd. (Photo courtesy of Taipei Economic and Cultural Office)
Industrial policy
The development of Taiwan`s industrial capabilities has been and is being supported by comprehensive endeavors on the R&D, infrastructure development, and investment levels. It may be conjectured that the relative scope and intensity of Taiwan`s industry support are the highest among the East Asian countries, and its relationship with China may become the strongest benefit to both countries. The industrial policy support of the domestic electronics industry was designed for the long term from the outset, and effectively and successfully shaped industrial development.
The success of Taiwan`s electronics industry is based on three factors: first, the generally exceptional conditions for industrial production; second, the steady "reverse brain drain" from Silicon Valley; and, third, the demand pull of Taiwan`s electronic data processing industry. Policy that developed under these conditions helped create a vibrant, typically mid-sized industry. Policy activities, the national research projects for development of domestic technological competency, and liberal support for investment and production are likely to have been the most significant factors in its success.
Whereas industrial policy in Japan is pursued through rather close cooperation between the private sector and government, and in Korea the economic policy resides with the chaebols, in Taiwan overall industrial policy management clearly rests with governmental authorities. The initiative for originating and developing a domestic electronics industry in Taiwan emerged from government agencies, especially from the Ministry of Economic Affairs, which embarked upon development of ERSO in the early 1970s under the leadership of Minister Y.S. Sun. The decision-making and opinion-building process has been done openly and transparently, and includes foreign experts.
Unlike Korea and Japan, Taiwan is able to implement industrial policy free from foreign trade constraints and pressures. Access to the market in Taiwan is unhindered; foreign companies may participate in the growing domestic market by means of imports, direct investments, and technology transfer. Another advantage is that the strategy for catching up industrially has not concentrated on single products that subsequently clog the global market. Instead, the industrial policy is designed for broad technological dissemination, global integration, and import substitution. This approach creates very few points of friction with overseas firms.
Conclusion
The future prospects for Taiwan`s electronics industry are excellent. The indicated strengths (cost and sizing advantages, international networking, growing domestic market, flexibility, and dynamism of the mid-size sector) should prove sustainable over the medium to long haul. Taiwan`s companies will continue their successful strategy, that is, on the one hand, nipping at the heels of pioneering technological developments with a justified R&D outlay and, on the other hand, focusing on the production of smaller batch sizes. In this way Taiwan is likely to continue to be present in the global market in a timely fashion with technologically competitive products.n
Acknowledgment
This article is a revision of a report titled "Electronics Industry in Taiwan" by Chung-Shing Lee and Michael Pecht that is being published by CRC Press. This work was supported in part through a MANTECH program grant No. 60NANB500060 administered out of NIST as well as CALCE EPRC of University of Maryland.
MICHAEL PECHT received his MS degree in electrical engineering and MS and PhD degrees in engineering mechanics from the University of Wisconsin. He is a professor and director of the CALCE Electronic Packaging Research Center at the University of Maryland. He is a professional engineer, an IEEE Fellow, chief editor of the IEEE Transactions on Reliability, and a member of the advisory board of IEEE Spectrum and the Journal of Electronics Manufacturing. University of Maryland, College Park, MD 20742; ph 301/405-5323, fax 301/314-9269.
CHUNG-SHING LEE is a graduate of National Taiwan University and the University of Maryland. He is an economist at Heiden Associates in Washington, DC. Lee has more than seven years of industrial consulting experience, including computer and communications industries. His major research interests are in the areas of Asian technology development, business strategy, and technology and innovation management.