Science Park Key to Taiwan’s Growth : Technology: The scientific center has helped make Taiwan the world’s sixth-largest producer of computer-related products.

Bobo Wang can remember coming to Hsinchu in 1980 to see for himself the place that Taiwan’s government had declared would usher it into the age of high technology. He found a barren land in a rural area most famous for its peanuts.

There were no trees. No paved roads. No electricity.

“Just wind and desert,” the high-tech entrepreneur recalled.

Yet, in less than a decade, this desert has bloomed into Taiwan’s most visible and successful symbol of high-tech growth: the Hsinchu Science-Based Industrial Park.

And Wang reflects its fortunes. As co-founder of Microtek International Inc., Wang has become a multimillionaire and his firm has established a reputation for innovative image scanners.

More than any single institution, the science park is credited with pushing Taiwan from a low-cost maker of textiles and toys to the world’s sixth-largest producer of computer-related products.

Today, more than 100 companies stand on the park’s once empty ground. They employed 16,456 people last year and sold $1.75 billion in products ranging from high-speed modems to computer chips.

With a productivity rate three times higher than Taiwan’s electronics industry overall, park employees helped push the nation’s total high-tech output to $5.2 billion in 1988. That figure outstripped Singapore and South Korea and propelled the island into Asia’s export leader after Japan.

The most important exports have been personal computers and components, although other product fields include telecommunications, optoelectronics, factory automation and bioengineering. Presently, Taiwan is trying to switch to software development and more advanced products with higher profit margins, such as workstations.

“In 1980, we were very much concerned with the question, ‘Do people want to come here?’ ” said H. Steve Hsieh, park director general. “Now we have so much business that we’ve run out of room.”

Hsinchu’s secrets? Government incentives to attract foreign firms and local entrepreneurs, such as tax holidays, reduced corporate taxes and duty-free importation of equipment and raw materials; and direct government grants to encourage innovation and research and development, two of Taiwan’s greatest bugaboos.

The park also offers training programs on such fields as semiconductors to create the critical mass of specialists few companies can afford alone. And the park’s location, about a 90-minute drive from Taipei, is close to two major universities and a government research institute to provide the requisite brain power.

Park designers have even tried to duplicate a Western standard of living to attract foreigners and Chinese engineers in the United States who possess the advanced technical know-how essential to Taiwan’s development. In startling contrast to congested and grimy Taipei, the Hsinchu park boasts Spanish-style stucco town houses, a man-made lake, tennis courts and a Chinese-English bilingual school.

In short, Taiwan has targeted high technology as a strategic industry and funneled substantial public dollars into developing it. It is the same kind of industrial policy that Japan has employed successfully, although in the United States vociferous debate continues about whether it is wise to meddle so much in the free market.

“We have talked about this strategy for a long time, and some people argue that you are subsidizing the private sector with taxpayers’ dollars,” Hsieh said.

“But look at what Japan is doing,” he said. “The government has traditionally taken a strong role in developing the economy in Taiwan, for the simple reason that we do not have big companies. They really cannot talk about long-term planning. They care about tomorrow’s business. That’s why the government role is so strong and, I say, very successful.”

Since opening the park in 1980, the government has invested about $385 million in Hsinchu, which covers 1,000 acres and is scheduled for expansions. Entrepreneurs such as Y. S. Fu of Logitech Inc. say many reasons attracted them to the site.

“The labor quality is high. The technical professional people are available through the university,” Fu said. “The tax holiday helps you start up a company and helps you over a difficult time in the initial stage.”

But Hsinchu is merely the linchpin of a deliberate government effort to develop Taiwan’s high-tech industry. When officials first articulated that ambition a decade ago, it was widely scoffed at as unrealistic, said Han-Min Hsia, National Science Council chairman.

A “brain drain” had milked the country of its best and brightest. Most daunting, perhaps, was Taiwan’s business structure: not giant conglomerates capable of long-term investment, such as in Japan and South Korea, but tens of thousands of small but scrappy entrepreneurs.

With help from the U.S. management firm Arthur D. Little Inc. and U.S.-trained Chinese engineers, however, Taiwan dived in.

Officials created the park and other institutions. One of the most important has been the Industrial Technology Research Institute, which produces near-term research with commercial applications. For instance, the institute has fostered Taiwan’s efforts to build a semiconductor industry by transferring its chip technology to the Taiwan Semiconductor Manufacturing Co., the island’s second chip firm.

The government also promoted venture capital firms, eased foreign exchange controls and liberalized censorship laws to promote the free flow of capital and information essential to high tech.

Perhaps what is most critical, in the view of such analysts as Tom Wang of Dataquest Inc., Taiwan tapped the pool of highly trained Chinese engineers in the United States. Some opened research labs in Silicon Valley for Taiwan firms, while others went back to aid the cause.

Hsinchu’s first director-general, for instance, was Irving Ho. His years in the high-tech field stretch back to the early 1960s, when he was a consultant to Fairchild Semiconductor Corp., then an upstart young firm now considered the seed of Silicon Valley.

“Ten years ago, when we started the science-based industrial park, we were met with a lot of skepticism,” Ho said. “Now we feel we are looked upon by our neighbor countries for our experiences and opinions.”

And Taiwan’s small firms turned out to be a plus. Unlike the slower-moving Korean chaebols, the frisky Taiwanese were able to quickly respond to the ever-changing technology.

For instance, after IBM introduced a personal computer based on a 16-bit chip in the early 1980s, it took Taiwanese firms 18 months to produce similar machines. After the next technological leap, the 32-bit computer in 1986, Taiwanese firms responded with a product six months later, said Wang, Dataquest’s director of Asian semiconductors and electronics technology. The Koreans took a year, he said.

“I think Taiwan has surprised a lot of people,” Wang said. “The pace has been surprising. It’s been so fast.”

But as Taiwan approaches the 10th anniversary of its high-tech launch, it is wracked with growing doubts about its future.

It was one thing to copy computers or make components for foreign firms. It is far more difficult, analysts say, to produce proprietary products under a Taiwan brand name.

So far, the Taiwanese have not shone, said Gib Hoxie, a senior consultant at Arthur D. Little Inc.

“In the PC arena, there’s not much product innovation. There are quality problems. They use cheap plastic, ugly colors. Unless they address that problem quickly, they’re going to bomb in the U.S.”

The Taiwanese know it. The government plans to set up a “quality research institute,” and offer incentives to firms that promote top standards.

Another major problem is the lack of investment in research and development. In 1988, the industry’s R & D expenditures were only 1% of its gross income--although Hsinchu firms spent 4.7%--compared to more than 10% for the U.S. information industry, Taiwan officials said.

In the past, Taiwan has heavily relied on licensing foreign technology instead of conducting its own research. But that will become more difficult as Taiwan advances.

“The licensing approach has its limits. When you become more advanced, and foreign firms see you as slightly behind, they become wary and won’t easily license to you at any cost,” said Morris Chang, institute president who was recently named president of Wyse Technology in San Jose.

Yet Taiwan’s small-business structure and continuing problems safeguarding intellectual property put a damper on in-house research, analysts say.

And some problems Taiwan has no control over. As technology matures, Taiwan will lose a chief advantage: its lightning-quick response to changing technology.

When the rate of change slows, as is happening in key segments of the computer industry, the advantage shifts to a place like South Korea, Wang and Hoxie said. There, the giant conglomerates can mass-produce products far more efficiently.

Most troubling, analysts say, is the “get-rich-quick” mentality that has arrested the island. The money fever, stoked by a stock market whose index has zoomed to 10,000 this year from 1,500 in 1986, is seriously eroding Taiwanese work habits, critics say. The local joke is that ROC stands not for Republic of China but “Republic of Casino.”

“The attitude has changed dramatically among high-tech workers in Taiwan,” Chang said. “Four years ago, more were planting their feet solidly on the ground of advanced technology to build a business. Now it’s much more of a money-pursuit game. Some of the investment is made not because investors want to build a business, but because they want to sell stock.”

Will Taiwan make it? Even the most successful native sons have their doubts.

“What we’re facing in front of us is that we’re still not paying enough attention to quality, to intellectual property and to a long-term view of how to manage a business,” Wang said. “Without these things, it will be difficult for Taiwan to reach the major leagues.”

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