COLUMN ONE : Taiwan, the Republic of Computers : The technological revolution came just in time. As labor-intensive industries have left, the tiny island has become the world’s No. 1 producer of monitors, keyboards, mouses and more.
This is how Lin Yang-kang, acting on the noblest Confucian principles, inadvertently helped to create the $20-billion Taiwanese computer industry:
In 1980, when he was interior minister under the martial-law Nationalist regime, Lin grew concerned that Pac-Man and other video arcade games were corrupting Taiwan’s youth. Government newspapers joined his crusade.
“This spiritual self-abuse must be stopped,” preached one editorial.
Although they were a thriving business, Lin banned video game sales. This forced Taiwan’s many game-makers to look for a new line of work. Most went into computer-related products, starting with monitors, keyboards and mouses.
This was only one of several factors that made Taiwan click on computers. It already had a strong base in home electronics, an engineering-tilted education system and generous government subsidies for high-tech projects. Then, eventually, the former game-makers shifted to manufacturing whole systems: personal computers, laptops and their smaller cousins, “notebooks.”
Recently they have moved into the higher-tech fabrication of silicon wafers used in semiconductors. At least eight semiconductor facilities, each with a minimum investment of $500 million, are under construction in the Taipei suburbs.
Welcome to the R.O.C.--the “Republic of Computers.”
Last year, the tiny Republic of China, with 21 million people on an island about the size of Maryland, became the world’s No. 1 supplier of notebook computers. Taiwanese computer-related companies--more than 4,000 at last count--are also particularly adept at producing computers that are sold abroad under more famous brand names.
For Taiwan, the computer revolution has come just in time. With an annual per capita income of more than $12,000, the country has priced itself out of the labor-intensive market that was once its mainstay for exports. Many of the shoe and toy factories, textile mills and other industries that made the island famous as one of Asia’s economic “Little Dragons” have moved to the mainland.
But as Taiwan’s traditional industrial base “hollows out,” it has been replaced by the growing computer and component trade.
Taiwan now ranks No. 3 in the world, behind the United States and Japan, in production of computer hardware. Significantly, its $20 billion or so in production value this year is about equivalent to the value of Taiwanese industrial investment in mainland China.
And although they generally do not like to talk about it, the world’s biggest companies--including IBM, Apple, Compaq and Dell--all turn to Taiwan to make some of their brand-name product lines.
Houston-based Compaq, which long has prided itself on the in-house content of its products, earlier this year contracted with Taiwan’s Mitac International Corp. to produce its Presario 7100 line of multimedia desktop computers. According to a Mitac source, the Taiwanese company will produce between 400,000 and 500,000 personal computers this year for Compaq, accounting for more than $500 million in sales for the American company.
In February, Compaq joined with another Taiwanese company, Iventec Group, to produce one of its notebook models.
“We were at a point in our history where we needed to look outside the company for some assistance,” said Compaq Vice President Kirk Maul, who negotiated the agreements. “Eventually, we ended up in Taiwan.”
Apple, meanwhile, farms out two of its popular PowerBook notebooks to the manufacturer Acer. It is one of the few Taiwanese companies that also markets computers under its own name. But 70% of the 72,000 notebooks Acer produces each month are sold under such foreign names as Apple, Texas Instruments, Mitsubishi and Canon.
In global terms, the Taiwan connection reflects a broader trend toward internationalization in the computer business, in which certain countries, mainly in Asia, specialize in key components.
Like the family car, the computer can no longer be considered a one-country product. Computers are not so much manufactured as they are assembled from a United Nations of suppliers. Often, the brand-name company functions only as a marketer and shipper of products assembled entirely abroad to its specifications.
“A lot of leading companies today are computerless computer companies,” said Stan Shih, Acer’s founder and chief executive. “They mainly concentrate on marketing and have minimal involvement on the components side of the business.”
“We call it box-moving,” joked Thomas Chen, president of Elite Group, a successful component company headquartered in suburban Taipei.
Companies such as Austin Direct Inc., a popular Texas-based mail-order computer operation, buy completely assembled computers from Taiwan and sell them in the United States under their own labels.
Taiwan is the world’s No. 1 producer of monitors, scanners, mouses, keyboards and motherboards (the plastic, internal boards filled with electronic components that act as computers’ electronic traffic systems).
The Taiwanese have also proved themselves adept at farming out the manufacture of lower-tech components to other countries, particularly China, and at organizing shipment to Europe and the United States.
The Taiwan-produced Compaq Presario, for example, features a case and a power supply made in China; a keyboard made in Malaysia; a monitor made in South Korea; and a motherboard made in Taiwan. These are all assembled by Mitac Corp. in Fremont, Calif.--a move that enables the Taiwanese company to take advantage of last-minute price fluctuations in U.S.-made computer chips.
Much of the credit for Taiwan’s success, experts say, must go to the government’s emphasis on education, particularly in engineering.
“When I was a kid, Taiwan was known for making shoes, umbrellas and cheap toys,” said Abraham Leu, 29, a stock analyst with Jardine Fleming Taiwan Securities. “But about 20 years ago, every high school graduate wanted to be an engineer, especially a ‘double E’--electrical engineer.”
The result is that Taiwan has one of the most concentrated pools of electrical engineers in the world.
“More than 60% of our university students are in engineering fields,” said Hwang Chin-yeong, director of the government-sponsored Market Intelligence Center that advises the Taiwanese information technology industry.
“Our infrastructure to produce computer-related products is the best in the world,” said Hwang, who supervises a staff of 90 researchers looking for openings for Taiwanese businesses in the world’s computer markets.
Hwang speaks Korean and is an expert on the South Korean computer industry, which Taiwan considers its biggest rival.
“Taiwan’s main advantages,” Hwang said, “are that most of our computer business is concentrated in the Taipei area--it’s our Silicon Valley; our concentration on engineering education; and the large number of overseas Chinese from all over the world, many educated in the United States, who come here to work.”
One Taiwanese computer success story is Thomas Chen. After graduating from the Taipei Institute of Technology with a degree in electrical engineering, Chen, 39, went to work in research and development at Acer.
In 1987, he and six associates at the company, all engineers, quit to form their own company with $200,000 in capital. Operating out of an 800-square-foot office in Taipei, they developed an expertise at analyzing bugs in microprocessors and developing motherboards to match new generations of computers.
“We were very good at anticipating the next chip,” Chen said.
In six years, they became the largest single motherboard manufacturer in Taiwan, accounting for 8% of world production.
Customers for Chen’s Elite Group products include IBM, NEC, CompUSA and several European companies. By 1994, the company had seven overseas offices and $600 million in annual sales.
The Elite headquarters in Peitou, a Taipei suburb, is one of hundreds of computer-related businesses that ring the capital.
Presiding over the biggest--and in some ways most unorthodox--Taiwan computer operation is Acer chief Shih, 51.
In 1976, he borrowed $25,000 from his mother and launched Multitech International, later renamed Acer.
With the help of generous incentives from the government, including land at a science-based industrial park outside Taipei, Acer grew quickly to become Taiwan’s biggest computer maker, both of its own brand and as a ghost manufacturer for foreign firms.
Acer is the fifth-largest computer maker in the world. In five years, its revenue has increased almost fivefold, to an estimated $5.8 billion this year.
Shih termed his operation the “fast-food business model.”
Inspired by McDonald’s, he developed a strategy for making and selling computers that emphasizes speed and quality.
“Today,” Shih said, “there is no longer any value added in assembling computers. Everyone can make a PC.”
Continuing his fast-food metaphor, Shih said that to make good computers, companies must buy good, “fresh” components. His computer cooks shop for components in world markets.
Assembly locations are chosen for their accessibility to such markets and quality components. Acer has 34 assembly sites around the globe.
Expensive items such as microprocessors and memory-chip components are bought at the last moment--to ensure their “freshness” and low price, he said.
When Shih talks about making computers, he sounds more like a chef than an industrialist. “We assemble the freshest computer in the marketplace,” he boasted.
