"Innovation Island"-Part 1: Taiwan's Next Big Thing
Monday, November 10, 2003SUSIE GHARIB: Taiwan is an island the size of Maryland with the economy the size of Russia. It`s a leader in producing much of the high-tech gear now used around the world, and it now finds itself facing a challenging future. Tonight, we begin a week-long series of reports looking at Taiwan, called "Innovation Island." As Washington bureau chief Darren Gersh reports, for Taiwan, the next big thing is very small.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: At Taiwan`s Nanotechnology Research Center, success in the lab is measured a billionth of a meter at a time. These scientists are dealing with the basic building blocks of matter, pushing around 10 atoms here, 20 atoms there, and in the process discovering new magnetic, chemical, and optical properties. Bob Yang runs the national nanotechnology program at Taiwan`s Industrial Technology Research Institute.
BOB YANG, TAIWAN NATIONAL NANOTECHNOLOGY PROGRAM: It is like you are discovering a whole new set of innovation opportunities, and that`s the real power behind nanotechnology.
GERSH: As the world`s leading manufacturer of LCD displays, motherboards and notebook computers, Taiwan has built a $300 billion economy powered by low-cost, high-tech manufacturing. Yang believes nano is the key to maintaining Taiwan`s competitive edge.
YANG: Nanotechnology is being an enabling technology, people who are already good at high-tech manufacturing should be able to use nanotechnology more to their advantage.
GERSH: Nano-medicines and nano-robots are still the stuff of science fiction, but Yang sees practical uses for nano, from cheap, high-quality displays to nano-powered mobile phone batteries that could last for 50 days. Nanotechnology is one of eight key industries Taiwan has targeted for development, budgeting $620 million for research over the next six years. And the plans are ambitious: ramp up to a $19 billion industry in five years and go nano three times faster than the rest of the world. It is a race experts here say Taiwan cannot afford to lose as it retools its high-tech economy. For decades Taiwan`s strategy has been to manufacture technology faster and cheaper than the competition. But as developing countries like China climb the technology ladder, Taiwan is now forced to work faster and smarter. That`s a message that reaches to the top of Taiwan`s government. Vice Premier Lin Hsin-I runs economic policy in Taiwan. Like the former auto industry CEO he is, Lin pulls out a flip chart to explain where Taiwan is and where it needs to be. The bottom line of the graph is the value chain beginning with R&D, moving to manufacturing, and finally marketing and branding. The vertical line is value-added.
LIN HSIN-I, VICE PREMIER, TAIWAN: These two sides is the high value-added.
GERSH: Innovation and marketing, these high-profit, value-added sweet spots, are in the corners of the graph. Manufacturing is at the bottom.
LIN: So it`s the smiling curve.
GERSH: So where would Taiwan - you want Taiwan to move where on this smile graph here?
LIN: In Taiwan, very strong in this manufacturing and assembly. So we have to segment, different segment with the developing countries, with upgrading more value-added manufactures.
GERSH: Over and over again, people here talk about the need to move off the bottom of the smiling curve and move up to nanotechnology, biotechnology and other knowledge industries. If that sounds familiar to Americans it should.
LIN: We can see that American firms, they are grading up, more new economy, more high value added, more high-tech industry. I think it is a similar case.
GERSH: In the last few years there is a new urgency to transforming the economy. As a developed nation, it is now too expensive to produce many products in Taiwan. Unemployment, for decades almost non-existent, hovers near 5 percent. Moving up the smiling curve has its costs.
LIN: It means the low-end products, low-skilled products, we can outsource from some very low labor cost countries, buy from them, but some key components, more value-added components, have to shift manufacture here.
GERSH: The economic choices Taiwan is now making will also dictate its political future. The island has flourished under the security blanket of the United States, but as mainland China draws more investment and attention, Taiwan is anxious to protect its strategic role as a key supplier to the U.S. high- tech industry.
THOMAS MCGOWAN, AMERICAN CHAMBER OF COMMERCE/TAIPEI: Taiwan`s biggest risk is being marginalized, becoming not relevant, right, where if you come back in two years and ask me the question, why should the U.S. care about Taiwan? And the answer is, it shouldn`t.
GERSH: In its struggle to stay relevant, to keep climbing the technology ladder, Taiwan faces the same challenge as Silicon Valley an ocean away.
YANG: Competition just fast and cutthroat. It`s the same here, OK. And all these people they are also engaging in global competition too. So getting the new technology, taking the most advantage of these new technologies is absolutely crucial for their survival.
GERSH: But moving from a low-cost manufacturing economy to a knowledge economy won`t be easy, and just like the walk signs on every street corner in Taipei, Taiwan finds it has to run ever faster if it is to make the transition in time. Darren Gersh, NIGHTLY BUSINESS REPORT, Taiwan.
