In making Acer a global computer brand currently growing at 70 percent a year, the Clone King of PC Island, Stan Shih, has become a national hero in Taiwan and the most successful information technology entrepreneur in Asia.
It was while eating a Chinese meal in Mexico that Stan Shih, Taiwan's Number One digital entrepreneur, realized personal computers could be marketed like fast food.
Stan - as everyone always calls Acer's chair and CEO - has to travel a lot: his company, Acer, makes the leading brand of PC in Mexico and has facilities in 24 other countries. Wherever he goes, Stan likes to eat Chinese food, but the quality of the cooking varies greatly from place to place. Now, Stan is a pragmatic man. While pondering how the operating principles established by the likes of McDonald's might be applied to his beloved national cuisine, he made the connection between burgers 'n' fries and boards 'n' drives.
Few industries move faster than the personal computer industry: the product cycle for desktop machines these days is narrowing, down to just a few months. That means makers can easily get burned by excess inventory - who wants yesterday's disk drives? Instead of putting together fully loaded PCs in Taiwan and then shipping them worldwide, Stan figured it would make more sense to configure machines downstream to suit local tastes. Final assembly could be delegated to Acer's standardized production lines - 16 different sites worldwide - and components could be sourced according to shelf life. Under this scheme, computer housings and floppies could be shipped to franchises by sea, motherboards flown in fresh from Taiwan, and the most perishable parts - CPUs, hard disks, and memory chips - sourced locally. The result cuts inventory shelf life in half, from 90 to 45 days, and customers can have it their way - at McAcer's.
Stan's plan seems to be working. In 1993, Acer grew 60 percent, scoring sales worth US$1.9 billion. In the first quarter of 1994, sales were up 70 percent, to US$630 million, boosting Acer into 10th place among PC vendors in the US. For the full year, Acer predicts sales of US$2.7 billion. Prospects for the next three to five years also look good, as companies continue to downsize, replacing their mainframe and minicomputers with networks of PCs. Acer's dream is to break into the top five PC vendors by 1996 and to reach sales of US$8 billion by the year 2000. A tall order perhaps, but people have scoffed at Acer's lofty ambitions before - and each time Stan has proved them wrong.
There was his controversial 1987 decision to establish a global brand name, for example. Stan spent heavily to transform his company from an anonymous manufacturer of original equipment for big US and European firms into Acer, a brand registered in more than 100 countries around the world with a fancy logo to match. This was a step that no other Taiwanese computer manufacturer had been bold enough to take; back home, locals accused Stan of hubris. (The Latin acer means - among other things - active, energetic, and incisive, but the gambler's interpretation of "ace" also resonates well in the risky PC business).
Heads shook again two years later, in 1989, when Stan decided to invest US$185 million in a joint venture with Texas Instruments Inc. to make memory chips. Taiwan didn't do DRAMs, ran the conventional wisdom. Huge Japanese and Korean conglomerates would kill them in the market if they tried. But Stan had read his tea leaves right, foreseeing the huge increase in demand for memory that Windows 3.0 would create. Since coming online in July of 1991, TI-Acer Inc., located at Hsinchu Science-based Industrial Park in Taiwan, has begun spitting out DRAMs round the clock, breaking records for productivity and generating healthy profits in the process. Acer provides capital to TI-Acer, and in return gets half the factory's output of memory chips as well as access to advanced semiconductor manufacturing.
Whatever Acer does is big news in Taiwan - it is by far the biggest PC maker there, with Mitac running a distant second. (In 1993, according to the island's Institute for Information Industry, Taiwan earned 47 percent of total Asian PC industry revenues of US$7.6 billion. Japan earned 38 percent, and South Korea earned 14.5 percent. In addition to personal computers, Taiwanese firms also have shares of between 30 and 80 percent of the world markets for computer power supplies, monitors, keyboards, scanners, and mice.)
Stan himself is a national hero, king of "PC Clone Island." Fortune has called him "one of the 25 people you ought to know for doing business in Asia," and MicroTimes has said he is one of the 100 most influential people in the US information industry.
Stan has become the standard-bearer of Taiwan's electronics industry because he has been with it since the beginning, always leading the way. As a senior in high school, he opted for electrical engineering instead of medicine, the choice, he says, of 80 percent of his classmates. "I didn't want to do what everyone else did," Stan says. "Me-too is not my style."
Beg pardon? If Stan Shih is such an original, then what is he doing cranking out clones, which has to be the ultimate me-too business? Stan would probably answer that there is a world of difference between making clones and making compatibles. By definition, a clone allows no room for differentiation, whereas a compatible offers all sorts of chances for a canny maker to add value. Take speed to market, for example: in 1986, Acer was second only to Compaq - and ahead of IBM - in introducing a 386-based machine. And take original technology: in 1991, Acer introduced a socket called ChipUp, which makes it easy to upgrade your system with a faster processor. Acer has since licensed ChipUp to dozens of other companies, including Intel (and sued several Taiwanese clone merchants for infringing on its intellectual property).
But no matter how fast you are on your feet and how much techno-savvy you can muster, success in such a savagely competitive market as PCs ultimately depends on strategy. And it is in this domain that Stan's true originality resides.
Stan's innovations in corporate style have pushed Acer to the top. And by demonstrating that it is possible to transcend the limitations of the traditional, family-based Chinese company - in which the boss makes all the decisions and reaps all the rewards - he has set an example for other Taiwanese firms to follow, in much the same way that Bob Noyce and Intel did for the start-ups of Silicon Valley. "Stan has contributed much to Taiwan's PC industry," says Lance Wu, a former district manager at Bellcore who is currently deputy general director of Taiwan's Computer and Communication Research Laboratories. "He set the road model for many start-ups here."
Stan Shih was born 50 years ago in the Taiwanese port city of Lukang, 110 miles south of Taipei. An only child, Stan was just 3 years old when his father died, so from his earliest years he had to help out with the family business. "I learned business in primary school, selling eggs," Stan recalls. Through this experience he learned how to convert weight to unit price. Even today, Stan reckons that he is swifter at mental math than most of his employees.
Eggs were not the Shih family's only stock in trade - they also dealt in stationery goods. So Stan acquired a second business model, and a sensitivity to shelf life that would serve him well later. "With eggs, the margin is 10 percent and inventory is good for two days," he explains, "so it's a low-margin, quick-turnover business. With stationery, the margin is 50 to 60 percent, and you keep inventory for three to six months." Stan says he often spends time explaining product cycle times and inventory risk to his subordinates.
In high school Stan was a good student, but it was not until he got to Taiwan's élite National Chiao Tung University that he really began to shine. He graduated with a BS in 1968, did a year's military service, then got his master's degree in 1971. Stan came in at the top of his class asan undergraduate, the school's first crop of graduates since it was transplanted from mainland China. At the university he was good at science and math, but he also spent a lot of time on social activities, starting teams for table tennis (Stan remains a demon with the ping-pong paddle) and volleyball, as well as a photography society and chess and bridge clubs. "I was captain of all the societies," he says, "and from that I learned how to deal with people."
As he developed leadership skills, Stan began to develop ambitions. Initially these were academic, but he says after he came in second in his graduate school class, "I lost my interest in study."
In 1971, the electronics industry in Taiwan was just beginning to take root. Multinationals like General Instrument and Philips were setting up on the island, attracted by the availability of cheap, well-educated labor. Graduates were paid $200 a month, an unbelievably high salary for Taiwan in those days. At the same time, local home-appliance firms like Tatung and Sampo were licensing technology from the Japanese to produce electrical goods for the protected domestic market.
Stan's first job was with an outfit called Unitron Industrial Corp., one of the earliest Taiwanese companies to boast its own R&D section. There, among other things, he single-handedly developed the island's first desktop calculator. In 1972, Stan moved on to Qualitron Industrial Corp., a company dedicated to calculator production. Qualitron dispatched the 28-year-old engineer to Los Angeles (a 27-hour flight in those days, stopping in Manila and Hawaii en route) to buy microprocessors from Rockwell and to get trained in their application (everything from traffic-light controllers and medical instruments to pinball and slot machines). Stan understood that the microprocessor would be the core technology for a new industrial revolution.
Characteristically, upon his return to Taiwan, Stan set about spreading the word, giving lectures on microprocessors to enthusiastic young Taiwanese engineers. (Later, from 1976 to 1980, after Stan founded the company which would ultimately become known as Acer, he would train some 3,000 engineers in the fundamentals of microprocessor-based design, laying the foundation for the island's information technology industry. In the mid-'80s, Acer would make PCs available for hands-on training of hundreds of thousands of primary and junior high school kids. Such activities are of course not entirely altruistic: they also serve to create future customers for Acer.)
As an engineer, Stan's main claim to fame is that he designed the world's first pen watch. Not exactly a technical breakthrough, the pen watch was nonetheless a big hit commercially. And it taught Stan an important lesson: even a small innovation can create a lot of business.
Though successful, Qualitron ran into financial trouble. The company borrowed money to bail out a sister company that made textiles. But the textile industry was in a tailspin, and the sister company went bankrupt, taking Qualitron - and Stan, its product vice president - down with it. The way Stan tells the story, he had no choice but to start his own company. In 1976, he founded Multitech International Corp., the precursor of Acer, with $25,000. Stan and his wife Carolyn Yeh owned 50 percent of the firm, with four other co-founders sharing the remaining half.
Having your wife as a partner is not unusual in Taiwan, where most businesses are family-owned. ("Better to be the head of a chicken than the tail of an ox," runs an old and oft-quoted Chinese proverb.) The boss's wife often takes the role of tightfisted keeper of the corporate purse. Even big companies tend to be centrally controlled, with the smallest budget items requiring the boss's approval.
One such company is Acer's arch-rival, Mitac. This is run by Matthew Miau, the son of a local petrochemicals magnate. It is hard not to be impressed by Miau, who is unusually tall for a Chinese, wears immaculately tailored suits, speaks perfect English, and back in the '70s was a member of one of Intel's early design teams. By contrast, Stan, with his humble manner, his toothy grin, and his hard-to-understand accent doesn't come across nearly so strongly. But even back then, as Stan tells it, Acer was twice as big as Mitac. Today, he says, that gap has widened: Acer is five times bigger. But why?
Because Stan was smart enough to realize that, to grow beyond a certain size, he would need to recruit and keep a team of talented managers. This in turn would require delegating authority and distributing rewards. Starting from Acer's third year in business, Stan began inviting managers to become shareholders in the company. Each year more and more employees picked up stock options, so that by the time the company went public in 1988, the founders had diluted their ownership from 100 percent to about 70 percent, and some 3,000 employees had a stake in the company.
"Stan's very generous about benefits and diluting stock for employees," says K.Y. Lee, president of Acer Peripherals Inc. "At Acer, we have a chance to purchase shares at a very low price."
Tolerance is another of Stan's virtues as a manager. "In meetings, people tend to get emotional, argue strongly," comments a second trusted lieutenant, Ronald Chwang, president of Acer America. "But Stan keeps his cool, never gets excited. He's able to control his emotions and to shift his view."
Such qualities have enabled Stan to retain the loyalty of his top managers. Lee has been with Acer 17 years, and the average for heads of the group's business units is 12 years. Chwang, who was with Intel, is a relative newcomer, having been with Acer just eight years.
Stan's record on delegation is also impeccable. "When Stan gives us a target," says Lee, "it's normally just an outline - the detailed stuff we work out for ourselves. We're very entrepreneurial; there's a lot of room for us to exercise our discretion."
The ability to delegate is particularly important, because Acer has no huge domestic market to depend on. Taiwan exports 97 percent the PCs it makes. By contrast, Japanese producers sell 85 percent of their production at home, according to Stan. "Since our markets are mostly overseas [56 percent North America and Europe, 44 percent Latin America, Pacific Rim, and Middle East], we have a much more decentralized structure than a US company, which would typically be dominated by its headquarters in the US," says Chwang.
Cracking the US market - which currently accounts for 30 percent of the company's sales - has not been easy for Acer. Stan's initial approach was to hire experienced outsiders, most notably Leonard Liu, a Chinese-American who was formerly general manager of IBM's software development laboratories in San Jose, California. In 1990, Liu arranged the acquisition of Altos Computer Systems, a small US maker of minicomputers, on the grounds that Altos had sizable resources in the US, which Acer would need to compete with US firms.
But the acquisition turned out to be a disaster, costing Acer more than $100 million, including severance payments for former Altos employees. At the same time, the recruitment of Liu and others parachuted in from the outside created tensions within the company, especially as the confrontational style of the newcomers clashed with Acer's more consensus-driven approach. These incompatibilities were probably the main reason for Liu's early departure in April 1992. (Now chief operating officer at Cadence Design Systems, Liu declined to be interviewed for this article.)
The 1990s began badly for Acer in other ways, too. A bloody price war in the PC business cut margins. At the same time, the construction and equipping of TI-Acer became a black hole that sucked in cash. In 1991, Acer hit rock bottom, with losses of $22.7 million. But for Stan, the worst moment came when, for the first time in its history, Acer had to lay people off. Or rather, ask them to resign ("in a Chinese company, we don't talk about layoffs," Stan explains). For Taiwanese long accustomed to hearing nothing but success stories about Acer, the layoffs were hard to understand. To his credit, Stan did not shirk responsibility for them. "He faced the public very bravely," says K.Y. Lee, "and explained why the layoffs were necessary."
At the same time, however, Stan was taking more positive steps to get Acer back on its feet. He realized that since going public in 1988, Acer had lost that crucial motivating sense of ownership, of shared risk and reward. Stan's solution was to spin off many of the company's units as separate but wholly owned firms, and invite employees to purchase shares in the new enterprises. (Acer has also launched joint ventures with local assemblers and distributors, like Computec de Mexico, in which it maintains only a 50 percent share.)
Future plans call for 21 companies to be floated worldwide. In the second half of 1994, two subsidiaries, Acer Peripherals and Acer Sertek Inc., will likely be listed on the Taiwan stock market. In 1995, Computec de Mexico is to be listed on the Mexican stock market. Also in 1995 or early 1996, Acer hopes to list Acer America Corp. on the New York Stock Exchange. In 1996, Acer Computer International will list on the Singapore stock market.
Further out, it is possible that TI-Acer will be listed in Taiwan in 1997. Acer Labs is in the initial phases of being spun off. Approximately 25 percent of equity in Acer Laboratories Inc. is held by management and employees.
Stan communicates this new arrangement using a metaphor drawn from computer terminology. He calls it the client-server model, in which strategic business units (servers) like Acer Peripherals provide regional business units (clients) like Acer America with services such as technology and manufacturing. In this model, Stan's role is to be - what else? - the operating system for the group.
The difference is that an operating system is an indispensable part of the computer, whereas Stan says he does not see himself as an indispensable part of Acer's future. "I've worked very hard to make sure Acer won't need me," the 50-year-old told Singapore's Business Times last December. "Before I get too old I should retire."
M. I. T. (Made in Taiwan)
The guts of the information age are manufactured in Taiwan. But if you think Taiwan is just another bunch of high-tech sweat shops, think again. Taiwan's Internet traffic is greater than Japan's. The brain drain of Taiwanese entrepreneurs, engineers, and scientists is reversing from Silicon Valley back to Taiwan. And Taiwan is now a functioning democracy.
By Andrew Leonard
Parked by the hundreds on city sidewalks, endlessly roaring down alleyways and avenues, and ignoring, like the rest of Taiwan's traffic, even the most basic road regulations, Taiwan's 10 million motorcycles clog every opening on the island. Yet even in the congested capital of Taipei, traffic rarely stops. Perhaps it's the inherent flexibility of motorcycles, or maybe it's what one observer called the "efficient exception-handling subroutines" of Taiwanese drivers. There's a constant flow, an order within the chaos, symbolic of a societywide impatience with going slow and an ability to overcome any obstacle.
At any intersection, waiting for a light to change, one gets the sense of a nation schooled from the cradle in the art of shooting the gap. Drivers jockey for position. A backlog of buses, trucks, and cars waits impatiently, immobile, but in its interstices a pack of cycles sneaks foward. There's the man hauling four propane tanks on a bamboo trestle above the rear wheel of his Honda, revving his throttle. There's the woman with a surgical mask over her mouth easing forward her red Yamaha, tapping her shoes on the sticky tar. When the crosslight turns yellow, the drivers accelerate in a mad frenzy, swerving around stragglers and rushing to the next light, where they do it all over again.
Taiwan didn't become the 14th-largest trading nation in the world by waiting for the light to turn green. To shoot the gaps in today's information age, the Taiwanese have latched onto the most crucial commodity of the modern era - computer components. Taiwanese companies sell more motherboards, monitors, mice, and scanners than any other nation's companies. Taiwan today makes 20 percent of the notebook computers in the world. Once a wellspring of cheap plastic toys and low-grade baseball mitts, Taiwan has turned to churning out silicon wafers and integrated circuits - the guts of the information age.
Two out of every five computers in the world have motherboards made in Taiwan. US chip designers can be made or broken by a Taiwanese manufacturer's decision to choose their products for inclusion on a circuit board. Taiwan is one of the few countries that can produce 16-Mbyte DRAM chips. The 1993 Computex computer show in Taipei drew 8,000 buyers from abroad along with 80,000 domestic visitors.
A mountainous island about the size of Connecticut and Massachusetts combined, Taiwan out-maneuvered much bigger nations on its way to the technological front by getting to the crosswalk with products just the slightest bit better, or cheaper, or faster, than everyone else. Displaying the same virtuoso flexibility with which they pilot their motorcycles, the Taiwanese have adapted to the zigzags of market capitalism. They possess neither the resources nor the power to set the course of the world market, but the Taiwanese have few peers at nimbly dodging around it.
Flexibility has been an essential Taiwanese survival characteristic for centuries. Eighty-five percent of the population descends from immigrants who fled the Chinese mainland two or three hundred years ago, driven by famine, war, and the promise of opportunities. After the Sino-Japanese war in 1895, China's ailing Qing dynasty ceded Taiwan to Japan for a 50-year period that ended with Japan's defeat in World War II. In 1949, after years of militant struggle between Chinese Nationalist and Communist forces, Generalissimo Chiang Kai-shek and more than a million of his soldiers and followers (the Kuomintang) escaped the Communists in China by fleeing to Taiwan. Joining up with a provincial government that two years before had suppressed a rebellion by the native Taiwanese, the Kuomintang made the island their base for "retaking the mainland." The new leadership imposed a restrictive martial law regime, and Chiang's followers, referred to as "mainlanders," secured a monopoly over politics and the military that has begun to disintegrate only in the last decade, especially since martial law ended in 1987.
Still, the last 100 years of cultural and political turmoil haven't been sufficient to put a cap on what James Davidson, the United States Consul in Taiwan at the turn of the century, described as a national tendency toward "overabundant impetuosity." When Taiwanese society chances upon an opportunity to make money - or, for that matter, an opportunity just to have fun - it surges forward as one entity. All those decades of repression, argue some of Taiwan's social critics, have conditioned the Taiwanese to strike like lightning whenever they see an opening, and to swerve out of danger as soon as the gap closes.
Double E's: Home to Roost
Government encouragement of the "information industry" has played an enormous role in Taiwan's growth, but there's a grass-roots techno-infatuation going on as well. One day in May, in a cavernous exposition hall at Taipei's domestic airport, thousands of twenty- and thirtysomethings mill among hundreds of booths, scanning information pamphlets and scrutinizing Chinese character-laden computer monitors while loudspeakers alternately blare Madonna and Taiwanese folk songs. Some visitors stop in front of a full-scale stage to watch a mock Taiwanese folk opera celebrating the virtues of a virus-killing application (Taiwan is an ace producer of both viruses and virus-protection systems). Across town, tucked beneath an overpass cutting through one of the city's busiest neighborhoods, is Taipei's KuangHua Market. Buddhist antique stores share space with tiny retail computer outlets. Incense wafts past young men and women hunched in concen- tration as they compare prices on cut-rate 486 chips. In the larger basement section across the street, crowds of Taiwanese nerds sift through bins of transistors and diodes, inspecting serial cables and math coprocessors, searching for that last part necessary to get their jerry-rigged clone up and running.
Many of the people who visit the KuangHua Market have jobs with one of Taiwan's thousands of small or medium-size high-tech companies. A generation ago, most of them fled the country to become electrical engineers (Double E's) working abroad. In recent years, many have come back, a reverse brain drain that says volumes about how the country has changed in the past several decades.
There are now thousands of fluent English-speaking Double E's in Taiwan with PhDs from the United States who earlier spent years working for top US research laboratories and earning four times what they could in their native country. Throughout the '50s, '60s, and '70s, the exodus marked an embarrassing loss of face for the Kuomintang. By 1983, more than 80,000 students had left Taiwan to study abroad and only 13 percent had returned. In 1984, Taiwan's 20,000-strong student delegation in the US was the largest of any foreign country. Today, that generation is returning to a transformed nation.
Today, Taiwan's per capita GNP approaches US$11,000. Land prices in Taipei have skyrocketed. Night markets in which shoppers chose their own chickens and watched their throats cut (to guarantee freshness) have been replaced by Hong Kong supermarket chains. The city is a chaotic jumble of subway construction, cracked sidewalks abutting brand-new luxury hotels, and endless noise.
But just an hour's bus ride south, on the outskirts of a bustling town called Hsinchu, the Taipei-style anarchy has been tamed, at least within the boundaries of the Hsinchu Science-based Industrial Park, the jewel in Taiwan's high-tech crown. It is hard to imagine an environment more at odds with the madness of Taiwan's nearby capital city.
Hsinchu is the planned half of Taiwan's love affair with computer technology, the place where government activism has channeled Taiwan's energy to create the sixth-largest producer of information-technology products in the world: the government established the park; government-funded research institutes feed new technological breakthroughs to the park; and the government is a significant investor in many of the park's largest enterprises.
According to Lance Wu, the deputy general director of Taiwan's Computer and Communication Research Laboratories, more than a thousand Taiwanese scientists and engineers have returned from overseas to work in the Hsinchu area in just the last two years.
Besides the promise of good jobs in their homeland, a number of other factors contributed to the expatriates' homecoming. The US recession in the late 1980s eviscerated a once-thriving job market. The Kuomintang unleashed an aggressive government recruiting drive, offering cheap housing, high salaries, and other forms of government support. To encourage business, the government offered a sheaf of tax breaks and R&D grants, including a 30-percent tax break per dollar for "strategic" investments of over US$40 million in a Hsinchu-based enterprise.
The park's final drawing card is location: it sits smack upon a fiber backbone connected to the nation's telecommunications network, giving park enterprises great Internet access. That's important, Wu says, half jokingly: and w"We can't live without our e-mail." In fact, Taiwan's Internet traffic is greater than Japan's.
By the Shores of Man-Made Lake
David Tsao, an electrical engineer who earned a PhD from the Polytechnic Institute of New York in Brooklyn, spent most of the 1980s in New Jersey working for Bell Labs. "But business," he says, "is in my blood." So four years ago he returned to Taiwan to start his own company. A solidly built, round-faced man, Tsao is now chair and CEO of a 2-year-old, 50-employee business based in the park, a company he founded with several other Taiwanese alumni of Bell Labs.
Double E's like Tsao who live in the park have homes lining the shores of Man-Made Lake. They drive to work on wide, empty streets with names like Research and Development East Road and Technology Avenue. Shaded by identical 15-year-old trees, their offices and laboratories are, for the most part, in nondescript gray concrete buildings inhabited by companies whose names, like the streets, all sound the same: UMAX and Climax, Multronix and Microtek, Datatech and Yangtech. No traffic, no garbage, no noise - this planned community is one of the few places on the island where Taiwan can be fairly accused of modeling itself on Singapore.
But the calm is only skin deep. This "park" is no pastoral playground. Last year, some 150 businesses and 13,000 workers there pumped out US$5 billion worth of high-tech hardware. About half of that came in the form of integrated circuits.
Tsao's company, ALFA Inc., has its fingers in a number of telecommunications pies, including FDDI-based networking systems and PCMCIA cards. FDDI (Fiber Distributed Data Interface) networks provide a data transfer rate of 100 Mbits per second, and they're crucial, Tsao says, for effective multimedia networking. He enjoys showing off his Spartan offices, little more than a collection of open cubicles, where workers peer at dense circuit boards and flash their fingers across the keyboards of Taiwanese-made Sparc II workstations.
Hsinchu is a focal point for a worldwide network of joint ventures and technology transfer, much of which is fueled by the personal relationships established by these scientists during their sojourns abroad. For instance, Tsao's ALFA works hand-in-hand with AT&T. Philips owns shares in Taiwan Semiconductor Manufacturing Co., one of the largest semiconductor companies in Hsinchu. Many of the returnees have left their families in the US, have American passports, and flit back and forth between their old companies in Silicon Valley and their new businesses in Hsinchu.
Tsao, as well as most Taiwan engineers, asserts that one of Taiwan's main strengths is its preponderance of small and medium-sized enterprises (you can't shoot a gap in the traffic with a Winnebago). But there is no agreement as to how Taiwan's economy came to be dominated by small enterprises. One theory has it that the mainlander-originated Kuomintang government saw any large native Taiwanese company as a political threat, and therefore tinkered with the tax laws to discourage their formation. Still, there isn't any dispute about the current role of thousands of motorcycle-like small businesses - particularly in the computer industry. In 1989, the island's top 20 computer companies made only 50 percent of its computers.
But when Taiwan's engineers are asked about the future, they lapse into a collective pursing of the lips. No one seems to think that the government's plans for a Software Park - for several years the government has been announcing the park's imminent founding in Beikang, a suburb of Taipei - will reap the same kind of harvest as Hsinchu. Similar efforts to promote the automobile and aerospace industries were dismal failures.
Part of the problem is Taiwan's own success. Martial law ended in 1987 - as economic growth continued, dissidents applied mounting pressure for representation, and the government moved to improve its image overseas. The Kuomintang legalized opposition parties, lifted press restrictions, and held free elections. It is no longer possible for the Kuomintang to unilaterally dispense tax breaks, clear public land, and budget hundreds of millions of dollars for a state-of-the-art research lab. Today, a growing portion of the legislature is made up of opposition lawmakers who daily demonstrate the full meaning of the word obstreperous. They cast a cold eye on proposed expenditures, particularly those that might involve tax relief for companies with close ties to Kuomintang legislators. The consensus opinion in Hsinchu: industrial policy in an open democracy is much easiersaid than done.
But just how crucial was industrial policy to Taiwan's flourishing high-tech industries in the first place? The computer industry itself, experts say again and again, started by accident.
National Compulsions
Back in early 1982, everyone in Taipei was playing games.
Taiwanese companies churned out knockoff versions of Space Invaders at a furious rate. Arcades sprung up all over the city. And then, in March 1982, the Kuomintang banned the manufacturing of videogames. Not to anyone's surprise: the government had for decades taken a dim view of any activities that might impact negatively on the people's "morale" - public dancing, gambling, a free press, opposition parties. Videogames joined the list of all things verboten.
Taiwanese game manufacturers hardly blinked. They stripped the old games of their key components and used them in cloned versions of Apple II computers. Apple, in turn, filed a trade action against Taiwan and unleashed a legal attack so fierce that the infant Taiwan computer makers quickly abandoned copycatting Apple IIs and moved into the far more friendly arena of IBM-clone manufacturing.
By September 1982, the Ministry of Economic Affairs designated the information industry a "strategic industry" and instructed the Industrial Technology Research Institute, a close neighbor to the Science-based Park, to develop IBM PC-compatible technology. As a result, even today, the domestic market is almost entirely IBM-compatible.
Taiwan's craze for videogames was a perfect example of "overabundant impetuosity," and it wasn't the last time, by a long shot, that the whole country lost its mind en masse. Throughout the mid-1980s and into the '90s, similar fads swept the island. An obsession with a Hong Kong lottery brought Taipei to a halt whenever winning numbers were announced. In 1991, some 300 cable franchises were wiring up the island in a frenzy of competition. In restless pursuit of the latest developments in telecommunicated moneymaking, Taiwan's gap-happy go-getters have suddenly charged towards the latest digital El Dorado: home shopping.
A hustling 29-year-old named Tommy Chen is one person poised to take advantage of the current home-shopping madness. Chen is a hardware tinkerer who has designed software and hardware for a cable home-shopping company. He is also one of the thousands of Taiwanese who have taken advantage of decades of economic growth to travel by car instead of the ubiquitous motorcycle, but his Daihatsu Charade is hardly the stuff of his dreams. A tiny two-door vehicle hardly longer than it is wide is not the kind of car that carries much weight with Taiwan's nouveaux riches, the sort of people Chen is constantly hustling for investment capital.
"They don't like my car," says Chen. "They look at it and go, 'Where's your Mercedes? If you're so good, how come you don't have a Mercedes?'"
"Give me a break!" he shouts, slamming his hands against the steering wheel. "I tell them, 'My Mercedes is on my desk!' I've got three Mac Quadras. Top of the line. Put them together and that almost adds up to a Mercedes."
Parking in a narrow alley, Chen passes a liquor store with cases of Remy Martin XO stacked in the window, and a golf club store (10 years earlier, the alley might have housed a family of five stuffing chopsticks into paper holders or assembling electric fans). In a building whose discreet sign announces the Taiwan Video Shopping Network, Chen finds Bronson Bao.
Bao, who says he used to be a product marketing agent for Intel, claims that TVSN was the first purely cable home-shopping network in Asia, and already, in only its third year of operation, reaches a million households. But profit growth, which he says reached nearly US$5 million in 1993, an 800 percent increase over 1992, has already begun to slow. TVSN's first competitor arrived after only a year and a half.
"And in the last six months," says Bao, who let Chen know that he just traded in his Dodge Dynasty for a minivan, "we've seen 40 to 50 new competitors." Made - and Designed - in Taiwan
Tommy Chen and his Daihatsu Charade provide just one example of a pattern that plays itself out millions of times over in Taiwan: he is the tireless hustler with 10 different projects in the air at once. But he is also an example of the close kinship that many Taiwanese, especially men, seem to feel to technology. It's a kinship that breeds the thousands of electrical engineering and computer science PhDs that Taiwan churns out each year, a passion for computer guts that packs Taiwan's many bookstores with pale teenagers poring over Unix manuals and C++ programming textbooks. While some critics of Taiwanese society say that this mass youth movement into geekdom is another result of repressive Kuomintang cultural policies in decades past - "there was no room to think about art or culture," declared one dissident - there's still no denying that techno-infatuation culturewide is a valuable trait for a nation in the 1990s.
Particularly a nation as industrious as Taiwan. The days are long gone when a customer could make a single phone call in Taipei, order any kind of software from the latest edition of Autodesk's AutoCAD to an up-to-the-minute upgrade of Lotus 1-2-3, and then pay a flat rate, per-disk charge to the guy on the motorcycle who arrived half an hour later. A flurry of copyright and other intellectual property laws has been enacted in the last four years, and some of them, swear officials at the de facto American embassy in Taiwan, are actually being enforced. In 1991 the US labeled Taiwan the Number One counterfeiting country in the world. Now Taiwan is earning a hard-won reputation for original design, both in hardware and software.
"Made In Taiwan." Hsinchu's engineering elite relish rolling out the phrase as an acronym: MIT. Made in Taiwan used to convey all the sorry romance of plastic forks and counterfeit Rolexes. Now, to the ears of the Double E's, it suggests high-tech mastery and hints of a future in which Taiwan has become the "Switzerland of Asia" - the R&D center for all of Greater China. They demur at the idea that they might one day be world leaders in technological development, but they are confident that whichever way the world goes, Taiwan will be right there, weaving through the thick traffic of international markets.
Andrew Leonard (aleonard@well.sf.ca.us) is a freelance writer based in Berkeley, California. He specializes in cyber-Asia.
