Mon, Nov 01, 1999 page18

• Betting on Taiwan's future with the Nankang software park

  For years, it's been hard for anyone to get excited about the future of the software industry in Asia, never mind Taiwan. Not anymore. it may be 10 years later than predicted, but Taiwan is set for another paradigm shift, and this time it will be in a way that confounds both economic and social skeptics

  • By Anthony Lawrance
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  You've all no doubt heard the old, pessimistic argument before. Taiwan has done so well in developing a high-tech industry because it has followed a tried-and-tested industrial model. Just as it went from making textiles to making shoes to making motherboards, it has relied on its core competencies of cost-cutting and streamlining production processes. Making gadgets is making gadgets, in other words. Software, however, is different: it involves a far more creative approach to production, and Taiwan lacks this ability to "think outside of the box " among its highly educated but technically oriented workforce. Social critics have been heard to chip in that things are this way for an obvious reason. Taiwanese tradition holds that children be taught to obey and conform, not to innovate and pursue individualistic ideas. The education system compounds the problem by focusing pupils' talents on fact-memorizing rather than solution-solving methods of learning. Given empirical evidence of the past decade, it's been hard to argue with this line of thought. But things are changing. And it's exciting to watch as these arguments are not necessarily turned on their head, but are gradually being made redundant.

  Evolution, not revolution

  It's not like a revolution is under way. It's just that a model of a different sort is being followed in developing Taiwan's software industry: a variant of the Hsinchu model, to be more precise. People who say that the Hsinchu Science-based Park was built on the previously mentioned established principles of Taiwan industry are not wrong, but they tend to overlook an important factor. It is that the talent used to produce Taiwan' high-tech miracle was recruited largely from abroad: Taiwanese who had studied in the US to become electrical engineers. Lured back by private-sector incentives such as huge stock options and by government incentives such as tax breaks, these "returnees" laid the foundation for the rise of the high-tech industry in Taiwan.

  

  If you wanted to get technical, it could be argued that it was the American universities they attended and American companies they worked for that really provided the groundwork for Taiwan's high-tech metamorphosis, by giving them the necessary education and the experience.

  Regrettably, the success of the Hsinchu park -- and indeed, all the companies outside of it, as well -- has largely overshadowed the recent development of the software industry in Taiwan, much as it has been trying to replicate Hsinchu's success. But it's been growing steadily thanks to the same incentives provided by the government, which reached something of a critical mass last week with the opening of the Nankang park. There have also been two good reasons, however, why it has taken until now for the industry's potential to become as noticeable as its hardware counterpart: lack of talent and lack of finance. Lack of talent has been a real problem, because all those Taiwanese who started going off to the US to study computer science 20 years ago, inspired by Steve Jobs and Bill Gates, have been working for -- you guessed it -- Apple and Microsoft, besides many others. It's been hard to lure them back.

  But it's getting easier, for cultural and financial reasons. First, a generation of parents are hitting retirement age and there is a strong traditional pull for their offspring to come back and take care of them in their old age here. Second, bright young US-based Taiwanese software developers see greater potential to make some serious money in Taiwan now thanks to the revolution of the Internet, which has opened the market for Chinese-language Web-based software like never before. Little wonder, then, that Microsoft has its biggest outfit in Asia based here. And it would also explain why Nankang's new software park is already the largest of its kind in the region.

  A question of Money

  But for the Nankang park to follow Hsinchu's example all the way, it's going to require some serious capital. The kind of money that flows quickly in -- and quickly out -- and chases the latest fad before it becomes yesterday's flop. And until now, Taiwan has not been in the market for this kind of capital. Now, however, it is liberalizing cross-border capital controls to the extent that the amount of foreign investment in the Taiwan stock market has almost doubled over the past year and is expected to do so again next year. The government is also easing listing requirements on the OTC exchange, and it is even actively encouraging Taiwanese companies to list on Hong Kong's Growth Enterprise Market in the hope that all the capital raised there will make its way back here anyway.

  The only question left is what to do with all this money, and that's where the really exciting part comes in. The old lament that only the Taiwanese and Cantonese really know how to make money in China is ringing true in cyberspace no less than it was in instant noodles. Microsoft may have the edge on Taiwan when it comes to translations of its business-related products -- yet this is Taiwan's gain anyway, as the US software giant has chosen this island as the best place to test and develop its products -- but it is hopelessly outmatched when it comes to developing original products to suit Chinese tastes.

  The problem, until now, has been that Taiwanese faced just as daunting a task as foreigners when it came to marketing and distribution on the mainland. But the Internet appears to be solving that in a shot. To sell software to Chinese customers, such as educational packages that are a lot more attractive to parents than sending your kid to the corner buhsiban, all you need is for them to be on-line. And, preferably for Sina.com, which is seeking a listing on NASDAQ, using a Chinese-language portal site.

  Of course if I know this, then a lot of people in the software business know it, too. Which means competition will undoubtedly be fierce in the coming years and there is a high likelihood that many of those firms snuggled together in Nankang may not survive. But you have to admit, based on past experience, would you bet against the Taiwanese slipping through the door to software riches in China before the titans of world business are even able to get a foot in it?
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