Liberty Times (LT): What mindset should the new government have to push through the plans for the five innovative research industries?
Lin Ying-dar (林盈達): Taiwan’s most globally competitive industry is the high-tech industry, but in the past few years, the scale has been slowly tipping toward China due to the establishment of its own supply chain.
With the new government due to assume responsibility on May 20, people are suggesting that the government should invest in biomedicine, “green” energy, the Internet of Things (IoT), 5G wireless systems, national defense research and development, and “smart” machinery. Some suggest that Taiwan should compete with the Chinese supply chain, while others say it should bow to Chinese investors and allow them to buy shares in Taiwanese companies.
Photo: George Tsorng, Taipei Times
From the scattered suggestions, it is seen that the incoming government does not have advisers capable of figuring out the best strategy and finding a way to come up with [policies for industrial development].
The question is: If the current methods persist in the promotion of new ideas, would the result be different from past failures? The first option is to use a new methodology to promote old industries. The option might yield the best results in a timely manner due to the familiarity of the market.
The second option is to employ a new methodology to promote new industries. This is somewhat less effective than the first option, as a market for new industries has yet to emerge and investors are unable to share in the profits.
However, the second option is still better than the third, which is to promote current industries using current methodology, which is, in turn, better than employing current methodology to research new industries.
If the incoming government cannot perceive this fact and seeks to promote the research and development of new industries using current methods and an antiquated governmental system, they would be picking the worst of the four options, and their efforts, while valiant, would be as brief as a fireworks show.
The areas of research and development are the battlefield, and the methodology is the weapons. Like the evolution of warfare, antiquated weaponry that is ineffective must be abandoned or improved, with new items tested against older weapons before they can achieve a measure of success on the battlefield.
The history of Taiwan’s high-tech industry is not without its successes and failures, especially in the information and communication industry.
If we were to list the industries from the most successful to the least successful, it would look something like this: semiconductor manufacturing and design; key components manufacturing; computers — including personal computers, laptops, tablets and smartphones; the Internet communication industry; the four “miserable industries” — the LCD panel industry, solar energy, DRAM and the light-emitting diode (LED) industry; software; biotechnology and digital content.
The first four have experienced more successes than failures, while the latter four had more failures than successes. Past governments had, of course, their plans and reasons for promoting the industries, and many of the plans were derived from repeated analyses of successful and unsuccessful efforts.
Through the efforts, it was not hard to arrive at successful or unsuccessful methods, as well as the reasons behind them, and whether to improve on the methods or to discard them for new ones.
The semiconductor industry shines amid its fellow industries. Investment by the government three decades ago and a joint effort by businesses, academia, the government and research organizations, with some luck, caused Taiwan to achieve results that remained out of the reach of European nations.
The results of such investment are now incorporated into the high-tech base comprising Taiwan’s national defense industry.
I disagree with the notion that the government should not intervene with the industry or the market, because I think the government of a small nation needs to centralize resources and help establish a sustainable cycle for the industry.
Look at how the South Korean government dedicated its national resources to build the Samsung brand and how the Chinese government bought out and destroyed the Taiwanese semiconductor industry, the most competitive in Taiwan.
The government is capable of supporting — and protecting — an industry, as long as it has a viable methodology that covers both old and new subjects.
LT: Are there any problems with the government’s policy of helping certain industries?
Lin: The process of deciding which policy should support which industry should be considered along the lines of standard warfare.
For example, if a person with insomnia goes to a doctor; the patient should give a detailed description of whether their condition is chronic or sporadic, when it happened and whether the end goal was to rid them of the condition completely or to cure it for the time being. The doctor would then determine whether to use physical therapy or prescribe medication, which then necessitates considering the type of medication, its dosage, when to take the medication and how to gauge its effects.
Likewise, the government should begin by analyzing what stage the industry is at, whether it is starting from scratch or has some base development, after which the government should set a goal to determine if the industry would be used as a primary technology or would be ancillary in nature.
The government presides over every detail — which agency plans and enacts the details; how much resources are committed and how much benefit the government would reap from the investment; who decides the allocation of funds and incentives; and which agency conducts quality checks to ensure that the investment has met its goals.
Only by subjecting all planning and policies to such scrutiny could the government say that it is conducting standard warfare, or else it would simply be a haphazard brawl, which we have seen in the past, precisely due to the application of inappropriate methodologies.
The nation must spend time on reforming old methodologies.
According to my observations, brand and product positioning are separated into original equipment manufacturing, original design manufacturing (ODM) and own branding and manufacturing.
The market can be divided into consumers, businesses and telecommunication servers, while manufacturing can be divided into system factories, chip factories and software developers.
In terms of gross margin ranges, businesses could be separated into categories of 10 percent to 30 percent, 30 percent to 50 percent and 50 percent to 90 percent, while software and hardware positioning could be defined as hardware manufacturers gifting software with each purchase and vice versa.
If their ratings are higher, the technology is more important or closer to becoming a primary technology.
However, despite three decades of hard work, most Taiwanese industries, manufacturers and products are heavily weighted in the ODM position — with a high percentage of investment in system and chip manufacturing — seeing gross margins of 10 to 30 percent and giving out software when hardware is purchased.
Taiwan is in the ancillary or secondary stage, as it is still far above the tertiary stage, but still not quite caught up to become a primary technology producer.
Taiwan pulls ahead of primary producers in certain semiconductor areas or key component manufacturing, but is otherwise relegated to ancillary or tertiary stages of development.
Is the Ministry of Economic Affairs (MOEA) aware of these long-standing difficulties? Has it proposed any methods that would ameliorate the situation? If we were to use current methodologies to promote new industries, Taiwan would only be able to produce ancillary or tertiary results.
Finding a balance between planning and policy is key, and the government should decide which agency would oversee which project, assign subsidies and provide funding for technology and personnel, setting the bar on research and development as well as delegating projects to research organizations.
However, the strange thing is that the Ministry of Science and Technology has jurisdiction over university research programs and other national laboratories and science parks, but its reach does not extend to industry development.
The MOEA, while in charge of industrial development, lacks the technical knowledge required to capitalize on their position.
Sectionalism has been the prime impediment for change in Taiwan. Due to sectionalism, an agency such as the Institute for Information and Industry has contrived to have individuals sympathetic to their pet projects in the management of the MOEA.
The MOEA relies on these outside agencies to promote said projects — despite the conflicts of interests — which results in mediocre performance in research and development.
Meanwhile, the government often taps professors with outstanding credentials for Cabinet positions on the assumption that their knowledge merits a higher position in the government, while the professors think the higher positions they hold in the government, the more knowledgeable they become.
The result is a failure on both ends, with the government suffering from ineptness and academia losing specialists.
LT: Can you offer any solutions to ameliorate the situation?
Lin: The owner of a first-tier factory said that his company put 50 percent of its resources into products that made money, 30 percent into products that other people profited from and 20 percent into making products that might give them a chance of being the first to profit from them.
The government’s allocation of resources should follow a similar pattern, balancing the resources that would maintain the production of profitable products — which face the most danger — while making sure that research and development of new industries and their products are ongoing.
While disregarding the age of industries, the government should determine the amount of resources it needs to invest and what outcome it expects from the investment.
Professors comprise the majority of government’s project committees that review applications for subsidies, with legal persons coming in a close second, while industry representatives hold the least amount of seats on the committees.
Some professors often sit on certain committees, causing the formation of academic cliques. In severe instances, these cliques grow powerful enough to monopolize reviews.
If the government were to provide information on a review, its time frame, the amount of funds for the project being reviewed and the head of the committee, it could strangle the cliques’ efforts to control the committees.
The concept of key performance indicators (KPI) is supposed to elevate certain Taiwanese industries from the third tier to the second tier and from the second tier to the first tier, while increasing the market shares of first-tier companies and their gross margins.
However, Taiwan lacks such strategic thought and instead most KPI reports show only how many companies have received assistance, how much of the company’s needs are handled, how many meetings are held or how many patents or papers academia is turning out.
From the observations, if the nation does not change the way its policies are structured, any promotion of new industries would only be a waste of resources that would at best reach the secondary level.
The industries would have no potential for creativity and would not support Taiwan’s international status in the high-tech industry.
We hope the incoming government would take the opportunity to usher in changes and bring about another peak for Taiwanese high-tech industries.
Translated by staff writer Jake Chung
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