Taiwan’s business-friendly environment and science parks designed to foster technology industries are the key elements of the nation’s winning chip formula, inspiring the US and other countries to try to replicate it. Representatives from US business groups — such as the Greater Phoenix Economic Council, and the Arizona-Taiwan Trade and Investment Office — in July visited the Hsinchu Science Park (新竹科學園區), home to Taiwan Semiconductor Manufacturing Co’s (TSMC) headquarters and its first fab. They showed great interest in creating similar science parks, with aims to build an extensive semiconductor chain suitable for the US, with chip designing, packaging and manufacturing.
The representatives last month also attended an annual forum hosted by the Taiwan High-Tech Facility Association to discuss the creation of advanced chip fabs. Association members such as United Integrated Services Co and Marketech International Corp help TSMC build manufacturing facilities in Taiwan and overseas, and are known for their incredible efficiency. It takes one-and-a-half to two years for TSMC to build a new factory, outpacing the three to five years it takes global rivals, such as Intel Corp, to set up a fab.
Operating a chip plant in the science park is efficient, lowering operating costs and fostering technology development, which are essential for firms to be able to produce new and cost-competitive technologies. Companies in Taiwan’s science parks are eligible for lower rent and utility costs, and can more easily acquire talent, compared with traditional “industrial areas” created by the central and local governments.
To facilitate the formation of industrial clusters in the science parks, Taiwan set up “single windows” to assist companies in solving problems related to factory construction or the creation of start-ups. With heavy government investment, Taiwan’s semiconductor industry cluster and TSMC were created in the Hsinchu Science Park more than 30 years ago. The results are significant, as the semiconductor industry has become a key pillar of Taiwan’s economy.
The “Taiwan model” has even become a talking point for Taipei’s negotiations with Washington to lower the US’ “reciprocal” tariff and gain preferential rates for semiconductors and related products under Section 232 of the US Trade Expansion Act of 1962. Vice Premier Cheng Li-chiun (鄭麗君), who leads the tariff talks, earlier this month said that both sides are exploring the possibility of expanding investment in the US through the “Taiwan model,” under which Taipei would help the US build industrial parks, similar to those in Taiwan.
Local semiconductor component and equipment suppliers had previously avoided setting up operations in the US given the expensive labor costs, but the situation has reversed. Two or three years ago, most Taiwanese corporate executives thought it would be a long shot for the US to reproduce the Hsinchu Science Park. Some said it would not happen during their lifetime. Now they have changed their tune after TSMC increased its total investment in the US to US$165 billion, which implies a significant increase in demand.
The development raises concerns about the outflow of experienced talent, which could undermine the development of the local semiconductor industry and Taiwan’s economy. Compared with imminent tariff risks and escalating geopolitical risks, that should be a longer-term worry, as Taiwan has spent three decades perfecting its chip ecosystem, which cannot be overturned in the blink of an eye. Facing such challenges, Taiwan should consider how to use this business opportunity to spur an industrial transformation. For smaller-scale component and development suppliers, it represents a once-in-a-lifetime chance to expand overseas; for others, it could mean a painful restructuring.
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