Today's Taiwan: Impressive Success, With An IP Spectre

The crux of why I spent this past week in Taiwan meeting with various companies and consortiums, as I suspected in advance, was clearly enunciated by the Industrial Technology Research Institute’s General Director, Dr.-Ing. Liang-Han Hsieh on Thursday morning.

In answering my ‘why is branding so important, and why now, to Taiwan’s companies?’ query, Dr. Hsieh (who, as it turns out, ironically came to ITRI after a 10-year career at a similarly chartered Germany-based consortium, Fraunhofer) pointed out that in the early 1970s, Taiwan was primarily known to the world as a manufacturer and exporter of low-cost bicycles and inexpensive foodstuffs. However, via a fortuitous technology transfer agreement with RCA (specifically related to the company’s CMOS semiconductor efforts), further cultivated by government partnerships with private industry (along with the formidable combination of intellect and hard work that the country’s people are famous for), Taiwan single-handedly created the foundry business model (TSMC, UMC, etc) and today also boasts many of the world’s largest IC and technology systems suppliers.

Most of these systems suppliers, though, are now shifting production away from Taiwan itself and towards Taiwan’s much larger neighbour to the west, China, as well as elsewhere. This transition is fueled by two primary factors; the evaporating availability of business-worthy space on the small, mountainous island formerly known as Formosa, and higher Taiwanese labor costs as compared with other countries. As such, I felt a sense of déjà vu as Dr. Hsieh spoke; he could have been describing the transition that South Korean companies such as Samsung had undergone a decade earlier, or the evolution experienced by Japanese systems suppliers like Sony a decade before that.

Manufacturing capacity perpetually chases after the lowest-cost manpower sources, it seems. So it is that vendors such as ASUS and GIGABYTE, who historically built and sold laptops, motherboards and graphics cards to other companies (which put their own labels on them and resold them in the retail channel), are themselves not only using company-owned, China-located facilities but also subcontracting some manufacturing to other China-based companies. And therefore, ASUS and GIGABYTE (and other companies I met with this week) are now striving to take over the retail positions that their former customers (who are increasingly now buying products directly from those same Chinese-based companies) currently inhabit.

However, as Dr. Hseih related the history of the RCA CMOS technology transfer to Taiwan, along with the other ‘lessons that Taiwanese-based manufacturers learned from U.S. companies’, I couldn’t help but think of the abundant coverage that my peers Ann and Suzanne have devoted to the topic of IP infringement over the years, or to the palpable rage that I often encounter when the issue comes up in my conversations with U.S.-based semiconductor suppliers selling into consumer electronics and other high-volume market segments. Look, for example, at the low price-driven large amount of audio codec and Ethernet chipset business that Realtek has secured in its few short years of life, or how rapidly MediaTek became a formidable DVD chipset supplier. Now do a Google search on either company’s name, accompanied by the word ‘lawsuit’. See what I mean?

Don’t get me wrong. I was mightily impressed by the tremendous technology presence, measured both in terms of the number of companies and the market share positions of many of them, within a stones’ throw of the Hsinshu Science Park headquarters I toured on Thursday afternoon. And perhaps ASUS’ Chairman, Jonney Shih, was being completely truthful on Wednesday morning when he spoke of the spirit of innovation openness that compelled Taiwanese market competitors to freely share their underlying technology innovations with each other. But Western countries and companies play by a different set of rules, one founded on patents and the illegality of leveraging patent-protected technology without explicit permission and compensation. And, as I stared out the window at the countless shining corporate headquarters buildings comprising the Hsinshu Science Park, my appreciation of their countenances was dulled by the suspicion that IP infringement might be at the core of many of their foundations.