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Taiwan's
Entrepreneurs
By Michael Alan Hamlin
January 22, 2001
This is the perfect time to begin
thinking about a new development strategy for the Philippines. As
I’ve argued previously, however the latest political crisis
plays out, recovery will have a lot to do with how well the country
whittles out a do-able development game plan from the remnants of
its latest crisis. Research into Marketing Places Asia, a joint
effort with Northwestern professors Philip Kotler and Irv Rein (I
know you’ve heard this before. I’m not trying to make
a point, other than the fact that they have a lot more to do with
this book than I do, and deserve the credit.), provides some insight
into how fostering entrepreneurship can help.
One of Asia’s most successful Dragon economies
— and the 14th largest trading entity in the world — is
Taiwan. The tiny island nation’s per capita gross national
product is US$12,850, third in Asia after Singapore and Hong Kong.
Even during the Asian financial crisis, the economy continued to
grow, with GDP expanding 6.7 percent in 1997 and 4.6 percent in
1998. What accounts for this tiny island country’s dramatic
success and rapid development?
To some observers, the key to Taiwan’s success
lies in its government’s policies on liberalization and international
cooperation. To others, it’s the entrepreneurial culture that
best explains why, in just three decades, the country has evolved
from a mere exporter of labor-intensive products to a producer of
highly capital- and technology-intensive products.
Today, Taiwan is the third largest producer of information
products in the world. In many respects its products differ greatly
from other East Asian countries in terms of valued added, which
is increasingly on par with those of developed economies. Companies
like Acer Computer — a former OEM manufacturer founded in a
garage with US$5,000 that has developed its own branded products
— and Taiwan Semiconductor compete in the global market with
other global brands such as IBM, Compaq, HP, Dell, Texas Instruments,
Toshiba, and Hitachi.
There are at least five factors that help account for
Taiwan’s success in fostering commerce and entrepreneurship:
1. The country’s 75 universities and centers of
technology excellence educate more than 8,000 engineers annually.
"There are 43 research scientists and engineers for every 10,000
people in Taiwan, compared with 33 in South Korea, and 28 in Singapore.
These institutes spawned specialized technical knowledge, making
indigenous technology available to priority sectors early in the
country’s march toward industrialization. And government allowed
researchers to focus on specific industries, rather than individual
companies as in South Korea, which substantially multiplied their
work." (The New Asian Corporation)
2. Taiwan has focused on high-growth sectors: computers,
telecommunications, and semiconductors. As a result, Taiwan is home
to Asia’s only global computer brand and the world’s most
profitable semiconductor and wafer manufacturer.
3. There are few real restrictions on business people
traveling to China, other than direct links, and even that is beginning
to change. This has facilitated new business ventures by local businesspersons
anxious to capitalize on mainland opportunities.
4. There are virtually no restrictions on foreigners
investing in the country, which supplies a dependable source of
investment.
5. There is a close government-private sector partnership
that works diligently at communicating the quality of products produced
in the country.
These five factors combine to create a value-added
process in Taiwan. What’s the next step? "Asians always
rely on real estate appreciation and tangible goods for wealth,
but I’m trying to change that model," Acer founder Stan
Shih said about the urgency with which he was compelled to push
his country into The New Economy. Taiwan’s development model
worked well for the country, providing a stable, value-added manufacturing
sector that helped see it through the Asian financial crisis.
Once Asia emerged from that crisis however, conditions
were radically changed and a rapid shift to high-growth sectors
in other regional economies began in earnest. Still, the five factors
that helped make Taiwan what it is today will likely continue to
work in its favor as it faces new, empowered competitors and looks
to a future in which competition for investment and opportunity
has never been greater.
And most of the competition is right next door, in
China. The main point of this brief examination of Taiwan’s
development strategy is that it had a distinct, workable strategy.
While Taiwan started out emulating the products of manufacturers
in other countries, it began planning very early for value-added
development in two ways. First, by sending bright people overseas
for study. Second, by developing centers of excellence to form Taiwan’s
own, in effect proprietary, brain trust. This was the first component
of its strategy.
Next, the focus on high-growth sectors meant that Taiwan
was able to more quickly generate the wealth necessary to support
its population than countries that have concentrated on low-growth
sectors, such as the Philippines and Indonesia. Such a strategy
is usually accompanied by significant levels of social upheaval,
as workers face the prospects of transitioning from one sector to
another. This suggests that the Philippines should prioritize a
limited number of high growth sectors where it demonstrates the
potential for competitive advantage, and concentrate resources there.
It must also develop the political will to resolutely guide this
change despite the bumps it will entail.
The two other things Taiwan did that are relevant to
the Philippines are foster close working partnerships between public
and private sectors and remove impediments to foreign investment.
The close partnership between government and business is not one
meant to protect business from competition, but rather support business
through such things as the development of adequate infrastructure
and the provision of competitively priced energy.
Removing impediments to foreign investment, and the
Philippines has made some encouraging progress in this direction,
is not meant to open the country to virtual takeover by foreigners.
Instead, it is meant to catalyze rapid job generation that the local
economy cannot generate the resources to do. It all comes down to
how fast a government and its people want to make as many people
as possible prosperous.
The formula for re-launching the Philippines should
likewise be limited to five or six do-able, high-impact items. Then,
both government and the private sector must remain steadfastly focused
on doing those things.
(Mr. Hamlin is managing director of the consultancy
TeamAsia and the author of two books on Asian economies and managing
in Asia. His latest book is The New Asian Corporation: Managing
for the Future in Post-Crisis Asia. His e-mail address is mahamlin@teamasia.com.ph.)
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