Andrea T. J. Hsu Deputy Director General, Hsinchu Science Park Bureau

Transcription

1 Andrea T. J. Hsu Deputy Director General, Hsinchu Science Park Bureau TRANSFORMATION MODEL OF SCIENCE PARKS IN TERMS OF CULTIVATION OF KEY INDUSTRIES AND INTERNATIONAL ALLIANCES--A CASE STUDY ON THE HSINCHU SCIENCE PARK Abstract Remarkable revenue growth and development experience of the Hsinchu Science Park (HSP) have attracted a wide attention in the fields of economic studies and municipal development. Global journals and magazines even reputed the Park as Silicon Valley in Asia. To figure out the industry development mechanism and transformation model of the HSP over the past decades, this study investigates industry changes at the HSP in terms of revolution of innovative industry technologies as well as global technology alliances from a macro economic point of view, where Michael Porter s Five Forces model and Diamond model were adopted to analyze the development model of the Hsinchu Science Park, with supporting verification interviews of experts and senior officials in government sectors and a wide survey of statistics of the HSP. 1. Introduction Taiwan is a small island in Asia with a population of 23 million people and limited natural resources where not so many people know it but IT products produced in Taiwan can be found in every corner in the world. Mobile phones, notebook PCs, desktop computers, LCD TVs, LEDs, digital cameras, and a wide variety of electronic appliances, either components or system products are outcomes of Taiwan's high-tech industries and most of them come from the global IT product giant machine-the Hsinchu Science Park. Prosperous IT industry development in Taiwan has turned Taiwan into a world-class silicon island and a renowned high-tech innovation center. Achievements of Taiwan's high-tech industries are not miracles at all but endeavors of numerous high-tech elite and enterprises. As the contemporary master of management Michael Porter ever revealed, "Awareness of competitive forces can help a country stake out a position less vulnerable to attack, which marks the core running value of the high-tech industries in Taiwan, where fostering domestic high-tech industry is government's central responsibility and goal for local high-tech industries. "Innovation is not an abstract term but the central concern for high-tech industry development in Taiwan, which acts to actuate Taiwan's economic prosperity. Industry development in Taiwan can be classified into four periods. In the 50s and 60s, consumer goods industry and light industry played key roles in Taiwan and the government set up a number of processing export zones and industry zones to transform Taiwan from agriculture-based economic model into an industry-based one. 1

2 In the 70s, the government fostered capital and technology intensive industries and in the 80s, enthusiastic development of hi-tech industries and establishment of the HSP solidified the high-tech industry foundation in Taiwan. Imaging that a piece of land sharing less than 0.04% of land in Taiwan but creating global high-tech industry records from times to times, the Hsinchu Science Park generates an annual revenue of more than 33 billion USD over the past five years and enjoys its global reputation as a brilliant science park. The Hsinchu Science Park has cultivated a number of high-tech talent and global flagship IT enterprises over the past three decades, e.g. the largest IC foundry provider TSMC, the second largest IC foundry provider UMC, the third largest TFT-LCD maker INNOLUX, the fourth largest TFT-LCD maker AUO, the second largest mobile phone chipset maker and the fourth largest IC designer MediaTek, the third largest NOR Flash IC maker Macronix, and the largest Polymeric Positive Temperature Coefficient (PPTC) components manufacturer Polytronics Technology Corp., which solidifies the position of the Hsinchu Science Park in global IT industries. Besides, the Park also includes a number of renowned foreign companies, e.g. the largest plasma etching equipment maker Lam Research, the second largest IC equipment maker TEL, the third largest optical lens maker HOYA, etc. The Hsinchu Science Park is constantly extending its industry capacity as well as competence in semiconductor, opto-electronics, information, and telecommunications industries. Thus, more than 70% of global IT industry products are initiated from companies at the Hsinchu Science Park. As a venue full of chances, the Hsinchu Science Park has turned out to be the first choice of high-tech industry investment globally. As a vital organism, Taiwan's science parks are enthusiastically transforming into a high value-added and innovation powerhouse via development of cutting-edge technologies and expansion of new science parks focusing on specific emerging technology development. There have been so far 12 satellite parks nurtured by the mother of Taiwan's science parks, that is, the Hsinchu Science Park. Diffusion of science park cluster effect has extended to Jhunan, Tongluo, Jhupei, Longtan, Yilan, Taichung, Huwei, Tainan, and Kaohsiung, etc., each follows the track of the Hsinchu Park but focuses on different regional industry development characteristics. These parks function as an actuator of Taiwan's high-tech industries. Over 35 years of development, there are so far over than 520 enterprises at the park with over 151 thousand employees. Annual revenue reached 33.6 billion USD in Moreover, 30% of new invention patents in Taiwan are contributed by the Hsinchu Science Park. The Southern Taiwan Science Park is the second science park cluster in Taiwan, which starts operation in With two decades of development, the park has achieved a remarkable performance, almost one 70% of the Hsinchu Park's revenue outcome, focusing on development of IC and TFT-LCD industries mainly. In 2003, the government established the Central Taiwan Science Park. This new park incorporates five separate sites and achieved a remarkable growth in tenants and employees. Fast growing TFT-LCD related industries have formed unique panel display industry clusters at the park. 2

3 While talking about the effect of Taiwan's science parks to overall national economy, as the end of 2015, output of science parks contributed around 17% of sales revenue to domestic manufacturing industry. As a key high-tech industry actuator, science parks function as productivity sources in Taiwan and bring the small island with economic prosperity. Development of science parks also brought upon formation of brilliant policies and administrating measures to attract global flagship enterprises to setup branches in Taiwan. Incentives & mechanisms like one-stop services & efficient administration, superior academia-industry collaborative mechanism, optional tax deduction, government's investment up to 49% of stock, low income tax up to 20%, free import/export duty for equipment and materials, R&D grants and encouragement awards, and training & talent cultivation mechanism have effectively catalyzed the blooming development of Taiwan's high-tech industries. Development strategies of high-tech industries in Taiwan lie in not merely bring-in of high-tech talent and leading enterprises but also seeking strategic alliances with foreign high-tech enterprises. Most high-tech enterprises in Taiwan have built up solid partnerships with global flagship enterprises, in an eye to pursue a win-win scenario. Besides technology strategic alliances, science parks in Taiwan have also built cordial friendships with global renowned science parks or cities, like Tri-Cities Science & Technology Park, City of San Jose, the California State University, the Economic Development Alliance for Business, the Sandia Science & Technology Park, the Arrowhead Science Park, the Science & Technology Park at New Mexico University, etc. The US is the closest friend in the development pace of Taiwan's high-tech industries. For decades of industry cultivation, Taiwan's science parks have created a number of globally renowned high-tech enterprises, such as Taiwan Semiconductor Manufacturing Corp. (TSMC), United Microelectronic Corp. (UMC), AUO, Mediatek, Macronix, etc., where TSMC and UMC rank top two IC foundry providers globally. As for IC Design industry, 4 of the top 20 IC design houses are located at the Hsinchu Science Park, namely Mediatek, Sunplus, Novatek, and Realtek. In foreseeable future, the mid-term goal of Taiwan's science parks is to achieve an 90 billion US dollars of revenue in The goal seems not so difficult to achieve via the high-tech competence of Taiwan's energetic industry vitality. Another effect adds to the success of Taiwan's science parks is the collaborative kinship among industries, academia, R&D organizations, national labs around the parks, and global high-tech industry alliances. Every sector plays a crucial role in the process of product R&D, innovation, and manufacturing, which accordingly provides a solid backup for Park tenants in technology transfer and R&D spin-off. Close partnership with companies in Silicon Valley also puts an add to the success of the HSP. 2. Literature Survey and Method This study adopts Michael Porter s Five Forces model and Diamond model to analyze 3

4 the development model of the Hsinchu Science Park, with supporting verification interviews of experts and senior officials in government sectors and a wide survey of statistics of the HSP. Raw data & statistics are not presented here because of space limit but can be accessed via to the author. Porter's five forces analysis is a framework for the industry analysis and business strategy development initiated by Michael E. Porter in It utilizes ideas formed in Industrial Organization economics to derive five forces which determine the competitive intensity and attractiveness of a market. Attractiveness refers to the overall industry profitability. An "unattractive" industry is one where mixture of forces acts to drive down overall profitability. A very unattractive industry would be one approaching "pure competition. The diamond model is a model developed by Michael Porter in his book The Competitive Advantage of Nations, where he released his theory of why particular industries become competitive in particular locations. The approach looks at clusters of industries, where the competitiveness of one company is related to the performance of other companies and other factors tied together in the value-added chain, in customer-client relation, or in a local or regional contexts. There are six broad factors incorporated in Porter s diamond model, which has become a key tool for analysis of competitiveness. Factor conditions include human resources, physical resources, knowledge resources, capital resources and infrastructure. Specialized resources are often specific for an industry and important for its competitiveness. Specific resources can be created to compensate for factor disadvantages. Demand conditions in the home market can help companies create competitive advantages, when sophisticated home market buyers pressure firms to innovate faster and to create more advanced products comparing to those of competitors. Related supporting industries can produce inputs which are important for innovation and internationalization and provide cost-effective inputs, but they also participate in the upgrading process, thus stimulating other companies in the chain to innovate. Firm strategy, structure, and rivalry constitutes the fourth determinant of competitiveness, where the way in which companies are created, set goals and are managed is important for success. However, presence of intense rivalry in home base is also important, which creates pressure to innovate in order to upgrade competitiveness. The role government influences each of the above four determinants of competitiveness and affects the supply conditions of key production factors, demand conditions in the home market, and competition between firms. Government interventions can occur at local, regional, national or supranational level. Chance events are occurrences that are outside of control of a firm, which are important because they create discontinuities in which some gain competitive positions and some lose. Factors under Porter s Diamond model interact with each other to create conditions where innovation and new competitiveness occurs. Statistics utilized in this study come from the statistics released by the Science Park Bureau from 1986 to 2015, where annual revenue of Park tenants, paid-in capital invested by Park tenants, industry structure, patent number created, employment population, educational background of Park employees are elements taken into account. Five senior employees in different divisions at the Science Park Administration were interviewed for verification supports. 4

5 3. Findings and Results 3.1 Industry Transformation at the HSP Industry development of the Hsinchu Science Park can be categorized into three main phases based on revenue growth of different industries over past three decades according to surveyed statistic data, namely PC driven, IC driven, and Innovation driven phases, as the following figure reveals, where revenue of PC and IC industries reached almost the same level in 1993, meaning PC and IC industries dominated the revenue share at the Hsinchu Science Park in PC industry revenue then went downward and IC industry revenue then moved upward after the turning point in IC industry revenue kept a steady dominating position till now, where revenue of IC design industry, a branch of IC industry which signifies an innovation-based industry, outshined other industries since Revenue of MediaTek, a tenant at the HSP, which ranks the 3 rd largest IC design house in the world, reached a revenue high in 2002 and honored as king of Taiwan s stock market. Thus, industry development mode at the HSP is reckoned as the innovation-driven phase, since revenue of innovation-based IC design industry dominated a crucial share of the total revenue at the HSP then. Industry Development Milestones % PC-driven IC-driven Innovation-driven Billion USD IC PC TELECOM OPTO-E MACHINERY BIOTECH Besides the fact proven by revenue changes, number of IC design companies also hit a record high in 2002 and kept a growth till now, comparing to companies in other IC branch industries of the same time phase. 5

6 Industry transformation at the Hsinchu Science Park follows global economic development path and industry technology changes. A number of technology firms in Silicon Valley, e.g. WANG, MICROTEK, etc., built up branches at the Hsinchu Science Park as the Hsinchu Science Park started operation in 1980, which solidified the foundation of the golden 10 years of computer industry in Taiwan from 1980 to 1990s. Industry development model at the HSP made a gradual change since 1990 after TSMC (Taiwan Semiconductor Manufacturing Company) established at the Hsinchu Science Park in 1987, which brought upstream and downstream supporting industries to the HSP and caused a booming IC industry development since then, where ITRI (Industrial Technology Research Institutes) played a crucial role in incubating the global IC foundry giants. IC foundry, DRAM, Flash, IC design industries, etc. turned the HSP into a global chip-making powerhouse at that time. As an innovation-based industry and capital as well as technology intensive industry, semiconductor industry at present contributes more than 70% of the total revenue among six main industries at the HSP, as the following figure reveals. Thus, IC industry clusters solidified at the HSP act as catalysts tending to turn the HSP into a innovation-driven era of industry operation model, where firms with new 6

7 ideas, innovation-based IC design firms, and next-generation technology dominators become future stars at the HSP Global Alliances The Science Park Bureau also forms kinship with global science parks or science cities over the past decades. So far, the HSP links with 26 sister parks in 13 different countries. Those business partners and sister parks act as business chance providers and experience sharers in the process of science park development for the HSP Industry Transformation Model Identification Development process of a science park is like a microbiological organism, amoeba. Whenever there are bottlenecks for breakthrough, amoeba will search its own way out. The case of the HSP is a typical example verifying the rule, especially in the aspect of industry technology development and transformation. As a global IT product making machine, the HSP experienced a boom of PC industry era, a boom of DRAM industry era, a boom of TFT-LCD industry era, and the everlasting IC foundry industry. Industry development model at the HSP changes all the time to fit the optimal mass. Competitiveness plays a key role in the process of industry transformation and innovation acts as the source of competitiveness. Experience of the HSP over the past decades in rendering global super IT manufacturing competence can be identified by Porter s Five Forces Model of Competition and Diamond Model as follows. 7

8 These two models identified illustrate the interacting factors influencing the industry development and transformation models at the HSP, which can be further deduced into a mathematical formula to portray the elements input and outcomes of high-tech industry development of a science park. Explanation of factors in these two model has been illustrated in section 2 of the study Interaction of Models and Prospective Industry Development Porter's "five forces" model shows the five forces that affect the competitive environment of a small business. Porter's "diamond" model shows the four factors that affect the competitiveness of a nation and its industries. Porter's five forces determine a company's competitive environment, which affects profitability. The bargaining power of buyers and suppliers affect a small company's ability to increase prices and manage costs, respectively. For example, if the same product is available from several suppliers, then buyers have bargaining power over each supplier. However, if there is only one supplier for a particular component, then that supplier has bargaining power over its customers. Low-entry barriers attract new competition, while high-entry barriers discourage it. For example, opening a home-cleaning business is simple, but 8

9 starting an IC manufacturing company is considerably more difficult. Industry rivalry is likely to be higher when several companies are vying for the same customers, and intense rivalry leads to lower prices and profits, which is also applicable for HSP companies. Government policies can influence the components of the diamond model. For instance, lower income taxes create consumer demand, which leads to higher sales and profits. Countries that invest in education have a skilled workforce, which helps companies engage in research and development. The presence of supporting industries in close proximity to manufacturing companies can reduce input costs and increase profits. Supporting industries include raw materials suppliers and component manufacturers. A competitive industry structure is also important because companies that can survive tough competition at home are usually able to withstand even tougher competition in a global business environment, which is just right for HSP industries. The Hsinchu Science Park allocates hardware and software companies at the same area, along with universities and government research agencies. Clusters influence the competitive environment by increasing the productivity of companies in each cluster, encouraging entrepreneurial activity and driving the direction and speed of innovation. For future term of prospective industry development, the Taiwanese government has been strongly promoting five plus two innovative industries as a way of stimulating Taiwan s economy. These five plus two sectors include the five major innovative industries building an Asian Silicon Valley, intelligent machinery, green energy technology, biomedicine and national defense plus establishing a new agricultural paradigm and a circular economy. Overall budget for science and technology for the 2017 financial year is 3.3 billion USD, a 5.6 percent increase from the 3.1 billion USD allocated this year. Mapping with the diamond model, the Taiwanese Cabinet is setting aside 0.3 billion USD of the budget to encourage government agencies to collaborate with businesses, academics and research establishments to propose flagship projects, in an eye to develop the five plus two industries, thus accordingly enhance national innovation competitiveness. 4. Conclusion A formulated function is deducted from a macroeconomics point of view to illustrate the industry life styles at the Hsinchu Science Park after verifying a wide variety of parameters and statistic data, i.e. Io ls = δ tc (In rt, M rt, R rt) Clusters PEVT, where Io, the overall output of high-tech industry life style, is exhibited by the product of delta δ(in rt, M rt, R rt) Clusters P EVT, where In rt means innovation based industries achieving revenue r at time t, M rt means market oriented industries achieving revenue r at time t, R rt means the rest supporting industries achieving revenue r at time t, with impact effect of industry clusters, P means government policy support, E means global economic tendency, V means venture capital and risk-taking spirit, and T means talent pool. This mathematic model is useful to identify the competitiveness of industry cluster and industry lifestyle if the output portion of innovation industry is comparatively higher than other industries under significant supports from national policies, venture capital activities, and talent pool. Taiwan's science parks not merely form a high-tech industry cluster but also a knowledge innovation powerhouse, which shoulder the responsibilities of elevating Taiwan's innovation competence as well as upgrading national high-tech 9

10 competitiveness in terms of progressing domestic R&D capacities and enhancing regional economic prosperity, aiming at an eternal goal of reaching an overall national economic prosperity. Literature 1. Traill, Bruce; Eamonn Pitts (1998). Competitiveness in the Food Industry. Porter (1990, p. 127). Springer. p. 19. ISBN Traill, Bruce; Eamonn Pitts (1998). Competitiveness in the Food Industry. Springer. p ISBN Michael Porter, (1998) The Competitive Advantage of Nations, 1998 edition. 4. Porter, M.E. (1979) "How competitive forces shape strategy", Harvard business Review, March/April Porter, M.E. (1980) Competitive Strategy, Free Press, New York, Porter, M.E. (ed.) (1986) Competition in Global Industries, Harvard Business School Press, Boston, Scott Huang. (2003) Investigation on the Transformation of a Science Park in Terms of Infrastructure & Innovation Mechanism while Confronting Competition of Newly Shooting up Science Parks in the Neighboring Countries: the Case Study of the Hsinchu Science Park, Proceedings of the 7 th Annual Conference of Asian Science Parks Association. 8. J. Hsu. (2010) "State transformation and regional development in Taiwan from developmentalist strategy to populist subsidy," International Journal of Urban and Regional Research, 35: doi: /j x. 9. Mei-Chih Hu. (2011) Evolution of knowledge creation and diffusion: the revisit of Taiwan s Hsinchu Science Park, Scientometrics, September 2011, Volume 88, Issue 3, pp Tai-Shan Hu and Chien-Yuan Lin. (2013) Technopolis and Regional Development : A Review of Development Experience in Hsinchu, Taiwan, WTR 2013;2: