ACCELERATED TECHNOLOGY DIFFUSION THROUGH COLLABORATION: THE CASE OF TAIWAN’S R&D CONSORTIA by John A. Mathews Working Paper No 106 October 2000
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Accelerated technology diffusion through collaboration: The case of Taiwan’s R&D consortia John A. Mathews October 2000
Visiting Professor (until 31.12.00) Institute of International Business Stockholm School of Economics Box 6501 SE 113 83 Stockholm, Sweden
Professor of Management Macquarie Graduate School of Mgt Macquarie University Sydney NSW 2109 Australia
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Abstract A series of collaborative R&D ventures have emerged in Taiwan, within a quite distinctive institutional framework. Unlike the case of many of the collaborative arrangements between established firms in the US, Europe or Japan, where mutual risk reduction is frequently the driving influence, in the case of Taiwan it is technological learning, upgrading and catch-up industry creation that is the object of the collaborative exercises. The Taiwan R&D alliances were formed hesitantly in the 1980s, but have flourished in the 1990s as institutional forms have been found which encourage firms to cooperate in raising their technological levels. Most of these alliances are in the information technology sectors, covering personal computers, work stations, servers and multimedia, as well as a range of consumer products and telecommunications and data switching systems and products. But they have also emerged in other sectors such as automotive engines, motor cycles, electric vehicles, and in the services and financial sector as well. Several such alliances could be counted in Taiwan in the late-1990s, bringing together firms, and public sector research institutes, with the added organizational input of trade associations, and catalytic financial assistance from government. The paper discusses the evolving organizational architecture of these R&D alliances, utilizing several case studies, and seeks to draw comparisons between these institutional innovations in Taiwan and established collaborative arrangements in the USA, Japan and Europe.
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1. Introduction As the costs and risks of research and development mount, so firms in the industrial heartlands of the USA, Europe and Japan have sought new organizational forms to reduce and share these risks. Inter-firm R&D collaborative alliances and consortia have flourished, and with them new institutional foundations and facilitative mechanisms have been discovered (Evan and Olk 1990; Kleinknecht and Reijnen 1992; Dodgson 1993; Aldrich and Sasaki 1995; Sakakibara 1997a; -b; Dodgson 2000). The common feature shared by all such partnerships is that they influence the dynamics of innovation in such a way that the future competitive position of at least one of the partners, and potentially of all the partners, is improved. The microelectronics, semiconductor and computer sectors have been in the forefront of these developments, driven by the Schumpeterian competitive dynamics of rapid product turnover and diminishing process technology life cycles that characterize these sectors. Governments have played key roles in the successful R&D consortia in all the advanced countries -- as in the case of Sematech in the USA, in the VLSI and many other joint R&D programs in Japan, and in ESPRIT, EUREKA and other collaborative programs in Europe. Public policies towards the framing of such consortia are becoming more favorable (Martin 1996). These developments, whether they be called R&D alliances, R&D consortia or strategic technology partnerships, or simply collaborative innovation networks, are the subject of a growing scholarly literature (Vonortas 1997; Hagedoorn 1996; Gomes-Casseres 1996; Levy and Samuels 1991). Of great interest in this regard is the series of collaborative R&D ventures that have emerged in Taiwan, within a distinctive institutional framework. Unlike the case of many of the collaborative arrangements between established firms in the US, Europe or Japan, where mutual risk reduction is frequently the driving influence, in the case of Taiwan it is technological learning, upgrading and catch-up industry creation that is the object of the collaborative exercises. Taiwan’s R&D consortia were formed hesitantly in the 1980s, but flourished in the 1990s as institutional forms were found which encourage firms to cooperate in raising their technological levels to the point where they can compete successfully in advanced technology industries. Many of these alliances or consortia are in the information technology sectors, covering personal computers, work stations, multiprocessors and multimedia, as well as a range of consumer products and telecommunications and data switching systems and products. But they have also emerged in other sectors such as automotive engines, motor cycles, electric vehicles, and now in the services and financial sector as well. Several such alliances could be counted in Taiwan in the late-1990s, bringing together firms, and public sector research institutes, with the added organizational input of trade associations, and catalytic financial assistance from government (Lin 1994; Hou and Gee 1993). Taiwan’s high technology industrial success rests on a capacity to leverage resources and pursue a strategy of rapid catch-up. Its firms tap into advanced markets through various forms of contract manufacturing, and are able to leverage new levels of technological capability from these arrangements. This is an advanced form of “technological learning”, in which the most significant players have not been giant
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firms (as in Japan or Korea), but small and medium-sized enterprises whose entrepreneurial flexibility and adaptability have been the key to their success. Underpinning this success is the efforts of public sector research and development institutes, such as Taiwan’s Industrial Technology Research Institute (ITRI). Since its founding in 1973 ITRI and its laboratories have acted as a prime vehicle for the leveraging of advanced technologies from abroad, and for their rapid diffusion or dissemination to Taiwan’s firms (Lin 1994; Hobday 1995; Wong 1995; Mathews 1997; Mathews and Cho 2000). This cooperation between public and private sectors, to overcome the scale disadvantages of Taiwan’s small firms, is a characteristic feature of the country’s technological upgrading strategies, and the creation of new high technology sectors such as semiconductors. Behind many of these successes lie some remarkable institutional structures favoring collaborative product development, which is Taiwan’s own adaptation of the R&D alliance. Taiwan’s current dominance of mobile PCs for example, rests at least in part on a public-private sector led consortium that rushed a product to world markets in 1991. Taiwan’s strong performance in communications products such as data switches, which now dominate in PC networks, similarly rests on a consortium which worked with Taiwan’s public sector industry research organization, ITRI, to produce a switch to match the Ethernet standard, in 1992/93. When IBM introduced a new PC based on its PowerPC microprocessor, in June 1995, Taiwan firms exhibited a range of computing products based on the same processor just one day later. Again this achievement rested on a carefully nurtured R&D consortium involving both IBM and Motorola, joint developers of the PowerPC, as external parties (Mathews and Poon 1995). These successes were followed up by many more such R&D alliances in digital communications and multimedia areas. Taiwan is emerging as a player in the automotive industry, particularly in the expanding China market, driven by its development of a 1.2 liter 4-valve engine. Again, this is the product of a publicprivate collaborative research endeavor involving three companies, which have now jointly created the Taiwan Engine Company to produce the product. Thus, the R&D consortium is an inter-organizational form that Taiwan has adapted to its own purposes as a vehicle for catch-up industry creation and technological upgrading. The microdynamics of the operation of these consortia, is therefore a matter of some substantial interest. Some of these consortia have been more successful than others - but all seem to have learned organizational lessons from the early cases where government contributed all the funds, and research tasks were formulated in generic and overly ambitious terms for the companies to take advantage of them (Weiss and Mathews 1994). The more recent R&D alliances have been more focused, more tightly organized and managed, and have involved participant firms much more directly in co-developing a core technology or new technological standard which can be incorporated by the companies, through adoption and adaptation, in their own products. The basic model of the Taiwanese alliances is the construction of a process in which R&D costs can be shared, and risks reduced, through bringing many small firms into a collaborative alliance with each other and with ITRI (ie with one its operating laboratories); it is ITRI which provides the anchor for the alliance and the principal technology leverage vehicle. Thus, the Taiwan R&D alliances differ from their counterparts in the USA, Japan and Europe, in that their goal is rapid adoption of new
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technological standards, products or processes developed elsewhere, and their rapid diffusion to as many firms as possible. But their organizational form owes much to the R&D collaborative vehicles developed in the leading industrial centers, particularly in the way that Japan structured many relatively short-lived R&D alliances with clear technological goals (Sigurdson 1986/1998; Fransman 1990/1992; Sakakibara 1997a; Sakakibara 1993). This paper is based on a study of 20 of Taiwan’s R&D alliances formed over the course of the past 15 years. ♣ Since these consortia are not well known, several representative case studies are given in the paper, each framed around a discussion of the rationale for the formation of the alliance, its organization, composition and processes, outcomes, and an assessment of its relative success. 1 The cases are then compared with what is known of successful R&D collaborative ventures in the USA, Europe and Japan, in order to draw out the key features of the Taiwan R&D alliances. The aim is to develop an evolutionary conception of their organizational design, providing an assessment in general of their effectiveness and modus operandi. The alliances studied, and the representative cases, are displayed in Table 1, which illustrates the range of consortia formed. It can be seen that they span many industries and target technologies, and that they range in size from as few as three or four participants to more than 40. One striking feature worthy of immediate notice is their relatively small budgets. In all, the twenty consortia have accounted for a budget of no more than NT$4 billion, over 15 years, with government input of no more than NT$2.3 billion -- or around US$100 million, equivalent to just one year’s government subsidy of the 10-year Sematech program in the USA.2 Thus, these figures reveal just what a “David and Goliath” struggle it has been for Taiwan to take on US firms in high technology industries -- and they underscore the significance of the Taiwan achievements, which owe as much to organizational finesse and learning as to dollar subsidies. ---------------Table 1 about here ---------------2. R&D consortia
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This study of Taiwan’s R&D alliances has been conducted through field work carried out in November 1994, September 1995, August 1996 and March 1997. Financial assistance has been provided by the Australian Research Council, and by the Business Networks research program of the Department of Industry, Science and Technology (in 1995-96). Research assistance was provided by Teresa Shuk-ching Poon and Cathy Xu; some interviews were conducted in conjunction with Professor Linda Weiss, Dr Wan-wen Chu and Dr Shin-horng Chen. The assistance of officers at the Industrial Technology Research Institute (ITRI), in particular Dr Otto Lin (former president), Dr Chintay Shih (current president) and Dr Paul Bao-shiu Lin (deputy director of CCL), is gratefully acknowledged. 1 The cases studied provide a substantially representative sample, but certainly not the entire class of R&D consortia with which ITRI has been involved, nor the still wider class of consortia initiated by the private sector without ITRI involvement. Further studies are needed to gain this more complete perspective on the Taiwan experience. 2 On Sematech’s budget and its appropriation, see Sematech, A World of Opportunity: 1996 Annual Report (Austin, TX: Sematech, 1997).
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The reasons why firms in the advanced countries seek to pool their development efforts within R&D consortia, and the nature of the benefits they derive, is now the subject of a burgeoning international literature. The theoretical economic arguments (Spence 1984; Katz and Ordover 1990; Kamien, Muller and Zang 1992) tend to focus on the “spillover” effects of R&D, creating a socially useful externality. According to this reasoning, firms enhance social welfare through their research activities, but this may depress their incentives to continue, unless a form of R&D collaboration can internalize such an externality. These arguments are of necessity couched in cost terms, with consortia seen as pooling costs, and with the inevitable assumptions that vitiate much economic reasoning, e.g. that cooperation either involves all firms in an industry or none (compared to the reality that cooperation usually involves a small subset of firms). Empirical testing of these points was scant until comprehensive microeconometric studies of Japan’s R&D consortia and US consortia such as Sematech demonstrated clear benefits to participants and to R&D expenditure levels generally (Branstetter and Sakakibara 1997; Link, Teece and Finan 1996). The detailed studies have however cast strong doubt on cost-sharing as being a driving influence in consortia formation. More credible and comprehensive explanations for consortia formation and governance have come from the institutional economic literature and management literature. Here the focus has been on matters of more immediate concern, namely how firms and agencies can actually manage the complex processes of building interfirm collaborative routines (Powell, Kogut and Smith-Doerr 1996; Sakakibara 1997a; -b; Doz, Olk and Ring 2000; Sawhney and Prandelli 2000). The creation of value through interorganizational relationships, and the capturing of “relational advantage” has become a topic for sustained inquiry (Saxenian 1991; Dyer and Singh 1998; Child and Faulkner 1998; Barringer and Harrison 2000). Small firms in particular have been able to take advantage of R&D consortia in order to overcome diseconomies of scale (Kleinknecht and Reijnen 1992, Sigurdson 1986/1998). 3 This provides an appropriate setting for the discussion of Taiwan’s consortia, which have been designed to promote the interests of small and medium-sized firms. In the case of R&D collaborative alliances and consortia, the detailed case studies conducted to date reveal the immense difficulties that advanced firms face in sustaining meaningful collaboration, even when the payoffs are clear (Peck 1986; Corey 1997; Grindley, Mowery and Silverman 1994; Hausler, Hohn and Luetz 1994; Luetz 1997). This again provides a useful antidote to the economic analysis, which seems to assume that consortia will be formed when firms have interests in so doing. The real world is much less tractable. This again is of great relevance to the Taiwan case, where public agencies have seen the issue in terms of creating an institutional framework that will help to overcome firms’ antipathy towards collaboration. When the research consortia have an explicit goal of “technology transfer” and one of the institutions, usually a public agency, plays a lead role, these problems are not so 3
Sigurdson (1986) provides a wealth of detail on the origins of Japan’s Engineering Research Associations (ERAs) which were largely organized for the benefit of small firms. This makes the bestknown of Japan’s consortia, such as the VLSI consortium 1976-1979, an exception (Sakakibara 1993; Sakakibara 1997a). The Japanese ERAs were actually an institutional adaptation of Research Associations pioneered in Europe. Sigurdson’s monograph has long been out of print, and was republished in edited and updated form as Sigurdson (1998).
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acute. The term “cooperative R&D agreements” (CRADAs) has been coined to describe such a situation, and its efficacy in different settings discussed (Berman 1993; Bozeman and Pandey 1994; Rogers et al 1998; Kumar and Magun 1995; Abramson et al 1997; Leyden and Link 1999; Carayannis and Alexander 1999). The Taiwan R&D consortia can be deemed to be a species of CRADA, although joint development has become as much a matter of concern in the 1990s as technology transfer. Sakakibara (1994; 1997a; -b) has raised the level of discussion of R&D consortia in her insistence that many of the Japanese R&D collaborative arrangements reflect motives of skill sharing rather than cost reduction. She does not deny the importance of government subsidies, but argues that these have the effect of inducing skillsharing cooperation rather than the costs themselves being a prime factor. Her work rests on the resource-based view of the development of strategic capabilities, and it provides a framework of prima facie relevance for the case of Taiwan’s alliances. Doz, Olk and Ring (2000) provide a rich discussion of the institutional details and motivations that inform the creation of R&D consortia, utilizing as their sample the set of US R&D consortia formed under the National Cooperative Research Act of 1984, between the years 1984 and 1989. 4 Their focus is on the process of formation, rather than on its triggering factors. This leads them to propose two general kinds of processes, namely one which is rationally engineered (usually by some triggering agency), compared with one which emerges as firms become aware of the feasibility and desirability of pooling R&D efforts. Again this distinction appears to have important application in the case of the Taiwan consortia. The burden of the empirical research is that firms do indeed derive benefits from cooperating in R&D, under certain circumstances (eg separability of functions in the development task), and provided the participants can find acceptable ways to answer the three issues posed by Aldrich and Sasaki (1995), namely: • What kind of organizational arrangements work best for each case; • How are the research goals to be specified; and • What is to the involvement of government and public agencies? This present study will utilize these questions to frame its analysis of the Taiwan experience with R&D consortia, buttressed by the criteria introduced by Sakakibara (cost-sharing vs skill-sharing motivations) and by Doz et al (2000), namely engineered vs emergent formation of consortia. The goals of the present study are to establish the practical relevance and interest of the Taiwan consortia (ie adding further cases to the empirical literature); to compare and contrast the Taiwan consortia with those preceding them in Japan, Europe and the U.S.A.; and to reach provisional findings as to the relative contribution that the Taiwan consortia might have made to the development and upgrading of new industries in Taiwan.
3. Origins of Taiwan’s development consortia
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This provides a population of 137 R&D consortia registered under the Act. In 1994 the Act was amended, and the collection of data was changed.
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Like Taiwan’s industrial upgrading efforts more generally, the R&D alliances are the fruit of experimentation and some early failures. Some of the early R&D collaborative efforts, inspired no doubt by Japanese cases such as the VLSI program of 1976-1979, were hardly successful. In the beginning of the 1980s, the newly established Institute for the Information Industry (III), for example, initiated a project called Software Engineering Environment Development (SEED). This project brought together 32 member firms and the agency with some ambitious goals to establish technical standards for Chinese-character processing and software - but in the end there was little to show for these efforts. Likewise an early effort by ITRI to involve automotive firms in the development of a 2-stroke engine, to provide a technological foundation for a mooted Taiwanese automotive industry, was an almost complete failure. 5 But the characteristic feature of Taiwan and its institutions is pragmatism and the ability to learn from mistakes. These two failed R&D alliances were certainly not the last word on the subject. In the 1980s and 1990s there were many more such initiatives, most of which can be traced to the various research laboratories of ITRI – such as in electronics (ERSO), computing and communications (CCL), optoelectronics (OESL) or mechanical engineering (MIRL). The new crop of R&D consortia trace their origins to a series of “multi-client projects” initiated by ITRI in the early 1980s, oriented towards stimulating a PC industry in Taiwan. Taiwan had missed out completely in mainframe and minicomputers. But in the early 1980s computer engineers in ITRI’s electronics laboratory (ERSO) were highly aware of the possibilities in the new PC sector, based on the emergence of firms in Taiwan in microprocessor-based product areas such as calculators, game machines and the early microcomputers. The catalyst was IBM’s introduction of its successful PC based on an open architecture, paving the way to “IBM-compatible” machines. This created an opportunity which Taiwan firms, led by the youthful Acer, were quick to seize. However the Taiwan firms lacked basic PC technology, and turned to ITRI for support. At that time the norm was for ITRI to develop new technologies and then advertise their availability to existing firms; or to develop the technology and then spin it off into a new firm (as done with the first semiconductor firm, UMC, in 1980). An alternative was to perform contract work for individual companies, sometimes merging into co-development work. A standard contractual agreement was signed between Acer (then Multitech) and ITRI/ERSO - but at the insistence of the Ministry of Economic Affairs, which saw the potential for many Taiwan firms to become involved in this emerging industry, the project was extended to become a “multiclient project”. This was the organizational prototype of the R&D consortium. This initial effort had partial success, in developing a generic product standardized around certain core components - but it was too late for the market, and was plagued at the time by intellectual property rights disputes. The next chance came with IBM’s announcement of a powerful new PC system in August 1984, the PC AT, again with open architecture and by now standardized components, such as DOS operating system and Intel 286 microprocessor. This was a technological leap that was eminently suited for emulation by ERSO’s new organizational form of the multi-client project. No sooner was IBM’s new machine 5
See Wang (1994) for a brief description of these two projects and their shortcomings.
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announced than ERSO moved to establish a new multi-client project to emulate it. A consortium was established, in October 1984, to build the new IBM machine. Three companies were enrolled as participants. 6 Formal contracts were signed in December 1984. A prototype machine was transferred to the companies by July 1985, less than a year after IBM’s announcement. This project was considered a great success, both in terms of the technology development and transfer, in terms of compliance with all intellectual property requirements, and in terms of the business subsequently generated for the participant firms, all of which became leaders in the Taiwan IT industry. The stage was now set for ITRI, and its newly established Computing and Communications Laboratory (CCL), to take the next step in upgrading Taiwan’s technological capabilities beyond the simplest PCs. Formal consortia were established in product areas such as laptop PCs, workstations and high-end servers. But the experience which was decisive in shaping future consortia was that of the Notebook PC consortium, which ran from 1990 to 1991. The prospects for Taiwan companies in this new field of laptop PCs seemed remote, given the multiple proprietary standards which were emerging, and the high density of the product design and assembly process (calling for different and more advanced skills than those involved in producing desktop PCs). CCL’s senior officials saw this as an opportunity to develop a further multi-client project, to give the industry greater technological and commercial momentum. The idea was to settle on certain key components as standard, and help to build a mass production industry on this basis. A completely new organizational approach was tried for this Notebook PC project, marking the point where the multi-client projects were being recognized as genuine R&D alliances or consortia. In this case, CCL developed draft specifications for a “common machine architecture”, and announced the new project to interested firms. CCL negotiated with the trade association, the Taiwan Electrical Appliance Manufacturers’ Association (TEAMA), to become involved as joint coordinator. 7 This may have seemed a small step at the time, but in organizational terms it represented a considerable enlargement of the scope of the alliance - and an institutional entrenchment of its legitimacy within the industry. As things turned out, no fewer than 46 companies elected to join the consortium - some clearly more for informational purposes than for any serious intention of manufacturing. 8 In July 1990 a formal consortium was established, the Taiwan Laptop PC Consortium (TLPC), with capital of NT$50 million (just less than US$2 million) subscribed by member firms. The overall strategy in the Laptop PC consortium was for CCL and the consortium to develop a “common machine architecture” for its prototype, which would translate into a series of standardized components that could be produced by Taiwanese manufacturers through mass production. There was no call for external sourcing of basic technology design, since CCL had already some experience in developing a 6
These were Systek; Tatung; and Copan. (This was the project through which Tatung, then a leading electronics firm in Taiwan, made its entry into the PC business.) 7 Now known as the Taiwan Electrical and Electronic Manufacturers’ Association, TEEMA. 8 The initial entrance fee was set at only NT$1.2 million (around U.S.$40,000). A slightly higher fee of NT$1.8 million was set for later entrants.
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prototype in an earlier project with one of the consortium members, Tatung. Organizationally, the consortium formed several panels to examine these components, and investigate prospects for local supply. This was the key institutional innovation of laptop PC consortium, which had the effect of translating what would have been a “niche” product for Taiwanese manufacturers into a mass-produced product where Taiwanese manufacturing efficiencies could be brought into play. Once the serious engineering work began, the prototype was produced rapidly (building on the earlier work with Tatung) within four months, and exhibited at the Comdex computer show in the USA in 1990. The prototype consisted of a number of standardization decisions regarding the key components, such as: motherboard (and chipset); screen (LCD); keyboard; battery; connectors; and adapters. The prototype was transferred rapidly into mass production. Market sales took off rapidly, both in Taiwan and abroad; more than 500,000 units were produced and shipped in 1991. CCL followed up the earlier product development work with extensive training programs offered to engineers employed by consortium member firms. Many of the CCL engineers also moved across to the firms involved in producing Laptop PCs. Thus, a notebook PC industry in Taiwan was launched, thanks at least in part to the work of the consortium. This successful aspect of the Notebook PC consortium has to be set against negative features, which prompted further learning and evaluation on the part of the Taiwan agencies themselves. Principal defect of the consortium was the large number of players (the entry price had been set too low) and the fact that they were presented with a finished product that was virtually ready to be put into production. Several consortium members thus found themselves selling virtually identical products (given that the prototype had been so close to a commercial product) and price competition rapidly became the main means for producers to differentiate their products. This led to excessive competitive pressures, and some of the less experienced PC firms which had entered the industry via the alliance exited, or went bankrupt. This was hardly a desirable outcome. Further attempts to extend the alliance, to produce a second generation Notebook PC, foundered on the emerging differences between the manufacturers, and the formal consortium was disbanded in 1991. The stage was now set for a series of consortia formed in the 1990s that learned the lessons from these earlier experiences, and brought the Taiwan institutional capacities in mounting and managing R&D consortia to a level comparable with those found in the advanced industrial countries. Of the many formed, let us examine four that were typical, both in terms of their organization, their technology targeting strategy, and their methods of technology diffusion management.
3. Case studies of Taiwan’s R&D alliances in the 1990s 1) High Definition Television consortia 1994-1996 Background For many years, the promise of high definition television (HDTV) has seemed to be ‘just around the corner’. Japanese firms like Sony and Hitachi have spent billions on developing HDTV systems - but they have been too expensive as yet to make much dent in the market. They have also been overtaken by new digital display
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technologies. All of this creates a fluid technological and commercial environment well suited to Taiwan’s ‘fast follower’ strategy. Thus the MoEA targeted HDTV as a field in which Taiwan firms could potentially excel - in spite of the apparent overwhelming advantages of large Japanese, European and US electronics firms. A special task force on HDTV was established within the Industrial Development Bureau, and efforts to upgrade the technological capabilities of some leading firms including Tatung, Proton and Sampo - were put in place. Central to these was the creation of several HDTV consortia. Consortium process The HDTV project has been carefully nurtured by MoEA, through the Industrial Development Bureau, working in conjunction with ITRI and the trade association, TEAMA. There have been three phases to the HDTV alliance, involving different facets of the HDTV product concept. A first phase was focused on developing the ‘advanced television’, i.e. a normal television adapted to receive high definition broadcasts. This phase involved five companies: Proton; Tatung; Sampo; Sanyo and Chung-Hsin. A second phase focused on the more innovative ‘wide screen television’ (with a screen ratio of 16:9). This phase involved nine companies: Proton, Sampo, Tatung and Sanyo again, plus API, Sony, Teco, National and Kolin. A third phase focused on ‘projection television’. This involved Tatung, Proton, Sampo and Sanyo again, together with API and Sony. Thus eleven different companies have been involved altogether. Outcome The HDTV project has yet to bear fruit - due not to poor planning or poor performance on the part of the firms and agencies involved, but to the vagaries of the international market. The HDTV market has not evolved in accordance with the expectations of the Japanese, nor of the Americans. It was only in 1997 that standards were being adopted that are likely to lead to a significant HDTV industry. Taiwan is ready, with capabilities built up through the HDTV consortia - but its fast follower strategy calls for patience while the lead players in Japan, USA and Europe sort out which will be the dominant standard(s). 2) Interactive TV consortium 1995-1997 Background The merger of communications, consumer electronics and computing technologies is creating a range of new technologies and industries, such as multimedia and interactive television (including ‘video on demand’). While Taiwan lacks the electronics giants like Sony or Philips that can set the lead in these technologies, it can pursue its strategy of being a ‘fast follower’ to rapidly respond to the new standards being established worldwide, and act collectively to disseminate these new standards and the technologies required quickly. Interactive television (iTV) and its associated interim Set Top Box (STB) technology promises to be a rapidly expanding industry as soon as standards are established by the major players. Large multinationals such as Philips and Sony were already in the mid-1990s announcing devices such as WebTV which transforms a TV set into an Internet browser. US semiconductor firms such as VLSI Technology were driving the technological race, with its ability to condense a STB chipset into a three-chip set, and then into a single Application-Specific IC utilizing its large cell library to do so. This represented the technological ‘cutting edge’ that Taiwan components producers would have to be able to match. A
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consortium was therefore quickly established to ensure that Taiwan could play its accustomed role as ‘fast follower’ of technical standards set by others, and ensure that the technological capabilities needed for this could be acquired and disseminated as rapidly as possible. Consortium process The technical goals of the iTV consortium were to develop prototypes that embody an open architecture, low cost and high performance - for these are the sources of a created competitive advantage for Taiwan. A genuine interactive TV industry would involve firms specializing in video graphics; modems and network capabilities; software and operating systems; communications protocols and network interfaces; chip design and processor production; security issues and TV tuner operation - as well as infrastructure considerations such as cable delivery. The point is that a ‘set top box’ is not just a piece of hardware that can be ‘reverse engineered’ - it embodies multiple technologies and standards to do with video signal reception and compression, network interfaces, signal processors, and software that spans TV operation and PC systems. The consortium to be successful needs to span as many of these interests and technologies as possible. 9 Phases 1, 2, 3 Phase 1 began in July 1995 with the formation of the consortium, and the beginnings of the process of developing specifications for a Set Top Box to deliver interactive TV (video on demand) capabilities. A series of iterations amongst the consortium members led to the development of a set of specifications, a range of possible strategic partners, and possible marketing strategies. The second phase began in October 1995, with the development of a Common Reference Platform by consortium members. This involved choice of technical standards from amongst competing options. 10 By early 1997, the options chosen included Microware and IBM’s PowerPC 403 - and CCL had entered into licensing arrangements with the suppliers of these systems on behalf of the members of the consortium. The prototype STB was actually completed in June 1996 and the complementary Network Interface Unit was completed in February 1997. Phase 3 began in June 1996 and involved further development work as well as promotion, through exhibition of the prototype STB and VoD trials, and the securing of international OEM/ODM business by the consortium members based on the prototypes developed. This is based on the fact that large electronics multinationals 9
The companies involved number 21, and they cover five related fields: * Computer capabilities : Acer; Mitac; Umax; FIC; API; ADI; Visionetics; AVerMedia; LiteOn; and Mentor Data * Cable companies: PX Cable * Consumer electronics firms: Tatung; Philips Taiwan; Sampo (Sharp Taiwan); Matsushita Taiwan; Proton * IC firms: Winbond; UMC * Communications firms: UFOC; Walsin Lihwa; Eastern.
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For operating systems for example, the options included: Microware (David/OS 9); ISI (pSOS); PowerTV; MMOSA (Microsoft); WindRiver (VxWorks) or Apertos (Sony). For the CPU, the options included: PowerPC 403 (IBM); PowerPC 603 (Motorola); or Intel’s x86 processor series. For the Set Top Box, the system architecture could be chosen from PowerBase (Apple) or S-A.
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such as Sony and Philips are already selling STBs such as the WebTV device which enables people to browse the Internet from a TV receiver. The consortium was wound up in March 1997 - but continues as a ‘virtual network’, to be revived if needed by future developments. Outcome: The prototype system, involving both STB and NIU, has been transferred to 7 companies: Acer Inc (IPG); Tatung; Eastern; ADI; Matsushita Taiwan; and PowerCom (a new video company spun off ‘unofficially’ from ERSO, to provide VoD technology). Of these: * Tatung has developed its own commercial version of the prototype, and secured orders from Taiwan’s own NII infrastructure project, and from the Guangdong VoD trial in the PRC; * Acer has taken the prototype and modified it for digital video broadcasting (DVB) and integrated receiver decoder (IRD) purposes; * ADI has developed a product which adapts the prototype to suit its own existing product line and product strategy. In this sense, the iTV consortium must be counted a success, even in advance of evidence of sales, in that the participant companies were deeply involved in the formulation of the initial specifications; in the development of the prototype (through their participation in two working groups); and in adapting the prototype to suit their own product strengths and business strategies - such as Acer adapting the VoD technology to suit its interests in digital broadcasting products. This is not to be counted as a failure of the alliance; on the contrary, such variation and differentiation of end commercial product is exactly what R&D alliances should seek to achieve.
3) NewPC consortium (1993-1997) Background and rationale The Taiwan PC industry was very successful, due in part to the ITRI consortia, but it limited itself to “Wintel” architectures (i.e. those based on MS Windows and Intel microprocessors). 11 There are of course alternatives to the Windows-based architectures developed by Microsoft and Intel; one such is the PowerPC microprocessor developed jointly by IBM and Motorola and used by Apple. It made sense for the Taiwan IT industry to develop capability in the PowerPC architecture, for at least three reasons. First, in case it took off and established itself as a genuine alternative to Intel and Microsoft products; second, in order to use the PowerPC platform as a way of accessing Apple product platforms, which until then had been inaccessible for Taiwan PC firms; and third, as a way of diffusing capabilities in processor architectures generally. For their part, IBM and Motorola recognized the significance of extending their global reach through encouraging Taiwan IT firms to develop a range of PowerPCbased information products. IBM and Motorola were therefore approached by CCL in 1992, with a view to licensing the PowerPC to a group of Taiwan PC firms. By dealing with ITRI/CCL in a once-off licensing agreement, the US firms could avoid 11
An exception was an attempt to enter the workstation segment of the market on the basis of Sun SPARC-compatible machines, in the late 1980s.
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having to deal with a lot of individual, small Taiwanese companies. Negotiations over the character of the technology transfer process were prolonged, with a final agreement not being signed until late 1993. To show their commitment, the US firms jointly established a PowerPC Technical Center in Taiwan (the first outside the USA) in the period 1994 to 1996, to provide technical assistance to Taiwan firms seeking to adopt the PowerPC platform. 12 The consortium process This was one of the more complex ITRI R&D alliances, formed to promote a standard system platform based on the PowerPC microprocessor. Technology transfer from IBM and Motorola was effected through CCL, on behalf of Taiwanese firms generally, in the form of a comprehensive licensing agreement. This agreement set the terms of the development process; it provided for development of products based on the PowerPC processor, but not of the processor itself. Thus the consortium was designed to produce PowerPC-based products as rapidly as possible. On the original model of the Laptop PC consortium, the NewPC consortium spanned several steps in the system-product value chain, including production of chipsets (platform), add-on cards, components and software as well as final PC system producers. This was a further organizational innovation, making the NewPC consortium considerably more complex than its predecessors at ITRI. The NewPC consortium was a large affair, involving 40 Taiwan IT companies as well as ITRI/CCL; the trade association TEEMA; and the US partners IBM and Motorola. The 40 Taiwan IT companies were grouped in four classes, depending on their position in the value chain, focusing on either platform details (ie chipset), add-on cards, components or software. This value-chain spanning aspect of the NewPC consortium represented a further evolution of the organizational approach of the Laptop PC consortium, but brought to a more sophisticated level. The structure of the consortium is shown in Chart 1. -----------------------Chart 1 about here -----------------------All the leading IT firms in Taiwan were involved except Acer, which elected to ignore the PowerPC, and in any case considered itself capable of developing its own new products. 13 Given earlier experience with the Laptop PC consortium, membership in each of the working groups was limited to a maximum of nine firms, to avoid excessive competition. Thus the alliances learn from each other, from one generation to the next. Overall 40 companies were involved. Consortium process The project began formally with CCL signing a Memorandum of Understanding (MoU) with IBM, in July 1993. CCL then staged a NewPC product development 12
Apparently Digital Equipment Corp (DEC) also approached ITRI/CCL with a view to licensing its Alpha processor, a rival to the PowerPC. However DEC was reportedly not willing to offer the same level of technology support as IBM and Motorola, and so their processor was not chosen for the NewPC consortium. 13 With some exceptions, such as its participation in the Server alliance with Intel in the late 1980s and early 1990s.
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workshop at Hsinchu to inform likely Taiwanese participants in the technical and market angles. The TNPC consortium was formally established between CCL and the 40 participating firms, in November 1993. Product development proceeded rapidly, overseen by the Platform working group, under the technical advice of IBM and Motorola who placed representatives in Taiwan. A motherboard built around the PowerPC was exhibited by CCL at the CeBIT trade fair in Hanover, to considerable acclaim. It was followed by a fully functioning PC system based on a PowerPC 601 motherboard, exhibited at the June 1994 Computer Show in Taipei. (This was just a day after IBM had announced its own first PC based on the PowerPC 601.) A subsequent phase was focused on extending the market opportunities for Taiwanese firms. It was initiated with the signing of an agreement between CCL and Apple to open up its operating system for licensing by Taiwanese firms, in January 1995. (Apple had never before opened its operating system to licensing -- a momentous decision.) This was followed by an agreement between CCL and IBM to license IBM’s PowerPC system firmware to Taiwan producers. This opened the way for Taiwan firms to produce their own PC systems based on PowerPC platforms, utilizing Apple and IBM software and firmware and “shaping” their product offerings with their own software refinements. All the funds needed for development of the NewPC consortium products were provided by member companies, through their contributions. These increased as the project evolved -- from NT$1 million in Phases 1 and 2, to NT$2 million in Phase 3. Thus the total budget was over NT$100 million (around U.S.$5 million). Apart from CCL’s “in-kind” contributions, in terms of engineering input, there was no external public funding of the NewPC consortium. It represented a “coming of age” where the consortia were expected to be financially self-supporting. By March 1997, two Taiwanese firms -- Umax and Tatung -- had developed product lines based on PowerPC platforms, and licensed PowerPC-compatible software from IBM, Motorola and Apple. (They had already licensed the hardware from CCL.) Umax led the way with its licensing of Apple hardware and software rights, and its production of PowerMac PCs in Taiwan. Since then other IT products have been produced based on the PowerPC processor rather than the conventional “Wintel” systems. Of course, as things turned out, the PowerPC processor did not displace the Intel-Microsoft system dominance, and so the business success of these Taiwan product offerings has not been great -- apart from the Apple cloning, which was growing fast in the later 1990s. Some leading companies such as Acer did not join -presumably for fear of offending Intel. 14 Thus the consortium must be rated a qualified success. But there were several highly significant indirect effects. It equipped major firms with the technological capabilities to develop products based on a major microprocessor, and gave them insights into the workings of the operating systems based on this processor. It generated profitable product lines for the companies, both through their own PowerPC-based products and through the opening up of Apple PowerBook 14
Other participants kept a low profile for similar reasons; for example, First International Computer participated via its subsidiary, Formosa Industrial Computing, while Umax sent its subsidiary, Prolab Technology, to the software working group.
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clones. It raised the international profile of the Taiwan PC industry so that it was seen to be a player in the technological development of the sector. Important lessons had been learnt from the Laptop PC experience. In the NewPC consortium, membership of the Platform working group (the most important of the consortium) was restricted to a maximum of seven companies, all of whom were required to have considerable prior expertise and technological capabilities as well as their own marketing channels. Thus both the quality and quantity of the membership was regulated by the consortium organizers -- an important advance over earlier consortia. Support from the major multinationals, Motorola and IBM, was considerable. They provided initial technical support offered through the Center; in joint marketing support (eg in participating in major computer exhibitions); and indirectly in assisting Taiwan firms to gain component supply orders from US manufacturers who would otherwise overlook the smallish Taiwan chipset and other components producers. This too was a learning experience, revealing how Taiwan firms could leverage technical advantages from incumbent multinationals through institutional innovations like the R&D consortia.
4) Ethernet data switch (1992 - 1996) Background: The 1980s saw the emergence of computer networks, and with them digital data transmission systems based on new data architectures. Ethernet (developed originally at Xerox PARC) was the dominant open standard by the end of the 1980s. Taiwan firms were quick to become involved in these technologies, with the assistance of ERSO; for example Accton (an unofficial ERSO spin-off of 1988) was an early participant with its ‘Etherhub’ products, while D-Link also emerged as a specialist supplier. In the 1990s computer networks became sufficiently complex that switching systems needed to be introduced, together with drastically increased capacity (‘bandwidth’) for data flow. This represented a ‘quantum leap’ in data network technology which it was essential for Taiwan firms to master. So CCL took the initiative in acquiring the data switching technology, and forming a consortium for its dissemination. Consortium process The technological core of the emerging Ethernet switch technology was threefold: a) a set of open Ethernet standards themselves (as published by IEEE in the USA); b) a chipset embodying these standards; c) hardware providing the physical switching link between computers. In 1992 CCL initiated a project to build up technological capability in this area, and accelerate its diffusion to private firms. No external source of technology transfer was needed in this case, as Ethernet technology had previously been mastered (eg through the earlier Ethernet hub-based systems). In 1993 CCL let the industry know of this project, and established joint administrative arrangements with the trade association, TEAMA. At various stages between five and eight companies were involved, some of which were relatively new to the industry. 15 This is a characteristic of the Taiwan 15
Initially five companies enrolled in a product development consortium: D-Link; Accton; CNet; RPTI and Long Shine. Of these, D-Link and Accton already had prior technological capabilities, which they wished to extend and upgrade through this project. Three further companies joined the
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consortia, one of whose aims is to ensure that there are always new entrants coming into technologically demanding industries. The first versions of the Ethernet switch were embodied in a customizable chipset, later reduced to a single Application Specific IC that could be manufactured locally by Taiwanese IC firms. Condensing the chipset to a single ASIC chip was the critical technology challenge - spurred by US companies such as VLSI Technology that led the way with this kind of innovation. CCL used its own funds to develop the ASICs, on the ‘fast follower’ strategy, and provided them for a fee to the Taiwan industry. The consortium participants took over this technology, and developed their own adapted or improved versions of the ASIC technology for themselves. Outcome This was one of ITRI’s most successful R&D alliances. The data switching business based on Ethernet standards has been growing fast world-wide, and Taiwan has produced at least two leading specialist suppliers, in Accton and D-Link. Both companies were internationally successful at the end of the 1990s, and both benefited considerably from their involvement in the CCL alliance(s). Accton in the mid-1990s embodied its own ASIC chips in Ethernet switch products, such as its ‘backbone switches’ and ‘segment switches’. These are profitable, high value-adding products that represent a considerable advance on Taiwan’s accustomed role as supplier of the least value-adding components in high technology systems. The MoEA-funded phase of this project ended in 1996. After that CCL continued to maintain and develop its own expertise, further improving its ASICs, and developing expertise in rival technologies to that of Ethernet, such as ATM standards. 16 This led to continuing close relations between CCL and the companies - one of the less visible outcomes of successful R&D alliances.
5) Four-cylinder automotive engine (1992-1997) Background and rationale The IT sector is by no means the only advanced technology sector to have benefited from R&D alliances in Taiwan. The automotive industry has also made most effective use of such arrangements, in its efforts to break into a highly competitive field. The automotive industry in Taiwan is characterized by a large number of participants each of which is quite small and incapable of making the investment needed to develop self-sufficiency in critical components like engines and powertrains. 17 The industry was based mainly on local companies -- China Motor Co (CMC), Yulon Motor Co (YMC) and San Yang Motor (SYM) -- teaming up with Japanese partners to assemble and market their vehicles 18 Some success had been achieved in developing local branded products, eg the VARICA van and small delivery truck line produced by project at a later date. Long Shine later dropped out, due to financial difficulties not linked to the project. 16 Asynchronous Transfer Mode (ATM) standards represent a rival for Ethernet switching standards for intra-network operation. At the time of the study (1996-97) CCL was developing a new project designed to develop an ATM Internet switch, thus giving Taiwan firms technical competence in both standards. 17 There were 11 companies in the early 1990s producing 400,000 cars a year, ie on average only 40,000 each. 18 CMC has a 35 percent equity tie-up with Mitsubishi Motor; YMC a 25 percent tie-up with Nissan; and SYM likewise a 25 percent tie-up with Honda.
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CMC, which used a Japanese 1-liter engine. But efforts to develop the core engine and powertrain components by these firms have been frustrated -- and some attempts, as in the case of the Yulon group’s “Feling” branded car, with its own engine, failed in the marketplace. 19 Thus by the 1990s the automotive companies were anxious to find a way to develop their own capabilities in the core components of engine and powertrain. The driving influences were, firstly their own desire to become fully fledged automotive companies; the prospects of the opening China market, from which they would likely be excluded if they did not have their own components; and the looming prospects of tariff protection being wound back under GATT and then WTO rules. Thus the three companies were prepared to find common ground through their trade association, the Taiwan automotive industry association (the TTVMA), which made an approach to the government and ITRI in 1990/91. Consortium process The project was initiated at the instigation of the TTVMA, whose members (and particularly the CMC) would provide the customers for a collaboratively developed engine. Thus this was a relatively simple -- albeit large and important -- consortium, where the participants were clearly identified, and the expected market for the product was foreseen. The years 1991 and 1992 saw ITRI/MIRL undertake a feasibility study, in which a group of engineers from the companies and ITRI undertook overseas study missions. They identified three leading engine companies as sources of technology: Lotus (UK) then independent; but subsequently a subsidiary of General Motors; Porsche (Germany) and Ricardo (UK). In the end, Lotus made the most attractive offer. A formal Technical Assistance Agreement (TAA) was signed between ITRI/MIRL and Lotus in January 1992. The consortium got underway in January 1992, with an initial period dominated by Lotus providing training to the four companies’ and ITRI’s engineers and developing more precise specifications for the engine. In Phase 2 the engine design was completed and simulated, largely in the UK, and in Phase 3 the engine was actually built and tested at the MIRL laboratories in Taiwan. In this latter phase there were up to 80 engineers working on the project within MIRL, plus 20 from the companies -so that the project was by far the largest undertaken within MIRL, and dominated the life of the Power Machinery Division for three years. A prototype engine was produced in record time -- by the end of 1993. 20 At the beginning of 1994 the prototype engine was handed to the four company participants. Rather than each company then seeking to develop and commercialize the engine on its own, a proposal to form a joint (common) engine company was mooted. This was a momentous proposal, that promised to put the Taiwan automotive industry on the solid technical foundations that had been sought but not attained over the previous two decades. The companies studied this proposal for 18 months (while 19
The Feling car had a fuel injection engine upgraded by YMC from a Nissan carburetor engine. The leader of the project was Dr Jet P.H. Shu, who had lengthy prior experience in the USA working with NASA and Ford Motor in Michigan. He was able to call on his world-wide network of contacts to provide the essential technical input for the project’s success -- the TTA with Lotus, and the supporting TTAs with such companies as Riteway (pistons); A.L. Dunn (diecasting of cylinder head); Bando (belting); 3 Bond (sealants) and Litens (tensioner). These are all world leaders in the automotive components industry, and their involvement in the project has been critical to its success. Indeed it was the absence of such international linkages with leading suppliers that accounts for the failure of earlier intra-company engine development efforts such as Yulon’s “Feling” project. 20
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undertaking their own market and technology feasibility studies) and eventually agreed to form the joint engine company in July 1995. The consortium successfully launched the China Engine Corporation (CEC) in 1995, and it became operational in 1996.21 The venture was capitalized to a level of US$60 million (which again illustrates the tiny scale of the Taiwanese industry initiatives compared with their counterparts in Europe, the US and Japan). The company’s initial plans were to produce a 1.2 liter, four cylinder, 8-valve gasoline engine, commencing in 1997. The first engines of commercial standard were produced in February 1997, and were being exported into the China market in the same year. China Motor utilized the locally made engine initially in its popular mini pickup vehicle, previously powered by a Mitsubishi engine. The Yulon group formed a joint venture in China -- the South West Motor Company -- with full PRC approval, to establish an engine plant with a capacity of 150,000 units per year, ie twice the expected capacity of the CEC in Taiwan. This was the first engine plant established in the PRC other than through simple technology transfer by a Western multinational corporation. Thus the prospects for CEC engines, and vehicles built with CEC engines in China, appear to be promising. Assessment This was by Taiwan standards a large project, with a total budget of around NT$1.4 billion (US$50 million). Over the course of the project, there were equal contributions from government and industry -- with the MoEA providing over 80 percent of the budget initially, and the companies increasing their share (and commitment) as the project progressed. The companies had to put up NT$50 million (ie around US$2 million) each to participate in the project. This was a relatively small sum for the profitable automotive companies, with a potentially very large return for them if the project succeeded and opened up the China market as a result. This consortium appears to have been remarkably successful in lifting the collective technological capability of the Taiwan automotive industry to encompass the critical components of engines and powertrains (which follow relatively simply in the wake of the engine). All three of the main automotive industry vehicle producers have participated, and have avoided costly competition through collaborating in a project which was beyond each of them and only possible through a collective effort. 22 6) 250cc motorcycle engine 1996-1999 Background: The motorcycle and motor scooter industry has flourished in Taiwan, with producers such as Kwang Yang Motor (Kymco brand) and San Yang Industrial acquiring large market shares. 23 These companies are backed by Japanese parent firms. During the
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The consortium members, CMC, YMC and SYM each took 20 percent equity, with financial institutions taking 35 percent (Chiaotung Bank 15 percent, and the China Development Fund 20 percent), and an auto parts manufacturer, Sengton Transportation Implements Co taking the remaining 5 percent. Yu Tien, while a member of the consortium faced financial difficulties and was not an equity holder in the China Engine Corporation (Hua-Chin Machinery Co.) 22 Had one of the Japanese companies offered technology transfer to one of the Taiwan companies, the result would have been rather different. 23 Kwang Yang Motor has been a partner of Honda, but since the early 1990s it has been seeking to make itself technologically independent. San Yang was established in 1962 as Taiwan’s first motor cycle maker, in cooperation with Honda. It too has been making itself technically independent, and by 1995 it launched the SYM brand backed by its own technology. Its corporate parent is the Chin Fong
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early 1990s there have been engineering collaborative arrangements between these companies and ITRI/MIRL, on various technological upgrading projects that have enabled the companies to reach the strong position they enjoy today. Until recently, motorcycles were limited by regulation to less than 150cc. The world market has however been segmenting into five groups - 50cc, 125cc, 250cc, 400cc and larger, with Japan as the dominant player in 250cc and above, with US and UK firms making a comeback in the larger engine size segments. Taiwan has been building strength in the 50cc and 125cc segments - but the next challenge, initially for export, is the 250cc segment. This was identified by MoEA as a developmental challenge, and targeted in the 1995 Technology Development strategy. The two companies had no expertise in building 250cc engines, and so a collaborative alliance with MIRL made eminent sense for them. Consortium process The participants in this case were the two motor cycle firms, Kymco and San Yang Motor (SYM) along with ITRI/MIRL and with advance funding provided by MoEA. The project was envisaged as a three year effort, 1996 to 1998. The first year constituted a feasibility study and the finalization of specifications for the engine (concentrating on local components supply). MIRL was able to utilize the expertise acquired in the course of the common engine project to expedite this phase of the project. No external source of technology was required - other than the use of international consulting companies for various aspects of the project (which would be common practice in any project anywhere in the world). (This in itself constitutes evidence of technological learning in the engine industry in Taiwan, from the common engine consortium to the 250cc motorcycle engine consortium.) The two participants are required by MoEA to put up 50 percent of the funding from the very beginning of the project - an unusually high level of commitment at the outset. It was agreed that ITRI/MIRL would develop the engine and transmission, while the companies would be responsible for all other features of design and engineering of the vehicles. The two companies envisaged building the engine themselves, rather than forming a joint engine company as in the automotive case. By mid-1999 MIRL had developed the 250cc V-type double-cylinder engine for motor cycles, and transferred the prototype across to the motor cycle firms for their own commercialization efforts. Kwang Yang has been pouring resources into the project, and developed two kinds of 250cc engines, for motor cycles and for motor scooters. It unveiled its 250cc street-model motor cycle at the Munich motor cycle show in 1999. Likewise San Yang has established a new R&D Center in Hsinchu, near ITRI/MIRL, in 1998; the center employs 400 technical specialists, and is the second largest in the world, after Honda’s center in Japan. Thus the Taiwan industry has been set up with the technological capability to compete in the more demanding conditions which will be opened up as the domestic market is progressively opened to world competition. 7) Electric scooter 1991-1996 Background:
group, which has made heavy investments in new manufacturing facilities in Vietnam, Indonesia and China.
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The motorcycle industry has grown rapidly in Taiwan, along with rapidly increasing usage of motorcycles in cities as a means of personal transport. This has become a major source of air pollution - if not the dominant source, at least in the cities themselves. Thus there is great pressure to develop alternative urban transport systems, such as metro systems - and electric vehicles. The Taiwan EPA maintained this pressure by issuing stringent emission controls on motorcycle exhausts (stepwise reductions in allowable levels of carbon monoxide and nitrogen oxides in 1988; 1991; and 1998), and requiring that 2 percent of sales of motorcycles by the year 2000 be electric vehicles. This in itself created the impetus for a new industry with both domestic and export prospects - protected by the emission controls which constitute very effective non-tariff trade barriers. Thus the Energy Committee of the MoEA targeted an electric motorcycle as a strategic product, and part-funded the formation of a new consortium to produce such a vehicle. Consortium process The participants in this consortium were drawn from three major parties: government agencies -- ITRI/MIRL (MoEA); the industry association -- the Taiwan Transportation Vehicle Manufacturers Association (TTVMA); and ten companies, comprising six motorcycle companies and four components companies. 24 This consortium was initiated in 1990 by the Energy Committee of the MoEA, with an initial feasibility study. A formal consortium was formed in 1992, named ZES 2000 (after “zero emission vehicle”) and ITRI/MIRL produced a prototype vehicle, the EC1, in 1996. 25 Engineering options were chosen from the perspective of local supply and market accessibility (for example, lead acid batteries were adopted because of their availability, leaving more sophisticated batteries to a later stage). The consortium involved an advanced organizational design, in that it spanned several phases of the value chain in producing an electric scooter - namely batteries, electric motor and final vehicle assembly. In this it resembled the NewPC consortium within ERSO, which also pioneered the joint involvement of companies spanning several links in the value chain. One consortium was learning from another. This project was driven by market considerations all along, and was unusual in that it involved customer surveys conducted to ascertain the likely acceptance of an electric vehicle produced. 26 The project took a local 50cc scooter as benchmark, and adapted it to improve its electrical and mechanical efficiency; increase its battery density and capacity; reduce the scooter weight and drag characteristics; and improve the scooter’s reliability and safety. Design of a product for ease of mass manufacture was a constant factor. A six month test program was initiated at ITRI in July 1995. 27 ITRI/MIRL continued with further development work, for example to extend the 24
The six motorcycle companies include Kymco; San Yang; Taiwan Yamaha (the three largest, accounting for 90 percent of sales in Taiwan); plus Taiwan Suzuki; Giant Yeh; and Kang Yang. The four components companies encompassed firms involved in electric motors and controls - Shih Lin; Taigene; and batteries - GS; Walsin Technology 25 The vehicle is named after the MoEA Energy Committee, which drove the project. 26 A survey of 384 cyclists was conducted in 1995. 27 Over 30 ITRI employees volunteered to drive the ZES 2000 scooter and log their responses on controlled questionnaire forms each week.) The test vehicle was rated well for smoothness of ride, low noise and zero exhaust emission; most found the long hours required for charging the battery overnight as acceptable, while some objected to the low acceleration capabilities of the vehicle.
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charging cycle time (giving scooter riders a longer ride between battery recharging sessions) with a higher density battery such as the EV battery. This resulted in significant changes being made to the propulsion system. Thus ITRI/MIRL continued to improve the prototype, thus minimizing the product engineering costs to be borne by the scooter companies if and when they made a decision to produce a commercial version of the scooter themselves. A prototype product, the EC-1, was produced and tested in 1996/97 by the Taiwan EPA to assess its cleanliness. This prototype was passed to the consortium members who then assessed their technical and marketing options. A further prototype, EC-2, was produced in 1998. The companies involved have been pouring resources into their development efforts. Kwang Yang Motor Co, now Taiwan's leading motor cycle producer, announced its intention to launch a new all-electric powered scooter based on this prototype at the end of 1998. It established a new EV subsidiary, recruited specialist staff, and entered into its series of collaborative agreements. It licensed technology from the US firm Unique Mobility Inc (UQM) and in 1998 formed a strategic alliance with the US-based Electric Vehicle Global Motors Co. (EVGM), founded by former Chrysler chairman Lee Iacocca. These efforts culminated in the launch in 1999 of its first commercial model, the AIR. Kwang Yang and San Yang teamed up with the other members of the consortium to form a joint R&D Center in Taipei which will provide common support for the emerging electric-powered scooter industry. Initial capital of NT$200 million (US$6 million) was subscribed by all participants to the new joint venture, Sam Ever Industry Co. It has plans to produce its own vehicle, the Ever. Thus the initiative has passed to the private sector -- which has all along been the goal of these ITRIsponsored projects. By the end of the 1990s three companies had emerged in Taiwan as suppliers of electric-powered scooters – Kwang Yang (with its AIR model), Shang Wei EV Technology Inc, and Che Mong Electric Motor Company. Assessment This has turned out to be one of the most prescient and ambitious of the ITRI-MoEA organized consortia, with the clear goal of creating a new industry focused on a 21st century market, not just in Taiwan but around the world. The MoEA has played its role in “shaping” the emergence of a market by judicious incentives. 28 ITRI/MIRL led the way with the development of a consumer-friendly prototype, and the promotion of Taiwan-based components supplies. The market creation initiatives focus on potential bottlenecks, such as the issue of battery charging. 29 The most positive assessment is that Taiwan emerges at the opening of the 21 st century with one 28
The MoEA continued to offer supporting incentives, this time in the form of an 'environmental subsidy' of between NT$16,000 and 20,000 on a new machine, which consequently can be priced very competitively at around NT$40,000. In this way, the MoEA was deliberately shaping the market for this emergent product, on the grounds of social desirability as well as industry promotion. 29
One option being considered by the government in the late 1990s was an infrastructure where batteries are owned and operated (ie charged, stored and recharged) by a utility, eg TaiPower, and leased to motor cyclists. In this system, cyclists could deposit their used batteries at depots located in or near petrol service stations, and pick up a freshly charged battery. Such an infrastructure system would greatly enhance the attractiveness of the electric vehicle (eliminating the need for overnight battery charging at home, and extending the driving range of scooters virtually without limit - similar to the case for gasoline-driven vehicles now).
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of the most developed electric-powered vehicle industries in the world. The export prospects for such electric scooters would be expected to improve rapidly in the 21st century, as emission controls in polluted cities are implemented, and as countries like China and India switch from manual bicycle transport to motorcycle transport. A negative assessment would be that the consortium has moved ahead of the capacity or the willingness of the private sector to introduce such electric scooters to the market. No final judgment on this point is possible as yet.
5. Benefits conferred by the Taiwan R&D consortia Let us know draw on these case studies to develop a more general understanding of the workings of these R&D consortia in Taiwan, in comparison with those that operate in the U.S.A., Europe and Japan. The pattern of the Taiwan alliances is that a group of firms join with ITRI to establish capability in a new technology or new set of standards for an existing technology. The alliances have evolved from a fairly simple organizational structure, where ITRI identifies the technological issues and develops the specifications and prototype, and hands this over to interested firms; to one where there is a lengthy process of co-development between ITRI and partner firms, spanning several stages in the value chain, and involving development work being conducted partly within ITRI and partly within the firms themselves. The role of the firms has evolved from their being fairly passive recipients, to co-developers (and cofunders) to the point where firms themselves are taking the initiative, as in the secure electronic transmission consortium. All the models involve ITRI securing access to a new technology on behalf of Taiwanese firms -- usually a technology source located overseas, in the US, Japan or Europe. This is common to the operation of all the R&D alliance organizational forms. ITRI thereby acts as the “vehicle” or gateway for Taiwanese firms to access a technology that would otherwise be beyond them. At the same time, offers a single point of contact for a large advanced firm (such as IBM or Intel or Sun Microsystems) which can license its technology to Taiwanese firms without having to deal with many small firms simultaneously. The consortia therefore form a source of mutual benefit. The key issues involved in forming these alliances are not so much whether they provide benefits, which may be taken as given, but how the difficulties involved in securing cooperation between otherwise competing firms are identified and overcome. It should be pointed out that not all East Asian countries have been successful in forming such consortia, despite overwhelming evidence of their efficacy in the case of Japan’s catchup efforts in the 1960s and 1970s. They have been tried without great success in Korea, while there have been few efforts to utilize them in countries which have relied more heavily on multinational investment, such as Singapore, Malaysia and Thailand. In this sense the Taiwan consortia represent a singular experience outside the scope of the established collaborative arrangements in Japan, the U.S.A. and Europe. We frame our discussion of the Taiwan consortia around five questions: the three questions posed by Aldrich and Sasaki (1995) in relation to Japanese and U.S. R&D consortia, the issue of cost-sharing vs skill-sharing (Sakakibara 1997a; -b); and the
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issue of the formation of consortia being engineered or emerging from the needs of the firms themselves (Doz, Olk and Ring 2000). 1. What kinds of administrative arrangements are utilized to effect the inter-firm collaboration? The available models are those of formal incorporated cooperative entities, such as the Engineering Research Associations (ERAs) of Japan, with much of the research being done in joint facilities, or a looser arrangement with the participant firms themselves conducting most of the research and sharing the results. The Taiwan consortia have made heavy utilization of the public sector laboratories of ITRI as prime instigator of the consortia, initially conducting all the work and passing it across to participant firms (technology transfer). In the 1990s this has evolved to an arrangement where the ITRI laboratory acts as convenor and coordinator of the project but the development work is done jointly in participant firms’ laboratories as well as in ITRI. Thus there is a progression towards the private sector playing an increasingly active role in the consortia. 30 Moreover the Taiwan consortia are distinctive in enrolling industry associations as joint convenors, in recognition of the superior industry contacts of the association. It is the embodiment of the consortium in a neutral party, namely the ITRI laboratory, that helps to account for the firms being able to work cooperatively and productively on a specific project while remaining competitors elsewhere. 2. How are compatible research goals jointly identified? The issue here is whether the consortium works on generic technology issues, or on specifically targeted projects, and how this is decided. In the case of the Taiwan consortia, it is very much the case that the goals are quite specific and well-defined, eg develop a prototype laptop PC, or CD-ROM drive, or set-top box for interactive video. This is because the Taiwan consortia are largely conceived as instruments of catchup, targeting known technologies and standards. The case of components and their standardization illustrates the approach taken. One of the hidden barriers to entry into a new field for small companies like those found in Taiwan is that they cannot standardize on components and thereby strike a good deal with potential suppliers. The alliance can solve this problem by making the component selections (i.e. standardizing on certain components and not on others) and then negotiating supply agreements with vendors on behalf of the firms as a group. As noted above, this enabled the Laptop PC consortium, for example, to transform what would have been a “niche product” into a standardized product suitable for mass production. This is a subtle but effective way of accelerating diffusion of an innovation, and of generating national competitive advantages where at the outset there appear to be none. 3. How much involvement is allowed for government and public agencies? The issue here is whether the public or private sector leads in consortium formation and management, and the degree of financial contribution made from public sources. In the case of the Taiwan consortia, given their strategic goals of technological catchup, their formation and governance is a matter of public sector leadership. In some cases it is the Ministry of Economic Affairs itself which takes the initiative, particularly where there are “market shaping” issues (as in the case of the electric30
Very recent consortia, such as SET (Secure Electronic Transmission) in the finance sector, and ASTRO (Advanced Semiconductor Technology Research Organization) have been formed entirely at the instigation of the private sector, with ITRI laboratories playing a monitoring role.
22
powered scooter and the motor cycle engine) and in other cases it is ITRI which is vested with the responsibility for setting a technological lead. It is ITRI working in consultation with the industry that identifies a feasible goal and then in association with the industry organization assembles a relevant group of firms to achieve it. The consortium is conceived as a transient entity, and is disbanded as soon as the goals have been achieved. But the Taiwan consortia are structured so that the private sector has to take more and more financial responsibility for their operation, both between consortia and within the lifetime of a single consortium. 4. Are the consortia cost-sharing or skills-sharing in organizational design? The Taiwan consortia are created to accelerate the diffusion of technological capabilities across industries. In other words they are instruments of economic learning, like their predecessors in Japan. Far from firms learning to economize on R&D expenditure through joining R&D consortia (a common assumption in the economics literature) the experience in Taiwan indicates that firms rapidly acquire a taste for R&D and an appreciation of its competitive benefits through participating in alliances. They thereby tend to increase the scale of their own R&D activities, even as they participate in the alliances. This is what may be termed the “innovation effect” of the alliances. 31 It is enhanced as firms conduct more and more of the development work within their own facilities -- which is a trend encouraged in Taiwan by ITRI. 5. Are the consortia formed following an engineered process or an emergent process? The Taiwan consortia are formed for eminently pragmatic reasons of technology catchup through accelerated diffusion of technological capabilities, and in this sense they are formed through hard-edged engineered processes. But there is no coercion involved. Participation is entirely voluntary. Financial and knowledge-diffusing incentives are carefully structured to ensure that firms see it as in their interests to participate. This is another illustration of the basic principle that in Taiwan – as in Japan -- it is not assumed that firms are willing to work together. Rather it is the case that institutional frameworks are constructed within which firms find it to be in their interests to collaborate on specific projects, while remaining fierce competitors in other markets. Moreover the Taiwan consortia are not closed to emergent possibilities, either within the lifetime of the consortium, or from consortium to consortium; this is the flexible aspect of their pragmatism. Moreover the public sector instigated consortia have led to the formation of private sector consortia which are starting to show signs of emergent formation processes. There is an evolutionary process of institutional variation and selection at work. Overall then, the finding of this study is that the R&D consortia have indeed made a positive contribution to Taiwan’s industry development and upgrading – along with other institutional innovations and of course the contributions of private firms themselves. They have contributed to the development of Taiwan’s social capital (Cooke and Wills 1999). The distinctive features then that mark out the Taiwan consortia as being of special interest include the following.
31
Sakakibara (1994; 1997b) demonstrated such an effect in the case of Japanese consortia; she later quantified it as one of the demonstrable benefits of firms’ participation in R&D consortia (Branstetter and Sakakibara 1997).
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1. They have maintained a clear strategic focus on targeted technologies and industries, rather than being generic in scope. Many of the alliances involve a foreign advanced company as source of technology, e.g. IBM and Motorola (PowerPC); Intel (XMP multiprocessor architecture); Lotus (1.2L engine design); Sun Micro (SPARC Workstation). In each case the consortium, via ITRI, has a better chance of securing a technology transfer agreement than would be the case with companies acting on their own. 2. There has been a focus on the standardization of components as much as on the development of a prototype of a final product. Linked to this has been the involvement of firms from several steps in the value chain, thus ensuring the presence of firms with complementary skills within the industry. 3. The government has in many cases insisted that consortia bring in at least some new players into the industry (sometimes in the face of strenuous opposition from incumbent Taiwan firms) thereby giving the consortia a role as agents for the replenishment and renewal of the industry. In this they are quite distinctive, and very different from counterparts in Japan. The alliances thereby play an indirect role as replenishers of the energy within an industry, and thus as enforcers of competition, by exposing incumbent firms to the competitive effects of new entrants. 4. They have a transient character, being formed quickly for a specific purpose and then being wound up as soon as the purpose is achieved. 5. They have a bias towards institutional learning, and quick adaptation to new possibilities or correction of institutional errors. In these ways they both take over some of the most effective features of the consortia found elsewhere and add some distinctive ones of their own. Thus it may be reasonably concluded that the consortia have been a net benefit in Taiwan’s industry development and upgrading. Furthermore, they provide a model for other NICs still in the process of seeking to catchup with advanced technologies – provided that countries can develop the institutional capacity needed to form consortia and manage the diffusion of technology within such an innovative institutional framework.
Concluding remarks This article is to be interpreted as an appreciative study (in the sense of Nelson and Winter 1982) of the Taiwan R&D consortia, bringing them to the attention of the scholarly community as an interesting institutional innovation in their own right. Further analysis of the consortia would depend on the collection of more extensive data, from the companies involved, as well as from those which became players in the targeted industries but elected to stay outside of the consortia. The article will have served its purpose if it helps to spark such further scholarly investigation of these institutional innovations. Of course, not all the Taiwan R&D alliances have been successful. Some have been failures in terms of their own goals and targets. Some have been unsuccessful, not because of lack of effort or coordination on the part of the member firms, but because
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the world did not behave as expected, or a market did not develop as expected (as in the case of the HDTV consortium, and the graphics terminal consortium). In other cases, consortia have been unsuccessful because of lack of supporting infrastructure: for example in the case of efforts to launch laser fax machines and hard disc drives. Here the problem was not so much the alliance itself as the lack of a rich network of precision engineering and machinery firms needed to sustain such industries. Sometimes efforts to mount them have been unsuccessful because of opposition from Taiwan’s own incumbents – as in the case of early efforts to kickstart Taiwan’s optoelectronics industry (Linden, Hart and Lenway 1997). 32 Yet even where R&D alliances in Taiwan have been less than successful, they have contributed their experience and this has been absorbed and applied in the design and implementation of future alliances. Thus, the Laptop PC consortium was recognized as clearly having too many participants with too little experience - but this was corrected in subsequent consortia. Likewise the trade association was not involved in earlier consortia -- but its involvement has been found to be so beneficial, in terms of expanding the scope of the potential participation by firms and in securing the legitimacy of the alliances, that its involvement is seen as important in later alliances. Thus, the alliances represent a form of advanced “economic learning” in two senses: in the sense that there is an underlying improvement from one generation of alliance to the next; and in the sense that the knowledge generated is held by a number of firms and agencies in the “space” that exists between firms and agencies, ie in interorganizational space. 33 It is the capability to organize this space, through various forms of consortia, alliances, trade associations and keiretsu, that can be expected to have an increasingly decisive bearing on international competitiveness.
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32
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Table 1 R&D alliances in Taiwan: 20 cases 1983-1997 Alliance
Year(s)
Companies
Budget NT$ m
A. Electronics and information technology 1. PC 100 (IBM PC XT-compatible) 2. PC 400 (IBM PC AT-compatible) 3. Workstation (Sun SPARC-compatible) 4* Notebook PC 5. Graphics terminal 6. Palmtop PC 7. Pentium server 8* Taiwan NewPC (PowerPC)
1983-1984 1984-1985 1989-1991 1990-1991 1991-1993 1991-1992 1991-1993 1993-1997
5(9) 3 2(3) 46 34(9) 16 2 40
40 24 150 100 25 50 50 250
B. Consumer electronics and communications 1 *Ethernet switch 1993-1996 2. Digital loop carrier 1992-1994 3. LCD consortium 1995-1997 4. HDTV 1994-1996 5 Interactive TV 1995-1997 6. V5 Network access standard 19967. High speed loop access system 1996-
5(8) 3(4) 4 11 21 12 14
75 60 230 250 200 150 120
C. Mechanical engineering/materials 1* 1.2 L engine 2. Electric scooter 3. 250cc motorcycle engine
1992-1997 1991-1996 1996-
4(3) 10 2
1,400 500 600
D. Software/services 1. Java-based Internet products 2 Electronic commerce
19961996-
24 61
250 300
* Case study (..) Second-stage participation Source: ITRI; industry interviews
_____________________________________________________
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Chart 1 The structure of the NewPC consortium
core: R&D small firms
CCH
large firms
IBM ERSO IDB Motorola
foreign firms industry association eg TEEMA consortium
Source: Author
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