1. Does Generic Base Technology Matter? Xin-Wu Lin TIER Aug. 4 th 2006

2. tier 9-2 Contents Review Taiwan’s successfully industrial upgrading model – the Second-Mover Model The bottleneck faced recently Examine the bottleneck from product life cycle and innovation capability aspects Successful examples Policy implication

3. tier 9-3 The Second-Mover industrial development model Second-Mover’s characteristics: Enter market when tech/products mature, which implies risk averseness. Imitate, copy, incremental improvement, learning by doing. Inherit first-mover’s accumulated capabilities, but usually exclude core technologies and competencies at initial stage. Utilizing accumulated organization capabilities in order to upgrade and up-scale (OEM→ODMOBM, SME→Large Enterprise) Extract economic rent from scale efficiency, i.e. mass production to lower costs. Advantage lies in technology know-how, manufacturing and project execution capabilities. Source: Amsden and Chu (2003) Technological regimes/ ProductsTime First mover Second mover First mover Second mover

4. tier 9-4 Major strategic policies for supporting the model Selection of opportunities: emerging industries, key technologies Encouraging investment: The Statute for Industrial Upgrading Clusters: science parks Technology sources: from other countries, TDP Mode of NIS players: Higher Education RD Institutes Industries Foreign Sectors

5. tier 9-5 Industries Technologies and prototypes Markets TDP in RD Institutes Advanced techs., key Techs. and components, testing and certification measures Techs. licensing Start-up, HR transfer The path of TDP

6. tier 9-6 The strategies in industries under the second mover mindset The industry strategies in the past Fast catching-up with new technologies － –Purchase new technologies from advanced countries. –Disassemble and learn fast. –Concentrate on production automation, modularization, job division and process management. –Take orders from international buyers and subcontract to domestic industries. Expanding new market － –Main export markets were U.S. and Japan in early period. –Started to diverse and to develop new export markets in later period when products from low factor cost countries penetrated U.S. and Japan markets. Off-shoring production base － –Relocate production bases in order to lower production costs –Relocate to countries such as China, South East Asian countries, Central and South American countries and East European countries.

7. tier 9-7 Performance in ICT sector Market Share<20% 20%<Market Share<40% Market Share>40% 2002, 2003 DSC LCD Monitor 、 CDT Monitor 、 Desktop Scanner 、 Notebook PC Mother board 、 CD/DVD 、 ADSL Modem 、 Cable Modem 、 Hub 、 NIC 、 WLAN 2001 CD/DVD 、 DSCLCD Monitor 、 CDT Monitor 、 Desktop Scanner 、 Notebook PC Mother board 、 ADSL Modem 、 Cable Modem 、 Hub 、 NIC 、 WLAN 2000 LCD Monitor 、 CD/DVD 、 DSC CDT Monitor 、 Desktop Scanner Mother board 、 Notebook PC Analog Modem 、 Cable Modem Hub 、 NIC 1999 Analog Modem 、 Cable Modem 、 Notebook PC 、 CD ROM CDT Monitor 、 Mother board 1998LCD Monitor Notebook PC 、 CD ROM Analog Modem CDT Monitor 、 Mother board Desktop Scanner 1994CD ROM (1) Notebook PC 、 Desktop Scanner 、 Analog Modem 、 CDT Monitor 、 Mother board 1990Notebook PC Desktop Scanner(14) CDT Monitor (36.4)Mother board (66) Handy scanner (62)

8. tier 9-8 Performance in patents

9. tier 9-9 The world has changed Major trends: Globalization, convergence and popularization in ICTs The benefits from the Second-Mover Model is decreasing –Lower cost: room to further cost down is very narrow. –New market areas or sectors: highly competitive in almost every area and sector. –Catch up with new technologies: there are many quick followers  lower profit margin, shorter earning period.

10. tier 9-10 The trend of value-added ratio Manufacturing Industry Source:1. OECD, STAN Database, August 2005. 2. DGBAS, National Income in Taiwan Area of Republic of China 1981- 2004. 3.MOEA, Industrial Survey & Statistics Yearbook, 1990-2004. 4.TIER (2005). ICT Industry Source:1. OECD, STAN Database, August 2005. 2. DGBAS, National Income in Taiwan Area of Republic of China 1981- 2004. 3.MOEA, Industrial Survey & Statistics Yearbook, 1990-2004. 4.TIER (2005).

11. tier 9-11 Some new strategies have been raised Smiling curve: extending the two extremes; bigger smile Branding Participation in forming standards Creative design Integrating existing technologies Follow market needs, and try to create new needs New business models Most strategies are akin to first-mover model; they are not the strategies that Taiwanese industries currently familiar with

12. tier 9-12 The Transformation Model Trading Manufacturing Product Development Industrial Value Chain Focusing Policy Efficiency Driven Market Openness Market Efficiency Capital Resource Labor Resource Tech acquisition easiness Under efficiency driven stage competitiveness can be enhanced by the means of technology acquisition and boosting production efficiency Technology R&D Innovation Driven Marketing/Services Manufacturing Design/Development Maintain Efficiency Clustering Knowledge and value innovation IPR friendly environment Technology Independence Market research/ Forecasting Under innovation driven stage Utilize both demand and supply side economics to shape innovative friendly environment for an unique value innovation Technology R&D Focusing Policy Industrial Value Chain Value Creatin g Busines s Models/ Brandin g

13. tier 9-13 Necessary conditions for applying the First-Mover Model Source: Tidd, Bessant and Pavitt (2005) are necessary conditions for being in the First-Mover industrial development model Technological capabilities, spirit of experiment (practice, trial & error) and information on user’s needs are necessary conditions for being in the First-Mover industrial development model

14. tier 9-14 19722002199820061985 Efficiency  Tech driven 100% OEM USA market Low price (USD 50) Avg. price rising (USD50  100) “Giant” brand Design Innovation Support bike- racing teams World-wide Awards Winner Tour de France (2002, 2004, 2005) Avg. price rising (USD 100  250) Industry clustering Cost down Material Innovation Key components Process Innovation Taiwan factory moved out Low price – China High price - Taiwan Design Innovation  Brand Value Story of the Giant Bicycles Price Production

15. tier 9-15 19872000199720061990 Tech Transfer & Developing Philips authorized Defect decreased 6” wafer foundry Mid R&D (70M USD/Y; 120 person) High investment Process innovation 8” wafer foundry R&D mastering; No Tech. transfer Tech catch up with IDM’s Patent rapidly increasing IDM’s certification Low business revenue Design house increasing Business extending Public traded New rivals join Market rapidly growing 12” wafer foundry Market share increasing Rivals’ competitiveness decreasing Tech Master & Leading Story of the tsmc Patent Number Revenue High R&D (450M USD/Y; 850 person) Tech synchronize to IDMs Tech capabilities surpass rivals for at least 1 year

16. tier 9-16 All Type Patent ~TOP 20 Utility Patent ~TOP 20 Note: * included BenQ Corporation, Acer Communication & Multimedia, Inc., Acer Peripheals, Inc. ** included Lite-On Technology Corporation,, Lite-on Electonics, Inc., SiliteK Corporation, GVC Corporation Source: USPTO, TIER Calculated. Taiwan’s Innovation Excellent 2005 Winner: Taiwan Semiconductor Manufactures Co.

17. tier 9-17 Level of capabilities – micro foundation Basic principles for individual level capabilities: –Professional and occupational skills disciplinary or inter-disciplinary knowledge at following level: awareness, comprehension, application, analysis, evaluation, synthesis  being innovative –Ability to handle crisis and risks, patient and practice Firm level capabilities: –Based on the individual level and –Convert and integrate individual level capabilities to firm’s assets –Linkage: skills needed to transmit information, skills, technologies to and receive/absorb from surrounding business entities and technology institutes.

18. tier 9-18 Source of capabilities – industry and macro view Macro level capabilities are accumulated through interplays of different capabilities, including physical investment, human capital and technology effort. HigherEducationIndustries PublicResearchInstitutes Incentives,Institutions 1.Have to encourage knowledge flow and then to accumulate capabilities. 2.Have to approach customers’ needs and then to generate value.

19. tier 9-19 Manufacturing + suppliers of components Design+structure+materials+processes+.. Technology Practitioners Manufacturing + suppliers of components Design+structure+materials+processes+.. Technology Practitioners Policy implication – an institutional view Opinions from users (trade partners) Heavy users, market surveys Opinions from users (trade partners) Heavy users, market surveys Higher Education Professors (Solid theoretical analyzing capabilities ) Higher Education Professors (Solid theoretical analyzing capabilities ) Public Research Institutes TDP Researchers Public Research Institutes TDP Researchers Users information, Feedback Revision,Upgrading, New products Public Research Institutes Knowledge Management Researchers Public Research Institutes Knowledge Management Researchers Practical issues Possible approaches

20. tier 9-20 Conclusion If Taiwan wish to learn the First-Mover strategy somehow, accumulating the base technology capabilities is necessary Micro level -- refocus on ‘practicing’ in education system Industrial level -- Formulating a KM (connecting R- U-I to market) and encouraging users information and knowledge flow. Higher Education IndustriesMarkets RD Institutes