Hsinchu Science-based Industrial Park (HSIP)

Hsinchu Science-based Industrial Park is located 70 kilometers from Taipei and is the hub of technology industry in Taiwan. The combined sales of companies within the Park is $30 billion (2000), making it one of the most successful technology parks in the world. The six sectors concentrated in the HSIP are integrated circuits, computers and peripherals, telecommunications, optoelectronics, precision machinery, and biotechnology.

Table 13-2. HSIP Industries in 2000

Industry	Companies	Employees	Sales ($ million)	Growth (%)
IC	116	61,288	18,496	67
Computers/peripherals	49	16,064	6,815	8
Telecommunications	50	7,334	1,628	28
Optoelectronics	44	16,167	2,595	61
Precision machinery	12	1,351	233	55
Biotechnology	18	636	36	75
Total	289	102,840	29,803	46
Source: HSIP administration, April 2001.

HSIP is envisioned to be a self- sustaining society, containing industrial, residential, and recreational areas. Besides the standard plants built by the government and the factories built by the companies in the Park, a clinic, a post office, a customhouse, banks, warehouses, and truck depots are all located in the Park.

The Park administration is operated under the auspices of the National Science Council, which is a Taiwan government agency.

Universities are Integrated into the Park

The Park is located close to both National Tsing Hua University and National Chiao Tung University. National Tsing Hua University is a multidisciplinary university, including six colleges, 8,021 students, and 509 professors. Meanwhile, National Chiao Tung University has five colleges, 9,188 students, and 554 professors. Both facilities provide the Park's companies with excellent human resources as well as strong support for professional training.

As of the end of 2000, the Park employed 102,840 people, approximately 62% of whom had at least a college degree. Meanwhile, the average age of the employees was 31. Returned expatriates, mostly from the U.S. accounted for 4,108 people. Historically, expatriates have played a critical role in the Park's activities, owing to the technologies and business concepts they brought back, which were further developed to promote the development of high-tech industries in Taiwan.

The Park's integration of universities, research institutes, and diversified high-tech companies makes it the Asian version of Silicon Valley in the United States. Dr. James Lee is director general of HSIP. He shares his perspective on how the role of government has evolved and the relationship with universities in HSIP.

James Lee

The evolution of the government's role in HSIP

HSIP was developed by the government to provide a better environment for investors with improved infrastructure and facilities, such as streamlined administrative procedures and convenient bank loans. The government was acting as the guide to point out the main direction to go for industries in the private sector in the early stage of the development of the science park. Initially, the government set the rules of the game in this science park through legislation to ensure a fair game for all participants interested in high tech in the future. The government was also promoting some privileges and incentives to encourage those daring pioneers to march into the unknown frontier. As an added sweetener, the government tried to build up the business connections for local forerunners with major international financing groups to open up the local economy to the worldwide theater. Currently, the government is acting merely as the administrator of the science park because the fervency for high-tech investment has become prevalent in Taiwan.

Economic downturn greatly affects HSIP , but rebound will be felt quicker as well

Taiwan is experiencing an economic downturn recently mainly because of the slowdown in 2001 of the worldwide economy after years of overheating . Taiwan's high-tech industry is highly related to the market in North America. The 9/11 tragedy worsened the global economy with 50% decline (in the quarter from October to December 2001) to Hsinchu Science-based Industrial Park. However, Taiwan's high-tech products have been moving up in the hierarchy ladder from downstream assembly to upstream materials and components over the decade (65% of worldwide notebook PCs and more than 80% of flatbed scanners are from Taiwan, including name brands like Sony, Toshiba, IBM, Compaq, HP, Dell, Hitachi, Sharp, and Epson). This move-up narrows the time lag between the modulation of local economy and that of North America. The IC foundry industry in HSIP is especially closely associated with major clients such as AMD, Cyrix, S3, Xilinx, Altera, Infineon, etc., thus being able to forecast the rebound sooner. Major industries (IC, PCs and peripherals, telecommunications, optoelectronics, precision machinery, biotechnology) in HSIP are climbing uphill at slow speed with confident paces since the third quarter of 2001. An expected recovery of the U.S. economy will boost the rebound of local high-tech industry with greater momentum.

HSIP is expatriate friendly, and they add great value to our industries

The infrastructure and the environment of HSIP were developed to be amicable to "expatriates" (those college graduates who went to North America for post-graduate degrees and stayed there many years). We seek to recall them to come back for their own ventures . They bring great value by introducing the international business protocol along with their managerial experience from those global giants like AT&T, IBM, HP, and Xerox. This improves the internationalization of local business practice. The IPO (initial public offering) of Park companies at local stock exchanges encourages entrepreneurship and also modernized local approaches to the manufacturing sector from traditional labor- intensive manufacturing. The streamlined administrative efficiency of HSIP is vital to attract high-tech investment. The joint effort between the academics and the research institute is also vital to the success of local IC industry. There are 35 spin-offs based upon technologies from ITRI (Industrial Technology Research Institute) in HSIP to form the clustering effect in IC industry.

The universities are our partners

The site of HSIP was intentionally chosen to be near the two major national universities (Tsing-Hwa University and Chiao-Tung University) for their talent resource. Today, those university graduates have become the natural source of supply of engineers and management. Sixteen Park companies were founded based on the ideas originated from incubators for new companies on both campuses. Founders and entrepreneurs share their experience in the classroom to remind those young minds that the real world is somewhat different from the theories in the textbook . Intensive programs leading to professional certificates were also taught by professors or senior officers of Park companies on campus for those students or workers with career ambition . Talent tournaments are offered by companies and held on campus to seek the fittest. Professors get projects closer to the real world from Park companies with grants to sustain further interests.

Research and Development Is a High Priority

One benchmark of a region's commitment to quality and focus on moving up the value chain in innovation technology is the level of investment in research and development. The HSIP companies collectively show a great commitment to R&D. This high level of investment is all the more admirable given the cutthroat price competition Taiwanese companies engage in to attract manufacturing contracts.

In addition to government grants, The Park's companies spent $1.2 billion on R&D in 1999, representing about 6% of sales revenue for the year. The figure compares favorably with only 1% investment in R&D from the Taiwan manufacturing industry in general. The IC industry accounts for $882 million in R&D investment, representing 71% of total HSIP R&D investment. The Science Park has over 10,000 researchers, which makes it one of the most innovation intensive as well as fast-growing revenue parks in the world. ^[2]

To get some perspective from an insider in the IC industry in HSIP, we sought out a leading company in the Park and chose Winbond Electronics Corporation. Winbond Electronics is the largest brand-name IC supplier in the Taiwan IC industry. Its focus is in process technology, worldwide marketing networks, and wafer processing. Established in 1987 in HSIP, Winbond's areas of expertise include R&D, design, process, manufacturing, marketing, and customer service, focusing on digital consumer, multimedia, communication, non-flash memory, and computer logic ICs as well as SRAM and DRAM products. It has 4,000 employees in the U.S., Hong Kong, Singapore, Europe, and Japan with over $1.4 billion in sales. It is a fast-growing company, almost tripling sales volume between 1995 and 2000.

Mike Liu, public relations manager for Winbond Electronics, provides his perspective on HSIP and the reasons for success for high-tech companies in Taiwan.

Mike Liu

Agility, flexibility, and communication are essential for manufacturing with MNCs

We had already moved from mass production in Taiwan to worldwide resource leverage in multinational subsidiaries. We have to be flexible and agile in decision making and information sharing. Communication plays an important role as a connection of multinational subsidiaries for the companies of the HSIP. The internal network system eases the flow of information to every office, which speeds up the workflow considerably. This enhances our capability to quickly respond to the rapidly changing environment and make quick decisions to adopt the competitive marketplace .

Multilocation use of technology makes this business possible

We have about 200 people doing R&D and sales functions at Winbond America. Via our intranet, we use the same platform to discuss the design of IC board, which allows us to interact simultaneously . The communication channels through videoconference, and our company mirror site helps our employees share updated information easily and speed up the product life cycle. The virtual company communication channels are the key for multinational corporations in the HSIP to leverage resources worldwide and maintain the competence.

While homegrown companies, such as Winbond, have achieved great success in HSIP, multinational companies have also thrived in Taiwan and greatly appreciate the concentration of experience, talent, innovation, and expertise in the Park.

The success of Taiwan's industrial development took a long time and was affected by both internal societal factors as well as external influences from Japan and the United States. To get that perspective and the reasons for HSIP success we sought the opinion of Alexander Huang, regional director of Greater China, Microsoft Taiwan.

Alexander Huang

Historical success factors of HSIP

There are three important reasons for the success of HSIP:

1. Timing

2. Government support to create the environment

3. Human resources

First, the HSIP was developed at a relatively competitive time, when the semiconductor industry was not yet popular. With the four competitive capabilities (land, know-how, capital, and quality), the HSIP already started to develop its own style of foundry wafers about 20 years ago. This early timing of forming the right process has given the HSIP a perfect background to earn competitive advantage globally.

Second, the government has highly supported the development of the HSIP and created the environment that attracted Taiwanese Americans with high-tech knowledge back from the United States. The government has provided many programs, such as tax incentives and cheap land, to encourage the high-tech investment in Taiwan. The factor of government support has played an important role in transforming the HSIP from the labor-intensive 1970s, to the capital-intensive 1980s, to the knowledge-intensive 2000s.

Third, since the 1990s, the historical relationship between Taiwan and Japan, and the Japanese style of management influenced HSIP to focus on quality manufacturing as a priority, which is one of the competitive advantages of countries in Southeast Asia. This has built up many high-quality workers with strong know-how. The Taiwanese hard-working culture and high civilization are critical factors in making HSIP a success worldwide. The father of high tech in Taiwan, Lee Kuo-Din, had continually contributed to the blueprint of HSIP and built the vision for the Taiwan high-tech industry.

Through the foundation and interaction with United States, Taiwan has accumulated a strong capability to allocate capital and gain knowledge as a basis to develop its unique position in the high-tech industry.

Competency success factors for a science industry-based park

According to the HSIP experience, there are four basic factors to make a science industry-based park successful:

1. R&D

2. Finance

3. Manufacturing

4. Marketing intelligence

First, the companies in the park should focus on R&D in order to develop high-quality products. The more quality we focused upon, the higher cost advantage we gained . Customers are willing to pay more to get higher quality. As long as the standard of quality increases , we have more customers and then gain cost advantage. This principle has been the first rule in the Taiwan high-tech industry. From the OEM (original equipment manufacturing) to the C&D (copy and development) and to the ODM (original design manufacturing), Taiwan has devoted time and money in R&D to develop high quality products. This gives Taiwan companies experiences that confirm quality is the most important thing and that R&D is the fundamental to increase quality standards to attract customers.

Second, capital allocation, such as venture capital and IPO, provide a foundation. This is an important key to helping companies to emphasize R&D as a tool to increase quality standards.

Third, the structure of the industry is an important factor in determining whether it is appropriate to develop that certain industry in a science-based park. The most important competitive advantage in the Taiwan high-tech IC industry is that we are "vertically disintegrated." We have independent IC designing companies, manufacturing companies, assembly companies, and testing companies. Together, they provide a complete spectrum to fill the orders from IBM and other main corporations. We can get every component needed to assemble computers in a very short time. It takes only few hours to ship components to clients. This proximity certainly gives an advantage to speed the process of manufacturing, and definitely increases the efficiency of our services.

Fourth, to maintain the competitiveness , we leverage our capital and human resources worldwide to understand what our customers need. This helps us to work 24 hours a day, to stay agile in the changing marketplace.

Information integration and wireless communication make the multilocation business model work

Companies should realize the importance of information integration and wireless communication inside the company to speed up the flow of information and communication in this multilocation model today. We communicate in different formats, such as PDA, laptop, and mobile phone. Toward the purpose of communication anywhere and anytime , we need to establish our IT infrastructure and boost up wireless services.

A notification agency will provide the available information and sense the location (mobile phone or PDA) with different formats. This is a machine-to-machine information exchange. For example, a person has a trip to Hawaii. But he is stuck in the airport because the flight is delayed two hours. The notification agency will receive a signal from the airport network and automatically send a notice to the Hawaiian hotel and car rental company to postpone the reservation. He doesn't need to worry about whether the hotel and car rental reservation would be cancelled because the notification agency has already done the machine-to-machine communication. This is the future of IT infrastructure. We need lots of human resources and database agents to work toward this purpose.

The future development of HSIP and the transformation of corporations should consider R&D, finance, manufacturing, marketing, and IT infrastructure to be a whole. Utilization of IT integration to leverage resources, knowledge, and R&D is an important key to maintain global competitiveness. This will help a company or a park to communicate and interact closely in a multilocation marketplace.

The government, industry, and university partnership in HSIP demonstrates how congruent and focused the Taiwan region is. Another societal strength, derived from the Chinese culture, is an extraordinary cohesiveness and ability to work in formal and informal groups. Taiwanese venture capitalists, engineers, entrepreneurs, and other sectors have many non-government organizations (NGOs) that enable them to work together in Taiwan as well as link internationally to a Chinese high-tech Diaspora.

In addition to Chinese formal and informal networks, Taiwanese are well represented in global industrywide networks. The Taiwan region has utilized these NGOs very well for their own development. To help better understand how NGOs play a significant role along with government, corporations, and universities, we focus on SEMI Taiwan.