Does Generic Base Technology Matter?

Xin-Wu Lin

TIER

Aug. 4th 2006

9-2tier

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

9-3tier

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/Technological regimes/ProductsProducts

TimeTime

First moverFirst mover

Second moverSecond mover

First moverFirst mover

Second moverSecond mover

9-4tier

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

9-5tier

IndustriesIndustries

Technologies and prototypesTechnologies and prototypes

MarketsMarkets

TDP in RD InstitutesTDP in RD InstitutesAdvanced techs., key Techs. and components, testing and certification measures

Techs. licensing

Start-up, HR transfer

The path of TDP

9-6tier

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.

9-7tier

Performance in ICT sectorMarket Share<20%Market Share<20% 20%<Market Share<40%20%<Market Share<40% Market Share>40% Market Share>40%

20022002,200,20033

DSC LCD Monitor、 CDT Monitor、Desktop Scanner、 Notebook PCMother board、 CD/DVD、 ADSL Modem、 Cable Modem、 Hub、 NIC、WLAN

20012001 CD/DVD、 DSC LCD Monitor、 CDT Monitor、Desktop Scanner、 Notebook PCMother board、 ADSL Modem、 Cable Modem、 Hub、 NIC、WLAN

20002000 LCD Monitor、 CD/DVD、 DSC

CDT Monitor、 Desktop ScannerMother board、 Notebook PCAnalog Modem、 Cable ModemHub、 NIC

19991999 Analog Modem、 Cable Modem、 Notebook PC、 CD ROM

CDT Monitor、Mother board

19981998 LCD Monitor Notebook PC、 CD ROM Analog Modem

CDT Monitor、Mother boardDesktop Scanner

19941994 CD ROM (1) Notebook PC、 Desktop Scanner、 Analog Modem、

CDT Monitor、Mother board

19901990 Notebook PC Desktop Scanner(14)

CDT Monitor (36.4) Mother board (66)Handy scanner (62)

9-8tier

2000 2001 2002 2003 2004 2005 2000 2001 2002 2003 2004 2005 20052000-2005CAGR %

1 United State 97,011 98,656 97,126 98,598 94,129 82,660 55.1 53.6 52.7 52.7 51.9 52.4 -12.18 -3.152 Japan 32,922 34,891 36,339 37,249 37,034 31,878 18.7 19.0 19.7 19.9 20.4 20.2 -13.92 -0.643 Germany 10,824 11,849 11,957 12,140 11,367 9,578 6.1 6.4 6.5 6.5 6.3 6.1 -15.74 -2.424 Taiwan 5,806 6,545 6,730 6,676 7,207 5,991 3.3 3.6 3.6 3.6 4.0 3.8 -16.87 0.635 Korea 3,472 3,763 4,009 4,132 4,671 4,591 2.0 2.0 2.2 2.2 2.6 2.9 -1.71 5.75

Total 176,084 184,048 184,425 187,051 181,322 157,882 100 100 100 100 100 100 -12.93 -2.16

1 United State 85,068 87,605 86,972 87,901 84,271 74,706 54.0 52.8 52.0 52.0 51.3 51.9 -11.35 -2.562 Japan 31,295 33,224 34,859 35,516 35,350 30,385 19.9 20.0 20.8 21.0 21.5 21.1 -14.05 -0.593 Germany 10,235 11,260 11,280 11,444 10,779 9,014 6.5 6.8 6.7 6.8 6.6 6.3 -16.37 -2.514 Taiwan 4,667 5,371 5,431 5,298 5,938 5,116 3.0 3.2 3.2 3.1 3.6 3.6 -13.84 1.855 Korea 3,314 3,538 3,786 3,944 4,428 4,352 2.1 2.1 2.3 2.3 2.7 3.0 -1.72 5.60

Total 157,494 166,037 167,333 169,026 164,293 143,943 100 100 100 100 100 100 -12.39 -1.78

1 United State 11,284 10,345 9,325 10,045 9,252 7,557 64.8 61.3 60.4 60.6 58.9 58.3 -18.32 -7.712 Japan 1,497 1,546 1,364 1,567 1,568 1,384 8.6 9.2 8.8 9.5 10.0 10.7 -11.73 -1.563 Taiwan 1,135 1,168 1,294 1,370 1,268 870 6.5 6.9 8.4 8.3 8.1 6.7 -31.39 -5.184 Germany 506 588 509 509 476 474 2.9 3.5 3.3 3.1 3.0 3.7 -0.42 -1.305 United Kingdom 372 370 306 356 406 370 2.1 2.2 2.0 2.1 2.6 2.9 -8.87 -0.11

Total 17,413 16,871 15,451 16,574 15,695 12,954 100 100 100 100 100 100 -17.46 -5.74Notes: 1. The country in residence of the first inventor determines county of patent.

2.CAGR means compound average growth rate.

Source : USPTO，data of 2005 is calculated by TIER.

Utility Patent

Design Patent

Table The Patent's Performance of Major Countries in USPTO 2000-2005

All Type Patents

2005rank

Number Share Growth Rate

Performance in patents

9-9tier

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 almo

st every area and sector.– Catch up with new technologies: there are many quick f

ollowers lower profit margin, shorter earning period.

9-10tier

The trend of value-added ratio

Manufacturing Industry

26.05

23.88

36.78

30.34

36.12

36.91

20.00

23.00

26.00

29.00

32.00

35.00

38.00

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

％

TW KR JPFI US UK

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

24.96

25.59

36.85

41.60

45.26

32.44

20.00

25.00

30.00

35.00

40.00

45.00

50.00

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

％ TW KR JPFI US UK

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).

9-11tier

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

9-12tier

The Transformation Model

Trading

Manufacturing

Product Development

Industrial Value ChainFocusing 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

IndependenceMarket 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 PolicyIndustrial Value

Chain

ValueCreatingBusiness Models/

Branding

9-13tier

Necessary conditions for applying the First-Mover Model

Fluid Transitional Specific Innovation stimulated by

Information on user needs, technical inputs

Expanding internal technical capability

Pressure to reduce cost, improve quality

Major type of innovation

Major changes in products’ (function, performance)

Process innovations required by rising volume

Incremental product and process innovation

Product line Diverse, often custom designs

At least one stable or dominant design

Undifferentiated standard products

Production process

Flexible and inefficient – aim to experiment

Rigid and defined Effective, often capital intensive and relatively rigid.

Source: Tidd, Bessant and Pavitt (2005)Source: Tidd, Bessant and Pavitt (2005)

Technological capabilities, spirit of experiment (practice, trial & error) and information on user’s needs are necessary conditions for being in are necessary conditions for being in the First-Mover industrial development modelthe First-Mover industrial development model

9-14tier

1972 20021998 20061985

Efficiency Tech driven

100% OEM

USA marketLow price(USD 50)

Avg. price rising(USD50100)

“Giant” brand

Design Design InnovationInnovation

Support bike-racing teamsWorld-wideAwards

Winner Tour de France

(2002, 2004, 2005)

Avg. price rising(USD 100250)

Industry clustering

Cost down

Material Material InnovationInnovation

Key componentsKey components

Process Process InnovationInnovation

Taiwan factory moved out

Low price – China

High price - Taiwan

Design Innovation Brand Value

Story of the Giant Bicycles

Price

Production

9-15tier

1987 20001997 20061990

Tech Transfer & DevelopingTech Transfer & Developing

Philips authorized

Defect decreased

6” wafer foundry

Mid R&D (70M USD/Y; 120 person)High investmentProcess innovation8” 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 & LeadingTech Master & Leading

Story of the tsmc

Patent Patent NumberNumber

Revenue

High R&D

(450M USD/Y; 850 person)

Tech synchronize to IDMs

Tech capabilities surpass rivals for at least 1 year

9-16tier

All Type Patent ~TOP 20 All Type Patent ~TOP 20 Utility Patent ~TOP 20Utility Patent ~TOP 20Assignee 2000 2001 2002 2003 2004 2005Taiwan Semiconductor Manufactoring Co., Ltd. 385 530 447 430 462 441Hon Hai Precision Ind, Co., Ltd. 522 495 509 483 630 361Industrial Technology Research Institute 193 211 221 213 199 165VIA Technologies Inc. 16 20 42 53 116 127BenQ Corporation* 38 26 58 64 124 112AU Optronics Corp 12 40 78 106Macronix International Co, Ltd 32 39 123 182 162 101United Microelectronics Corp. 434 586 275 186 75 93Delta Electronic, Inc. 17 28 52 85 109 91Nanya Technology Corp. 21 13 16 26 100 84Winbond Electronics Corp. 115 123 118 80 97 62Pacific Marketing International Co., Ltd. 15 48Advanced Semiconductor Engineering Inc. 8 36 40 19 56 43Powerchip Semiconductor Corp. 7 2 11 27 37Lite-On Technology Corporation** 19 29 27 42 47 36Promos Technologies Inc 16 18 36 37 45 35Inventec Corporation 28 29 34Mediatek Incorporation 3 3 1 5 24 32HannStar Dispaly Corp. 1 21 79 47 30Globe Union Industrial Corp. 3 6 14 21 52 29Chunghwa Picture Tubers, Ltd. 8 4 7 8 18 28Toppoly Optelectronics Corp. 1 24 28Siliconeware Precision Industries Co., Ltd. 2 30 62 57 56 26Chi Mei Optoelectronics Corp. 1 7 12 10 30 26Silicon Integrated Systems Corp. 5 15 34 41 31 25Quanta Computer Inc. 3 2 4 24 60 25Lite-On It Corp. 2 6 10 25 25Sunonwealth Electric Machine Industry Co. Ltd 8 11 25 36 35 23Realtek Semiconductor Corp. 3 2 3 6 11 22Asustek Computer Inc. 4 7 15 11 24 22

Assignee 2000 2001 2002 2003 2004 2005Taiwan Semiconductor Manufactoring Co., Ltd. 385 530 447 430 462 440Hon Hai Precision Ind, Co., Ltd. 396 440 391 391 485 291Industrial Technology Research Institute 192 211 220 213 199 164VIA Technologies Inc. 16 20 42 53 116 127AU Optronics Corp 12 40 78 106Macronix International Co, Ltd 32 39 123 182 162 101United Microelectronics Corp. 434 586 274 186 75 93BenQ Corporation* 34 26 54 50 80 84Nanya Technology Corp. 21 13 16 26 100 84Delta Electronic, Inc. 17 28 50 80 93 77Winbond Electronics Corp. 115 123 118 77 97 62Advanced Semiconductor Engineering Inc. 8 36 40 19 56 43Powerchip Semiconductor Corp. 7 2 11 27 37Promos Technologies Inc 16 18 36 36 45 35Inventec Corporation 28 29 34Mediatek Incorporation 3 3 1 5 24 32Lite-On Technology Corporation** 11 21 24 36 44 30HannStar Dispaly Corp. 1 18 26 43 30Chunghwa Picture Tubers, Ltd. 7 4 7 8 16 28Toppoly Optelectronics Corp. 1 24 28Siliconeware Precision Industries Co., Ltd. 2 30 62 57 53 26Chi Mei Optoelectronics Corp. 1 7 12 10 30 26Silicon Integrated Systems Corp. 5 15 34 41 31 25Quanta Computer Inc. 3 1 3 12 40 24Sunonwealth Electric Machine Industry Co. Ltd 8 11 23 31 34 23Realtek Semiconductor Corp. 3 2 3 6 11 22Wistron Corp 12 22 20Asustek Computer Inc. 4 7 15 11 24 19Faraday Technology Corp. 2 2 10 14 26 19Lite-On It Corp. 2 6 9 17 17

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 2005Winner: Taiwan Semiconductor Manufactures Co.Winner: Taiwan Semiconductor Manufactures Co.

9-17tier

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.

9-18tier

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.

Higher Higher Education Education IndustriesIndustries

Public Public Research Research InstitutesInstitutes

Incentives, Incentives, Institutions Institutions

1.1. Have to encourage knowledge Have to encourage knowledge flow and then to accumulate flow and then to accumulate capabilities.capabilities.

2.2. Have to approach customers’ Have to approach customers’ needs and then to generate value.needs and then to generate value.

9-19tier

Manufacturing + suppliers of componentsDesign+structure+materials+processes+..

Technology Practitioners

Manufacturing + suppliers of componentsDesign+structure+materials+processes+..

Technology Practitioners

Policy implication – an institutional viewOpinions from users (trade partners)

Heavy users, market surveys Opinions from users (trade partners)

Heavy users, market surveys

Higher EducationProfessors (Solid theoretical analyzing capabilities )

Higher EducationProfessors (Solid theoretical analyzing capabilities )

Public Research InstitutesTDP Researchers

Public Research InstitutesTDP Researchers

Users Users informatioinformation, n, FeedbackFeedback

Revision,Revision,UpgradingUpgrading,,New New productsproducts

Public Research InstitutesKnowledge Management Researchers

Public Research InstitutesKnowledge Management Researchers

PracticaPractical issuesl issues

Possible Possible approachapproacheses

9-20tier

ConclusionIf 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

Industries Markets

RD Institutes