Versatility
Grasping the first opportunity is necessary because obsolescence comes extremely quickly in the world of high-tech and prices fall just as fast. In order to get their products to market quickly, more and more American companies are relying on Taiwanese firms to design and produce them. This has made Taiwan into an indispensable ODM (original design manufacturer) partner for Silicon Valley.
In San Francisco's South Bay area sits the headquarters of one of the Valley's giants-Hewlett-Packard (HP). Ed Yang, head of R&D at HP's Personal Information Product Group, says that the success of the ODM strategy has allowed HP to rely on Taiwan more and more. Yang smiles, remembering the many typhoons which struck Taiwan last summer. He says that when typhoons strike, production and shipments stop for the duration, meaning that for two or three days, nothing gets sent out of the factory. Such stoppages have a very real impact on the company. The frequent typhoons had high-level executives at HP as nervous as the people in Taiwan and made the island's weather a topic of conversation even among Americans.
The speed of change within the technology industry, which is a challenge to the operations of most firms, actually plays right into the hands of Taiwanese firms, which are used to working in short bursts and changing directions whenever the wind changes. For example, three years ago 16 megabyte DRAM was selling for around US$50 per chip and people were fighting for it at that price. Now it's down to about US$2 per chip. The steep slide in prices was too much for even Intel to bear and it pulled out of both the SRAM and DRAM markets. Taiwanese firms, without nearly the resources of Intel and unable to earn money from the production of these standard products, were forced to go into the foundry business. Here, they make chips to clients' specifications and have relied on increasing the efficiency of their operations and improving their yields to maintain profits.
"Whether it be in terms of technology, diligence or size, Japanese and Korean firms are not only not behind Taiwan, they lead it," says Chen Wen-chi. But Chen says that Taiwanese firms are extremely flexible. Moreover, with everyone wanting to be their own boss, there is a profusion of small- and medium-sized businesses on the island, each always right on the heels of the one ahead of it. This situation has made for "genuinely world class" competition among local firms.
Marcel Liang, president of ASI, one of America's top 15 wholesale distributors of computer hardware and software, has great respect for the vigor and drive of Taiwanese firms. He contrasts them with the Indians: "In Silicon Valley, the Indians are as noticeable as the Chinese and their influence in the information industry is undeniable. It's just a shame that they do nothing much outside of software. It limits their development."
The giants of the industry, including Compaq, IBM, Intel and Microsoft are all well aware of how to use the competition that exists between Taiwanese firms to lower their prices and get speedier service. And Taiwanese firms are willing to let themselves be shaped by these foreign firms, reasoning that by providing them with excellent service, they will be reluctant to go elsewhere. "The result is that each leads the others and everybody advances to a higher level," says Chen Wen-chi.
In addition, the last two years have seen the ascendance of the low-priced computer. It began last year when buyers who used to pay US$2000-3000 for a PC suddenly found themselves getting change from US$1000. This year, prices have gone as low as US$799-899. The declines have been startling. Yet this awful business climate has made Taiwan's advantages all the more apparent.
David S. Lee passed along many manufacturing orders to Taiwan while serving as an economics advisor to US presidents Bush and Clinton, providing Taiwan with a passport into the international marketplace.