In March of last year, a lively ceremony, attended by many government officials, was held outside the headquarters of Umax Technologies, Inc. in the city of Fremont in California's Silicon Valley. Frank Huang, chairman and CEO of Umax Technologies' Taiwanese parent Umax Data Systems, declared Umax's new Silicon Valley factory open, and also announced that the company would be expanding its investment in the US. The high point of the proceedings came with the arrival by private aircraft of California governor Pete Wilson, who very rarely attends commercial companies' opening ceremonies.

Not long afterwards, in September of last year, Umax bought the naming rights to the Oakland-Alameda County Coliseum in San Francisco for a substantial sum, in a move which attracted much media attention. Although the deal later fell through due to disagreement over details, the story, and the Umax brand name, can still be seen on the coliseum's website.

When in Rome

"We know what consumers want, and we know what the market wants," says Umax Technologies' senior vice-president of marketing and 25-year US resident Bobby Chao, echoing the words of chairman Frank Huang. Umax is currently the second-largest brand of image scanners in the US market, behind only Hewlett-Packard (HP). In order to do battle with 60-year-old Silicon Valley doyen HP, Umax doesn't pass up any activity which can in crease the US public's awareness of its name, and does everything it can to build up its image as a mainstream brand.

In recent years, a number of similar success stories have gradually emerged among Taiwanese companies. They include Trend Micro, the world's third-largest anti-virus software vendor, which sells its products under the PC-cillin brand name; Southern-California-based visual display equipment makers ViewSonic; and Acer, whose "Aspire" range of computers took the US PC market by storm three years ago.

However, when one considers Taiwan's enormous manufacturing capability--it is the number-one producer worldwide of numerous different IT products--these successful brands seem remarkably few in number. For a time, "creating independent brands" was the shared wish of all Taiwanese industry, but today this desire seems to have faded somewhat. The many setbacks suffered by Taiwanese firms in their marketing assault on Silicon Valley reveal where the difficulties lie.

A war of brands and distribution

"The biggest difficulty in building an international brand is customer service," says Wu Kuang-yi, general manager of 20-year-old Acer America, going to the nub of the problem. Putting one's own name on a product implies taking full responsibility for it. If a consumer is dissatisfied with it, or it breaks down, there should be dedicated staff available to answer customers' queries when they telephone. Of the 1200 Acer USA employees located in Texas and in California's Silicon Valley, half are customer service personnel, and to save on personnel costs Acer USA also has a customer service department with a staff of 400 in Costa Rica in Central America which receives customers' phone calls via satellite.

"When it comes down to it, the value of a brand is as a weapon in a war of image, quality and price," says Liu Ping, current chairman of the Chinese-American Computer Association, a federation of ethnic-Chinese IT product distributors in Silicon Valley.

As far as quality is concerned, Taiwan has the capability to carry out original design manufacturing (ODM) for leading brands, and from this we can surmise that the quality of Taiwanese products is not a problem. However, brand image has to be built up "on the ground" over a long period, whereas prices fluctuate rapidly and continuously. Caught between these two factors, but lacking sufficient decision-making authority, the US subsidiaries of Taiwanese manufacturers sometimes appear ineffective and let opportunities slip away.

For example, says Liu Ping, price competition is something Taiwanese firms excel at, but sometimes the power of a price cut by a major player can be unnerving.

"If today your competitor suddenly announces a price cut, should you immediately do the same, or should you first wait and see?" asks Liu Ping. If the manufacturer follows suit, then under the principle of "price protection" which is usual commercial practice in America, distributors are sure to ask for a refund on goods they have already bought at the higher price; and if the price is below that paid by the US subsidiary to the Taiwan parent company, the subsidiary too will have to turn around and ask for payment from Taiwan. Hence such a move involves a string of consequences.

On the other land, if one does not follow suit, consumers may be attracted by the competitor's lower-priced products, and may even return goods they have already bought. (Many large stores in the US allow consumers to return goods within a month of purchase whether they have used them or not, for an unconditional refund.) Hence losses can be enormous.

Liu Ping points out that Taiwanese firms' US subsidiaries are often unable to act on their own authority in such circumstances; instead they have to wait for the boss in Taipei, having been informed of the situation, to weigh up the pros and cons and make a decision. But just like the fortunes of war, commercial fortunes can change in an instant, and a single day's delay may be too much. By the time a decision is sent over from the other side of the world, the marketing war in the States may be all but lost.

Jeremy Liang, Trend Micro's chief information officer, agrees that it is extremely important for those in charge to stay in close touch with the market. Trend Micro's success in the US market has a great deal to do with the decision three years ago by its founders Daniel Chiang and his wife Eva Chen to "burn their boats" and move the company's headquarters from Taipei to Silicon Valley.

In bed with the enemy

Creating and promoting one's own brand costs a lot of money with no guarantee of success, so most Taiwanese firms are not willing to give up contract (OEM) manufacturing, which earns lower margins but brings in steadier business. But ironically, Taiwan's outstanding capability in ODM is sometimes actually a crucial barrier to developing brands.

"Our Taiwan parent company's production departments are in bed with our strongest competitors, but we marketing people here in the US are trying to put those competitors out of business!" Although Umax's own brand is very successful and the company does not do a high proportion of OEM work for other major firms, Bobby Chao is still deeply conscious of the conflict between contract manufacturing and own brand marketing.

Because most of the firms which source products in Taiwan are world-class companies, not only do they order in large quantities, they sometimes also get preferential treatment for technical cooperation. "OEM customers are always visiting Taiwan to give technicaguidance and discuss cooperation, and this forces us to be constantly going back to keep things sweet with the factory, so that they aren't tempted to give the OEM customers more preferential conditions than us behind our backs." Chao describes how the distinction between "parent and child" and "outsiders" can be subverted by the profit motive.

However, Matthew Miau, president of Mitac Computers Group, is taking a different approach from other companies. Like Acer, Mitac is one of Taiwan's leading PC manufacturers, but it has never pushed its own brand name very strongly. It is trying to blaze a new trail by "first acquiring distribution channels and then using them to promote our own brand."

The Mitac group already had at its disposal the US distribution network of its subsidiary Synnex Information Technologies, and early last year it added another string to its bow by acquiring, through Synnex, the US PC franchise chain Computer-Land. Today, Synnex ranks fifth in the world among electronics and IT distribution companies, and has an annual turnover in the US alone of over US$2 billion. Nonetheless, to avoid conflicts with its OEM customers, Mitac is pushing its brand in Europebut not in the US.

"After so many years' hard slog in the US, Taiwanese firms have come to realize that not every company can rely on a brand name like Coca-Cola to bring in fat profits" says Donald Weng, vice-chairman of Sun Moon Star, which set up in Silicon Valley more than a decade ago and whose main product lines are computer multimedia components and communications products. "All the same," he adds, "you still have to develop your own brand--you can't just give up.

Weng says the purpose of brand development is not to add more value, but to hedge against risk: "The contract terms for OEM work for major companies are very tough. If your price is a few cents dearer than someone else's, then I'm sorry, but that order will go somewhere else." He says Taiwan can't go on forever relying on other people's brand names to sell its products-- maintaining one's own brands to fall back on, and to develop if the opportunity arises, is a strategic necessity.

If brand marketing is a headache for many Taiwanese firms in Silicon Valley, the process at the other end of the manufacturing chain--innovation, research and development--is equally difficult to master, yet just as crucial to Taiwanese high-tech companies' profitability and market status.

We can't just leave it to Silicon Valley

Just as the vast majority of Taiwanese high-tech manufacturing firms have marketing offices in Silicon Valley, many also have development offices there. "After all, Silicon Valley is the worldwide high-tech mecca," says Chen Wen-chi, general manager of Taiwan's biggest chipset maker VIA Technologies. Chen observes that the depth of Silicon Valley's technological capability is tremendous, and its expertise up-to-date and wide-ranging. Whether it be hardware, software, the Internet or any other technology or application, Silicon Valley is the place towards which the eyes of the world are turned.

"In Silicon Valley you can stay in touch with the latest technical news and the latest market trends in a way which is not possible in Taiwan," says Max Wu of Acer America. To illustrate Silicon Valley's importance to Taiwan as a research and development base, he cites the example of how last year Acer's R&D teams in Taiwan and Silicon Valley joined forces to develop a notebook computer battery which would run for eight hours on one charge, doubling the previous standard of four hours.

However, Genda Hu, director of the ITRI's Electronics Research and Service Organization, observes that the design and development work done at Taiwanese firms' R&D centers in Silicon Valley still largely consists of improving existing products. Very few indeed are capable of completely innovative development. Looking back at the dazzling advances of the past few years, the stream of new concepts and technologies such as network computers, Internet search engines, virtual-reality games, virtual-reality shopping and so on has opened up one hidden magic box after another inside tiny silicon chips. But Taiwan has only been able to tag along behind, open-mouthed.

Genda Hu says the current synergistic division of labor by which "Silicon Valley creates it, Taiwan makes it" has been a great success, but it is still not the ideal solution.

"Taiwan can't rely on Silicon Valley to innovate for us, and still less can we afford to regard production as the be-all and end-all of high-tech industry," says Hu. He notes that from the perspective of resources and environmental protection, Taiwan is not well suited for an economy based mainly on large-scale manufacturing. Furthermore, manufacturing is the link in the industrial chain which yields the lowest profits. For example, the race between Taiwan's major semiconductor makers over the last two years to invest in new plant has already led to excess capacity and diminishing returns on investment.

Minister of State Yang Shih-chien, whose remit is the development of science and technology within the ROC, shares the same worry: "At present Taiwan still has a long way to go to achieve the goal of becoming a 'sci-tech country'; we need to try harder."

Trade surplus, technology deficit

Yang explains Taiwan's situation in terms of "technology imports" and "technology exports." To look at the Japanese experience, Japan's imports of technology reached their peak in the 1970s. Japanese manufacturing firms went all-out to bring in the latest technology, and licensed large numbers of European and American patents. In the 1980s, Japan's technology imports and exports came into balance, showing that it had crossed the threshold to becoming a scientifically and technologically developed country. Today, only a decade later, Japan is one of the world's major technology exporting countries.

But what about Taiwan? "Taiwan's technology imports will not reach their peak until around the end of the year 2000," says Yang Shih-chien. He predicts that technology imports and exports will come into balance around the year 2010, at which point Taiwan will rank among the technologically developed nations. As for when Taiwan will become a net exporter of technology, today it is still "too early to say."

Innovation and technological development not only have implications for industrial profitability, but also affect the overall strength of a nation, and for this reason "innovation" has been a hot topic in the ROC over the last two years.

"In terms of industrial vitality, entrepreneurial spirit and the quality of human resources, Taiwan is in no way inferior to Silicon Valley," says Yang Shih-chien. But many years of observation have led him to a surprising conclusion: "The biggest difference between Taiwan and Silicon Valley is in the universities!"

Yang explains that anyone who talks about Silicon Valley has to mention universities like Stanford, Berkeley and the California Institute of Technology. "Academia working hand in hand with industry" has been a crucial factor in raising Silicon Valley's technological level.

In order to transplant the Silicon Valley experience, last year the National Science Council sent a draft "Basic Law on Science and Technology" to the Legislative Yuan for scrutiny. In Yang Shih-chien's analysis, the main thrust of the new law is to relax the restrictions on academic research, so as to enable industry to make the greatest possible use of it.

For instance, at present, when professors at universities in the ROC conduct research for government agencies, any patents arising out of their research are 100% the property of the state. But the state does not engage in profit-seeking activities, so most of these patents are shelved and forgotten. Once the new law is passed, it will be possible for such patents to be owned up to 100% by the universities, which will also be able to divide revenue earned from them three ways: they will be able to keep one-third for university needs, give one-third to the technology center responsible for the research, and pay one-third to the research team--the professors and students--as an incentive.

Furthermore, according to Yang Shih-chien's conception, in the future it should be possible for faculty's relations with industry to be considered in their performance appraisals, so that professors can freely do research and development work for industry, or even go into industry themselves. Yet they would still be able to return to academia after two or three years without having to worry about losing their tenure.

"What counts in high-tech is brain power, and after all the best brains are in the universities." If the restrictions on academic research are relaxed, along with the continued progress of the educational reforms carried out over the last few years, Yang hopes it will not be long before "little Stanfords" and "little Berkeleys" appear in Taiwan, and this should go a long way to closing the gap between Taiwan and Silicon Valley.

The secret of innovation

Building on the idea of relaxing research restrictions, Wu Se-hwa, director of National Chengchi University's Graduate Institute of Technology and Innovation Management, also proposes a "concept of industrial development centered on innovation."

"There are many elements to the cycle of industrial wealth creation, and if every stage in that cycle can be made to generate income, this will naturally stimulate people to work harder to innovate." For example, says Wu, someone's head may be full of interesting ideas, and the desire to invent all kinds of weird machines. But the whole procedure, from writing down the concept and making product prototypes in the laboratory, to setting up a company, purchasing equipment, producing in volume and putting the product on the market, requires a great deal of effort to manage, and only if the company then operates successfully will it earn money. Otherwise, all the hard work will have been for nothing.

"This kind of long-term process can go on for three to five years with no end in sight. On thinking of this many people are apt to give up the idea--why go to so much trouble? In this way, a good idea may be buried," says Wu Se-hwa.

But in Silicon Valley--and this is what makes it so special and so attractive--this long process can be broken up. "If you have no money now it doesn't matter: if only you can make a prototype, you can sell it to a big company which recognizes its worth, or find a venture capital company to invest in it before you need to go on to the design and production stage. After that, when you've had enough of being a boss, or you're fed up with making the same product, you can quit while you're ahead by selling the company. Then you can go back to developing new ideas and new products, and in a couple of years' time you might well be starting another company."

Wu Se-hwa says this model of operation runs very smoothly in Silicon Valley. Venture capitalists have an extremely sensitive nose to ferret out any new ideas, companies which are not yet earning money can go public, and mergers and acquisitions between companies are very easy and routine. The result of this collective pursuit of money is actually to provide the best possible impetus for innovation. Wu, who for the last two years has been making use of his spring vacations to take students to visit Silicon Valley, says he has seen several companies there run by ethnic Chinese which are doing very well. When he asks these entrepreneurs what their next goals are for their companies, the standard reply is: "To negotiate a good price and sell it!"

Change starts with attitudes

Silicon Valley's innovativeness springs not only from its lively, liberal commercial environment, but also from its cultural diversity and openness. "Silicon Valley welcomes anyone with talent!" exclaims Yang Shih-chien. Citing the example of how integrated circuits--ICs--are jokingly referred to as "Indian Chinese," he says that if Silicon Valley were not so tolerant and open, it could not have attracted people of all ethnic and national backgrounds to congregate here, and without this diversity Silicon Valley would not have become Silicon Valley. In recent years, Silicon Valley's quota of working visas for scientific and technical personnel has been increased still further, and it is beckoning to talented people all over the world. This in particular is something which should give Taiwan much food for thought.

Academia Sinica president Lee Yuan-tse, who has made great efforts to attract ethnic Chinese who are leaders in their fields to come back to work in the ROC, has said in a seminar that overall quality of life, including such things as law and order, an attractive environment and a rich choice of cultural activities, is also an indispensable factor for attracting and keeping people of ability.

"Silicon Valley wins out because of its system." Genda Hu, general director of the ITRI's Electronics Research and Service Organization, says Silicon Valley's unparalleled innovative energy is rooted in many excellent systems and attitudes which are very difficult for other countries to genuinely emulate. Nonetheless, Taiwan still needs to earnestly study their experience and speed up its own reforms, to transform the present "investment-led, manufacturing-centered" concept of industrial activity into an "innovation-led" one.

Otherwise, "Taiwan can still make use of Silicon Valley's system by going there to do R&D and make venture capital investments, but this is risky for our country," says Hu.

Marketing and innovation--when will Taiwan catch up in these two areas in which it lags sadly behind? With Silicon Valley currently booming and supplying Taiwan with a steady stream of lifeblood orders, for the moment these weaknesses seem to pose little threat. But only by enhancing our own strengths can we secure a stable, healthy tomorrow. "Taiwan needs to have a sense of urgency: there is still much to be done." Genda Hu's words express both a hope and a warning.

"We know what consumers want!" Energetically courting the American public and building a mainstream brand image is one of the secrets of Umax's success.

Building on the formula "Made in Taiwan, sold in the USA," many ethnic-Chinese distributors have begun assembling and marketing Taiwanese IT products. Maurice Liang, CEO of ASI, which has grown rapidly in recent years and now ranks among the US's top 15 computer wholesalers, is an example.

In Silicon Valley, frequent and diverse seminars, presentaons, training courses and the availability of information on the Internet provide scope for brain storming from which innovative ideas may emerge.

As long as Taiwan's educational system remains hidebound by restrictive regulations, where can unconventional, innovative talent be found? Pictured here is a recruitment fair held at the Hsinchu Science-Based Industrial Park.

Stanford University, a Silicon Valley landmark, has successfully linked scientific theory with industrial practice, providing fertile soil for the Valley's "seedlings" to grow strong.