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Emerging Technology Report #34: December 6, 2002

ITRI to Help Spur Taiwanese Push Towards Heavy R&D Focus

- Summary -

Global Emerging Technology Institute

The Taiwanese Industrial Technology and Research Institute (ITRI) is the largest technology research institute in Taiwan with over 6,000 researchers and a $550m budget. In 1973, ITRI was founded as a non-profit R&D organization established in order to help Taiwan move from being a labor-intensive economy toward one that was focused more on technology development. Its main focus was to engage in applied research and technical services in order to accelerate the industrial development of Taiwan, upgrading and enhancing the competitiveness of existing industries. It clearly is a very successful example of government-industry collaboration, leading the island to become one of the richest emerging markets in Asia with a per capita income of nearly $15,000. Its relationship with the U.S. and the ability to actively trade with the country also was a strong factor in the growth of the Taiwanese technology sector. ITRI is deemed the "technical arm for industrial policies" in Taiwan, being a "strategic partner for industry." Many natives believe that the development of Taiwan's world-competitive semiconductor industry would have been impossible without such an organization.

ITRI has an impressive technology transfer record, and the number of patents obtained by the organization has increased significantly from approximately 289 in 1998 to 862 by the end of 2001. Its business incubation services highlight the importance of commercializing new technologies, leading to the development of a relatively large number of start-up companies. The center is heavily into supporting new venture planning and development, investment identification and evaluation and developing training programs for technical and business staff. As a result, the Taiwanese venture capital community is perhaps the second most developed in the world behind the United States and actively invest in Taiwanese venture companies. Since a great deal of Taiwan's technical talent was educated overseas, particularly in the U.S., Taiwanese investors actively scout U.S. start-up firms as well.

As previously mentioned, one of the key areas that ITRI has focused on is on upgrading existing industries. However, like Japan, Taiwan is being forced to quickly move up the value chain. Most of the research budget of ITRI is focused on communications and opto-electronics, precision machinery and microsystems-related technologies, consisting of nearly 60 percent of the budget in 2001. Bio-medical technology related projects will continue to grow as ITRI's new Bio-Medical Engineering Center (BMEC), established in 1999, continues to expand. The center focuses heavily on "medtech"/bio-IT technologies, including biochips, medical devices and instruments and bio-informatics. It also is engaged in materials research, which is in line with ITRI's nanotechnology push. Taiwan's National Science Council unvieled the country's first National Nanotechnology Initiative (NNI) earlier this year, announcing that it will spend $667 million over six years, starting in 2003. This planned investment puts Taiwan in the leading ranks of countries that are planning to nurture nanotech research and development. In comparison, the European Union plans to spend $700 million in the next four years. Outside of the United States and Japan, countries that cannot rely on low-value added, low-labor cost business markets and models will find it necessary to not only invest heavily in nanotech but also to quickly find the appropriate niche that serves to compliment existing strengths in the area of industrial competitiveness. Like Japan, expect Taiwan and other Asian countries to lead in the actual application of nanotechnology to existing industries. ITRI plays the key role in this initiative, and has opened a virtual Nanotechnology Research Center. This center actually coordinates nanotech related projects that are taking place in existing departments within ITRI, creating method to enhance the development of the multi-disciplinary cooperation that is required in any nanotech research initiative. Through ITRI and other organizations, Taiwan is attempting to create a strong capability in R&D and is actively courting large multinational companies in order to convince them to establish facilities on the island. This comes in response to growing Taiwanese investment into mainland China, especially in Shanghai, were investments were made recently into two large semiconductor fabs. Taiwan Semiconductor Manufacturing Co., the world's largest microchip foundry, and its local peer United Microelectronics Corp. both carry over 70% of the world market for the production of chips and are expected to continue to plow more money into next-generation process technologies while exporting lower end foundries offshore. Foreign direct investment in Shanghai is dominated by investments such as those mentioned above from Taiwanese companies that see the island's economic future closely linked to growth in China, especially in the south. These trade, finance and economic links provide an interesting contrast when compared to politics. According to a report by the Market Intelligence Center (MIC) of the Institute for Information Industry (III), more than half of Taiwan's information technology (IT) hardware will be produced in China this year. According to the Minister of Economic Affairs (MOEA), Taiwan companies now produce 55.3 percent of their desktop PCs, 60.4 percent of their motherboards, 71.2 percent of their cathode-ray tube (CRT) monitors, 93.1 percent of their optical storage devices, and 54.8 percent of their digital cameras in China. This trend is similar to that seen in Japan. However, as is the case in Japan, the considerable risk associated with investing in the Chinese mainland is being spread out by also investing in third markets and maintaining investment in high-value added/high pay-off (and potentially higher risk) investments at home in areas such as nanotechnology.

GETI Presentation at ITRI

Mr. Louis Ross, Managing Director of GETI, recently gave a presentation on investing in emerging technologies focusing on the differences between the U.S. and Japan at ITRI's headquarters in Taipei. Mr. Ross explained the importance of government funding in regard to the support of emerging technology research and the venture companies that are involved in developing key breakthroughs in certain areas. These areas included next-generation wireless technologies and the importance of the R&D focus of certain anchor industries, such as the semiconductor industry. Mr. Ross emphasized the fact that Japan and Taiwan are entering a similar phase of development and will be encouraged to produce substantive breakthroughs in order to continue to maintain a leadership edge in Asia with the rise of production (of relatively low-value added consumer electronics) taking place in China.

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