AmCham arrow Publications arrow Topics Archive arrow Topics Archive 2003 arrow Vol.33- No.6 arrow Cover Story: How Hard is it to Smile?
Cover Story: How Hard is it to Smile? PDF Print E-mail

Ask Stan Shih to show you his smile and you'll get more than a flash of the pearly whites.

 

Ask Stan Shih to show you his smile and you'll get more than a flash of the pearly whites.

The chairman and CEO of the Acer Group has given his now-famous "smiling value-added curve" speech dozens of times to thousands of people. The centerpiece of the speech is a simple diagram that maps out the directions to go in to add value to a product, industry, or economy. In the middle, at the bottom of the curve, sits standard manufacturing. From there, extra value can be attained by an increase in intellectual property at the left or an increase in branding and services at the right. Moving up the curve on either side requires greater and greater amounts of knowledge capital.

The curve, which Shih conceptualized in 1992, has now come to symbolize Taiwan's future path toward a knowledge-based economy. On the one hand, Taiwan can focus on more R&D, building its base of intellectual property and inventing more innovative products. Likewise, it can focus its attention on services, which include design, branding, supply-chain management, sourcing, and marketing. Or it can do both.

"You have to develop both sides of the smile" if you want to have a knowledge-based economy, says Paul Hsu of the law firm Lee & Li and the Epoch Foundation. But he maintains that services deserve more emphasis. "Services are where the answer lies, and every manufacturer in Taiwan needs to add services to its own work," he says.

Hsu notes that "services" is a broad term applicable to both traditional and technology-oriented industries. Because of their expertise in such areas as supply-chain management and sourcing, for example, Taiwan's shoe and sporting goods industries remain strong, even though most of the manufacturing is in China. Similarly, Taiwan's agricultural products could prosper in future by becoming branded, much the same way as New Zealand has promoted its Kiwi fruit.

While acknowledging the importance of R&D, Wu Rong-i of the Taiwan Institute for Economic Research concurs that services are where the real prospects lie. "The R&D part on the smiling curve doesn't give as much value as the services part. And you still need the manufacturing for there to be the services," he says.

Both Wu and Hsu stress that Taiwan still lacks what it takes to be an original R&D powerhouse, despite the number of patents the country takes out every year. "People point out that we shifted from manufacturing to high-tech, but in fact it's not really so high-tech," says Wu.

Hsu asks "What has Taiwan invented?" and answers "Nothing -- we just commercialize inventions."

Hsu also cautions about the long timeline in getting results from R&D. "We should encourage inventing, but we won't see the fruits of it for ten years," he says.

Another part of the problem is the low value placed on intellectual property in Taiwan. Despite its anti-counterfeiting campaign of the past few years, the Taiwan government has failed to change the  mindset of its people. "Generally speaking, R&D doesn't happen here," says Andrew Houlberg, CEO of Gillette Taiwan, which continues to battle against IPR infringements. "R&D will only happen in a place where scientists feel protected and their work is valued." Until that time, he says, Taiwan will remain a place that companies come to for commodity production -- making it impossible to move up the left side of the smiling curve.

Yet another problem is that both R&D and the service economy are being stifled by Taiwan's strict work-permit and visa regulations. These rules, which restrict access for PRC passport-holders and limit the number of expatriates a company can hire, among other things, often lead to local and foreign companies deciding to locate their operations elsewhere.

"As long as Taiwan is a cage designed to keep people out, rather than a nest that will encourage people to keep their precious resources here, then we will always have difficulty," says Julian Buckeridge of the executive search firm of SES.

Improving the environment both for R&D and the free flow of human capital will be a crucial element in getting the Taiwan economy to smile.

--- T.C.
 
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