Taiwan Without Manufacturing?
By Sheridan Prasso
Oct 31, 2005

Stan Shih, founder of Acer, the Taiwanese computer company, and its spinoffs Asustek Computer and BenQ, officially retired at the beginning of the year. Now 61, he's taking on a bigger challenge: trying to carve a path for Taiwan's future. Rather than hit the golf course, Shih started a $480 million venture capital and consulting company, iD SoftCapital, which also dabbles in asset management, including Acer's $1.1 billion portfolio. He recently talked with writer Sheridan Prasso about the importance of India, building global brands, and where he's putting his VC money .

You say you want "IT" to stand for "India-Taiwan." Can you explain why?
The integration of hardware resources in Taiwan and software resources in India, combined with the market opportunities in China and India—I think this is the direction. Taiwan doesn't have enough software engineers, and the mindset of most software engineers is totally wrong. They don't have a global view; they focus only on the local market. The software industry here is so behind, even though it was established earlier. Indian software development is more international compared with China or Taiwan, not only because it's in English but also because it has been dealing with the global players for many years.

What cooperation between Taiwanese hardware manufacturers and Indian software makers do you see?
India has a lot of delegations coming to Taiwan trying to persuade Taiwanese companies to set up R&D centers in India. Or Indian companies come here and set up a branch in software outsourcing to get more orders. Why not in China? Because there is no bridge. So my approach is to build the bridge. I'm looking to build Taiwan into an Asian center for IT innovation, just like Silicon Valley is for North America. Taiwan already has good infrastructure in the hardware area. And hardware cannot move.

Can you give me an example?
Take telecommunications, especially wireless. Taiwan already has a good IC [integrated circuit] semiconductor capability, but it continues to require a lot of software. We don't have those resources. Someone from India can come here, design the specs, and outsource it to India. But not only in devices—we are also looking into systems, which require integrated hardware and software platforms that must be designed jointly. This kind of service is going to become a huge business opportunity here.

You're talking about a Silicon Valley without importing the people?
We also want to import the people. Why did Silicon Valley quickly leverage? Because of the Indians and Chinese. Right now many Silicon Valley software companies are also outsourcing to India and Taiwan, bundling services. You know where the global resources are, so in today's business you just play the integrator. You don't need to invest in non-core areas. That is the new business approach.

How much money are you putting into this idea?
I have resources prepared to commit, and I will gradually do so. But right now more of my time is involved building brands. I'm trying to help the many industrial products here build brands internationally.

You have created the only successful brands in Taiwan. Why has no one else been able to do it?
Branding requires innovation. If you don't have any innovative products, it's very difficult. Branding also requires a lot of long-term commitment and determination. Taiwan today has more innovation. In many products we have 50% or more of the worldwide market, with minimum margins. What is the next step? We don't have too many choices.

What about the trend of manufacturing jobs shifting to mainland China and the impact of that on Taiwan's future?
My personal point of view is that it's great. But unfortunately the government is so concerned. Taiwan has very limited resources. So the question is, How can we use our limited resources, especially people, to do higher-value-added activity? From this point of view, some low-value-added manufacturing shifting to China is great, because we still can make money from that shift.

So will all Taiwan's manufacturing eventually shift to mainland China?
It's not necessary for capital-intensive manufacturing, such as panels, semiconductors, LCDs, to move to China today. But when Taiwan has brand names, more engineering technology, and innovation capability, it won't be necessary to have a fab here or a panel company. From the investor-return point of view, panel manufacturing is not a good investment. Why do you need that kind of industry? If we don't use the next five to ten years for branding digital devices, for continuing innovative leveraging of hardware and software, then the past ten to 20 years of investing in panel and semiconductor manufacturing will be for what? For minimal returns, since they lose money. Even in agriculture, we don't need to plant anything in Taiwan. Use the land in Taiwan for laboratories only.

So your vision of Taiwan is no manufacturing, no farming, just R&D?
Yes. And branding, marketing, and service industry. We have to go global. There is no country boundary, no border. We are in that position from the political point of view anyway.

It's a very optimistic vision.
Thirty years ago I convinced people to jump into IT. I had to convince Acer people not to assemble computers anymore because it's no value. That was a political issue in the company, but now it looks successful. Now I try to persuade people to jump into branding. I am trying to convince Taiwan that after 40 years of economic development, based on our knowledge, we should move up to be in a higher and better position.