Download Journal of Economic Geography

教育對台灣經濟發展及資訊科技產業轉型之探討，
依 John H. Dunning 折衷理論觀點
黃正秋
靜宜大學 國際企業學系 副教授
摘要
雖然台灣成功的經濟發展故事已國際知名，但如何及因何成就尚未全然通曉。
本文藉由歷史紀錄與文獻回顧研究方式並結合 John H. Dunning 之折衷理論觀
點，探討教育對台灣經濟發展及對資訊科技產業轉型之影響，以助益強化臺灣企
業之國際企業管理內涵。
關鍵字: 國際企業管理，折衷理論，人力資源規劃，教育政策
1
The Role Education has Played in the Development
and Growth of Taiwanese Economy and in the
Transformation of Taiwan’s IT Industries, from the
Perspective of John H. Dunning’ Eclectic Paradigm
Cheng-Chiou Huang
Associate Professor
Department of International Business, Providence University
Abstract
Although the economic story of Taiwan’s success is well-known internationally, the
question of how and why it happened is still imperfectly understood. By applying a
historical record and literature review methodology combined with an analysis from
the perspective of John H. Dunning’ eclectic paradigm, the paper presents a
discussion about the role education has played in the development and growth of
Taiwanese economy and in the transformation of Taiwan’s most globally competitive
industries, the IT Industries. The analysis is presented for the purpose of getting the
benefit from its international business management implications.
Keywords : International Business Management, Eclectric Paradigm,
Human Resource Planning, Education Policy
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1. INTRODUCTION
Stated by Laraqui (2006), “In today’s business climate, operating, financing, and
investment decisions are colored by their international implications” (Laraqui, 2006, p.
220). Although the economic story of Taiwan’s success is well-known internationally,
the question of how and why it happened is still imperfectly understood. The analysis,
based on a historical record and literature review of Taiwan’s economy changes and
development path along with the role education has played is, in a sense, presented for
the purpose of getting the benefit from its international business management
implications.
Claimed by His Excellency Mr. C.K. Yen, Former President of the ROC (1981), each
successfully developed nation has its own model and approach to development, which
is intimately related to its cultural, historical, and socio-economic background.
The transition of the Taiwan economy from a state of backwardness and poverty to
one of progress and prosperity is in large part attribute to a lot factors. Among which,
the educational schema formulated by Taiwan government which sufficiently
upgrades and takes advantage of its abundance of human resources to offset its natural
resource shortages is a key (Yen, 1981). This fact was not only affirmed by policy
makers, educators but by many economists from the point of view of the human
capital theory (Yang, 1994; Lin, 2003; Hou, 1980; Huang, 1997). Improving the
educational system has been recognized widely as an important factor underlying
economic growth and equity (Cheng, 1993). Mark Rosenzweig has emphasized the
positive contribution of education’s role in contributing to the overall process of
economic growth (Saxonhouse & Srinivasan, 1999). Sound knowledge acquisition
and strong educational background of labor are key factors to competitive advantage
of nations (Porter, 1990). In their study of economic growth strategy (1987), Li and
Chen found that popular mass education was one of the ten major factors for economy
development of Taiwan (1987).
As implied by Laraqui (2006), a government’s political objectives are sometimes with
its economic proposals to improve a nation’s market efficiency and international
competitiveness (Laraqui, 2006). Taiwan is natural resource poor, and therefore the
development of its human resources with the primary purpose to cultivate its economy
is prioritized (Cheng, 1993). A statement shown in Taiwan Yearbook 2004, “…in
many ways, public education has played a prominent role in fostering Taiwan’s rapid
post war economic growth.” (Government Information Office, 2004). According to
the analysis of Council for Economic Planning and Development Executive Yuan
3
(2001), Taiwan’s competitive advantage lies heavily on its high quality human
resources, with college graduates making up more than one quarter of the work force
(Council for Economic Planning and Development Executive Yuan ,2001).
Over the last forty- five years (1950-1995) Taiwan has experienced the sustained rapid
economic growth and educational expansion. The real gross domestic product (GDP)
grew by an average of 8.1 percent annually. National income per capita grew from
US$186 in 1952 to US$11,315 in 1995 (Huang, 1997, p. 4). Taiwan government
policies about education is always positive and proactive (Government Information
Office, 2004). Based on a detailed case study of Taiwan’s IT industry, Huang (2003)
proved the importance of government education policies and national systems toward
its economic development. An examination of Taiwan’s economic success shows that
the features of Taiwan’s educational system that were instrumental in its economic
success were the well-developed infrastructure, the ready supply of highly educated
labor and design of the education system that allowed for changes within the growing
economy (Hay, 1991).
Besides the introduction, the paper is organized as follows. Section 2 presents a
general discussion of the school system of Taiwan and its contributions to the
economic development of Taiwan. Section 3 is a historical review of the science and
technology development and investment of Taiwan. Section 4 is an analysis of
Taiwan’s competitive advantages using John Dunning’s OLI paradigm. Section 5
draws the conclusions.
2. MANPOWER PLANNING AND THE ECONOMIC
GROWTH
The present school system in Taiwan consists of (a) national education, (b) secondary,
and (c) higher education. National education, which began in the academic year
1968-1969, consists of six years of primary education which are compulsory and free
and three years of secondary education at the junior high school level which are free
of tuition but not compulsory. Those who have completed national education may
either enter senior high schools for three years or enter what are called the senior
vocational schools constitute secondary education (Ho & Chang, 1981; Lin, 2003).
Education at the level of colleges and universities is for four years in general; for
programs in teacher preparation, law and architecture, it is for five years. For dentistry
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it is six years, and for medicine, seven years. In many fields, there are graduate
programs leading to the M.A. and Ph.D (Hou, 1980; Huang, 1997). In addition to the
formal school system, there are also special schools for the deaf, the blind, the
mentally retarded and the physically disabled. There are also supplementary or
remedial schools for those persons who fail to gain entrance to regular schools (Hou,
1980; Ho & Chang, 1981).
Labor has been Taiwan’s most important resource, and its utilization has accelerated
Taiwan’s development (Huang, 1997). During the early stages of economic planning,
the Taiwanese government committed itself to human capital development through the
implementation of the Manpower Development Plan (MDP) and the manpower
forecasting used in the Economic Planning (EP). The purpose of all the MDPs is to
predict or project future manpower requirements and to determine what measures are
needed to meet them (Hou, 1980; Cheng, 1993; Lin, 2003). Related broad issues of
manpower development are also included in the MDPs. Since formal education is the
most important instrument of manpower development, it is a center of discussion in
all the MDPs. The government has attempted to control three major aspects of
educational development in Taiwan: the quantity of education (i.e. the number of
students permitted to enroll in schools); the quality of education (i.e. the types of
curriculum or subject matters); and the price of education (i.e. the level of tuition) (Li,
1995; Lin, 2003)
Implementation of the MDPs is a complicated business involving negotiations and
adjustments between the Ministry of Education and various schools. But there is little
doubt that the MDPs have been decisive in the speed and direction of educational
development in Taiwan. The ratio of increase of enrollment (especially that of the
enrollment rates) have declined sharply since the manpower development plans have
been put into effect. Also, the rate of increase of enrollment in vocational education
has been far greater in non- vocational education. All this has been in accordance with
the MDPs (Hou & Chang, 1982, p.337-352).
Taiwan's educational policy has adopted a social-demand approach, provides
educational opportunities based on the social need for trained manpower, with heavy
economic expectations (Yang, 1994). One example is its strong emphasis on the
implementation of vocational education. The target ration of 4 to 6 was attained
between senior high school and senior vocational school enrollments in 1970. A later
target at 3 to 7 was set for 1981, which turned out to be 2.8 to 7.2. It further dropped
to 2.7 to 7.3 in 1986. The government extended primary education from six years to
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nine years in 1968. Since there were not so many schools for junior high graduate, the
Ministry of Education initiated a program under which five- year junior colleges
accepted students completing nine years of schooling. All of the junior colleges are
vocational in nature. Because the five- year junior college students were included in
senior vocational schools, the ratio between senior high school and senior vocational
school changed rapidly after the 1970s (Li, 1995; Ho & Chang, 1981)
A special training program can be cited here as an example. The information and
computer industry is the leading sector of Taiwan, but the number of college graduates
in electrical engineering and computer science cannot always meet the demand. A
five-year program sponsored by the Ministry of Education provides:
(1) six months of intensive training for noncomputer major graduates who, after
passing a competitive exam, are qualified for employment in the computer field;
(2) computer training for teachers in junior colleges, vocational high schools, senior
high schools, and junior high school;
(3) training of civil servants to manage computerization programs in government
agencies (Li, 1995, p. 158).
The educational levels advanced continuously as Taiwan enters into new phases of
economic development. Around 2001, to meet the needs of the new era and prepare
for future change, Taiwan’s Ministry of Education carried practical reforms of its
education system. The reform effort is attempting to extend education beyond the
traditional school system by enlisting business and community support and by
providing targeted learning strategies for lifelong learning in Taiwan (Futurists, 2001).
As the economy is transformed from agriculture to processing industries and from
processing to innovative industries as well as the scope is expanded from domestic to
international and from international to global, the reforms focus on the building of
lifelong learning habit among people of Taiwan in order to answer the demand for
better-higher-quality manpower required by the development process. (Li, 1995; Lin,
2003; Yang, 1994).
One of the most important “facts’ about education and economy is that individuals
with more education earn higher incomes (Huang, 1995, p. 3). Hundreds of studies
from many different countries confirm that average incomes are higher for more
highly-educated workers (Psacharopoulos, 1985). The findings of the advocates of the
human capital approach strongly suggest that education increases knowledge and
skills, improves productivity and contributions to economic growth (Bowman, 1980).
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In the case of Taiwan, the evidence seems overwhelming that the rapid educational
development has played a most crucial role in the rapid economic growth achieved.
(Huang, 1997; Hay, 1991; Li, 1995; Hou, 1980). Judging from the eyes of economists,
success in economic development can be measured by the speed with which
productive employment can be found for those willing and able to work (Galenson,
1981). Total employment in Taiwan increased from 2.5 million in 1952 to 6.4 million
in 1979. Linking to education, as far as Taiwan is concerned, virtually all children
were getting at least six years of primary education in 1967. Obviously, Taiwan was
successful in training people for skills that were in demand (Cheng, 1993; Ho &
Chang, 1981; Lin, 2003).
For example, from 1953 to 1979, total employment grew at an average annual rate of
3.2 percent (total labor force grew at a slightly lower rate because of the declining
unemployment rate), but GDP grew at 9.10 percent implying an increase of average
labor productivity (measured by output per man- year) of nearly 6 percent a year.
Nearly 54% of the growth of the gross domestic product from 1952 to 1979 was due
to technological improvement, only 29% due to labor growth and 18% due to capital
growth. It seems justified to believe that a considerable portion of the technological
improvement was attributable to educational growth (Hou & Chang, 1981).
Introduced by Michael Porter in 1990 (Porter, 1990), Porter ’s diamond model of
national competitive advantage theorizes that national competitive advantage is
embedded in four determinants: (i) demand conditions, (ii) factor conditions, (iii)
related and supporting industries, and (iv) firm strategy, structure, and rivalry. All four
determinants are interlinked and generally need to be favorable if a given national
industry is going to attain global competitiveness. At times, determinants can be
affected by the roles of chance and government (Daniels, Radebaugh & Sullivan,
2007; Laraqui, 2006). Specifically, one of the determinants, factor conditions, refers
to resource availability (inputs, labor, capital, and technology) contributes to the
competitiveness of both firms and countries that compete in particular industries
(Daniels et al., 2007; Laraque, 2006). Regarding to the quality of labor, or human
resource, education is of great significance (Porter, 1990).
The role of education in economic development of Taiwan is a dynamic one. The
rapid educational development in Taiwan has played a key role in economic
development (Lin, 2003). Without improved education, it is doubtful whether the
labor force would have been either productive or adaptive enough to attract a similar
quantity of investment in the labor- intensive, non-agricultural, especially secondary,
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industries.
From a perspective of trading and foreign direct investment to see the economy
development of Taiwan, it shows that foreign trade has been a major factor in
Taiwan’s rapid growth. The value of exports grew fast during the 1960s, averaging
almost 23%. The value of trade roughly tripled in each five-year period and increased
nearly sixfold between 1975 and 1990. Taiwan’s exports are nearly 90% industrial
goods. Imports are dominated by raw materials and capital goods. In Taiwan, the
cognitive and affective skills produced by education not only have developed the
dynamic capabilities of its manpower and have contributed to efficiency in the
production process (Teece, Pisano & Shuen, 1997; Lin, 2003), but also have increased
the labor force participation rate of women, facilitated labor mobility, and hence
altered the factor endowments in favor of labor- intensive rather than land- intensive
industries. This change in factor endowments when coupled with a favorable
international market and appropriate government policy has made rapid export
expansion, the engine of Taiwan’s economic growth (Huang, 1997; Ho & Chang,
1981; Li, 1995).
3. DEVELOP MENT OF SCIENCE AND TECHNOLOGY
Since the 1980s, the information industry has become the paramount engine of
economic growth in Taiwan. Whilst many countries have experienced rapid
development of their information sectors over the past two decades, the growth of
Taiwan's information industry has outpaced the majority of its international
counterparts, making Taiwan the world's third largest producer of information
products (Cheng, 2002).
Such a level of success reflects a fortuitous occurrence of events starting in January
1959 as Taiwan government promulgated the Guidelines for National Long-term
Science and Technology (S&T) Development. While aimed at providing guidelines
for the development of science, it marked the advent of formulating a science policy
at government level. In the 1970, the first energy crisis in late 1973 dramatically
affected the world economy and gave rise to many difficult economic challenges. To
successfully respond to those challenges, Taiwan had to upgrade its economic
structure quickly from labor-intensive industry to capital- and technology- intensive
industry (Li, 1995).
The promotion of S&T should be based not only on a well-defined goal and a
8
concrete implementation plan but also the advice of qualified research institutes of
high caliber. This paved the way for the setting up of Industrial Technology Research
Institute, ITRI, which has now become the most important research institute in
promoting Taiwan’s industrial technology. In 1973, the Ministry of Economic Affairs
(MOEA) recognized three research institutes, namely, Union Industry, Union Mining
Industry and Metal Industry, into ITRI. The missions of ITRI are accepting the
government’s contracts to conduct key technology research programs, disseminating
research accomplishments to the private sector and assisting small- and medium-sized
enterprises to improve production processes or to upgrade technology. ITRI has
played a leading role in both industrial technology development and manpower
development (Cheng, 1993; Huang, 1997; Li, 1995).
Besides setting up nonprofit R&D organizations, Taiwan government also followed
the development model of hi- tech industry at Silicon Valley in the US to set up the
Hsinchu Science-based Industrial Park, HSIP, which is located near the National Tsing
Hua University, the National Chiao Tung University and ITRI. With the incentives of
a convenient transportation network and simplified administrative procedures, HSIP
had attracted numerous enterprises to invest and operate in the Park.
The investment of HSIP has had the following impacts on IT industries in Taiwan:
(1) Encouraging venture capitals into IT industry
High risk and uncertain returns are two characteristics of IT industries. The
government provided the incentives of a favorable climate and promotion programs to
encourage traditional enterprises to invest in venture capital companies and introduce
high technology from abroad to serve as the important medium for technology
transfer.
(2) Disseminating technology to accelerate the upgrading of industries
Many components needed for production in HSIP were supplied by small- and
medium-sized enterprises outside HSIP. To ensure the quality of the components, the
hi-tech companies in HSIP have to assist their suppliers in technical education and
personnel training. This has also helped upgrade the technology of many satellite
companies.
(3) Attracting overseas Chinese S&T manpower to start up business in Taiwan
Due to the attractions of the favorable working and living environment in HSIP, many
overseas Chinese S&T talents returned home to invest in HSIP. Government research
9
institutes were privatized and taken over by entrepreneurs (Li, 1995; Nicolas, 1996;
Cheng, 2002; Cheng, 2003). More than half of the companies in HSIP were founded
by overseas Chinese scholars and engineers who brought back a lot of specialized and
unique production technology (Li, 1995; Nicolas, 1996; Prasso, 2005).
HSIP is regarded as the window of Taiwan’s hi- tech, or IT industries (Cheng, 1990;
Cheng, 2002). UMC, one of the leading local integrated-circuit producers, for
example, was spun off from the government's Electronics Research and Service
Organization. Its major shareholders are the state-run Chiao Tung Bank and the
ministry of economic affairs, as well as two listed private companies, Teco Electric &
Machinery and Yao Hua Glass (Nicolas, 1996). The links between ITRI and
companies in HSIP created an economic "cluster" or "hot spot." For AUO, its
proximity to ITRI led it to lure away a number of ITRI researchers and engineers. The
engineering pool and technology base of the universities and ITRI have been critical
to the company’s success in its early development (Prasso, 2005). Acer, for example,
was another beneficiary. Its proximity to other component manufacturers allowed it to
merge its panel display company with another to create a new entity in LCD panel
manufacturing, AU Optronics, in 1996. AUO listed on the New York Stock Exchange
in 2002 and has become the third largest manufacturer of LCD panels in the world,
with 23,000 employees, mostly making screens for TVs, computer monitors, cell
phones, digital cameras, and GPS displays. Its annual revenues grew from $166
million in 1999 to $5 billion in 2004 (Prasso, 2005).
The growth of the HSIP has been very rapid since 1987. In liquid crystal display
(LCD) monitors for televisions and computers, Taiwan is already tops, ranking No. 1
with a 68 percent share of a $21 billion market. It's also leading in the markets for
PDAs, semiconductor packaging, notebook computers, cable modems, CD-Roms,
DVDs and computer networking equipment (Prasso, 2005).
HSIP currently
comprises about 300 companies, with a total annual production of US$ 20,330 million
in 2004. HSIP has grown significantly, especially in the last 10 years. Annual
production has increased 10- fold during the past 10 years, the number of companies
has increased 150%, and the number of employees has tripled. Because the presence
of 300 companies at the HSIP was very attractive to technical workers, the quality of
the labor force in the HSIP has improved considerably. Growth of employees with
college degrees or better was 46% from 1997 to 1999, compared to a 21% increase in
the total number of employees (Hu, Lin & Chang, 2005).
The effective education system and application of human resources have been one of
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the major factors leading to successful development in Taiwan (Huang, 2003). From
the 1960s, Taiwan has cultivated technical manpower at every level to meet the needs
of economic and scientific transformation of Taiwan’s most globally competitive
industries, the IT industries. Different measures were taken at different stages:
(1) It is clear that technicians and skilled workers are needed in industrialization. In
the 1960s, vocational education was first promoted, but at that time the ratio of the
number of high schools to that of vocational students was 6:4. It was 3:7 in 1995.
Nowadays, all sorts of technical manpower and training systems are well designed.
(2) Throughout the 1970s and 1980s, Taiwan also increased the number of colleges
and universities and departments for the development of S&T manpower. The ratio of
university graduates in science and engineering to that of all disciplines was about 1:1
in 1995. The number of masters and doctoral programs has been greatly increased in
both public and private universities. Great strides have been made both in quality and
quantity. These are favorable conditions for the promotion of the hi-tech, or IT
industries in Taiwan.
(3) On the manpower resources for applied research, the government has in the past
asked such research organizations as ITRI through the so-called cosigned S&T
research programs to establish common industrial technologies and train talent.
Through the proliferation of technology and manpower in the private industry, the
development system of emerging industries has gradually formed (Li, 1995, p.
169-183).
4. ANALYSIS OF THE COMPETITIVE ADVANTAGES OF
TAIWAN,
FROM
THE
PERSPECTIVE
OF
JOHN
DUNNING’S ECLECTRIC PARADIGM
Beginning from introducing John Dunning's eclectic paradigm, the following
discussion focuses on an analysis of how the specific advantage, in this case, the
education, can certainly provide a competitive advantages at the individual level, firm,
industry, and finally at the country level. That is education can certainly provide an
'ownership' specific advantage that can translate into a firm specific advantage which
then in a complete industry/service cluster can lead to a world-class industry for
Taiwan.
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The eclectic paradigm is an approach to the theory of the multinational enterprise. The
eclectic paradigm is most prominently associated with the work of Dunning (1977,
1988, 2000). His ownership–location–internalization (OLI) paradigm is eclectic
because it integrates distinct explanatory approaches from different theories into one
single framework. The concrete form of international operation that a foreign firm
takes in a particular target market is the result of a combination of three advantages.
First, a firm must have specific ownership or O-advantages that compensate for the
general liability of foreignness as well as competitive position of rival domestic firms
in the target market. Second, location or L-advantages of the target market have to be
identified and to be evaluated with respect to the firm strategy. Third, it has to be
assessed whether the O-advantages can best be realized through internalization
(I-advantages) or through external cooperative or market transactions (Dunning, 1977,
1988, 2000; Dunning & Lundan, 2007).
Dunning’s OLI framework helps explain several points. Labor force has been
Taiwan’s most important resource. The government utilized comprehensive
manpower planning and development plans to accelerate Taiwan’s development. Both
formal education and supplementary/training systems are closely planned with the
economic development policy (Huang, 2003; Cheng, 1992). With an instrumental
approach, Taiwan controlled the growth of education, promoted vocational education,
and maintained a relatively low tuition policy for education (Cheng, 1992). With a
positive result, the cognitive thinking and effective skills produced by formal
education have developed the capabilities of Taiwan’s manpower. Early from 1959,
Taiwan government promulgated the Guidelines for National Long-term Science and
Technology (S&T) Development. While aimed at providing guidelines for the
development of science, it emphasized on advancing science education and research
(Li, 1995). From the 1960s, Taiwan has cultivated technical manpower at every level
to meet the needs of economic and scientific transformation of Taiwan’s most globally
competitive industries, the IT industries (Cheng, 1993). The establishments of
Industrial Technology Research Institute (ITRI) and HsinChu Science-Based
Industrial Park (HSIP) contributed significantly to the achievement of IT as the core
industries with world-class manufacturing capabilities (Cheng, 1990; Li, 1995; Tu,
1997).
Historically, location advantages have strongly influenced the growth of international
production (Dunning, 1982). According to Porter (1990; 1994),the enduring
competitive advantages in a global economy are often heavily local, arising from
concentrations of highly specialized skills and knowledge, institutions, rivals, and
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sophisticated customers in a particular nation or region (Porter, 1990; 1994).
Proximity helps to generate and transfer knowledge more effectively, and thus new
industrial activities tend to cluster in specific geographic localities.
Looking at Taiwan’s strategic investment path of IT as the core industries, the
proximity of HSIP in geographic, cultural, and institutional terms allows special
access, special relationships, better information, powerful incentives, and other
opportunities to fertilize specific ownership and specific internalization advantages in
Taiwan IT productivity and productivity growth that are difficult to tap from a
distance (Porter, 1994; Hu et al., 2005). The capabilities and flexibility formed in
HSIP locality help firms acquire the resources they need. These needed resources
include interactions with suppliers in related industries, which can accelerate
innovation and make products and services better match market demands in speed. IT
firms of Taiwan form as a strong industrial cluster (Porter, 1990) and thus are able to
serve as an attractive and competitive location which matters the development of IT
industries not only at regional but at global level (Porter, 1994; Chen and Chen, 1998;
Hu et al., 2005).
The high quality and quantity of people in Taiwan enable the firms to gain access to
advanced MNEs and be a strong OEM/ODM partner with the world-class MNEs,
which as the result, many of the world-class MNes may be ‘anchored’ to Taiwan’s
economy, especially in terms of order placement as well as facilitate firms of Taiwan.
During the dynamic learning process through global logistic partnership, MNEs of
advanced nations played as an active agent positively accelerated and restructured the
natures of the specific ownership advantages of Taiwan and of its firms to initiate and
upgrade their R&D for product development and thus, helps firms of Taiwan to obtain
the means of exploiting market potential globally (Nicholas,1996; Cheng, 1990;
Cheng, Liu & Shih, 2003; Wu, 2006). Firms of Taiwan joint forward to serve as a
regional learning power to set an agenda at the international level and influence the
way that IT industries progress (Florida, 1995; Khalil, 2000).
In the context of IT industries, the internalization advantage related mainly to the
technological routines and trajectories of the firms. In other words, it links closely to
their routines and previous bases (Cheng, 2002; Chen et al., 2003). Ever since the
1980s, the IT industry has represented the primary driver of economic growth in
Taiwan. Despite many countries having experienced rapid development of their
information sector over the past two decades, Taiwan’s information industry has
outpaced the majority of its international counterparts, at one time resulting in the
13
island being positioned as the world’s third largest producer of information products
(Cheng, 2002; Cheng et al., 2003; Tu, 1997). The firms of Taiwan deploy global
networks with fast-response capabilities to provide production and other (mainly
logistics) services to world-known brand marketers of advanced countries. Taiwan’s
IT industries evolved from a local production network towards a global one (Nicolas,
1996).
The networking relationships with world-known brand marketers may be considered
to be Taiwanese firms’ internalization advantage (Cheng et al., 2003; Huang, 2003).
Power (2006) argued that the restructuring of the global IT industry has led to the
formation of a global supply network, in which Taiwan-based firms have begun to
shoulder functions such as coordination of cross-border supply chains and logistics,
acting as integrated service providers and hence, an essential node in the global value
chain (Chen & Liu, 2002; Chen 2002). As long as their networking relationships with
brand marketers are secure, the Taiwan firms remain in the driver ’s seat in terms of
profit distribution within internal organizations, coordination of R&D and
manufacturing (Chen, 2002; Nicholas, 1996).
Based on a clear case study of Taiwan’s IT industry, it reveals that Taiwan has
effectively provided all the matters which were identified by the researcher as the
important factors for technological diffusion success, including strong firms,
industrial network, government industrial policy, public R&D organizations,
education institutions, financial institutions, and transnational corporations (Huang,
2003). With this kind of fertilized environment, the internalization advantages of
Taiwanese MNEs may include innovation speed, market response speed, production
efficiency, communication and information network and production flexibility (Cheng
et al., 2003; Prasso, 2005; Wu, 2006). In particular, with innovation speed capabilities,
production flexibility and communication and information networks at their disposal,
MNES of Taiwan may be able to deploy core and non-core R&D across boundaries,
whilst maintaining control over the profits generated in the process. Likewise, the
possession of product planning capabilities and market response advantages means
that the firms have control over the sources of profits and hence, have the final
benefits derived from the value-chain they face (Nicholas, 1996;Cheng, 2002; Cheng
et al., 2003). By strategically exercising their dynamic capabilities, firms of Taiwan
may involve in foreign direct investment and may shift some part of their operations
to a host country according to their capabilities whilst capitalizing on the derived
benefits by exploiting their own advantages of ownership and internalization (Teece,
1984; Teece et al., 1997). Take Acer Group for example. Based on a case study of
14
Acer Group organizational restructuring, it evidences that Taiwanese IT MNEs’ active
application of information technology to shift and reallocate its resources in order to
concentrate on the most profitable segments of the entire supply chain in different
national sites (Wang & Ho, 2006).
A large pool of high quality labor force and strong global supply networks, the
specific “ownership” and “internalization” advantages of its individuals, firms and
industries provide Taiwan with a “location” specific advantage for MNEs of advanced
countries. The way in which economic development has evolved in Taiwan is well
known as a typical example of the export-oriented industrialization paradigm (Cheng
et al., 2003; Nicholas, 1996). In addition to government policy which allowed tax
holidays and other incentives, several public institutions have been created to attract
foreign direct investment (FDI) as a source of foreign savings and technology. For
example, as introduced above, Shinchu Industrial Technology Research Institute
(ITRI), established in 1974, has been widely considered a success. Thousands of ITRI
researchers in electronics, telecommunications, machinery, chemical engineering, and
natural resources have developed hundreds of patents, many of them issued by
developed countries. ITRI’s impact includes technology transfers to private firms, and
the establishment of spin-off firms in the Shinchu Science Park (the Silicon Valley of
Taiwan) (Tu, 1997; Nicholas,1996; Prasso, 2005).
Among FDI inflows, European firms represent relatively strong ownership advantages,
particularly in patented technologies(Rangan, 1998); thus, they are more capital and
technology intensive, acting as second group of resource seekers to make use of the
particular opportunities which Taiwan offers to their value-added activities (Dunning
& Lundan, 2007). In the IT industry, the roles US firms play in Taiwan are pluralistic.
Mixing with resources seekers and efficiency seekers, US MNEs used Taiwan as a
major party in their international production network because of Taiwan’s specific
“ownership” and “internalization” advantages in producing personal computers and
peripheral products (Dunning & Lundan, 2007; Rangan, 1998;Tu, 1997; Kogut, 1985).
With the process of migration from labor-intensive sectors towards high- technology
as well as capital- intensive industries, Taiwan’s IT industries are characterized by its
vertical disintegration and the pursuit of OEM/ODM contracts for world-known brand
MNEs (Cheng, 2002; Huang, 2003; Nicolas,1996). However, some of Taiwan IT
players are positioned as ‘first-tier suppliers’ and possess innovation capabilities in
certain areas and industrial segments, which could be considered as Taiwan’s superior
location advantage (Cheng et al., 2003; Prasso, 2005) .
15
5. CONCLUSIONS
The trend towards globalization has been largely responsible for the dynamic
reconstructuring of the competition landscape (Dunning & Lundan, 2007; Doz,
Prahalad & Hamel, 1990). Contemporary economic events are suggesting that the
nature and composition of a country ‘s comparative advantage, which has been
traditionally based on its possession of a unique set of immobile natural resources and
capabilities, is now more geared to its ability to offer a distinctive and non- immitated
set of location bound created assets (Dunning, 2000; Dunning & Lundan, 2007). The
impact of the new global industrial dynamics for IT industry per se one outcome of
globalization over the last few decades has been the increasing disintegration of
capabilities in production, and even innovation, across nations (Power, 2006; Hu et al.,
2005).
With a wealth of experience in global trade, and as the world’s fourteenth largest
exporter, Taiwan’s advantages, according to the Council for Economic Planning and
Development Executive Yuan (2001) include the following:
(1) Prevalent spirit of vigorous, innovative entrepreneurism
(2) Firmly established IT sector, the world’s fourth largest in production value
(3) Globally competitive high-tech industries, accounting for more than half of
Taiwan’s export earnings
(4) High quality human resources, with college graduates making up more than one
quarter of the work force
(5) Substantial capital markets, the securities market the world’s fifth largest in
transaction volume (Council for Economic Planning and Development Executive
Yuan, 2001).
To best advances the long term interests of Taiwanese MNEs, according to Dunning
(2000), the resource based theory needs to reexamine the content and significance of
existing resources and capabilities of the companies in terms of: 1.. their ability to
sustain and/or upgrade their advantages; 2. their ability to harness and influence the
quality and price of complementary assets, and to efficiently coordinate these with
their own innovating competencies; and 3. their ability to locate their value added
activities in countries and regions which offer the optimum portfolio of immobile
assets, both for creating or acquiring new ownership specific advantages, and for
exploiting their existing advantages (Dunning, 2000).
16
The critical capabilities that firms of Taiwan have to develop to compete successfully
internationally are:
(1) Efficiency in executing agreed- upon strategies through a process of control of
subsidiary actions;
(2) Ability to change the nature of the headquarter-subsidiary, and
subsidiary-to-subsidiary, relationships in order to allow required changes in strategic
direction to take place.
(3) Flexibility to bring subsidiaries together to compete in a coordinated fashion, to
exploit government-controlled and non-conventional market and selectively to take
advantage of interdependencies across businesses (Doz et al., 1990, p.119).
To sustain competitive advantage, attention has to focus on the dynamic
competitiveness and location strategy. Taken together, these are the key success
factors to the strategic management process in international business management of
Taiwan (Daniel et al., 2007; Dunning, 2000).
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