Tiger economy enters a period of transition

08 Jul 2004

Peter Shih, founder of the Photonics Industry and Technology Development Association (PIDA) in Taiwan, spoke to Oliver Graydon about the country's activities in optoelectronics.

From Opto & Laser Europe July/August 2004

Peter Shih

OG: How did PIDA come about? PS: PIDA was founded about 11 years ago. During my time abroad I found out that the OITDA in Japan and the OIDA in the US were very helpful for promoting photonics. When I returned to Taiwan I suggested setting up such an organization to our government and industry executives. The main purpose of PIDA is to accelerate the development of the photonics industry by providing services, information and support, such as organizing events and producing market data.

How did the photonics industry get started in Taiwan? About 20 years ago, the domestic optoelectronics industry was almost non-existent in Taiwan. There was some labour-intensive LED packaging and a few foreign companies from the US and Japan had a presence here because costs were very low.

Although Taiwan had almost no activities at that time it did have a very strong PC industry, and that's very important. It was clear that the computer industry was moving towards the use of optical technologies such as scanners, digital cameras, laser printers, optical storage (CD/ DVD) and flat-panel displays. At that time all screens were CRT and storage was still oriented towards magnetic hard discs. However, we anticipated the coming age of photonics and realized that one day PC peripherals would all become optical. Now, 20 years later, that has become a reality and is a $25bn business.

How did Taiwan become so strong in optoelectronics? Government policy has been very important to our success. Our government chose to invest in photonics and gave incentives and benefits to companies getting involved in the development of photonics products. Examples include funding for high-risk businesses and tax incentives. Promotion schemes, seminars and media coverage have also helped. Funding was given to universities to start research and training in the area.

We have a TWD20 bn (€480 m) national project in photonics which is split into three phases, each lasting four years. During the past decade, many Taiwanese researchers working and studying in the US at universities and firms such as General Electric, IBM and HP have come back to Taiwan to take up good jobs with attractive salaries or to found their own companies. Setting up companies and getting financing is quite easy because there are lots of VCs wanting to invest.

Tell me about Taiwan today. Today there are around 1000 optoelectronics firms in Taiwan, of which about 700 are manufacturers, 200 are distributors and 100 are foreign investments. Most of the domestic firms are small- to medium-sized enterprises, which are very fast-moving and highly competitive. Many of them are located in one of the four science parks in Taiwan. Some of these firms, such as the LCD flat-panel makers BenQ and AU Optronics, are growing to become large companies with an international reputation. Today we are the world's number one producer of several products. Last year our top 10 photonics products reached a production value of $16bn (€13 bn) and included TFT-LCD panels, media (CD and DVD) drives, digital cameras and LEDs.

What about the future? There is a dramatic change taking place in Taiwan. It has transformed from a region relying on low labour costs to one with an expertise in high-tech manufacture. Low-cost assembly of items is now moving to mainland China. As for the future, this shift from a labour intensive business model to one of automated, capital-intensive manufacture will continue. Companies in Taiwan now realize that having their own R&D and IP is very important and they have started to establish better links with universities and create R&D centres. Today there is now a shortage of optoelectronic engineers in Taiwan. This year about 10 000 job openings need to be filled.

It's tough to compete with Japan and the US but we are also an excellent ally thanks to our relationship with Japan on LCDs and the US for OEM manufacture. The only way for Taiwan to succeed is to manufacture higher-value items and create a knowledge-intensive economy. Four technology areas are likely to be increasingly important: very-high-speed information processing known as tera-photonics; nanophotonics; poly-photonics such as organic light-emitting diode (OLED) technology; and biophotonics.

For the past 20 years, Taiwan has operated a business model of making "hidden" OEM modules and assembling products for well-known western names such as IBM. It's not easy to create an international brand name. It is very expensive and takes a lot of time and effort. Many businessmen still believe that the OEM model is the best route to success. That said, companies such as Acer and BenQ are growing and becoming much better known outside Taiwan.