Taiwan towers as an innovator

TAIPEI, Taiwan — Think of most tech gadgets, from the iPod to the PlayStation, and an engineer on this island of 23 million probably has had a hand in its creation.

While India and China share the spotlight as emerging giants, Taiwan is already a huge behind-the-scenes maker of tech products.

Taiwanese companies produce three-quarters of the world's notebook computers, two-thirds of its personal digital assistants and nearly 70 percent of its liquid crystal display monitors, according to Taiwan government statistics.

The island is home to Taiwan Semiconductor Manufacturing, the world's largest made-to-order chip manufacturer. Civic leaders like to point to the jade-green Taipei 101, the world's tallest skyscraper that towers over the densely packed city, as a sign of Taiwan's economic prowess.

Now Taiwan is making strides in moving to a more visible role as tech innovator. As China muscles its way into more and more sophisticated manufacturing, Taiwanese companies are elevating their research-and-design skills and creating their own brands that can be marketed globally to stay a few steps ahead of its intimidating neighbor.

The Taipei government, as well, is concerned that Taiwan's tech economy — traditionally strong in chips, PCs and other hardware and electronics — is at risk. So it is encouraging development of industries new to Taiwan, including digital content and biomedical devices.

And it's looking to its longtime business partner, Silicon Valley, for inspiration and help. Taiwanese officials are working to strengthen relations with the valley, hoping to import its entrepreneurial culture and form new partnerships.

California ties

Last year, the Taiwanese government's Industrial Technology Research Institute, or ITRI, started an incubator in San Jose, Calif., to link Taiwanese venture capitalists and tech suppliers with valley entrepreneurs.

"If we do not come up with a new value, a new business model, a new way of making money for Taiwan or a new way of contributing to the world, we will be marginalized," said Johnsee Lee, president of ITRI, a government-sponsored incubator.

Taiwanese companies that try to succeed with their own branded products run the risk of butting heads with foreign companies that hire them to build and design products sold under the brands of the overseas companies. These relations have been key to the island nation's stunning economic rise.

Furthermore, Taiwanese companies don't have the advantages of U.S. companies and, increasingly, those in China, which have large domestic markets that can be a springboard for a global brand.

"Innovation is the key to survival," said Yen-Shiang Shih, a deputy minister with Taiwan's Ministry of Economic Affairs. It is, he said, the only way to position Taiwan in the midst of the rising "mega-power" of China. "We need mega-power protection," Shih said.

Neighbor's prowess

Taiwan is as worried about the growing economic and tech prowess of its cross-strait neighbor, which claims the island as its territory, as it is seen by China as a military threat.

The Taipei government, for instance, permits Taiwan's semiconductor companies to operate foundries in China only if they produce less sophisticated chips. (However, Taiwanese businesses have invested billions in mainland Chinese factories, and countless Taiwanese have relocated to the mainland to manage companies in recent years.) These foundries make chips under contract to others.

Johnsee Lee's institute, with offices in the prestigious Hsinchu Science Park on the northern part of the island, recently established the Creativity Lab to ignite innovation and help Taiwan create new products. ITRI, which has spun off 130 Taiwanese tech companies, acts as a research-and-development center for many of the island's medium-size companies.

Creating global brands — and the design and marketing skills that it entails — is seen as one way to elevate Taiwan's tech economy.

Many eyes are on BenQ, maker of cellphones, digital cameras, LCD screens, laptops, MP3 players and other products. Last fall, it bought the money-losing cellphone unit of Germany's Siemens, one of the largest takeovers of a European company by an Asian business.

BenQ, which acquired a brand more than a century old, thinks it can make the gamble work through streamlining, cost-cutting and creative design and marketing.

"This transaction turns BenQ into a worldwide player," said Jerry Wang, chief marketing officer of BenQ, which, like most Taiwanese tech companies, is not well known in the U.S. The company, founded in 1984 by the tech-conglomerate Acer Group, was spun off in late 2001 and had revenue of about $5 billion before the Siemens mobile merger.

Recently, BenQ launched the new brand with the first three mobile phones to carry the BenQ-Siemens logo. BenQ has the rights to use the Siemens name for five years.

For BenQ, the strategy to step from anonymity of being a behind-the-scenes manufacturer and designer is a bold move.

The acquisition of the Siemens mobile group is also something of an acknowledgment it has to buy a brand name, much like Chinese computer maker Lenovo, which bought IBM's PC business in 2005.

As BenQ's branding strategy became public a few years ago, "everybody in Taiwan was watching us and thinking, 'Those guys are crazy,' " Wang said. Today, bookstores carry dozens of books on the subject, and Wang said he's in demand as a speaker on how to build a brand.

BenQ's former parent, Acer, moved away from manufacturing in late 2000, spinning off its PC manufacturing unit, Wistron, and focusing on creating a global identity.

Acer, the world's No. 4 PC company, just a few years ago made computers for companies such as Hewlett-Packard and Dell, but now focuses on its own brand. Acer named Gianfranco Lanci, an Italian who has headed company operations in Europe and the United States, as president in 2004.

"Acer will focus on becoming a truly global marketing company and maximize outsourcing," said Acer Chief Executive J.T. Wang.

It is the fear of profit margins being squeezed that is driving companies like Acer to move away from manufacturing under contract to others.

The shift can be tricky, said Roger Kay, president of research company Endpoint Technologies Associates. When BenQ took over Siemens' cellphone unit, it lost its contract with Motorola, which now views its former Taiwanese partner as a rival, he said.

"If you can't replace that business immediately, you will be hurt. So it's delicate," Kay said.

Similar move

Asustek Computer is making a similar move upward. The Taipei company, another Acer offshoot, is a world leader in manufacturing computer motherboards and also makes notebook computers for Apple Computer and Sony.

In recent years, Asustek has assembled an international design team to create its own brand of sleek laptops.

"If you have your own branded products, you have the responsibility that comes with it — usability, integration," said Markus Wierzoch, manager of the design team. "You can't just deliver products anymore."

While it may be impractical to think Taiwanese companies such as Asustek can crack the U.S. market, they can make gains elsewhere, said IDC analyst Richard Shim. Asustek, he said, has made headway in China with its brand.

"It's possible to be a major force, even if you don't concentrate on the U.S.," Shim said.