Government Policy

on Science and Technology in the

Era of Service-oriented Economy
H. T. Kung ()
Harvard University

Emerging Industrial Technology

Strategy Review Board Meeting
Taipei, Taiwan, August 15-18, 2005

Outline
z Increasing

importance of services

industry
z Taiwans opportunities in services
z Government's role

Change Is Needed
z For

the last 20 years along the

development of the global ITC
(Information, Technology and
Communications) industry, Taiwan
has gained a leading position in
worldwide hardware manufacturing
z But changes are needed now for
reasons described in the next few
slides
3

Value Migration in the Computer

Industry, 1950-1996
180

160

140

100

80

$ billion

120

60

40

20

89

92
95

IBM

ADRs

3571

3572

3575

3576

3577

3570 ex IBM

86

3670

83

Intel

80

3672

77

3678

74

3674 ex Intel

71

7370

68

7371

65

Microsoft

62

7373

59

7372 ex Microsoft

56

7374

53

7377

50

Carliss Y. Baldwin and Kim B. Clark, 2004

Global Market Share

for Taiwans ICT Products

Some Theoretical Explanation

z

Clayton Christensen (2002):

z
z

Vertical integration, for meeting demand for

technological performance
Vertical disintegration, for meeting demand for
cost, customization, and delivery time

The rise of the Taiwanese manufacturing

has been strongly coupled with vertical
disintegration of the ICT industry in the past
20 years
z While offering options in module selection
(Baldwin and Clark 2004), efficient
vertical disintegration inevitably leads to
subsystems of low profitability
z

Taiwan GDP for Year 2004

(Manufacturing 25.5% and Services 68.7%)

25.5

68.7

Source: "Taiwan Statistical Data Book 2005," CEPD, pp. 55

Subcategories of Services Industry

:

Source:
8

FAQs About Services

z Like

manufacturing, can services be

scalable, so that a large amount of
money can be made, and, hopefully,
also quickly?
z Given that services are usually local,
can they be exported?
z Where are Taiwan's opportunities in
services?
z What roles should government play?
9

1. The Google Case

z Google
z

is all about services

Many of its services can be

personalized

z The

services are highly scalable,

working in many languages and in
many countries
z Its market cap has been skyrocketing
($80.48B)
10

2. The Skype Case

z

Skype has millions of VoIP users in many

countries
z

Sometimes the system reports over 2 million

users on-line at the same time

Automatic peer-to-peer signaling

z Scalable to a large number of users, while
maintaining good voice quality
z Software created by one of the smallest
countries in the world, Estonia ()
z Skype phones are hot; Taiwanese
manufacturers are making them
z

11

3. The India Case

in Software Outsourcing
z

$12B US export revenue in 2004

z
z

Second largest software provider, with 20% of

the world market
Providing software outsourcing for about 50%
of firms in Fortune 500

Government's strategic emphasis (e.g.,

Ministry of Communications & Information
40 Technology and Software Technology
Parks of India)
z Strong education in ICT (e.g., the IIT
university system)
z

40% of 2,000 Indian-led high-tech companies

in the Silicon Valley are from IIT

12

Customers of Indias Software

Outsourcing Services

13

ICT Technologies Are Key

to All These Success Stories
z Google

Page ranking
z Server farms
z

z Skype
z

P2P technologies

z Software

outsourcing

Global broadband Internet

z Software engineering technologies
z

14

Taiwan's Opportunities
Two areas:
1. Manufacturing for services
2. Technology-empowered services
z
z

Stan Shih (, 901,

February 2005)
Or, ICT-enabled, S&T-enabled
services

Both directions leverage Taiwans

strengths in manufacturing

15

1. Manufacturing for Services

For example,
z Cellphone manufactures in Japan
make some of the most advanced
models for the DoCoMo's i-mode
service (with 44 million subscribers in
2005)
z iPod for iTunes
16

2. Technology-empowered Services
For example,
z Surveillance systems based on
pattern recognition and wireless
technologies
z Intelligent transportation systems (ITS)
based on sensor, database, real-time
and wireless technologies
z Mobile high-definition TV
broadcasting based on broadband
wireless and high-resolution displays
17

What the Government Should Do?

z

Government could sponsor R&D and

provide incentives in:
z
z

Manufacturing for services

Technology-empowered services

But, more fundamentally,

government should nurture a healthy
environment for innovative services
z

To illustrate this, we consider some

work items for mobile data services
18

Work Items
for Data Mobile Services (1/2)
z

z
z
z

Engage in telecom policy reform (e.g.,

privatization, liberalization and divestiture of
state-owned incumbents)
Ensure level field competition
Conduct human resource development
programs
Manage radio spectrum (e.g., early spectrum
allocation for WiMAX to support product
development and service deployment)
z

Be sensitive to the potential high cost of spectrum

mismanagement. E.g., the FCC in the U.S. itself
estimates that inefficiencies in its spectrum license
distribution methods in the 1990s (e.g., allowing
small regions and five cellular technologies) caused
loss of 2% of GNP by 1997
19

Work Items
for Data Mobile Services (2/2)
Foster industrial ecosystems (e.g., positive
feedback among mobile operators, content
providers, system vendors, and cellphone
manufacturers)
z Leverage government's resources and
authority (e.g., concessions of public
properties for advanced and innovative
mobile data services, contributions to
funds for nurturing strategically important
firms, and adoption of single standards)
z

20

Catch-up Needed (1/2)

z

understands issues, but

could move faster
For example, it was said in July 2004
that

z But there does not seem to have a

schedule for the realization of the above
intention
z

21

Catch-up Needed (2/2)

Chung Hwa Telecom was recently
privatized. This is in the right direction, as
the company will likely become more
innovative and aggressive than before
z But the government will need to address
possible unfair competition resulting from
the companys large assets (e.g., last-mile
wires) relative to other competitors
z

The government should have had a good

strategy on this issue, but it is too late now to
fix the problem now
We will need to more aggressive in market
liberation (the previous slide)

22

On A Positive Note
z

With a new project in mobile life/society,

called M-Taiwan, a total system approach
is taken:
z

The project calls for a coherent development

of chipsets, systems, applications, services,
incentive plans, and regulatory policies
z

Taiwan can be a great testbed, e.g., wireless

Taipei

See the next slide for a table of content of a

blueprint (put together by STAG) on the core
component of the M-Taiwan projectthe
WiMAX technology
23

WiMAX

24

Recap
z
z
z

z
z
z
z

Increasing importance of services

ICT as key to several recent success stores in
services
Manufacturing opportunities resulting from
efficient vertical disintegration leading to low
manufacturing profitability
Taiwans opportunities in manufacturing for
services, and technology-empowered services
Governments role in providing a healthy
environment for services industry
In the illustrative area of mobile data, concrete
and urgent items on the governments plate
In the M-Taiwan project, services and
manufacturing working together
25

Conclusion
Government should take aggressive steps
in promoting Taiwans competence in
services, especially in those areas which
can leverage and enhance the exiting
strengths in manufacturing
z Two basic things the government should
do in nurturing service industries:
z

z
z

Careful analysis in identifying resources to

leverage
Removal of barriers in market competition
and in fostering ecosystems
26