Global Taiwan Brief – Volume 2, Issue 5
Next Steps for the Asian Silicon Valley Development Plan
By: Russell Hsiao
A US View of Taiwan’s “Asian Silicon Valley” Initiative
By: Lotta Danielsson
Hurdles Ahead for Taiwan’s Asian Silicon Valley Initiative
By: Arthur Tu
Implementing the Asian Silicon Valley Development Plan
By: David Weng
Next Steps for the Asian Silicon Valley Development Plan
Russell Hsiao is the Executive Director of the Global Taiwan Institute and the Editor-in-Chief of the Global Taiwan Brief.
One year has passed since Tsai Ing-wen was elected by voters as president of Taiwan. With much fanfare, the Tsai administration is following through on one of her campaign’s most high-flying promises: to turn the island into the Silicon Valley of Asia. The focus of the ASV initiative is on the internet of things (IoT), a concept that refers to a seamless network of smart electronics ranging from, but not limited to, refrigerators, health devices, and cars.
The Asian Silicon Valley (ASV) Development plan (亞洲．矽谷推動方案)—which was formally announced in September 2016—is slated for completion in 2023. The newly formed National Development Council (國家發展委員會) under the Executive Yuan has set aside a budget of NT$11.2 billion (US$354.7 million) for 2017 to go towards “internet infrastructure, mobile broadband services, e-commerce, smart applications, test beds, industry-university collaboration, digital talent and regulatory adjustment.”
Indeed, the Tsai administration has come out of the gate full-throttle. After taking office in May 2016, the Tsai government notably established the Asia Silicon Valley Development Agency (ASVDA; 亞洲．矽谷計畫執行中心) to implement its ambitious plan to transform Taiwan from a leading manufacturer of high-technology products to an innovator of those technologies—as embodied by the Silicon Valley model. The executive director of this new agency, which has offices in Taipei City, Taoyuan City, and Sunnyvale (California) is dual-hatted as deputy minister of the NDC: Kung Ming-Hsin (龔明鑫).
Yet, despite the apparent bipartisan agreement on the campaign trails about the need to prop up Taiwan’s ailing technology industry—which has languished in recent years, in part due to intense global competition and regulatory stagnation—opposition lawmakers are raising red flags about what they see as misguided priorities. To be sure, Kuomintang (KMT) legislator and TEDxTaipei founder Jason Hsu (許毓仁) has criticized the plan as being more for show, and has suggested that the administration instead focus on “internet business regulations [and] plans to recruit skilled talent, or [to] improve the financial and technological environment.”
In this special issue of the Global Taiwan Brief, we asked three contributors with a broad range of expertise to share their observations about the opportunities and challenges ahead for the ASV initiative. One expert, David Weng, served as a key architect of the ASV initiative and, in his piece, describes the plan’s implementation schedule. Another contributor is tech entrepreneur Arthur Tu, whose experiences in helping tech startups in Taiwan provide unique insights into the challenges that will be faced at a more granular level. The third author, Lotta Danielsson, is Vice President of the US-Taiwan Business Council—the leading industry voice for stronger business ties between the United States and Taiwan—and offers a US business perspective on the ASV initiative. This issue provides a follow up to a special seminar that the Global Taiwan Institute organized in December 2016.
The Tsai administration should be applauded for recognizing the “disruptive” potential of the IoT, but unleashing its economic potential is not a simple or easy task. In the United States, multiple government agencies that span sectors and industries are responsible for regulating it: the Food and Drug Administration, the Federal Communications Commission, the Federal Trade Commission and the National Highway Traffic Security Administration. The convergence of these technologies and previously separate sectors wrought by IoT is creating regulatory overlap that threatens to bog-down innovation by creating excessive red tape. To streamline these efforts, US lawmakers have proposed the DIGIT Act as a policy framework for IoT.
One of the many difficulties facing the Tsai administration is finding the right balance of regulations that will encourage entrepreneurship and promote innovation, all the while protecting consumers from actual and potential predatory practices. The Tsai government should be applauded for taking this on as a main policy pillar, but the hard work begins now. To truly unleash the full potential of IoT, the Tsai administration will have the unenviable task of governing it and tackling entrenched interests. Whether the Asia Silicon Valley initiative will bear the fruits it was intended to depends on these efforts.
The main point: To unleash the full potential of IoT, the Tsai administration will have the unenviable task of governing it. Whether the Asia Silicon Valley initiative will bear the fruits it was intended to depends on these efforts.
A US View of Taiwan’s Asian Silicon Valley Initiative
Lotta Danielsson is Vice President of the US-Taiwan Business Council
On September 8, 2016, Taiwan’s Executive Yuan (EY) formally approved the government plan to establish an “Asian Silicon Valley” (ASV) in northern Taiwan. The ambitious ASV initiative, with a planned implementation period through 2023, falls under the auspices of Taiwan’s Cabinet-level National Development Council (NDC). Implementation will also be supported by Audrey Tang, the young minister without portfolio charged with leading Taiwan’s digital economy push.
This initiative is intended to boost innovation and R&D, improve Taiwan’s standing in the emerging Internet of Things (IoT) industry, cultivate the next generation of entrepreneurs, encourage domestic start-up companies, and position the island as a key link in a global, next-generation technology ecosystem. The ASV project was part of the “five innovative industries” plan laid out by President Tsai Ing-wen during her election campaign. Along with the “New Southbound Policy” it plays a key role in her plans to enhance Taiwan’s competitive edge, induce industrial transformation, and increase economic growth.
The project has faced some domestic scrutiny, with the Cabinet debating its viability during a series of meetings last summer. But in October 2016 the Executive Yuan (EY) announced that a budget of NT$11.3 billion (US$358 million) had been earmarked for the ASV project. Funding was included in the Taiwan government budget passed on January 19, 2017. A portion will be new funding, with the remainder appropriated from existing budgets for government agencies within the Ministry of Science & Technology and the Ministry of Economic Affairs. The NDC has said that the 2017 ASV budget has been allocated towards “internet infrastructure, mobile broadband services, e-commerce, smart applications, test beds, industry-university collaboration, digital talent, and regulatory adjustment.” Future year budget requests will be reevaluated on a rolling basis depending on need.[1]
Taiwan had already taken steps towards deepening cooperation with Silicon Valley and encouraging start-ups and investments in new technology. This included creating the Taiwan Silicon Valley Technology Fund (a capital venture fund), opening a Taiwan Innovation and Entrepreneurship Center in Santa Clara, and establishing the Taiwan Startup Stadium in Taipei. But one of the first concrete steps towards implementation of the ASV project itself came in late December of 2016, when the NDC announced the opening of an Executive Center for the Asian Silicon Valley Plan near the high-speed railway station in Taoyuan in northern Taiwan.
Taoyuan, which is also home to Taiwan’s international airport, is an ideal location to house the headquarters for this initiative, as it is situated between the capital Taipei and the existing technology hub of the Hsinchu Science Park – already a major driver of innovation in Taiwan. Minister Tang has clarified, however, that the project is not about trying to clone Silicon Valley in Taiwan, but rather about building out connections between the island and other centers of next-generation technology excellence, both in the US and in the rest of Asia.
In discussions with US companies about the ASV project, there is some guarded optimism—although many companies are currently waiting and watching to see how the initiative unfolds. US technology firms have expressed a willingness to partner with the government to realize the potential of Taiwan beyond the traditional hardware manufacturing on which it built its reputation as a technology hub. US businesses may follow the example of Qualcomm, which in November last year signed a Memorandum of Understanding (MOU) with Taiwan’s Ministry of Economic Affairs to develop next-generation mobile communications and to expand Taiwan’s IoT capabilities. Qualcomm will join with Taiwan’s Industrial Technology Research Institute (ITRI) and with domestic companies to conduct R&D in Taiwan. The MOU also provides a framework for a long-term partnership between Taiwan and Qualcomm to expand and strengthen innovation and entrepreneurship on the island.
Despite some optimism, however, US companies have also seen many other places in Asia—including Malaysia, Singapore, and Indonesia—try to build their own versions of Silicon Valley, some with disappointing results. They understand that it is not so easy to catch lightning in a bottle. Some US companies also feel that Taiwan is sending mixed signals with regard to its willingness to embrace the changes necessary to make the ASV project a success. There is concern about lack of openness to new ideas and about a plethora of legal constraints. Sharing economy companies such as AirBnB face an uncertain future on the island due to strict restrictions on its flagship services. A very vocal Uber has intimated that, while government officials talk about embracing innovation, its no-tolerance stance on ridesharing services sends the opposite message. Some companies feel that, in practice, Taiwan appears to instead be rejecting new technologies and discouraging the type of disruption that is the hallmark of Silicon Valley in the United States.
To successfully implement the ASV vision will therefore require creating a more open regulatory environment in Taiwan. The Taiwan government will have to remove existing hurdles and reduce the cost of starting new companies. It must create an environment where venture capital is readily available. While they took a step forward in this regard by amending the Company Act to provide additional flexibility for start-up funding, more streamlining is needed. Taiwan will also need to make adjustments to its immigration and work permits system in order to attract foreign experts to the island, as well as develop its education system to foster and reward innovative thinking in its workforce.
The NDC is galvanized and ready to move forward with this project. But ultimately, the government will have to develop a more open and agile bureaucracy, which is able to let the ASV project develop organically and in unexpected directions in order to produce a uniquely Taiwan version of Silicon Valley. Taiwan has to provide infrastructure and a business environment that encourages the sort of innovation culture that allows entrepreneurs to take risks and to explore and develop new ideas. It will be an iterative process over many years, and will require constant changes to adjust to the ever evolving global market environment.
The main point: Taiwan’s Asian Silicon Valley initiative is an ambitious project that has a huge potential upside if it can transform the island into a center for entrepreneurship and innovation. If this is the path that the Taiwan government is taking, US technology companies are willing to cooperate, and to partner with them on mutually beneficial initiatives. However, Taiwan has to make both regulatory and cultural changes to pave the way for success.
[1] Kung, Min-Hsing, “The Asian Silicon Valley Development Plan: From IT to IoT ─ Engineering a New Industrial Transformation for Taiwan,”Presentation, Taiwan Wireless & Mobility Conference, Taipei, Taiwan, November 8, 2016.
Hurdles Ahead for Taiwan’s Asian Silicon Valley Initiative
Arthur was co-founder and CTO of LearnBop Inc, an educational technology company that provides automated tutoring systems for mathematics (acquired by K12 Inc. in 2014). Arthur was also co-founder and architect at Elemental Path, the NYC-based tech startup that created AI-powered conversational smart toy line Cognitoys. Arthur is a DreamIt NYC ’11 Alum, as well as a mentor at DreamIt, EDGE Ed Tech, NYU StartEd, NYC BigApps and Startup Weekend. Arthur is a member of the Global Taiwan Institute’s Board of Directors.
On December 25th, Taiwan’s government launched the Asian Silicon Valley initiative (ASV). In the lead up to formal approval, there were vibrant discussions with varying degrees of support and skepticism within Taiwan regarding the initiative’s short-term and long-term objectives. While the motivation for the ASV initiative may make obvious sense, less clear and more difficult are identifying and overcoming the challenges ahead.
In overview, the ASV’s aim to focus on the IoT (Internet of Things) industries is on the right track as it will encourage Taiwan’s globally competitive electronics and manufacturing sectors to synergize with its software industry. However, the majority of value creation in the IoT sector is expected to come from data-driven software solutions, a visible departure from Taiwan’s traditional strength in hardware design and manufacturing. The challenge may be summarized in terms of Taiwan’s existing managerial talent gap and Taiwan’s overemphasis on replicating the American Silicon Valley model. Indeed, Taiwanese president Tsai Ing-wen stopped in San Francisco earlier this month and inaugurated the “Executive Center for the Asian Silicon Valley Plan.”
Over the past four decades, Taiwan’s dominance in electronics design and manufacturing created a well-educated workforce that boasts a college attainment rate that is roughly 30 percent higher than that of the United States, and includes a high percentage of engineering graduates. However, since the dotcom bubble, business processes have evolved profoundly in the technology industry. Software engineering has transformed itself from an assembly-line model that ships desktop software in boxes to a real-time, mobile-based and web-based model that integrates vast amounts of on-demand data, deploys continuously, and automates much of production overhead management. As a result, the global tech economy now demands managerial talent that excels at managing large engineering organizations with flat leadership structure and large numbers of engineering and design creatives. In the past 15 years, Taiwan has not produced a significant software player in the internet economy, leaving a gap in the managerial talent necessary to manage, execute and lead a next-generation tech workforce.
Secondly, technology expertise has also shifted dramatically since the turn of the millennium. Today, technology firms no longer crave raw development talent, and instead compete for field-specialized interdisciplinary talent. Taking fields such as Artificial Intelligence or Robotics for example: in order to be a productive specialist, one would need a solid background in cognitive psychology (as the basis for designing intelligent behaviors), decision theory (as the basis for machine decision-making), and design (as the basis for commercial feasibility), alongside traditional computer and electrical engineering. Taiwan’s higher education has traditionally favored engineering and shunned research and education in basic sciences, humanities, and social sciences. Consequently, Taiwan’s engineering workforce will require substantial re-training in order to fill the labor gap of interdisciplinary talent needed to grow successful technology sectors.
Lastly, Taiwan to date has focused its technology policies on replicating the success of Silicon Valley, which grew out of large, isolated research science parks shored up by massive, economic, human resource and political support during the Cold War era. The Silicon Valley model, given its unique history, is unlikely to be replicated anywhere else in the world. Therefore, Taiwan should instead look to other global technology clusters for policy inspiration. While Silicon Valley remains the world’s undisputed premier technology cluster, the US Northeast Corridor (New York, Boston, Philadelphia, and DC) has risen in the past decade to become the world’s second largest, with other clusters like Los Angeles, Chicago, London, and Beijing also expanding rapidly. The majority of technology clusters outside of Silicon Valley espouse a “fusion” model, where technology firms capitalize on existing sectors such as entertainment, media, fashion, education, culture, retail, or public security, to create new paradigms for traditional economic strengths. Given Taiwan’s traditional strengths in manufacturing, and Taipei’s existing media, politics, entertainment, education, and financial sectors, the island nation will likely see more success in a “fusion” model that contrasts with that of the Silicon Valley.
In the near term (and arguably during President Tsai’s tenure), Taiwan will need to create substantial employment and tax incentives for desired talent to enter the island either as high-skill workers or as entrepreneurs. While much of the discussion has been around attracting foreign talent, it is important to note that Taiwan is currently witnessing a severe talent drain, totalling more than 20,000 white-collar workers a year, many of whom have gone to the People’s Republic of China, which now employs more than 400,000 Taiwanese.
In the long term, Taiwan must tackle the fundamental problem of its unbalanced approach to education and research, in order to maintain a talent edge in a world where interdisciplinary engineering creatives with automation tools are rapidly replacing singular disciplinary talent. It is crucial for the Tsai administration to push for nationally coordinated academic agendas in Robotics, Human-Computer Interaction, Artificial Intelligence, and Computational Biology, and to complement these interdisciplinary developments with stronger research and education in basic sciences and liberal arts such as Mathematics, Statistics, Psychology, and Economics.
The main point: Taiwan’s new Asian Silicon Valley initiative’s success hinges on bridging the managerial gap in its trailing software industry, as well as supporting interdisciplinary training programs to produce talent necessary for new fields such as Artificial Intelligence, User Experience and Robotics. As an export-driven economy, Taiwan should look to technology clusters such as New York, Boston, and DC for their industrial fusion models that transformed traditional competencies with technology, as opposed to mimicking the research park-initiated model of Silicon Valley.
Implementing the Asian Silicon Valley Development Plan
David Weng is an advisor for President Tsai Ing-Wen’s Asian Silicon Valley Development Initiative and a co-founder of the Global Taiwan Institute. He serves as Managing Partner at InnoBridge Capital Management, and is an angel investor with a track record of bringing start-up companies to successful IPOs, mergers and acquisitions.
Since taking office, the Tsai Ing-wen administration has sought to promote the Internet of Things (IoT) in Taiwan and to transform Taiwan into the “Silicon Valley of Asia.” To do so, the administration developed the Asian Silicon Valley Development Plan (ASV), run by the National Development Council (NDC; 國家發展委員會), an initiative designed to promote IoT innovation and R&D as well as to create an ecosystem that fosters startups and entrepreneurship.
The Asian Silicon Valley Development Plan aims to connect Taiwan to Silicon Valley in the United States and other global technology clusters, turning the island into an innovative startup destination for young people and creating new industries for the next generation.
The Asian Silicon Valley Development Plan’s implementation period is from 2016 to 2023. A budget of NT $11.2 billion (US $354.7 million) has been allocated for 2017 to improve internet infrastructure, mobile broadband services, e-commerce, smart applications, test beds, industry-university collaboration, digital talent, and regulatory adjustment. Budgets for later years will be reviewed on a rolling basis, allocated according to actual needs and use-efficiency.
The implementation strategies are as follows:
- Create a robust startup and entrepreneurship ecosystem by cultivating innovative talent, providing business expansion capital, and adjusting laws for a friendlier startup environment.
- Establish a one-stop service center to integrate the R&D capabilities of Silicon Valley and other global innovation clusters; participate actively in forming international standards and certification of IoT-related technologies.
- Integrate Taiwan’s hardware advantages into software applications.
- Commercialize research findings of universities and research institutes.
- Establish a quality internet environment, build diversified smart test beds, and develop applications based on smart logistics, smart transport and smart medicine.
Projecting the combined impacts of the Asia Silicon Valley Development Plan and other digital economy plans, the NDC expects Taiwan’s IoT global market share to grow from 3.8 percent in 2015, to 4.2 percent in 2020 and 5 percent in 2025. The plan’s objectives include establishing 100 successful companies within Taiwan, attracting investments from international corporations, and creating an online learning platform for IoT industries. In order to reach these objectives, NT $10 billion (about US$ 319 million) of the National Development Fund (NDF) will be set aside to fund startups during their series B and C funding. Meanwhile, the NDF has established a NT $100 billion (about US$ 3.19 billion) fund to stimulate private sector investments and promote innovation.
With the Asian Silicon Valley Development Plan, Taiwan will turn its industrial focus from information technology (IT) to the IoT and become a startup destination for young talented minds and a model of innovation and entrepreneurship for Asia at large.
The main point: The Asian Silicon Valley plan will expand Taiwan’s Internet of Things (IoT) market share by investing in startups, attracting and cultivating young and creative talent, and reforming the regulatory regime to foster innovation. Taken together, these efforts will create an ecosystem of entrepreneurship, innovation and growth.
