Lauren Kao is an undergraduate at George Washington University’s Elliott School of International Affairs and an intern at GTI.
In December 2016, President Tsai Ing-Wen announced a plan to create an “Asian Silicon Valley” (ASV) in Taiwan to foster innovation, and strengthen US-Taiwan relations in startup industries. With rising Chinese labor costs for Taiwanese companies operating in China, Taiwan’s industrial and manufacturing sectors will begin to feel the pressure in Asian markets. Taiwan also faces a brain drain, stagnant work wages and a conservative business culture, all of which drive domestic firms’ need to transition and change, embracing software markets, artificial intelligence, Internet of Things (IoT) and R&D. However, as the last of the four Asian Tigers without the financial centers of Hong Kong, Chaebols of Korea or the multinational companies of Singapore, Taiwan’s reliance on small and medium companies for Original Equipment Manufacturing (OEM) and information technology requires a new business model.
Taiwan needs to reinvent itself and adopt a culture of accepting risk, and even failure, as a means to achieve innovation. The current Silicon Valley-Hsinchu Technology Park relationship and Silicon Valley’s “fail fast, fail often” mantra are important reference points in the process of stepping out of the culture’s fear of failure and need to succeed.
Taiwan can learn from the success of the US Silicon Valley by encouraging risk-taking but should also be cautious in implementing a similar mantra. The US Silicon Valley’s “fail fast, fail forward” mantra is both controversial and enduring in driving the ecosystem known for producing tech giants like Amazon and Tesla. There is some debate over how important risk-taking is to the Silicon Valley model. The strategy calls for rapid experimentation and learning from failures, which provides the illusion that entrepreneurs seek risk. In reality, much of their success is due to their self-confidence. But because investors have bought into the risk narrative, it drives demand and sets up unrealistic expectations, which entrepreneurs scramble to meet. Silicon Valley has thus relied on a “Darwinian process to drive innovation.” Consequently, the chicken-and-egg dilemma of whether innovation drives funds or funds drive innovation is usually at play in US Silicon Valley startups.
Whether or not risk plays a primary role, or the illusion of risk acts as a catalyst, driving innovation and funding, risky practices are unavoidable in Silicon Valley. Elon Musk, the most visible entrepreneur and venture capitalist in Silicon Valley, often uses unconventional means to finance his companies, Tesla and SolarCity. In addition to using personal lines of credit (LOC) to buy $475 million shares, Musk uses money earned from more established companies to help fund more fledgling enterprises. In 2002, Musk sold his stakes in PayPal for $165 million to create SolarCity, SpaceX and Tesla. Similarly in 2013, Musk used funds from credit lines to buy $100 million of Tesla shares and $10 million of SolarCity shares to increase capital in the respective companies. The risks are high in using personal loans and shares as collateral for shareholders, and also draws the question of conflicting interests between an executive and the companies. Musk also embodies the visionary an archetype: the optimists of Silicon Valley that can tolerate risks and failure but also excel at reinvention, as when Musk remained engaged with the companies Zip2 and Paypal after he was fired.
Consequently, the conservative business culture in Taiwan will be the biggest hurdle to overcome for the Tsai administration. Taiwan has the resources to establish and sustain a vibrant startup environment, but the challenge is creating a culture that values innovation and risk-taking. With a relatively small consumer market of $23 million, and exports accounting for 70 percent of its GDP, the country is heavily invested in the global supply chain and therefore susceptible to disruptions. The addition of software and startups, on the other hand, requires a different mindset from the OEM manufacturing, information technology and hardware industries. Furthermore, Taiwan’s domestic firms are unwilling to invest in Taiwanese ventures, when the political climate is challenging, industrial policies are outdated, and labor policies are strict.
In the long term, the society must demonstrate that it values creativity and individualism through public education and encouragement. A culture of imagination must start from the top and start early, through policies, leadership, and access to resources. Instead of focusing on producing results and hard skills in math and sciences, there needs to be flexibility in the curriculum, in order to cultivate a system of values and beliefs that embraces failures and reinvention. Government and civil society organizations can provide educational grants and funds to incentivize students, connect them with a wider international network of startups and investors, and also expose them to cultures abroad, which will enable students to expand their perspective. Innovation begins with a vision but can only be sustained by a network of financial support, capacity and overall environment.
Another issue revolves around the idea of design and brand for startups. Many Taiwan business and governmental websites overlook design to maximize efficiency by placing as much information on each page as possible. From logo design to service, a startup company’s brand is its identity and future, with a real impact on consumer preference and loyalty. HTC and Acer similarly have risen to global markets only to realize that a shift to improved branding and design are necessary to effectively presenting their products. The prime example is the rivalry between Samsung and Apple; while the former is arguably “out-innovating” the latter, Apple relies on its brand recognition and identity to maintain its consumer fan base.
In terms of successful Taiwanese startups, many cite the Gogoro startup and its success. However, it is also an example of the conservative business culture that may be siphoning opportunities for funding away from young entrepreneurs without an influential background or portfolio. Gogoro’s electric-powered Smartscooter and ability to swap batteries at multiple charging stations throughout the city attracted consumers and helped the startup expand into Europe and the US. Its founder, however, is Horace Luke, whose expansive portfolio as HTC’s former chief innovation officer and Chief Creative Officer at Microsoft helped attract investors to fund Gogoro. Instead of relying on well-established figures and known entities, there needs to be a culture where venture capitalists and angel investors cater to young startups. Presently, the accelerator Appworks Ventures (之初創資), raised $50 million to invest in domestic startups, and continues to be an important benefactor for startups.
By increasing international contacts and funding, Taiwan will boost its exposure to practices that stem the risk aversion culture.
In fact, Taiwan has maintained a strong connection with the US Silicon Valley through the Hsinchu Science and Industrial Park (新竹科學工業園區). Since the 1970s, Silicon Valley companies often hired Taiwanese engineers overseas and in the United states, leading many Taiwanese-American hardware engineers to rise up in the ranks to management and executive levels. Monte Jade, named after the highest mountain in Taiwan, was created in 1989 by Taiwanese-American executives in Silicon Valley to further promote businesses and technology investments and cooperation between the Bay Area and Taiwan. With over 180 corporate members and an overall membership of 20,000 in Hsinchu Park and Silicon Valley, it actively promotes entrepreneurship by drawing together entrepreneurs, venture capitalists and others through its conference, forums and tours. However, more needs to be done, as Taiwan continues to have few startup successes. The Monte Jade case introduces important ideas, such as creating a system of internal knowledge transfers and communication, which enables transnational connections, but Taiwan’s startup culture issues continue to conflict with the risk-taking ethos of Silicon valley.
Furthermore, with aims to improve material resources such as the National Development Council’s tech accelerator Startup Stadium and other operation bases, the government may need to loosen regulations, to allow for an influx of foreign investment and startups to connect Taiwan to the larger global startup scene.
Finally, the ASV should also seek to reverse the brain drain by increasing wages and incentives that can foster an environment for startups, foreign investment and investors. More needs to be done to address the nearly 1 million young professionals in careers such as university professors, medical professionals and IC engineers and designers who leave Taiwan due to low pay, few opportunities and a dim future. Even if labor policies for foreign workers and professionals are relaxed, Taiwan will continue to face a talent deficit.
The main point: Taiwan’s key lesson is to learn is to adopt a culture of accepting risk, even failure, as a means to achieve innovation. However, the US Silicon Valley is a far from perfect model itself and should not be the sole model Taiwan’s Silicon Valley should look to.