While all Asian governments consider electronics industries key to their economic development, the level of government involvement and variety of support methods vary among nations. Table 2.4 summarizes the various mechanisms used by Asian governments. They include direct R&D investments, trade policies, technology transfers, tax incentives and investment subsidies, and training and consulting services. While some countries like Singapore provide a full range of programs, Malaysia and Taiwan offer much simpler and more focused programs. Hong Kong's approach is more general and passive (not wanting to pick winners and losers), while Singapore and Taiwan are more directive with targeted industries.Table 2.4
Source: BCG 1994, 232.
As described in the BCG report (1994), the Japanese government funds collaborative research programs. With established leadership in most electronic technologies, efforts are increasing in basic research areas and in attracting foreign technologies to Japan. Export of electronics materials, parts, components and related assembly equipment provides strong earnings for Japan. For example, Taiwan's trade deficit with Japan has increased from $13 billion in 1991 to $18 billion in 1995 due primarily to increased imports of equipment and components required to support its growth in electronics manufacturing. Increasingly, however, the newly industrialized nations are working to reduce their dependence on Japan. Table 2.5 summarizes programs designed to make each country increasingly independent.
The Japanese government has traditionally focused resources and programs on development of strategic industries like electronics. Cooperative programs and research projects by government and quasi-government institutes are highly targeted. Japanese policies now set direction, focus on basic R&D, and promote cooperative research and foreign technology. Overall R&D is 3% of GDP.
The Chinese government has targeted electronics as a key industry for development. Its goal is to reduce dependence on imports of electronics and to build domestic production capacity. Labor-intensive products, including those requiring the most advanced SMT assembly equipment, are being rapidly moved to China where average factory workers earn about $65 per month, less than 10% of the wages earned by Taiwanese factory workers. While overall policy has been developed by the central government, policy implementation is carried out by the regional governments and is often developed within local industrial parks or free trade zones.
China's electronics industry, which surpassed $20 billion in sales in 1990, is growing at a rate of over 12% annually. The telecommunication (16%) and computer (11%) sectors are growing rapidly for both domestic sales and export. Revenues from parts and components (38%) and consumer electronics (44%) are from the most cost-competitive segments. To meet needs for increased assembly densities, flexibility, and short lead times, Chinese vendors now produce hybrid IC components for SMT applications. Yong Hong Electronic Device & Material Factory #749 is the leading producer of ICs in China, with sales of $18 million. Last year, 70 types of hybrid IC power converters were offered for a variety of applications. Facing stiff competition from monolithic ICs, Factory #749 designs and produces higher-density hybrid ICs for miniature electronic meters and instruments. Hongming Electronic Component Factory #715 exported over 100,000 hybrid ICs in 1994 and is developing integrated monolithic ICs for follow-on sales. A 30-member R&D department designs high-power, high-voltage, and high-precision new models of hybrid ICs (Electronic Components 1996, 316).Table 2.5
Source: BCG 1994, 201-237.
To support both the telecommunication and the computer industries, multilayer printed circuit boards are also produced locally. About 15 makers now produce multilayer PCBs, the majority producing boards of up to 8 layers. Shanghai Printronics Circuit Corp., a joint venture between Shanghai No. 20 Radio Factory and Australian Printronics Co., Ltd., can produce a maximum of 14 layers. Shenzhen Shennan Circuit Corp., a state-run company, produces from 4- to 16-layer boards, with capabilities to produce up to 20-layer boards of 100 mm lines, spacing, and hole dimensions, for applications in aerospace, computers, communication equipment, and instruments. Shenzhen Bestman Electronics Co., Ltd., a joint venture from Hong Kong, produces 4- to 10-layer boards and can produce up to 30-layer boards. Importing most raw materials from Hong Kong, Taiwan, and DuPont in the United States, Kintech Electronics Co., Ltd., from Taiwan established an FR laminate factory in Shanghai in 1995 to ensure its own supply and more competitive prices. It plans to establish a multilayer PCB plant in Guangzhou in 1997 (Electronic Components 1996).
Within the private sector, BCG found little R&D or product design capabilities in China. As Table 2.6 shows, the skills in electronics manufacturing are still only moderate. Nam Tai Electronics produces a range of the most advanced products using both inner and outer lead bonding technologies. QDI has demonstrated its ability to produce the highest-quality PCB boards in Asia. With a growing number of firms transferring operations into China, it can be expected that skill levels will rapidly improve. QDI, with 57 R&D staff, has excess capacity for PCB assembly designs. Within the government sector, the technology for defense production is at a high level.Table 2.6
Source: BCG 1994
With China's success in attracting firms to establish operations on the mainland, Asia's NIEs are facing a competitive challenge similar to that faced earlier by the United States and Japan. They are acutely aware that their future success is dependent on technology. They are racing to acquire and develop technologies that will allow their local industries to stay competitive by producing technology-intensive, higher-value-added, next-generation components and products.
Taiwan's Ministry of Economic Affairs has been actively carrying out a plan to develop Taiwan into a fully industrialized nation by 2000 and into the Asia-Pacific "Regional Operations Center," by promoting R&D, targeting high-tech and high-value-added product development, building "intelligent" industrial parts, and promoting capital-intensive investment projects. The Ministry of Economic Affairs has a very focused strategy to develop ten high-technology industries, including communications, information, consumer electronics, semiconductors, precision machinery, automation equipment, aerospace, and advanced materials. Technology-intensive industries have grown from nothing in 1976 to over 34% of the manufacturing base in Taiwan in 1995, and are projected to account for 40% of the manufacturing base by the year 2002. A broad range of programs provides incentives for research and development or investment in capacity to build Taiwan's self-reliance in key products and components. The government funds 80% of ITRI to conduct basic research, commercialize technologies, and obtain foreign technologies. ITRI was instrumental in developing the semiconductor industry in Taiwan. Plans are to increase the number of fabs from 4 to 20 by the year 2000. In support of the national strategy, R&D as a percentage of GNP reached 2%, or nearly $5 billion in 1994.
Taiwan's government development programs are extremely directed and have been especially targeted on IC and computer-related components and products. Programs allow for a 10-20% income tax credit for R&D investments, 50% funding or loans for major targeted investments, or up to 60% matching grants for training programs. The Industrial Zones Development Plan supports developments in 74 industrial zones. Table 2.7 summarizes BCG's appraisal of Taiwan's electronics capabilities (1994).Table 2.7
Source: BCG 1994, 151-200.
The Korean government provides a variety of programs for infant, competitive, and mature industries. Most are supportive of the major conglomerates Samsung, LG (formerly Goldstar), and Daewoo, which typically attempt to be low-cost, fast followers of Japan in high-technology businesses, thereby taking a major share of new and growing businesses. Due to restrictions on obtaining electronics materials and equipment in the 1980s, Korean companies have worked hard to develop their own electronic manufacturing equipment and components. They have been successful in their strategy to become the leading producers of such products as microwave ovens and DRAM ICs. Today, they are attempting to build a position in the LCD business.
For decades, the Korean government provided broad support to the three major industrial conglomerates rather than industry generally or electronics specifically. In order to increase the localization of parts and components to 75% by 1996, programs were directed at smaller manufacturers. The program "Electro-21" provided subsidies for private development of core electronic technologies. G7 funds supported research in high-end applied technologies. Major projects included high-definition TVs, very large scale integration, and high-end materials. A number of human resource educational programs supported development of manufacturing and engineering skills. The Engineer Training Institute is an engineering training program jointly subsidized by government and industry. Free training is offered to small- and medium-sized businesses in special areas. The Military Service Exemption program gives service exemptions to engineers working in the defense industry. Table 2.8 summarizes BCG's appraisal of Korea's electronics capabilities.Table 2.8
Source: BCG 1994, 151-200.
Singapore's government has the widest range of programs to support development of targeted industries such as semiconductors, communications, displays, and data storage businesses. Electronics accounted for 43.7% of Singapore's manufacturing output in 1992. Programs include both foreign and domestic incentives for locally conducted R&D, with infrastructure and human resource development programs to support high-end data storage, computing, and wafer fabrication technologies. Singapore had 6 fabs in 1996, but plans to have 20 by the year 2005. Singapore government programs support a vision to surpass the United States in per capita GNP by 2030. The strategy is to create high-value-added activities, develop R&D capabilities, and train skilled workers. A full range of programs are provided to both domestic and foreign companies: R&D incentives, infrastructure initiatives, and human resource programs. Table 2.9 summarizes BCG's appraisal of Singapore's electronics capabilities (1994).Table 2.9
Source: BCG 1994, 151-200.
The Malaysian government has provided guidance for overall economic growth and increased R&D investment. "Vision 2020" is the government's plan to accelerate industrialization through industry restructuring, technology upgrading, human resource development, and industry linkages.1 Long-range goals include doubling GNP every 10 years and achieving global competitiveness in high-technology industries by the year 2020. The Malaysian Technology Development Corporation (MTDC) provides seed capital to develop and commercialize indigenous technologies, transfer university and institutional technologies, transfer technologies from abroad, and develop venture capital companies in Malaysia. The Malaysian Institute of Microelectronics Systems (MIMOS) invests in semiconductor technology, microprocessor engineering, radio frequency engineering, surface mounting technology, and digital signal processors. The Human Resource Development Fund, generated from 1% of employee wages, is styled after Singapore's Skill Development Fund to improve engineering and technical skills. Promoted investments obtain from 70-100% exemptions from income tax. Reinvestment programs obtain grants of up to 40% of the capital investment for production capacity. Overall R&D levels are about 1.5% of GDP.
Individual localities in Malaysia also focus public policy around rapid industrialization plans. The Penang Economic Council's Strategic Develop Plan was devised in 1991 in support of Vision 2020 to promote skill-intensive, technology-intensive, value-added industries and shift Malaysia's manufacturing competency from labor-intensive to capital-intensive manufacturing. Penang was successful in attracting firms like Hewlett-Packard, Intel, Siemens, and Seagate Technology (the world's largest disk drive maker). But with rising costs in Penang, new factories are being built further inland and in the state of Sarawak, on the island of Borneo (Economist 1996, 66). Table 2.10 summarizes BCG's appraisal of Malaysia's electronics capabilities (1994).Table 2.10
Source: BCG 1994, 151-200.
The Hong Kong government is less directive than that of other Asian countries, but it does provide programs to support the movement into higher-value-added businesses. Most of Hong Kong's traditional businesses, like textiles, clothing, and plastics and metals fabrication, have become mature and are moving into China. The number of electronics firms, related employees, and facilities located in Hong Kong has also declined. There is a concern for the future economic status of Hong Kong and an understanding of the need to upgrade the technological base of its remaining firms to more value-added production. Since over 85% of HK electronics firms have annual revenues of under $500 million, they are considered small in comparison to global competitors and invest little in research and development. The HKPC (the Hong Kong Productivity Council) provides a "one-stop" center for technology transfer, educational programs, and technical services to support local companies. The Industrial and Technology Development Council funds technology development programs considered beneficial to Hong Kong. A new science industrial park provides incentives for firms to upgrade their technologies.
According to the BCG survey (1994), there was wide disparity between the levels of capability of companies in the various sectors of Hong Kong's electronics industry. The primary strength was in manufacturing, due to reliance on China's low-cost labor and land. Limited capabilities exist in other product design or market related activities. Because the majority of firms in Hong Kong are small, with under $100 million in annual sales, the range of capabilities is limited to manufacturing and design improvement restricted to board design for low-cost manufacturing, low-cost sourcing from China, and low-cost board assembly in China. Medium-sized firms, with $100- $500 million in sales, are more involved in design and brand management activities. Leading firms with annual revenues over $500 million have a full range of capabilities; Vtech's capabilities enabled it to capture 50% of the world market in electronic learning aids. Table 2.11 summarizes BCG's appraisal of Hong Kong's electronics capabilities (1994).Table 2.11
Source: BCG 1994, 151-200.
1 This concept is fully defined in the book Vision 2020 by Abdul Hamid Ahmad Sarji (1995).