1. © 2003 Stanford Project on Regions of Innovation and Entrepreneurship Building a Competitive Advanced High Tech Global Economy On the occasion of the Dedication of Terman Hall at KAIST, Daejeon, Korea, May 17, 2004 William F.Miller Herbert Hoover Professor of Public & Private Management Emeritus Stanford University President and CEO Emeritus SRI International Chairman of the Board, Emeritus Borland Software Corporation Email:

2. © 2003 Stanford Project on Regions of Innovation and Entrepreneurship Major Industrial Trends 1) Slowdown in world-wide IT growth but ongoing development of new applications, for example in mobile 2) A shift of production and demand to Asia 3) Commoditization of hardware 4) Emerging technologies in bio and info and their possible convergence 5) Higher skills and value-added activities in Asia, such Taiwan, China, India, Korea 6) Development of specialized “habitats” with institutions, people and practices conducive for innovation and entrepreneurship 7) Increasing worldwide flows of people, technology, and money

3. © 2003 Stanford Project on Regions of Innovation and Entrepreneurship Slowdown in Growth Rate of Global IT Spending Source:IDC

4. © 2003 Stanford Project on Regions of Innovation and Entrepreneurship 198520002010F Shift in Demand to Asia Japan 35% North America 38% Europe 21% Europe 21% Asia- Pacific 6% Japan 23% North America 31% Europe 21% Asia- Pacific 25% Japan 15% North America 25% Europe 14% Asia- Pacific 46% Source: WSTS, Applied Materials Corporate Marketing estimates Regional Semiconductor Consumption (China) 6% (China) 16%

5. © 2003 Stanford Project on Regions of Innovation and Entrepreneurship 198520002010F Shift in Production to Asia Japan 38% North America 49% Europe 12% Asia- Pacific 1% Japan 31% North America 38% Europe 14% Asia- Pacific 17% Japan 20% North America 30% Europe 15% Asia- Pacific 35% Source: SEMI Fab Database, Dataquest, Applied Materials Corporate Marketing estimates Regional Semiconductor Production (China) 0.5% (China) 7%

6. © 2003 Stanford Project on Regions of Innovation and Entrepreneurship Shifting Drivers of Growth Source: IDC Directions Mainframes Personal Computing Digital consumer/personal appliances Millions of Users 19701980199020002010... 10 100 1,000

7. © 2003 Stanford Project on Regions of Innovation and Entrepreneurship Commoditization of hardware

8. © 2003 Stanford Project on Regions of Innovation and Entrepreneurship How do you build a globally competitive high-tech region?  Research  Innovation  Entrepreneurship  Global networks

9. © 2003 Stanford Project on Regions of Innovation and Entrepreneurship 12 Features of an Advanced High Tech Entrepreneurial Habitat  Knowledge Intensity  Universities and research institutes that interact with industry  Favorable government policies  Results-oriented meritocracy  Flexible and Mobile work force  Climate that rewards risk-taking and tolerates failure  Knowledgeable Venture Capital  Open business environment  Collaboration: business, government, and non- profits-local networks  Specialized business service infrastructure: lawyers, accountants, etc.  High quality of life  Global Linkages

10. © 2003 Stanford Project on Regions of Innovation and Entrepreneurship Complementary Regional Strategy Maximizing the Semiconductor Food Chain Silicon Valley Taiwan China Three Regional Centers, together, growing the overall size of the pie Source:David Wang Value-added IC design Productization Advanced IC manufacturing Regional Distribution Low Cost Manufacturing Systems and Chip Architecture Global Marketing Capital Investment

11. © 2003 Stanford Project on Regions of Innovation and Entrepreneurship The disc drive example When the manufacturing of disc drives moved to Singapore and elsewhere, Silicon Valley did not become less competitive,but comparative advantage shifted to a different part of the value chain. Number of units shipped grew by a factor of 10 in 6 years World wide revenues grew by a factor of 10 in 10 years The US became the overwhelmingly dominant producer of HDD Other companies in Silicon Valley became more productive because of the availability of lower cost components. Silicon Valley’s Comparative Advantage lies closer to the innovative portion of the value chain. Continuing innovation provides the fuel for continuing advantage. Adjustments to a shift in comparative advantage are not necessarily smooth. “From Silicon Valley to Singapore”, David McKendrick, Richard Doner,Stephan Haggard Stanford University Press, 2000

12. © 2003 Stanford Project on Regions of Innovation and Entrepreneurship Lessons from other Asian Regions  Singapore and Taiwan  Regions in China Beijing Shanghai  Path dependency:Regional histories and regional policies make a difference

13. © 2003 Stanford Project on Regions of Innovation and Entrepreneurship Let’s talk about Korea  Highly educated workforce  Advanced high tech research  Advanced high tech infrastructure  Available capital  Entrepreneurship  Links to China

14. © 2003 Stanford Project on Regions of Innovation and Entrepreneurship Korea Resilient High-Tech Economy  Recovered faster after Asian financial crisis  Advanced high-tech infrastructure: broadband  Embraced flexible model of high-tech companies  Accepted layoffs and fuelled entrepreneurship  Mushroom of small start-up companies  Delivering high value-added consumer technology products  Leadership position in multiple tech sectors Source: David Wang, Applied Materials 14

15. © 2003 Stanford Project on Regions of Innovation and Entrepreneurship Source: Wall Street Journal 15 World’s Highest Broadband Penetration Supportive Government Policies Enable South Korean Companies to Enter Global Broadband Equipment Market % of Households with Broadband Access

16. © 2003 Stanford Project on Regions of Innovation and Entrepreneurship Next Generation Cell Phones Monitors High-Definition TFT TVs 3G Cellular Networks Digital Home Electronics 16 South Korea – Emerging Electronics Leader

17. © 2003 Stanford Project on Regions of Innovation and Entrepreneurship Korea Semiconductor Manufacturers’ Growing Strategic Alliances with U.S. Source: IC Insights Samsung Hynix Dongbu Anam DSP DRAM Intel Micron Agere Rambus Flash Texas Instruments Array Microsystems ASIC Aspec Technology SRAM Cypress IDT SanDisk Silicon Storage Virtual Silicon Semiconductor IP Wireless Staccato DRAM Intel Micron Virtual Silicon Semiconductor IP DSP Texas Instruments 17

18. © 2003 Stanford Project on Regions of Innovation and Entrepreneurship Leveraging Global Links Silicon Valley Productization Advanced IC manufacturing Regional Distribution Low-Cost Manufacturing Systems and Chip Architecture Global Marketing Capital Investment 18 Three Regional Centers, Together Growing Overall Size of The Pie Source: David Wang, Applied Materials ChinaSouth Korea Maximizing High-Tech Food Chain

19. © 2003 Stanford Project on Regions of Innovation and Entrepreneurship Linkages to Silicon Valley  On third of Silicon Valley scientists and engineers are immigrants  Two thirds of these immigrants are Asian  Chinese 51%  Indian 23%  Vietnamese 13%  Filipinos 6%  Japanese 4%  Korean 3% Source: 1990 Census(Saxenian 1999)

20. © 2003 Stanford Project on Regions of Innovation and Entrepreneurship How do you build a globally competitive high-tech region?  Research  Innovation  Entrepreneurship  Global networks