1. Industrial Development in the New Century Chi Schive President Taiwan Academy of Banking and Finance Adjunct Professor National Taiwan University May 4, 2001

2. Outline I. Megatrends in the Coming Decade 1. Production Technology in Retrospect 2. Globalization II. Conventional Thinkings of Industrial Development 1. Definition of Industry 2. Target Industry and Industrial Policy 3. Ambiguity and Challenges Industrial Development in the New Century

3. III. Alternative Thinkings of Industry 1. Knowledge-Based 2. Organization 3. Location IV. Impacts and Implications 1. Business Model--Global Logistics 2. Regulation--Competition vs Industrial Policy 3. Software Infrastructure--Institutional Reforms V. Conclusions Industrial Development in the New Century

4. The Tonne Age Industrial revolution - 1950s Steel, ships, textile, construction The Kilo Age 1960s-1970s Cars, consumer electronics, appliances The Gram Age 1970s - 1980s Micro electronics, robotics The Vacuum Age 1990s Services, systems, media Production Technology in History Source: Slightly revised from Jean-Pierre Lehmann,“The Future of the Asia Pacific Economies: Dynamism of Trade and Investment” presented at APEC Economic Committee Symposium The Future of Asia Pacific Economies, December 6 1999, Tokyo.

5. 資訊傳遞速度

6. 通道 1. 分行 2. 電話銀行 3. ＣＤ／ＡＴＭ 4. （專屬）ＰＣ銀行 5. 網際網路銀行 成本／交易 ＵＳ＄ 1.07 ＵＳ＄ 0.54 ＵＳ＄ 0.27 ＵＳ＄ 0.015 ＵＳ＄ 0.010 Source: Booz Allen & Hamilton research (1996/North American) 服務通道趨勢－銀行處理成本 Source: Booz Allen & Hamilton research (1996/North American)

7. Lowering Real Inventory-to-Sales Ratios Ratio of Inventory to Sales in the U.S.

8. World Output and Goods Trade World Output (Growth, %) Trade Growth/ Output Growth World Goods Trade Volume (Growth, %) 84-88 89-93 94-98

9. Regionalism, Regionalization of Trade Intra-regional Trade as a percent of Total Trade

10. Net Private Capital Inflows to Emerging Economies Note: 1. Net private capital flows comprise net direct investment, net portfolio investment, and other long- and short-term net investment flows, including borrowing. 2. NIEs = Hong Kong, South Korea, Singapore, Taiwan, and Israel. 3. Annual averages. Source: IMF, World Economic Outlook, December 1998. US. $ billion

11. II. Conventional Thinkings of Industrial Development Definition of Industry: Any branch of trade, business, production, or manufacture Output-oriented Agriculture, Industry (mining, manufacturing, public utilities, construction), Service Characteristics-oriented Heavy and Light Industry

12. High-tech / Technology Intensive Industry Capital / Labor Intensive Industry Stage of Process (Commodity) Agriculture Intermediates Final (Consumer, Capital goods) Service II. Conventional Thinkings of Industrial Development

13. Target Industry: Ten emerging industries in Taiwan 15 New Growth Areas in Japan (1995) II. Conventional Thinking of Industrial Development

14. Ten Emerging Industries Communication Information Consumer Electronics Semiconductor Precision Instruments and Robotics Chemical Specialties and Drug Health and Medical Anti-pollution Aerospace Special Materials

15. II. Conventional Thinking, Targeted Industry Fifteen New Growth Areas: New Products and Services

16. II. Conventional Thinking, Targeted Industry Fifteen New Growth Areas: New Products and Services

17. Ambiguity: Commodity Vs. Service Newspaper--Broadcasting--TV--Internet R&D, an industry? Market and Industry Where is a market, there is an industry. But market and production may not be at the same place--production fragmentation. II. Conventional Thinking of Industrial Development

18. Vertical Disintegration Emerging small and medium-sized business Production Fragmentation International division of labor in line with c omparative advantage In pursuit of dynamic advantage--changes in the “Flying-Geese” pattern of development Target Industry and Industrial Policy II. Conventional Thinking of Industrial Development

19. Knowledge-Based Activities Knowledge Creation and Integration III. Alternative Thinkings

20. “… modern economic growth could best be viewed as a process based on a change which raises greatly the stock of technological and social knowledge … When the … knowledge is used, it becomes the source of … increase in output and structural shifts that characterize modern economies.” Simon Kuznets Modern Economic Growth-Rage, Structure and Spread, 1966

21. Knowledge Creating Industries

22. Innovation as Problem Solving Capability of problem solving is related to knowledge base. Knowledge comes from experience, publicly available information and the uncodified character of innovators, e.g., capability and tacitness.

23. Innovation as Problem Solving Technological Paradigm affected by and including three elements: l. the needs to be fulfilled; 2. the scientific principles to be utilized for the task; 3. the material technology to be used.

24. Functional Knowledge Integrating Industries Petaloid Industry III. Alternative Thinkings: Knowledge Integration T. Murakami, Encouraging the Emergent Evolution of New Industries, Nomura Research Institute, 2000

25. IV. Impacts and Implications: Infrastructure

26. LaborCapital ICT The Foundation of the ICT Industry R&D PeopleVenture Capital Institutional Setting III. The Foundation of the New Economy

27. Knowledge -Based Rule- Based New Economy

28. IV. Impacts and Implications: Government Role Infant industry or infant entrepreneur? Are government officials smarter? Will the state-owned company be necessary? Are means at hand, --tariff, subsidies, and regulations--still available or necessary? Limits of fiscal and monetary policies.

29. Global Logistics: A New Business Model Changes in business environment, production fragmentation New technology available A knowledge creating and integrating business

30. Production Sharing of Taiwan’s Information Industry % * Estimates. Source: Market Intelligence Center, Institute for Information Industry.

31. 1. DELL sends a request to Taiwan upon a Singaporean client order 2. The U.S. firm sends CPU to Taiwan 3. China sends cases and power supplies to Taiwan 4. China sends semi-assembled parts to Taiwan 5. Malaysia sends PCB to Taiwan 6. Taiwan sends DRAM mainboard and semi-assembled parts to Singapore 7.China send monitors to Singapore 8. Singapore assembles and sends the finished PC to the client 9. DELL sends the payment to Taiwan Singapore China U.S. DELL 5 PCB 6 1 2 4 Order CPU MONITOR 9 DRAM main- board 8 PC 7 Source: Compiled by CEPD. 3 Taiwan as a Global Logistics Center Taiwan Malaysia Steps 1 to 8 take 2 to 5 days to complete

32. Operation Characteristics in Taiwan: from OEM to GL Before the mid- 1980s In the late 1980s and early 1990s After the mid- 1990s : Local operations

33. Japan Taiwan U.S. I:Investment M:Materials/Intermediates Q:Finished product/commodity S:Strategic alliance Before the mid-1980s Late 1980s and early 1990s After the mid-1990s ASEAN I&M M Q Q S Q Q Taiwan’s International Division of Labor from Triangle to Diamond China I&M Q S

34. 全球運籌中心 總體經濟調整 建立符合國際規範之經營環境，減少人員、 資金、資訊進出障礙，改善兩岸經貿往來 改善通關作業，縮短運 送時間及提升配送能力 累積科技及製造能力， 使台灣成為國際市場的 主要貨品供應者 協助跨國資金調度 及支付 建立網路系統，便 捷資訊傳遞與處理 電信中心 製造中心海、空運中心 金融中心 From APROC to Global Logistics Center

35. Conclusions “The true heroes of our time are those who bring to all society the tools for a better and fuller life. In the last decade, their achievements have been more amazing than in any other period of human history.” In the coming decade, it will be more so. Henry O. Dormann