Approaching the Chinese Innovation Scene Series: Taiwan

Taiwan leveraged innovation and technology in the pandemic response, including the use of digital fences and digitisation of mask inventory map that were spearheaded by its Digital Minister, Tang Feng. With its deep roots in outsourced electronics manufacturing - according to Morgan Stanley in 2018, Taiwan made around ninety-percent of the world’s notebook computers, Taiwan grew its market share through deep respect for IP and design protection. The foundation of strong engineering prowess and intellectual property protection is now fostering a thriving ecosystem for innovation in advanced manufacturing and robotics, IoT & electronics, AI & Big Data, and Agriculture and food technology.

Taiwan’s location made it a strategic trade and military outpost as it sits between China, South East Asia, and Japan. The island is 180 km from China, 320 km from Philippines, and 1,120 km from Japan’s main island. Starting from Dutch occupation in 1600’s, Taiwan switched hands between Portuguese, Spanish, Manchu, then Japanese. Even now, modern history of its relationship with China and US is the topic of much debate. The island is small, needing only 1.5 hrs by train to travel from the capital city in the north, Taipei, to the southern key city, Kaohsiung. However its population of 23.5m people, ranked 56^th in the world, generated a GDP of USD 611 billion, ranked 20^th among 193 countries and regions according to IMF in 2020.

As an island with limited natural resources, similar to Japan, Taiwan relies heavily on exports. Starting in the 1970’s with textiles and footwear, Taiwan became integrated in the global market. The world’s largest footwear maker is Taiwanese company Pou Chen, which currently manufactures for Nike, Adidas, Puma, ASICS, and many of the world’s major brands. The world’s leading electronics original design manufacturers (ODM) and original equipment manufacturers (OEM) are also Taiwanese. The technology boom around 1980’s nurtured companies such as Foxconn (Hon Hai), Quanta, Compal, Wistron, Inventec, Pegatron for electronics, as well as TSMC, UMC, MediaTek for chips. Their end customers include Apple, Dell, HP, Lenovo, Fujitsu, Toshiba, and Sony. Taiwan makes 75% of personal computers, 50% of LCD screens, 25% of semiconductors, and 20% of smartphones globally, according to Startup Genome.

The success of Taiwanese ODMs and OEMs rely on respect of IP and design ownership. Whereas many foreign companies are wary of Chinese contract manufacturers stealing IP, Taiwanese companies managed to build its economy up based on trust of international businesses. This, along with the trade war friction, attracted top technology companies to set up in Taiwan, including Google’s largest Asian R&D centre, Microsoft AI R&D centre, Amazon Joint Innovation Centre for smart appliances, IBM cloud computing, AI, and blockchain R&D centre. The Taiwanese Firms’ Repatriation Bill further attracted investment from Taiwanese companies located in China to return to Taiwan through offering tax benefits, and has so far received a pledges from 154 companies totalling NTD 678 billion as of the end of 2019.

World-class incubators and accelerators include AppWorks, BNext, Garage+, and MOX in Taipei. We spoke with William Bao Bean, General Partner at SOSV and Managing Director of MOX. MOX the mobile-only accelerator under SOSV, which has over 200 accelerator partners worldwide. William said “Taiwan’s key advantage for startups is its high-quality international talent pool that has the highest productivity on a dollar-to-dollar basis in Asia. It is easy to find technical talent here for artificial intelligence (AI), deep tech, hardware such as robotics, and blockchain.”

According to FINDIT and Taiwan Institute of Economics Research report in 2019 on Taiwan’s startup investment scene, overseas investors currently only make up 14% of startup deals between 2015 to 2019. The biggest investors, at 52% of investment deals, are corporate venture capital. These are typically strategic investments therefore details of technology or deal value are usually undisclosed. The Taiwanese government’s National Development Fund (NDF) also plays a key role. In 2020 according to Clarivate Analytics, an innovation insight focused company in London, Taiwanese corporate innovation are on par with Germany because both countries produced four of the world’s best innovators in its global top 100 list.

Taiwan’s government also set up a “Business Angel Investment Program” that taps into corporate venture. Each angel investor has to provide at least one mentor to guide the invested startup. Since the NDF’s inception in 2017, it has invested in over 130 startups and grown two unicorns already. The two unicorns showcase Taiwan’s strengths in hardware and AI.

Gogoro, a smart scooter startup, achieved unicorn status in 2017 with series C investment of USD 300m from Sumitomo and others. Its key innovation is the Gogoro Energy Network with swappable modular batteries. Riders can sign up for a monthly plan and use the batteries for not only Gogoro brand scooters, but also Yamaha, Aeon, and PGO.

Taiwan’s second unicorn, Appier, achieved unicorn status in 2019 with funding from Hopu-ARM (ARM now owned by Softbank) and others. It uses AI for marketing and advert placement decision making to optimize and measure marketing campaign effectiveness.

We interviewed Brian Chen to learn more about other technology Taiwan excels at. Brian was the editor of the FINDIT report and now works for Taiwan Tech Arena. Taiwan Tech Arena is a government funded space that houses startups and venture partners. Corporate venture partners include Acer, Compal, Wistron, Microsoft, ARM, as well as accelerator programs MOX, SparkLabs, Garage+, BE+, and TechStars. Brain said “Taiwanese startups are strong in electronics, health technology, enterprise services, and IoT. They are all not only great technically, but all have their sights set on going global because of the limited size of Taiwan’s local market. This means they tend to have international talent early on and connect to leading edge research around AI, IoT, and blockchain from all over the world.”

Taiwan’s economy benefitted from its strong outsourced manufacturing industry, as a result, Taiwan has strong respect for IP and design copyright. Companies such as TSMC and Foxconn became world leaders not only by guarding proprietary information of their clients, but also improving its economies of scale for manufacturing and R&D. With many global clients relying on Taiwanese ODMs for R&D innovation, it has also grown a strong local talent pool for not only electronics hardware, but also software and services. If you are looking for innovation in electronics, robotics, IoT, AI, enterprise services, we recommend you look into the Taiwanese ecosystem for partners.

Specific to Japanese corporates, a small survey of 22 companies by PicSee in 2019 showed that Taiwanese startups are now prioritising Japan as a key target for expansion and fundraising. Due to Taiwan’s inherently small domestic market, especially compared to China, Taiwanese startups are usually much more open to overseas expansion and partnerships. With the ongoing trade war tensions between China and US, innovators in Japan and Taiwan will have more opportunities to explore partnerships.

Emma Hsu is the Program Manager of Open Innovation Group at Intralink’s Shanghai office. She was born in Taiwan, grew up in Canada, and has worked in China for the past 10 years. If you have any comments, questions, or suggestions, please email her: emma.hsu@intralinkgroup.com.

Intralink’s Open Innovation Group is privileged work with NTT Data, NSSOL, Chubu Electric, Fujitsu, Hitachi, Mitsui Chemicals, and many more.