What Happened to Taiwan’s Dream of an Asian Silicon Valley?

What Happened to Taiwan’s Dream of an Asian Silicon Valley?

The “Asia Silicon Valley” plan was supposed to fix Taiwan’s brain drain problem, but critics say it’s not working.

By Pemasal Banigan, Siobhan Bradley and Ayesha Bery

For decades, the Taiwanese economy was at the forefront of innovation, buoyed by companies who invested heavily in laptop and smartphone production and design. But the country is now grappling with an uncertain economic future. With growing regional competition from the US, China, and Southeast Asia, Taiwan is fighting against the tide to keep its highly skilled workers in the country.

In response, the Taiwanese government announced an ambitious plan for the country to become an Asian Silicon Valley, with funding allocation of up to $11.3 billion New Taiwan dollars ($350 million USD) for targeted investments in new internet infrastructure and aggressive talent recruitment.

But just two years after its launch, supporters and critics of the Asia Silicon Valley initiative are at odds on the effectiveness of the project rollout, with many left wondering: how will the plan help Taiwan maintain its edge in innovation?

How Can Taiwan Attract (and Retain) Smart People?

At the core of the “Asia Silicon Valley Development Plan” is the desire to increase Taiwan’s talent supply, but also keep recent graduates in the country.

To meet this goal, the Tsai Ing-wen government set up a dedicated unit, the “Asia Silicon Valley Development Agency” (ASVDA) to shepherd the initiative. According to Taiwan’s National Development Council, the Agency’s number one implementation strategy is to “optimize Taiwan’s startup ecosystem by increasing talent supply” as well as provide “business expansion capital, and adjust laws and regulations”.

President Tsai unveils the Asia Silicon Valley Development Agency at an event in January 2017. Photo courtesy of the Taiwan (ROC) Presidential Office.

But according to a member of the opposition Chinese Nationalist Party (KMT), the Agency’s goal is hindered by cumbersome business regulations and restrictive visas and work permits.

“Although [the government was] targeted to issue 2200 visas, the Plan so far has disbursed a mere two,” said Jason Hsu, a KMT legislator with experience in Taiwan’s innovation sector.

Hsu said the government has not succeeded in attracting any global entrepreneurs to the island since the plan was implemented. The Agency has been slow to implement the Asia Silicon Valley plan, prioritizing other aspects, or simply failing to match action with words.

Compounding Taiwan’s global talent crunch is competition from China and the US, with graduates moving house to take advantage of higher wages and better employment opportunities. The Straits Times reported in 2017 that 20,000 to 30,000 Taiwanese leave the country each year. Some reports put the number of Taiwanese workers in China at 400,000. In a recent report, Oxford Economics predicts that by 2021, Taiwan will exhibit the biggest talent deficit in the world.

Carving a Piece of the Innovation Pie

A representative of the ASVDA says it is making progress, and has already achieved two of its goals: a percent market share in global IoT, and attracting global conglomerates to Taiwan, including Microsoft, Google, Cisco, and IBM.

But Taiwanese entrepreneurs we spoke to were uncertain how this activity would benefit their own startups. “The Plan is less focused on start-ups, but puts lots of effort in attracting overseas start-ups to come [to Taiwan]. This benefits local manufacturers but not start-ups,” said one entrepreneur.

Some startups are looking for opportunities outside the Plan, such as “Taiwan Startup Stadium”, an innovation hub that supports start-ups and encourages them to move to more international markets. Startup Stadium supports entrepreneurs through coaching, knowledge-sharing, training, networking, international travel, and matchmaking companies with investors and mentors. Above all, start-ups are advised on how to connect to global markets through overseas immersion programs.

Taiwan Startup Stadium sets up shop at RISE Hong Kong, a tech startup exhibition. Photo courtesy of RISE.

“It’s positive that Taiwanese are accessing global markets, because it gives them a platform,” said Acer founder Stan Shih. However, Shih also chides the ASVDA strategy for not thinking of the big picture. “The [current government] strategy is short-sighted, and will lead the country nowhere”.

“Taiwan needs to a develop a new competence,” adds Shih, and the country must find a new niche area to reclaim its competitive edge in the international market, especially with formidable competition from China in both scale and speed.

With the announcement of China’s “31 Incentives” — a set of preferential policies meant to irrevocably lock Taiwan and China’s respective economies together — Democratic Progressive Party (DPP) legislators raised the prospect of Beijing poaching their best and brightest talent.

But industry insiders and government figures we spoke with said a direct response to China was not necessary; the majority of Taiwanese workers who move to Shanghai and Shenzhen for higher wages usually return within five years, citing quality of life as a major factor. Taiwan’s vibrant democracy, progressive society, and laissez-faire lifestyle is a boon for the country.

Building a Competitive Edge

So what do members of industry and government believe Taiwan should focus on to get its innovation lead back on track?

Since its inception, a central tension of the Asia Silicon Valley Plan is whether Taiwan can replicate California’s Silicon Valley model, an innovation hub that arose from a confluence of very unique factors.

Instead, many industry professionals we spoke with believe Taiwan should be positioning itself as distinct from other ecosystems. Taiwan can use its small start-up community and market to its advantage by pinpointing, strengthening, and leading in specific areas. Taiwan needs to move past its legacy of semiconductors and find a new niche, or a few different ones, with a global market.

Industry professionals suggest Taiwan could become a global leader in areas like blockchain, cryptocurrency, or artificial intelligence, but it first needs a clear strategy to achieve this leadership. “Taiwan is sitting on a pile of gold,” said Legislator Hsu, but the country is trying to catch up with other economies instead of forging its own path.

One way of investing in new niches is re-focusing the Plan to focus on short-term benefits for entrepreneurs and startups, but there’s a need for deregulation and removing the hurdles to starting a company in Taiwan. Forbes reports foreign direct investment in Taiwan fell 46.3 percent in the first 10 months of 2017, which could mean that multinational firms are skipping Taiwan as a place to invest.

The Taiwan government also needs to encourage students to choose university majors in the arts and humanities. Taiwan’s education system favours engineering skills, and does not place equal value on training in business, social sciences, and other majors. That’s led to a labour gap of interdisciplinary talent. The missing piece for many start-ups is business and marketing talent to support superior technical talent.

An Asia Silicon Valley exhibition at Taipei IT Month 2017. Photo courtesy of Wikimedia Commons.

Furthermore, Taiwan needs to mitigate the small market mentality of entrepreneurs, one that is based on Taiwan’s risk-averse policies and a no-fail mentality. “Taiwan needs a culture of innovation that is tolerant of failure, and that allows young people to take charge,” said Legislator Hsu. The Plan could play a key role in fostering this mentality, especially if the plan is meant to steer Taiwan towards greater innovation and economic growth.

Taiwan is not the only country looking to retain skilled workers. Brain drain affects a host of other countries, including emerging markets such as Mexico and South Africa. If Taiwan plays its cards right, and is able to stem the loss of talented workers, it could serve as a model for other countries experiencing similar trajectories. In addition, foreign visitors who get a taste of the lifestyle in Taiwan end up loving the country, and often decide to stay. Clearing up burdensome red tape around work visas and business registration will go a long way into increasing its already formidable talent pool.

While the Asia Silicon Valley Plan is in need of retooling, the island’s rich history in innovation and start-up success should be seen as a guiding light as the island navigates its future.

Banner photograph courtesy of the Taiwan (ROC) Presidential Office.


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