Cluster policies and industry development in the Hsinchu Science Park: a retrospective review after 30 years.

Author:Chen, Ching-Pu

In the past 60 years, Taiwan has undergone several stages of economic transformations, namely, agriculture, labor-intensive light industry, and capital-intensive industry. In the first stage, when the national government of the Republic of China retreated from Mainland China to Taiwan in 1949, Taiwan mainly had an agricultural economy. To stimulate its agricultural base, the government issued the 'Farm Land Rent Reduction Regulation' to reduce the burden and to increase the incentives of tenant-farmers for higher productivity. The regulation was followed by the 'Land-to-the-Tiller' policy, (1) which released public and private lands for the utilization of farmers. The policy was successful and stabilized the political and economic situations of Taiwan during those troubled times.

When the United States stopped granting economic aid to Taiwan in 1965, the country was faced not only with political crisis, but also with rapid population growth, high unemployment rate, shortage of foreign reserves, and financial burden. Taiwan was determined to transform its economy from an agriculture-based to an export-oriented light industry. In 1966, Taiwan combined the functions of a free-trade area, a duty-free zone, and an industrial park to create its first Export Processing Zone (EPZ). For almost a decade, the EPZ helped Taiwan maintain an average economic growth rate that exceeded 10%. This 'Taiwan economic miracle' not only set a historical precedent for Taiwan in creating its small and medium enterprise (SME) industrial base and in raising its foreign reserves, but also provided an economic development model for the world.

In the 1970s, the world was troubled by energy and food crises, marked by stagnation in many industrial countries. The situation put Taiwan in a predicament of rising labor costs, outdated products, and declining exports. With the prior success of the EPZ, the government realized that it must bring in new technologies and industries, along with high-quality labor to accelerate national innovation, upgrade industry, and transform the economy of Taiwan into a capital-intensive driven industry focused on innovation. As a result, in 1980, the Hsinchu Science Park (HSP) was established and patterned after the Silicon Valley model of the United States. The mission of the HSP was to build a high-quality working, living, and leisurely human environment to attract high-quality technical people, bring advanced technology and R&D, and form a base for high-tech industries.

Only 14 companies (2) participated when the HSP was first established. After 30 years of continual support, the government invested over $2.8 billion to develop 653 ha of land. In 2010, HSP hosted over 460 companies, (3) with annual sales of $34 billion, (4) which accounted for 8.16% of the annual gross domestic product (GDP) of Taiwan, and employed over 130,000 people. Over the past 30 years, HSP has accumulated $412 billion worth of sales and employed over 1.43 million people. According to a 2009 R&D innovation survey by the Department of Economics, the number of intellectual properties (IP) in semiconductor and optoelectronics ranked between the top three and six in the world. In the Global Competitiveness Report 2010-2011 issued by the World Economic Forum, Taiwan placed 13th among 133 countries in global competitiveness, while its innovation sub-category ranked 7th (Schwab, 2011). Therefore, HSP not only plays a leading role in the development of the high-tech industry in Taiwan, but also serves as the driving engine behind the innovation and economic miracle in Taiwan.

However, in a rapidly changing world, will the industry composition, strategy, and competitiveness of HSP be sustained after 30 years of development? This study aims to delineate and to examine the policy tools employed by the government in HSP and the development and performance of its industry clusters. Through a systematic review and a strategic position analysis of the industry clusters within HSP, we hope to provide new prospective and policy recommendations for sustaining the competitive advantages of HSP in the next stage.

This study collected statistics and other significant information from government reports and academic literature. Data were grouped into five cluster policy tools to delineate their development. Afterward, the Boston Consulting Group (BCG) framework was used to map the development of six major industry clusters in HSP over the past 30 years.

Industry cluster and science park

In knowledge economics, the capacity to innovate and commercialize new products is the main driver of growth, competitiveness, and global leadership. Furthermore, national economic success does not come from a single industry, but from intertwined industrial clusters. Under a highly competitive global environment, an industry cluster becomes an important mechanism that promotes industrial and national development, innovation, and competiveness; hence, an important policy tool employed by many countries. Several researchers acknowledge the value of clusters in facilitating the development, transfer, and application of knowledge for innovation, value creation, and competitive advantage (Hsieh, Lee, & Ho, 2011; Porter, 1998, 2001; Saxenian, 2006; Wessner, 2009).

A cluster is 'a geographically proximate group of interconnected companies and associated institutions in a particular field, linked by commonalities and complementarities' (Porter, 1998). Science parks are widely seen as an effective tool to promote industry cluster, to realize larger and more visible returns on the R&D investment of a nation, and to bring about national/regional economic development. As a community concept, a science park encourages relevant firms within a value chain to move in, provide constructive competition, and stimulate collaboration among firms to form cluster synergy, an important driver in a national innovation system. Therefore, the success of a science park depends on its ability to stimulate industry cluster synergy, which is a dynamic network created by a geographically proximate group of interconnected companies, associated institutions, and the environment. By pooling infrastructure, human resources, capital, technology, and product markets, companies can facilitate interaction, dialog, collaboration, and competition along the value chain to stimulate competitiveness.

A science park often comprises the partnership between public and private institutions to create knowledge innovation and interaction through infrastructure and environment shaping. Although the public sector plays a more important role than the other actors in the early stages of the cluster life cycle in cluster initiation, infrastructure buildup, and public fund provision (Andersson, Serger, Sorvik, & Hansson, 2004), the private sector lead may be crucial for the effective performance of the economy (Porter, 2001). Furthermore, innovation within a science park is different from enterprise innovation. It must create cluster synergy to raise competiveness in the value-added process for an individual enterprise and for the entire cluster; otherwise it will only be a grouping of enterprises.

Cluster policies

Several factors and policy tools can stimulate cluster synergy. For example, Porter (1998) proposes factor input conditions; local demand conditions; related and supported industries; and firm structure, strategy, and rivalry in the diamond model. Sun, Lin, and Tzeng (2009) add government support and culture as two other important factors. Chien, Chen, and Lin (2013) include knowledge-producing institutions, innovative enterprise, supporting endowments, bridging intermediaries, customer of innovation, cluster network dynamics, and international linkages in a cluster network interactive model.

Under the mandate of the Competitiveness Institute and the Swedish Agency for Innovation Systems, the Cluster Policy Whitebook was produced to address the important phenomenon of clustering. This study uses the Whitebook as its framework because of its clarity in policy categorization. In the Whitebook, Andersson et al. (2004) classifies the policies that affect clustering into five categories, namely, broker, demand-side, training, promotion of international linkages, and broad framework. When used properly, these five types of policy can accelerate and sustain cluster success.

Broker policy

A broker has the role of pushing for system interaction and integration within a network. It stimulates linkages to external resources, and acts as an adhesive among state-of-the-art technology, manufacturing, and market. A broker policy aims to strengthen the mechanism for value-adding dialog and cooperation among various stakeholders. These policies include the creation of platforms for dialog, university-industry interaction system, public-private partnership to support knowledge-enhancing linkage, or venture capital. Science parks and business incubators are additional tools often used and supported by government policies.

Demand-side policy

Aside from releasing data and market information, public procurement has a strong potential for developing and strengthening clusters. Along with subsidies and R&D financing, it can stimulate demand, long-term development, and buffer market variance. Even though the market often dictates demand, public support is important in strengthening industry cluster development, especially in its early stages.

Training policy

Formal educational systems usually cannot provide the exact skill competence for most firms. Employees need on-the-job and vocational training programs. Consequently, most economies have created extensive public and private training programs for their labor pool. Training policies upgrade skills and competencies of human resources that are essential for effective clustering. Public training policy is especially crucial for SMEs, as they generally have fewer resources to recruit and train...

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