New Directions for Taiwan’s Science Parks

Since the first park opened in Hsinchu in 1980, the emphasis has been on accommodating manufacturers of technology hardware products. That focus is expected to start changing, as Taiwan’s industrial upgrading puts more stress on software, the internet of things, artificial intelligence, and robotics.

Over the decades, much of Taiwan’s success as a global manufacturing center for tech hardware can be attributed to its network of three Science-based Industrial Parks that now cover a total of 13 campuses around the island.

But the model is under increasing pressure in the hyper-competitive world of high tech. The parks need to deemphasize their role as manufacturing clusters and put more stress on being software innovation centers as Taiwan seeks to be a leader in new fields such as artificial intelligence. China is another big challenge for the parks as companies get lured away by big Chinese government subsidies. Adapting to these changes and challenges is critical to the future of Taiwanese industry.

The companies operating in the parks account for 18% of Taiwan’s total manufacturing revenue and employ more than 272,000 people. Their combined revenue came to more than NT$2.4 trillion (nearly US$78 billion) in 2017, the most recent year for which statistics are available. Export value increased by more than 14% in 2017 to reach NT$1.72 trillion.

The three science parks – Hsinchu in northern Taiwan, the Central Taiwan Science Park centered in Taichung, and the Southern Taiwan Science Park centered in Tainan – have “cultivated more than 900 technology companies and enhanced Taiwan’s reputation globally” as a leading ICT hub, says Stephen Su, vice president of the government-backed Industrial Technology Research Institute.

But Su, who also heads ITRI’s Industry, Science and Technology International Strategy Center, views the traditional hardware-centric focus of the science parks as having run its course. To continue to drive Taiwan’s economic growth, he says, the parks now need to devote more attention to software and areas of hardware-software nexus such as artificial intelligence, the internet of things, and robotics.


In the past few years, Taiwan has attracted increased investment in these fields, but so far not for location in the science parks. In 2018, Microsoft announced it would establish an NT$1 billion AI R&D center in Taipei. IBM plans to expand its Taipei-based R&D lab, focusing on AI, blockchain, and cloud computing, and Google plans to hire 300 employees as part of its Smart Taiwan program. Google’s Taiwan operations are also based in Taipei.

ITRI’s Su encourages the science parks to adapt to the needs of the digital economy. “Emerging digital technologies such as AI and IoT [Internet of Things] are driving a wave of disruptive innovation around the world that challenges the science parks’ business model,” he says. For businesses, “the era of focusing solely on technological development has passed.”

Indeed, for the past four decades the science parks have accommodated a variety of industries, but have mainly sought to leverage Taiwan’s strengths in contract manufacturing: good quality at a low cost, efficient production, and flexibility. Undergirding those strengths is adroit technology.

The formula continues to bear fruit. From January through October 2018, the companies in Taiwan’s science parks posted record revenue of NT$2.11 trillion (US$68.4 billion), up 5.57% over the same period a year earlier, on the back of high demand for advanced microchips.

But to ensure long-term relevance, Taiwan’s science parks will increasingly focus on next-generation technologies like artificial intelligence, robotics, and connected devices, officials say. Taiwan is especially eyeing opportunities in vertical and edge (done on small devices) AI applications, says Hsu Yu-Chin, Deputy Minister of Science and Technology.

TSMC, which has operations in all three science parks, is moving into the AI microchip segment. Analysts say that TSMC expects steady demand for its 7-nanometer and 5-nanometer chips this year from AI companies whose products require high computing performance and low power consumption. Demand for AI chips is robust in a broad swath of digital economy segments, including robotics, fintech, data centers, smart cities, and connected devices.

TSMC is expected to roll out its advanced 3-nanometer chips in 2022-2023 as AI and 5G applications mature. In support of TSMC and other IC makers, the Ministry of Science and Techbology in December launched an NT$4 billion AI Edge Semiconductor Moonshot Project.

The project, which brings together industry and academia in a bid to boost the IC sector’s competitiveness, targets six core AI-related technologies: advanced sensors, circuits, and systems; advanced memory design; AI chips; IoT systems and security; autonomous vehicle and virtual-reality system solutions; and next-generation ICs.

For its part, the Central Taiwan Science Park has set up an AI Robotics Hub, which offers services similar to a startup accelerator. The hub provides users with equipment, workspaces, robotics training courses, and support for participation in industry exhibitions and contests. By partnering with educational institutions, startups, and established manufacturers, the hub aims “to create an international flagship innovation park for intelligent robotics,” according to its website.

Su of ITRI, which is working with the Central Taiwan Science Park on the robotics hub project, suggests that the science parks strive to create regional innovation ecosystems. To strengthen the competitiveness of Taiwan’s high-tech industries, the parks should not simply be manufacturing and research sites but rather “living labs for social interaction,” he says.

While universities have always partnered with the parks, serving as an important source of talent, Su recommends that they deepen their cooperation. Universities and parks should collaborate to create an environment that fosters entrepreneurship and new business ventures, he says.

Setting a new direction for the parks will necessitate a change in the way they promote themselves. Currently, the emphasis is on attributes that are more relevant to manufacturing clusters than to software innovation centers. The Central Taiwan Science Park, for instance, highlights its proximity to land, sea, and air transportation. Chen Ming-Huang, the park’s director general, stressed in an interview that the park enjoys a strategic location near Taichung Port, Tai-chung Airport, and the city’s High Speed Rail station, facilitating logistics for firms located there.

For manufacturers, that’s a must. But software companies don’t need to transport tons of cargo. Nor do they have the same infrastructure and utilities requirements as manufacturers, so incentives tied to those factors may not attract them. Facebook may earn billions of dollars a year in revenue, but it doesn’t invest billions in production facilities like TSMC does. Nor does the social-media giant use anywhere near as much electricity and water as an integrated circuit maker.

The China factor

“Taiwanese manufacturers are agile,” says Wayne Wang, Director General of the Hsinchu Science Park. Compared to their competitors, “they tend to be smaller and able to make decisions faster, so they can respond quickly to market changes and macroeconomic shocks.”

But when the value proposition is too reliant on cost savings, eventually a competitor – like China – comes along with an even lower price. In the Hsinchu Science Park, for instance, manufacturers initially focused on PCs, before shifting to telecommunications equipment, semiconductors, and optoelectronics. China took much of the telecom and optoelectronics business.

Semiconductors, the most technically challenging of those technologies, have been an exception. At the cost of billions of dollars of R&D and capital equipment investment, Taiwan remains well ahead of China in ICs, despite Beijing’s aggressive foray into the sector.

Still, Beijing’s mercantilism poses a long-term challenge for Taiwan’s science parks. “The Chinese government offers huge subsidies to manufacturers of up to half of their production cost,” says the Central Taiwan Science Park’s Chen. “It’s not something we can offer to companies, which may result in a loss of business for Taiwan.”

The U.S.-China trade war, which has highlighted China’s infractions regarding intellectual property protection, may offer some fresh opportunities for Taiwan’s science parks as foreign firms look for alternatives to placing valuable IP in China.

Already the U.S.’s punitive tariffs on Chinese goods have caused some companies to consider shifting a portion of manufacturing to other locations. At an October 2018 news conference in Taichung, for example, Manish Bhatia, U.S. chipmaker Micron’s executive vice president of global operations, said that due to the higher tariffs on products from China, the company might further expand its DRAM assembly and testing in Taiwan. The news conference was held to mark the opening of Micron’s back-end production facilities in the Central Taiwan Science Park.

In addition, Illinois Tool Works, a manufacturer of specialized industrial equipment, has disclosed plans to shift some production capacity from China to the Central Taiwan Science Park, Chen says. “They’ve been impacted by the trade war and feel they can benefit from doing more manufacturing in Taiwan,” he says.

Emboldened by Washington’s fight against China’s unfair trade practices, foreign companies once hesitant to speak out for fear of reprisal against their China businesses have become more vocal in opposition to Chinese practices such as forced technology transfers.

In contrast, Taiwan has built up a strong international reputation as a defender of intellectual property rights. “We can offer a much more secure IP protection environment compared to China,” says Chen.

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