Development, flexibility and R & D performance in the Taiwanese IT industry: capability creation and the effects of state--industry coevolution

Of the East Asian Newly Industrialized Countries (NICs) Taiwan has one of the most inspiring stories. In almost all accounts of Taiwan, the state has been described as the major impetus of economic development and technological upgrading. Consequently, Taiwan has become the "poster child" of the neodevelopmental state theories. This paper takes a critical view of these accounts, exploring the capabilities and limits of the Taiwanese state in achieving sustained industrial growth in two key sectors of the IT industry, software and IC design. This is done through mapping the evolution of the two subsectors and the changing roles of the state in it, looking specifically at capabilities, innovations, and business models employed by private firms. The main arguments are, first, that the division of labor between state and private industry that successfully developed an industrial system utilizing OEM and ODM business strategies may now limit R&D activities to second-generation innovations. Second, I argue that the public research institution-based industrial technology policy of Taiwan has been helping the growth of private industry when: (1) these research institutions created and expanded multiple and broad interactions with the private IT industry; and, (2) when the public research institute has seen private IT firms as their final customers. However, the same policy approach has hampered the growth of the industry when the institutions competed directly with the industry for its own customers. Copyright 2005, Oxford University Press.