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Recommended Industries for Foreign Investment in Taiwan

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Cloud Computing Industry

ITRI IEK WEI, Yi-ling

| 2010

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12 / 31!

Tel:+886-3-5917288
E-mail:norr.wei@itri.org.tw

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allowing it to be used in a wide range of applications. the maturity of applications and compatibility with existing systems and architectures during implementation. Despite the different definitions. Due to concerns over service stability and data security. 1-2 Market analysis • Size of the cloud services market: The market began growing rapidly in 2008 and will reach US$50 billion in size by 2013.Recommended Industries for Foreign Investment in Taiwan—Cloud Computing Industry 8 Cloud Computing Industry 1-1 Industry Definition • Industry size: The international research firm Gartner predicts that the most important strategic technology in 2010 will be cloud computing with the market to grow to US$150 billion by 2013. virtualization and SOA (Service-Oriented Architecture). • Industry growth factors and trends: Cloud computing will initially be introduced through SaaS services due to user familiarity. The immense market potential as well as the entry of major international vendors such as Microsoft. SaaS services are expected to account for over 60% of the overall market due to user familiarity. operating systems and even hardware architecture. as well as how it will affect the ICT industry in the future. Google and IBM means that everyone is now starting to pay attention to the potential economic benefits of cloud. Medium and large-sized enterprises still have concerns with the introduction of cloud services. • Cloud computing concept and features: There is currently no standard definition for cloud computing as it is a novel concept that is still developing along with the Internet and related technologies. its relative maturity and data security. SaaS will therefore provide the main source of growth in the cloud services market within the short term. parallel computing. some key features of cloud computing include Internet delivery of services as well as the on-demand allocation of resources and payment method. .1. . most of the growth in the IaaS and PaaS services market between 2008 and 2010 came from new startups and small users. so overall growth has slowed in 2010. The concept can be applied to software applications. • Scope of applications: Cloud computing is a concept rather than a specific technology. Cloud incorporates existing technologies and concepts such as grid computing. • Business take-up: Up to 80% of Fortune 1000 companies will adopt cloud computing services by 2012.

00 42.00 0. For large enterprises. while 3.7% of the overall industrial/commercial services industry. 6.42 20.00 31.70 50. The nature off SMEs meant that local enterprises have significant experience with using hosting and remote backup services provided by data centers.54 30. 2008 . system compatibility. .2. . SMEs accounted for 99.New Opportunities. For small and medium enterprises. Invest in Taiwan USD$ Billions 60.2013 • Business concerns: Enterprise users of different sizes exhibit different concerns during introduction.13 10.00 SaaS 26.   Main customers: The immaturity of information security technologies will delay the entrance of large users.0% used SaaS services.14 40. (1) Size of the Taiwanese market and current demand Local industry background: DGBAS statistics for 2006 indicated that in Taiwan the industrial and commercial services sector consisted mainly of small and medium enterprises (SME) of under 200 people. IaaS was used by 32.66 13. so the main market for cloud services will continue to be small and medium enterprises in the short term. PaaS and SaaS services.00 2008 2009 2010(e) 2011(f) 2012(f) 2013(f) Note: Here the output of the cloud computing services industry only covers those from IaaS. cloud service stability and the maturity of information security technologies are the most important considerations.8% of the companies.00 PaaS IaaS 17.00 50. cost is the primary concern.8% used both IaaS and SaaS at the same time. • Cloud take-up rate among local enterprises: A survey conducted by the III MIC indicated that 35% out of a sample of 500 SMEs have adopted cloud services. Source: ITRI IEK (2010/04) Figure 1 Projected output of the global cloud computing services industry.

software mainly refers to commercial business software. most growth between 2008 and 2010 will come from new startups and small enterprise users. • As IT security and virtualization technologies continue to be refined. 1-3 Analysis of Foreign/Compatriot Companies and Local Industry Synergies (1) Current state of the global and Taiwanese industry supply chain • Industry scope: The cloud industry chain can be divided into three areas: data center. The main reason for this is the high-level of acceptance to hosting and related services among local enterprises. an increase of 12. • Data center: Includes hardware such as servers.8% on 2008.56 Billion in 2009. the Taiwanese cloud market was estimated to be worth NT$5. Leading international server equipment vendors including IBM. however. • The cost benefits of cloud services means that many SMEs will continue to cut back on hardware expenditure and adopt cloud services instead. • Main market segments: The IaaS market will be the largest segment in the Taiwanese cloud services market and should account for over 90% of the industry output. Here. hardware system management vendor (software) and the data center operator. By 2010 the market is expected to grow to NT$6.Recommended Industries for Foreign Investment in Taiwan—Cloud Computing Industry From this we can see that in the local cloud services market IaaS is now entering its growth phase. Data center includes the low-level hardware equipment vendor. network communications products and power supply. The cloud services market is therefore expected to grow at a faster rate than the global IT spending market. they should drive the growth of the overall cloud market after 2011. As there is also strong interest in its introduction among enterprises it is expected to provide the main source of growth in the cloud services market. system platform and software. system integrator. Platform covers the operating platform and the software development platform. the SaaS market is expected to gradually increase its share among the local industry. (2) Future market prospects • The services provided by the SaaS services market matches the needs of businesses. HP and Dell have maintained excellent OEM relations and close cooperation with Taiwanese hardware makers. Above the hardware level we have .3. . • As the small size of the market and IT security concerns will affect the growth of the PaaS and IaaS market. As well-known enterprises continue to adopt SaaS services however. • Market size: Overall. while SaaS is only beginning to take root. so Taiwanese vendors excel in hardware manufacturing. virtualization technology vendor.21 billion in size.

most vendors service specific industries and so are unable to offer cross-industry IT consulting. Invest in Taiwan system integration and software. while the Taiwanese cloud industry chain excels at hardware manufacturing. Local system integration vendors also tend to be weak in business know-how so they can only help their customers connect hardware systems. apart from the virtual Windows monopoly on PC operating systems. • Software: In commercial software. virtualization software and virtual system management tools. Oracle and Google. For system integration. this area is dominated by VMware and the software management tools provided by proprietary virtualization technology. In system integration the leading vendors are IBM. In 2009. virtual system management tools. IBM. IBM. The coming of cloud has also seen Google and Salesforce. only 3 companies had revenues of over NT$5 billion. • System platform: In the system platform segment. In addition. as previously mentioned. • Capability gap: Due to a shortage of R&D capacity for virtualization technology. (2) Analysis of gap in industry chain • General analysis: Local vendors enjoy a distinct advantage in hardware equipment but are weak in system software. Leading foreign international virtualization technology vendors include VMware. As a result. • Current state of the Taiwanese industry: In the past. HP and VMware. The extreme deficiency in virtualization and system management software technologies in particular constitutes the largest gap in the Taiwanese industry chain. operating system platforms or commercial software. top foreign vendors include Oracle with Solaris. even if local vendors use open source for developing virtualization technology they will still find it hard to compete against top international vendors. This includes system integration. most local software vendors targeted the domestic market as well as providing system integration services and product sales for software products developed by foreign vendors. the biggest obstacles to .4. . applications software and system platforms. further consolidating the hold of foreign vendors in commercial software. The key vendors are therefore Microsoft. Microsoft and Citrix. They lack the ability to go a step further and help their customers set up systems that integrate software and business processes. there has been little local development in software technology and commercial software. Taiwan is therefore poorly equipped to compete against large foreign vendors in virtualization technology. Google with Chrome and even the open-source Linux. For virtualization system management tools.com rise to the fore. Microsoft and Oracle have remained the leaders in e-mail.New Opportunities. • Current state of system integration in Taiwan: The industry consists mainly of SMEs and is relatively small. word processing and database software.

hardware and IT consulting companies in the future to provide enterprise users with a total solution for converting their internal IT architecture over to a cloud architecture. Instead. (3) Areas suitable for overseas/compatriot investment in Taiwan • R&D center: A complete hardware industry cluster and outstanding hardware manufacturing capability makes Taiwan the perfect OEM option for large cloud vendors building data centers. More experience or an expansion in the scale of services is required to boost competitiveness. • Joint R&D center: Rapid growth in the cloud services market has seen cloud services vendors gradually shift their business focus from the US/European region to other regional markets in recent years. A partnership with local vendors in each region will not only help reduce the cost of investment but will also help them bypass foreign investment restrictions in each country. With large vendors setting up regional data centers in order to provide each region with a good quality of service. the leading vendors and their OEM partners will need to establish a strong R&D partnership. IBM has also set up the .5. . a partnership with local hardware makers will play an important role. even for large international vendors. Confirming that the hardware and software will run together smoothly will help boost sales. • IBM: IBM customers span different industries and there is also strong interest in introducing cloud among the enterprise customers in the healthcare and financial industries. the industry should leverage its hardware advantages into partnerships with top cloud vendors. The complete IT hardware supply chain and liberal investment environment in Taiwan makes the island a particularly attractive investment destination for foreign businesses. (4) Suggested investment recruitment targets • VMware: VMware's server software must be developed and tested with hardware vendor's support before release. System integration ability should also be strengthened to gain a foothold in industries with potential for a boost to competitive advantage. • Suggested entry strategy: Given the commanding lead in software of international vendors. local vendors are not ready to compete with international vendors in the cloud services market. top international vendors will very probably set up data centers in the Asia-Pacific region as well. As cloud service vendors will need to customize the hardware based on the nature and requirements of the application services to achieve optimal performance. The Asia-Pacific in particular is considered by cloud services vendors to be a key future market. To this end. The high cost of building a data center makes it a very large investment.Recommended Industries for Foreign Investment in Taiwan—Cloud Computing Industry entering the international market are local vendors' small size and deficiency in business know-how. IBM will therefore need to set up more applications-oriented R&D centers. VMware also hopes to partner with software.

1-4 Analysis of Investment Incentives for Overseas/Compatriot Businesses R&D centers and data centers can be set as the main areas to target for attracting overseas/compatriot investment. (2)Cloud data center: • Political/regulatory environment: Local IT security regulations and political stability affect the data processing operations of data centers. so a joint R&D center can be set up .6. . • Data center setup costs: Cost of industrial land. it is also helping data center operators accelerate data center construction by conducting R&D of data center hardware systems (e.Cloud R&D center: • Industry cluster: – A complete IT hardware and computer industry supply chain exists. so that in addition to its virtualization technology. Current local availability a. • Microsoft: In addition to offering the Windows Azure platform to its partners. Such a strategy for virtualization technology and data centers means that Microsoft will require hardware partners in R&D in the future. Invest in Taiwan "Smart Living Pioneering Research Center" in Taiwan in collaboration with the MOEA. the research center will combine IBM's cloud computing & data management analysis technologies with local research resources and manpower to develop cloud healthcare service models. cooling). Microsoft is also developing the Hyper-V virtualization technology as its spearhead for the cloud market. Key investment factors include: (1)Cloud R&D center: • Industry cluster: A hardware and software industry cluster of sufficient size can help large vendors accelerate their joint R&D and product testing platform. utility and manpower • Network infrastructure: Number of international undersea cables and local broadband penetration • Local vendor capability: The ability of local vendors to setup and operate data centers A. parallel computing and mass storage technologies as well as local manpower costs.g. In the future. Microsoft wants to provide its customers with a complete solution. Vendors have extensive manufacturing experience and technology. • People: Includes experts in virtualization. The experience from demonstration applications in Taiwan will also be replicated for the Chinese market in the future.New Opportunities.

the people are very competitive. B. Cloud data center: • Political/regulatory environment: China < Korea < Taiwan < Singapore < Hong Kong • Data center setup costs: Hong Kong < Singapore < Korea < Taiwan < China (with China being cheapest) • Network infrastructure: China < Hong Kong < Singapore < Taiwan < Korea • Local vendor capability: Hong Kong < Taiwan < China < Singapore/Korea .7. .Cloud data center: • Political/regulatory environment: SACE rates the political risk of investing in Taiwan at 3 (scored from 1 . though the capability to setup and run data centers is critically low. The only software vendors capable of partnering with international vendors on software technology R&D are Trend-Micro and Cyberlink. • Network infrastructure: Chunghwa Telecom alone has 16 undersea cables with 9 connected directly to Taiwan. • People: There is a shortage of domestic software expertise. • Local vendor capability: Local vendors such as ISPs and Acer have experience with running data centers. Local broadband penetration has now reached 78%. Cloud R&D center: • Industry cluster: Hong Kong < Singapore < China < Korea < Taiwan • People: Hong Kong < Singapore < Taiwan < South Korea < China b.Recommended Industries for Foreign Investment in Taiwan—Cloud Computing Industry for "product and application development". though in terms of quality and cost. with higher score equaling higher risk). Comparison with other neighboring countries a. b. though there is room for improvement in IT security-related legislation. • Data center setup costs: There are 7 major industrial parks with 1. – The local software market is relatively small and comprises mainly small companies.9. This indicates a good political environment for investment. Utility and manpower costs are far cheaper than Western nations.535 ha of land available for sale or lease.

¾ Characteristics: Eliminate the barriers to the flow of goods. boosting local economic development with industrial clusters economic effect and creating high add value production environment. Kaohsiung and Pingtung. It is hoped that with the integration of the supply chain and the convenience of harbors. .8. . semi-processed goods or machinery imported from abroad are all exempt from imported from abroad are all exempt from import duties. ¾ Main Location: Hsinchu Science Park. Types of Industrial Parks Science Parks Export Processing Zones Agricultural Biotechnology Parks Environmental Protection Science Parks Free Trade Ports Industrial Parks Descriptions ¾ Competent Authorities: National Science Council. ¾ Characteristics: Develop the “cluster effects” of the key industries and the cooperation of international marketing industry. ¾ Main Location: Taichung.O.e. Ministry of Economic Affairs. ¾ Competent Authorities: Ministry of Transportation and Communication ¾ Main Location: Keelung. FTZs. ¾ Characteristics: Seek out partners in the area of advanced environmental protection technology from around the world for creating model zones of low-polluting. Promote Taiwan industry upgrade. 6 free trade zones.New Opportunities. Tainan. Executive Yuan. and the ecology. Invest in Taiwan 1-5 Production Costs. Kaohsiung and Pingtung.C. articles. ¾ Competent Authorities: Export Processing Zone Administration. and Southern Taiwan Science Park. SIPs. ¾ Competent Authorities: Council of Agriculture. Taichung. 5 agricultural industrial parks and 4 environmental protection science parks in Taiwan. ¾ Characteristics: Speed the development of industrial clusters in agricultural biotechnology. Zero-rate Sales Tax is applied on commodities and labor services exported abroad and on raw materials. Kaohsiung and Hualien. ¾ Competent Authorities: Industrial Development Bureau. Become centers of high-tech agricultural industry. ¾EPZs. R. there are 181 industrial parks. the government provides quality and low cost business environment. ¾ Main Location: Taoyuan. ¾ Competent Authorities: Environmental Protection Administration. ¾ Characteristics: Locations for development of high-tech industries. Taxations.O. Expand production of high value-added goods for export. fuel. articles. tariff-free areas). meaning that raw materials. Also. enterprises can be more competitive. 9 export processing zones. R. Commodity Tax. fuel . ¾ Main Location: Most Main cities ¾ Characteristics: Provides manufacturers with sufficient lands. 3 science parks.. Kaohsiung. ¾ Main Location: Taichung. avoiding the disturbances from the surrounding environment.C. and Taoyuan. capital and people in international trade. and bonded factories(warehouses) are all considered bonded areas(i. Taipei. Executive Yuan. high value-added industries that promote productivity livelihood. semi-processed goods or machinery purchased from a tax zone. Pingtung ABP. Central Taiwan Science Park. and Investment Incentives (1) Production Costs ¾Currently. and Sales Tax.

11 5. Each floor area ranges from 750m2 to 946m2.Service Building Chunan Standard Factory Building(First Phase) Science Park Standard Factory Building(Second Phase) 1F 2-5F 1F 2F 3F 4F 1F-5F 1F-5F Rental Cost Monthly m2 Ping(3.67 12. Central Taiwan Science Park Rental Cost: Location Item Taichung Science Park Huwei Science Park Houli Science Park Erlin Science Park Land Building Land Land Land Rental Cost (NT$/m2) Monthly Land Only Public Facility Total 4. Southern Taiwan Science Park Rental Cost: y Land Tainan Science Park Kaohsiung Science Park Each month 23. Standard Factory Building 2.000 students graduate from its .9. . Si-Soft Factory Building 2F-7F 5.07 0.3m2) 126 416 119 390 110 363 103 340 98 323 188 620 Main Building 197 650,600 Public Facility 182 182 600 182 600 125 413 114 376 147 485 142 469 138 455 133 439 125 413 125 413 b.05 88 2. The rental cost is 94-142 NT$/m2 monthly.Recommended Industries for Foreign Investment in Taiwan—Cloud Computing Industry A.65 19. Each month 11. Land Rental Costs a. of whom 35% have college or university degrees or higher.58 2.21 NT$/m2 and additional 5% business tax. Each year around 320.91 15. Du-Xing Factory Building 6.49 NT$/m2 and additional 5% business tax. Labor Costs ¾Taiwan has a high-quality labor force of approximately 10 million people. Intellectual Property Center 1F 3. The rental cost is 91-120 NT$/m2 monthly c.96 8. Two phases.88 0 0. High-Rise Factory Building Hsinchu Science Park 4. Each floor area ranges from 960m2 to 2040m2. y Building Tainan Science Park Kaohsiung Science Park Five phases. Hsinchu Science Park Rental Costs: Location Building Type/Floor 1F 2F 3F 4F 5F 1.40 14.88 B.

000 500.880.152 95. which was practiced in 2010.200 Source: Ministry of Finance B.001 Tax Rate 5% 12% 20% 30% 40% Progressive Different (NT$) 0 35.996 44.000 4. foods and beverages Information and communications Finance and insurance Real estate Professional. Industry Mining and quarrying Manufacturing Electric power and gas supply Water supply and remediation services Construction Wholesale and retail Transportation and storage Lodging. and technical services Support services Education services Human health and social work services Arts.180.234 40.930 40.090.200 749.000 and less 120. and recreation services Other services Average Salary(NT$) 49. For person paid by the hour.195 54.001-1.154 48.674 39.720 49.090.013 67.001-2. scientific. the minimum hourly wage as set by law is NT$98/hr. and Statistics. Individual Income Tax Rate Income Tax Bracket (NT$) 0-500. Source: Ministry of Finance (3) Investment Incentives & Administrative Support A.068 27. Invest in Taiwan colleges and universities.001-4. Tax incentives a. entertainment.513 38.969 31. the minimum monthly wage required by law is NT$17.072 31.090.200 340. Industrial Innovation Act ¾ According to the「Industrial Innovation Act」. filling the human resource needs of commerce and industry. 15 percent of a .10. .090.171 62.596 22.257 29.731 Source: Directorate-General of Budget.000 and higher Tax Rate Exempt from tax.New Opportunities.000 2. ¾For person paid by the month. Business Income Tax Rate Income Tax Bracket (NT$) 120.180. Executive Yuan (2) Taxation A.000 1. Accounting.000 122. 17% on the total taxable profit.

For industries engaged in international transport the preferential tax rate shall be 1. Investment with government participation Item content ¾Primary targets are the information. For other industries the rate shall be 2. A company that imports new production technology or products from abroad that also uses the patent. or are engaged in the rental of machinery and equipment within Taiwan experience difficulty in shouldering operating costs. and cultural creative Development Fund industry sectors. with special approval by the Industry Development Bureau of the Ministry of Economic Affairs. digital content. Investment ceiling ¾Publicly-held shares are not to exceed 49%. offer tech services.Recommended Industries for Foreign Investment in Taiwan—Cloud Computing Industry business' R&D spending would be deductible from its business income tax. and Deed Tax. b.25%. or other special right owned by a foreign profit-seeking business may. At the same time. trademark. such enterprises may apply for permission to be listed under a preferential tax rate bracket regardless if they have a branch or an agent in Taiwan. Incentives Item R&D subsidies Biotech and Pharmaceutical Industry Importing machinery not manufactured domestically Income tax exemption on licensee fees paid overseas 1. Land Value Tax. Private sector companies that participate in major public construction projects may enjoy a five-year Business Income Tax exemption. B.7% or 2. ¾Investment plans for domestic SMEs.7%. aerospace. enjoy tax exemption on the licensee fees paid to the foreign profit-seeking business If offshore for-profit enterprises which operate international transport services are contracted for construction projects. and exemption of tariff on imported construction machinery as well as deductions in House Tax. but capped at no more than 30 percent of its business income tax. Imported machinery of a kind not yet manufactured domestically may enjoy tariff-free treatment. Scope of investment by biotechnology.25% preferential tax rate will be used when issuing remuneration for foreign tech services rendered Private sector participation in major public construction projects Content 15% of a company's R&D expenditures may be claimed as a deductable expense against the current fiscal year's payable business income tax. telecommunications. agricultural technology. investment tax credits. the corporate income tax rate is reduced to 17%. 35% of R&D and employee training expenditures may be claimed as a deductable expense against the current year's payable business income tax. For biotech and pharmaceutical industries. Profit-seeking businesses that invest in private-sector organizations that participate in major public construction projects also receive deductions on their Business Income Tax. .11. .