Research Policy 31 (2002) 633–651

The origins and dynamics of Taiwan’s R&D consortia
John A. Mathews∗
Macquarie Graduate School of Management, Macquarie University, Sydney, NSW 2109, Australia Received 21 December 2000; received in revised form 21 March 2001; accepted 21 May 2001

Abstract A series of collaborative R&D ventures have emerged in Taiwan, within a quite distinctive institutional framework. Unlike the case of many of the collaborative arrangements between established firms in the US, Europe or Japan, where mutual risk reduction is frequently the driving influence, in the case of Taiwan it is technological learning, upgrading and catch-up industry creation that is the object of the collaborative exercises. The Taiwan R&D alliances were formed hesitantly in the 1980s, but have flourished in the 1990s as institutional forms have been found which encourage firms to cooperate in raising their technological levels. Several alliances could be counted in Taiwan in the late 1990s, bringing together firms, and public sector research institutes, with the added organizational input of trade associations, and catalytic financial assistance from government. The article discusses the evolving organizational architecture of these R&D alliances, utilizing several case studies, and seeks to draw comparisons between these institutional innovations in Taiwan and established collaborative arrangements in the USA, Japan and Europe. © 2002 Elsevier Science B.V. All rights reserved.
Keywords: R&D consortia; R&D collaboration; Taiwan; Industrial upgrading; Technology diffusion and adaptation; State-business relations; Economic learning; Institutional innovation and evolution

1. Introduction As the costs and risks of research and development mount, so firms in the industrial heartlands of the USA, Europe and Japan have sought new organizational forms to reduce and share these risks. Inter-firm R&D collaborative alliances and consortia have flourished, and with them new institutional foundations and facilitative mechanisms have been discovered (Evan and Olk, 1990; Kleinknecht and Reijnen, 1992; Dodgson, 1993; Aldrich and Sasaki, 1995; Sakakibara, 1997a,b; Dodgson, 2000). The common feature shared by all such partnerships is that they influence the dynamics of innovation in such a way that the future com∗ Tel.: +612-9850-6082; fax: +612-9850-9942; URL: http://www.gsm.mq.edu.au/faculty/home/john.mathews E-mail address: john.mathews@mq.edu.au (J.A. Mathews).

petitive position of at least one of the partners, and potentially of all the partners, is improved. The microelectronics, semiconductor and computer sectors have been in the forefront of these developments, driven by the Schumpeterian competitive dynamics of rapid product turnover and diminishing process technology life cycles that characterize these sectors. Governments have played key roles in the successful R&D consortia in all the advanced countries—as in the case of Sematech in the USA, in the VLSI and many other joint R&D programs in Japan, and in ESPRIT, EUREKA and other collaborative programs in Europe. Public policies towards the framing of such consortia are becoming more favorable (Martin, 1996). These developments, whether they be called R&D alliances, R&D consortia or strategic technology partnerships, or simply collaborative innovation networks, are the subject of a growing scholarly literature (Levy and

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Samuels, 1991; Hagedoorn, 1996; Vonortas, 1997; Hagedoorn et al., 2000). Of great interest in this regard is the series of collaborative R&D ventures that have emerged in Taiwan, within a distinctive institutional framework. Unlike the case of many of the collaborative arrangements between established firms in the US, Europe or Japan, where mutual risk reduction is frequently the driving influence, in the case of Taiwan it is technological learning, upgrading and catch-up industry creation that is the object of the collaborative exercises. Taiwan’s R&D consortia were formed hesitantly in the 1980s, but flourished in the 1990s as institutional forms were found which encourage firms to cooperate in raising their technological levels to the point where they can compete successfully in advanced technology industries. Many of these alliances or consortia are in the information technology sectors, covering personal computers, work stations, multiprocessors and multimedia, as well as a range of consumer products and telecommunications and data switching systems and products. But they have also emerged in other sectors such as automotive engines, motor cycles, electric vehicles, and now in the services and financial sector as well. Several such alliances could be counted in Taiwan in the late 1990s, bringing together firms, and public sector research institutes, with the added organizational input of trade associations, and catalytic financial assistance from government. The alliances form an essential component of Taiwan’s national system of innovation (Lin, 1994; Hou and Gee, 1993). Taiwan’s high technology industrial success rests on a capacity to leverage resources and pursue a strategy of rapid catch-up. Its firms tap into advanced markets through various forms of contract manufacturing, and are able to leverage new levels of technological capability from these arrangements. This is an advanced form of “technological learning”, in which the most significant players have not been giant firms (as in Japan or Korea), but small and medium-sized enterprises whose entrepreneurial flexibility and adaptability have been the key to their success. Underpinning this success are the efforts of public sector research and development institutes, such as Taiwan’s Industrial Technology Research Institute (ITRI). Since its founding in 1973 ITRI and its laboratories have acted as a prime vehicle for the leveraging of advanced technologies from abroad, and for their rapid diffusion or

dissemination to Taiwan’s firms (Lin, 1994; Hobday, 1995; Wong, 1995; Mathews, 1997; Mathews and Cho, 2000). This cooperation between public and private sectors, to overcome the scale disadvantages of Taiwan’s small firms, is a characteristic feature of the country’s technological upgrading strategies, and the creation of new high technology sectors such as semiconductors. It is Taiwan’s distinctive R&D consortia that demonstrate most clearly the power of this public– private cooperation, in one successful industry intervention after another. Taiwan’s current dominance of mobile (laptop) PCs for example, rests at least in part on a public–private sector led consortium that rushed a product to world markets in 1991. Taiwan’s strong performance in communications products such as data switches, which are used in PC networks, similarly rests on a consortium which worked with Taiwan’s public sector industry research organization, ITRI, to produce a switch to match the Ethernet standard, in 1992/1993. When IBM introduced a new PC based on its PowerPC microprocessor, in June 1995, Taiwan firms exhibited a range of computing products based on the same processor just one day later. Again this achievement rested on a carefully nurtured R&D consortium involving both IBM and Motorola, joint developers of the PowerPC microiprocessor, as external parties (Mathews and Poon, 1995). Taiwan is emerging as a player in the automotive industry, particularly in the expanding China market, driven by its development of a 1.2 l four-valve engine. Again, this is the product of a public–private collaborative research endeavor involving three companies, which have now jointly created the Taiwan Engine Company to produce the product. Thus, the R&D consortium is an interfirm organizational form that Taiwan has adapted to its own purposes as a vehicle for catch-up industry creation and technological upgrading. The microdynamics of the operation of these alliances or consortia, is therefore a matter of some substantial interest. Some of these consortia have been more successful than others—but all seem to have learned organizational lessons from the early cases where government contributed all the funds, and research tasks were formulated in generic and overly ambitious terms for the companies to take advantage of them (Weiss and Mathews, 1994). The more recent R&D alliances

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formed in the 1990s have been more focused, more tightly organized and managed, and have involved participant firms much more directly in co-developing a core technology or new technological standard which can be incorporated by the companies, through adoption and adaptation, in their own products. The basic model of the Taiwanese alliances is the construction of a process in which R&D costs can be shared, and risks reduced, through bringing many small firms into a collaborative alliance with each other and with ITRI (i.e. with one its operating laboratories). It is ITRI which provides the anchor for the alliance and the principal vehicle of technology leverage. Thus, the Taiwan R&D alliances are similar to their counterparts in North America, Europe and Japan in their reliance on public sector laboratories to provide the core institutional vehicle for R&D cooperation (Rush et al., 1996; Dodgson, 1997). But they differ from their counterparts in the Triad countries in that their goal is rapid adoption of new technological standards, products or processes developed elsewhere, and their rapid diffusion to as many firms as possible—rather than extending the envelope of R&D (Freeman and Hagedoorn, 1994). The organizational form of the Taiwan alliances has evolved over the course of the two decades in the 1980s and 1990s. It owes much to the R&D collaborative vehicles developed in the leading industrial centers, particularly in the way that Japan structured many relatively short-lived R&D alliances with clear technological learning goals which in turn drew on earlier European examples (Sigurdson, 1998, 1986; Fransman, 1990/1992; Sakakibara, 1997a; Sakakibara, 1993). Taiwan’s ability to fashion these consortia, and utilize them to accelerate technological catch-up and learning, is testament to the country’s institutional capacity. The initiative for the formation of early alliances came exclusively from the public agencies (largely ITRI or the Ministry of Economic Affairs), but the private sector has been taking an increasingly active role as the institutional form of the consortia has evolved, to the point where private firms were taking the initiative in forming alliances by the end of the 1990s (as in the case of electronic commerce). Thus, the Taiwan R&D consortia pose an interesting case for the study of government-business relations and their evolution as an economy moves through phases of technological imitation to innovation.

It should be pointed out that not all East Asian countries have been successful in forming research partnerships, despite overwhelming evidence of their efficacy in the case of Japan’s catch-up efforts in the 1960s and 1970s. They have been tried without great success in Korea, while there have been few efforts to utilize them in countries which have relied more heavily on multinational investment, such as Singapore, Malaysia and Thailand. In this sense, the Taiwan consortia represent a singular experience outside the scope of the established collaborative arrangements in Japan, the USA and Europe. This article is based on a study of 20 of Taiwan’s R&D alliances formed over the course of the past 15 years. 1 Since these consortia are not well known, several representative case studies are given in the paper, each framed around a discussion of the rationale for the formation of the alliance, its organization, composition and processes, outcomes, and an assessment of its relative success. 2 The cases are then compared with what is known of successful R&D collaborative ventures in the USA, Europe and Japan, in order to draw out the key features of the Taiwan R&D alliances. The aim is to develop an evolutionary conception of their organizational design, providing an assessment in general of their effectiveness and modus operandi. The alliances studied, and the representative cases, are displayed in Table 1, which illustrates the range of consortia formed. It can be seen that they span many industries and target technologies, and that they range
This study of Taiwan’s R&D alliances has been conducted through field work carried out in November 1994, September 1995, August 1996 and March 1997. Financial assistance has been provided by the Australian Research Council, and by the Business Networks research program of the Department of Industry, Science and Technology (in 1995–1996). Research assistance was provided by Teresa Shuk-ching Poon and Cathy Xu; some interviews were conducted in conjunction with Professor Linda Weiss, Dr. Wan-wen Chu and Dr. Shin-horng Chen. The assistance of officers at the Industrial Technology Research Institute (ITRI), in particular Dr. Otto Lin (former president), Dr. Chintay Shih (current president) and Dr. Paul Bao-shiu Lin (deputy director of CCL), is gratefully acknowledged. 2 The cases studied provide a substantially representative sample, but certainly not the entire class of R&D consortia with which ITRI has been involved, nor the still wider class of consortia initiated by the private sector without ITRI involvement. Further studies are needed to gain this more complete perspective on the Taiwan experience.
1

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Table 1 R&D alliances in Taiwan: 20 cases 1983–1997 Alliance (A) Electronics and information technology 1. PC 100 (IBM PC XT-compatible) 2. PC 400 (IBM PC AT-compatible) 3. Workstation (Sun SPARC-compatible) 4 Notebook Pca 5. Graphics terminal 6. Palmtop PC 7. Pentium server 8 Taiwan NewPC (PowerPC)a (B) Consumer electronics and communications 1. Ethernet switcha 2. Digital loop carrier 3. LCD consortium 4. HDTV 5 Interactive TV 6. V5 Network access standard 7. High speed loop access system (C) Mechanical engineering/materials 1. 1.2 l enginea 2. Electric scootera 3. 250cm3 motorcycle engine (D) Software/services 1. Java-based Internet products 2 Electronic commerce
a b

Year(s)

Companies

Budget NT $ million 40 24 150 100 25 50 50 250 75 60 230 250 200 150 120 1400 500 600 250 300

1983–1984 1984–1985 1989–1991 1990–1991 1991–1993 1991–1992 1991–1993 1993–1997 1993–1996 1992–1994 1995–1997 1994–1996 1995–1997 >1996 >1996 1992–1997 1991–1996 >1996 >1996 >1996

5 (9)b 3 2 (3)b 46 34 (9)b 16 2 40 5 (8)b 3 (4)b 4 11 21 12 14 4 (3)b 10 2 24 61

Case study. Second-stage participation.

in size from as few as three or four participants to >40. One striking feature worthy of immediate notice is their relatively small budgets. In all, the 20 consortia have accounted for a budget of not more than NT$ 4 billion, over 15 years, with government input of no more than NT$ 2.3 billion—or around US$ 100 million, equivalent to just one year’s government subsidy of the 10 year Sematech program in the USA. 3 Thus, these figures reveal just what a “David and Goliath” struggle it has been for Taiwan to take on US firms in high technology industries—and they underscore the significance of the Taiwan achievements, which owe as much to organizational finesse and learning as to dollar subsidies.
3 On Sematech’s budget and its appropriation, see Sematech, A World of Opportunity: 1996 Annual Report (Austin, TX: Sematech, 1997).

2. R&D consortia The reasons why firms in the advanced countries seek to pool their development efforts within R&D consortia, and the nature of the benefits they derive, is now the subject of a burgeoning international literature. The theoretical economic arguments (Spence, 1984; Katz and Ordover, 1990; Kamien et al., 1992) tend to focus on the “spillover” effects of R&D, creating a socially useful externality. According to this reasoning, firms enhance social welfare through their research activities, but this may depress their incentives to continue, unless a form of R&D collaboration can internalize such an externality. These arguments are of necessity couched in cost terms, with consortia seen as pooling costs, and with the inevitable assumptions that vitiate much economic reasoning, e.g. that cooperation either involves all firms in an industry or

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none (compared to the reality that cooperation usually involves a small subset of firms). Empirical testing of these points was scant until comprehensive microeconometric studies of Japan’s R&D consortia and US consortia such as Sematech demonstrated clear benefits to participants and to R&D expenditure levels generally (Branstetter and Sakakibara, 1997; Link et al., 1996). More comprehensive explanations for consortia formation and governance have come from the institutional economic literature and strategic management literature. Here, the focus has been on matters such as how firms formulate and achieve strategic goals through the formation of research consortia (Vonortas, 1997; Martin, 1996; Link and Bauer, 1989); how firms and agencies combine to enhance their resource base (Mowery et al., 1998); and how they can actually manage the complex processes of building inter-firm collaborative routines (Powell et al., 1996; Sakakibara, 1997a,b; Doz et al., 2000; Sawhney and Prandelli, 2000). These strategic goals include gaining access to technical capabilities not otherwise easily accessed, particularly complementary technological resources, which generate new business opportunities (Link and Bauer, 1989; Vonortas, 1997). The creation of value through interorganizational relationships, and the capturing of “relational advantage” has become a topic for sustained inquiry (Saxenian, 1991; Dyer and Singh, 1998; Child and Faulkner, 1998; Barringer and Harrison, 2000). Small firms in particular have been able to take advantage of R&D consortia in order to overcome diseconomies of scale (Kleinknecht and Reijnen, 1992; Sigurdson, 1998, 1986). 4 The aim is to enhance the firms’ absorptive capacity, thus, giving them potential access to a wider range of technological options (Cohen and Levinthal, 1989). This provides an appropriate setting for the discussion of Taiwan’s consortia, which have been designed to promote the interests of small and medium-sized firms
4 Sigurdson (1986) provides a wealth of detail on the origins of Japan’s Engineering Research Associations (ERAs) which were largely organized for the benefit of small firms. This makes the best-known of Japan’s consortia, such as the VLSI consortium 1976–1979, an exception (Sakakibara, 1993; Sakakibara, 1997a). The Japanese ERAs were actually an institutional adaptation of Research Associations pioneered in Europe. Sigurdson’s monograph has long been out of print, and was republished in edited and updated form as Sigurdson (1998).

through the transfer and sharing of resources and the collective enhancement of absorptive capacity. 2.1. Formation and operation of R&D consortia In the case of R&D collaborative alliances and consortia, the detailed case studies conducted to date reveal the immense difficulties that advanced firms face in sustaining meaningful collaboration, even when the payoffs are clear (Peck, 1986; Corey, 1997; Grindley et al., 1994; Hausler et al., 1994; Luetz, 1997; Link, 1998). This provides a useful antidote to the economic analysis, which seems to assume that consortia will be formed when firms have interests in so doing. The real world is much less tractable. This again is of great relevance to the Taiwan case, where public agencies have seen the issue in terms of creating an institutional framework that will help to overcome firms’ antipathy towards collaboration. Three streams of research within the literature on R&D consortia bear directly on the Taiwan case, and bring out the factors involved in their success or failure. First, when the research consortia have an explicit goal of “technology transfer” and one of the institutions, usually a public agency, plays a lead role, these problems are not so acute. The term “cooperative R&D agreements” (CRADAs) has been coined to describe such a situation, and its efficacy in different settings discussed (Berman, 1993; Bozeman and Pandey, 1994; Rogers et al., 1998; Kumar and Magun, 1995; Abramson et al., 1997; Leyden and Link, 1999; Carayannis and Alexander, 1999). The Taiwan R&D consortia can be deemed to be a species of CRADA, although joint development has become as much a matter of concern in the 1990s as technology transfer. Second, there is the issue of the goals of consortia formation. Sakakibara (1994, 1997a,b) raised the level of discussion of R&D consortia in her insistence that many of the Japanese R&D collaborative arrangements reflect motives of skill sharing rather than cost reduction. She does not deny the importance of government subsidies, but argues that these have the effect of inducing skill-sharing cooperation rather than the costs themselves being a prime factor. Her work rests on the resource-based view of the development of strategic capabilities, and it provides a framework of prima facie relevance for the case of Taiwan’s alliances.

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Third, there is the issue of the processes of consortium formation and their triggering events. Doz et al. (2000) provide a rich discussion of the institutional details and motivations that inform the creation of R&D consortia, utilizing as their sample the set of US R&D consortia formed under the National Cooperative Research Act of 1984, between the years 1984 and 1989. 5 Their focus is on the process of formation, rather than on its triggering factors. This leads them to propose two general kinds of processes, namely one which is rationally engineered (usually by some triggering agency), compared with one which emerges as firms become aware of the feasibility and desirability of pooling R&D efforts. Again this distinction appears to have important application in the case of the Taiwan consortia. Overall, the burden of the empirical research is that firms do indeed derive benefits from cooperating in R&D, under certain circumstances (e.g. separability of functions in the development task), and provided the participants can find acceptable ways to answer the three issues posed by Aldrich and Sasaki (1995), namely: • What kind of organizational arrangements work best for each case? • How are the research goals to be specified? • What is to the involvement of government and public agencies? This present study will utilize these questions to frame its analysis of the Taiwan experience with R&D consortia, buttressed by the criteria introduced by Sakakibara (cost-sharing versus skill-sharing motivations) and by Doz et al. (2000), namely, engineered versus emergent formation of consortia. These five questions will provide a convenient framework for bringing out the essential organizational features of the Taiwan alliances. The goals then of the present study are to establish the practical relevance and interest of the Taiwan consortia (i.e. adding further cases to the empirical literature); to compare and contrast the Taiwan consortia with those preceding them in Japan, Europe and the USA (Hagedoorn et al., 2000); and to reach
5 This provides a population of 137 R&D consortia registered under the Act. In 1994, the Act was amended, and the collection of data was changed.

provisional findings as to the relative contribution that the Taiwan consortia might have made to the development and upgrading of new industries in Taiwan.

3. Origins of Taiwan’s development consortia Like Taiwan’s industrial upgrading efforts more generally, the R&D alliances are the fruit of experimentation and some early failures. Some of the early R&D collaborative efforts, inspired no doubt by Japanese cases such as the VLSI program of 1976–1979, were hardly successful. In the beginning of the 1980s, the newly established Institute for the Information Industry (III), for example, initiated a project called Software Engineering Environment Development (SEED). This project brought together 32 member firms and the agency with some ambitious goals to establish technical standards for Chinese-character word processing and software—but in the end there was little to show for these efforts. Likewise an early effort by ITRI to involve automotive firms in the development of a two-stroke engine, to provide a technological foundation for a mooted Taiwanese automotive industry, was an almost complete failure. But the characteristic feature of Taiwan and its institutions is pragmatism and the ability to learn from mistakes. These two failed R&D alliances were certainly not the last word on the subject. 6 In the 1980s and 1990s there were many more such initiatives, most of which can be traced to the various research laboratories of ITRI—such as in electronics (ERSO), computing and communications (CCL), optoelectronics (OESL) or mechanical engineering (MIRL). The new crop of R&D consortia trace their origins to a series of “multi-client projects” initiated by ITRI in the early 1980s, oriented towards stimulating a personal computer (PC) industry in Taiwan. Taiwan had missed out completely in mainframe and mini-computers. But in the early 1980s, computer engineers in ITRI’s electronics laboratory (ERSO) were highly aware of the possibilities in the new PC sector, based on the emergence of firms in Taiwan in microprocessor-based product areas such
6 See Wang (1994) for a brief description of these two projects and their shortcomings.

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as calculators, game machines and the early microcomputers. The catalyst was IBM’s introduction of its successful PC based on an open architecture, paving the way to “IBM-compatible” machines. This created an opportunity which Taiwan firms, led by the youthful Acer, were quick to seize. However, the Taiwan firms lacked basic PC technology, and turned to ITRI for support. At that time the norm was for ITRI to develop new technologies and then advertise their availability to existing firms; or to develop the technology and then spin it off into a new firm (as done with the first semiconductor firm, UMC, in 1980). An alternative was to perform contract work for individual companies, sometimes merging into co-development work. A standard contractual agreement for the development of a PC was signed between the company Acer (then Multitech) and ITRI/ERSO—but at the insistence of the Ministry of Economic Affairs, which saw the potential for many Taiwan firms to become involved in this emerging industry, the project was extended to become a “multi-client project” thereby bringing in other firms as well. This was the organizational prototype of the R&D consortium. The idea was to seed an industry rather than provide assistance to a single firm. This initial effort had partial success, in developing a generic product standardized around certain core components—but it was too late for the market, and was plagued at the time by intellectual property rights disputes. The next chance came with IBM’s announcement of the powerful new PC AT system in August 1984, which again featured open architecture and by now standardized components, such as DOS operating system and Intel 286 microprocessor. This was a technological leap that was eminently suited for Taiwan’s fledgling PC firms, and for technological imitation through the institutional vehicle of ERSO’s multi-client project. No sooner was IBM’s new machine announced than ERSO moved to establish a new multi-client project to develop a Taiwan version of the PC AT, in October 1984. Three companies were enrolled as participants. 7 Formal contracts were signed in December 1984. A prototype machine was
7 These were Systek, Tatung and Copan. This was the project through which Tatung, then a leading electronics firm in Taiwan, made its entry into the PC business.

transferred to the companies by July 1985, less than a year after IBM’s announcement, and brought to market by the firms involved shortly thereafter. This project was considered a great success, in terms of the technology development and transfer, in terms of compliance with all intellectual property requirements (an important development for the Taiwan PC industry), and in terms of the business subsequently generated for the participant firms, all of which became leaders in the Taiwan IT industry. The stage was now set for ITRI, and its newly established Computing and Communications Laboratory (CCL), to take the next step in upgrading Taiwan’s technological capabilities beyond the simplest PCs. Formal consortia were established in product areas such as laptop PCs, workstations and high-end servers. But the experience which was decisive in shaping the organizational form of future consortia was that of the Notebook PC consortium, which ran for a year and a half, from 1990 to 1991. 3.1. The laptop PC consortium The prospects for Taiwan companies in the new field of Laptop PCs seemed remote, given the multiple proprietary standards which were emerging, and the high density of the product design and assembly process (calling for different and more advanced skills than those involved in producing desktop PCs). The CCL’s senior officials saw this as an opportunity to develop a further multi-client project, to give the industry greater technological and commercial momentum. The idea was to settle on certain key components as standard, and help to build a mass production industry on this basis. A completely new organizational approach was tried for this Notebook or Laptop PC project, marking the point where the multi-client projects were being recognized as genuine R&D alliances or consortia. In this case, CCL developed draft specifications for a “common machine architecture”, and announced the new project to interested firms. The CCL negotiated with the trade association, the Taiwan Electrical Appliance Manufacturers’ Association (TEAMA), to become involved as joint coordinator. 8 This may
8 Now known as the Taiwan Electrical and Electronic Manufacturers’ Association, TEEMA.

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have seemed a small step at the time, but in organizational terms it represented a considerable enlargement of the scope of the alliance—and an institutional entrenchment of its legitimacy within the industry. As things turned out, no fewer than 46 companies elected to join the consortium—some clearly more for informational purposes than for any serious intention of manufacturing. 9 In July 1990, a formal consortium was established, the Taiwan Laptop PC Consortium (TLPC), with capital of NT$ 50 million (just <US$ 2 million) subscribed by member firms. The overall strategy in the Laptop PC consortium was for the CCL-led consortium to develop a “common machine architecture” for a prototype, which would translate into a series of standardized components that could be produced by Taiwanese manufacturers through mass production. There was no call for external sourcing of basic technology design, since CCL had already some experience in developing a prototype in an earlier project with one of the consortium members, Tatung. Organizationally, the consortium formed several technical panels or working parties, charged with the task of examining each of these components, and investigating prospects for local supply. These components included such items as motherboard (and chipset); screen (LCD); keyboard; battery; connectors; and adapters. In the absence of a standardization decision, small Taiwan producers of these components would be unable to compete for the PC producers’ business against Japanese, US or European suppliers. This was the key institutional innovation of Laptop PC consortium, which had the effect of translating what would have been a “niche” product for Taiwanese manufacturers into a mass-produced product where Taiwanese manufacturing efficiencies could be brought into play. Once the serious engineering work began, the prototype was produced rapidly and exhibited at the Comdex computer show in the USA in 1990. Because it was based on a series of standardization decisions, the prototype was transferred rapidly into mass production. Market sales took off rapidly, both in Taiwan
9 The initial entrance fee was set at only NT$ 1.2 million (around US$ 40,000). A slightly higher fee of NT$ 1.8 million was set for later entrants.

and abroad. The CCL followed up the earlier product development work with extensive training programs offered to engineers employed by consortium member firms. Many of the CCL engineers also moved across to the firms involved in producing Laptop PCs, which was another form of diffusion of technological capability. Thus, a notebook PC industry in Taiwan was launched, thanks at least in part to the work of this consortium. By the late 1990s, Taiwan had emerged as the world’s leading supplier of notebook PCs, with firms like Acer achieving global brand status. This successful aspect of the Laptop PC consortium has to be set against negative features, which prompted further learning and evaluation on the part of the Taiwan agencies themselves. Principal defect of the consortium was the large number of players (the entry price had been set too low) and the fact that they were presented with a finished product that was more or less ready to be put into production. Several consortium members thus found themselves selling virtually identical products (given that the prototype had been so close to a commercial product) and price competition rapidly became the main means for producers to differentiate their products. This led to excessive competitive pressures, and some of the less experienced PC firms which had entered the industry via the alliance exited, or went bankrupt. This was hardly a desirable outcome. Further attempts to extend the alliance, to produce a second generation Notebook PC, foundered on the emerging differences between the manufacturers, and the formal consortium was disbanded in 1991. The Laptop PC consortium represented a watershed, indicating the potential of R&D consortia to help establish new “fast follower” industries, but also making it clear how carefully the organizational details and processes would need to be managed. The stage was now set for a series of consortia formed in the 1990s that learned the lessons from these earlier experiences, and brought the Taiwan institutional capacities in mounting and managing R&D consortia to a level comparable with those found in the advanced industrial countries. Of the many partnerships formed, let us examine four that were typical, in a variety of sectors, both in terms of their organization, their technology targeting strategy, and their methods of technology diffusion management.

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4. Case studies of Taiwan’s R&D alliances in the 1990s 4.1. NewPC consortium (1993–1997) 4.1.1. Background and rationale The Taiwan PC industry was very successful, due in part to the ITRI consortia, but it limited itself to “Wintel” architectures (i.e. those based on MS Windows and Intel microprocessors). 10 There are of course alternatives to the Windows-based architectures developed by Microsoft and Intel; one such is the PowerPC microprocessor developed jointly by IBM and Motorola and used by Apple. It made sense for the Taiwan IT industry to develop capability in the PowerPC architecture, for at least three reasons. First, in case it took off and established itself as a genuine alternative to Intel and Microsoft products; second, in order to use the PowerPC platform as a way of accessing Apple product platforms, which until then had been inaccessible for Taiwan PC firms; and third, as a way of diffusing capabilities in processor architectures generally. For their part, IBM and Motorola recognized the significance of extending their global reach through encouraging Taiwan IT firms to develop a range of PowerPC-based information products. The IBM and Motorola were therefore approached by CCL in 1992, with a view to licensing the PowerPC to a group of Taiwan PC firms. By dealing with ITRI/CCL in a once-off licensing agreement, the US firms could avoid having to deal with a lot of individual, small Taiwanese companies. Negotiations over the character of the technology transfer process were prolonged, with a final agreement not being signed until late 1993. To show their commitment, the US firms jointly established a PowerPC Technical Center in Taiwan (the first outside the USA) in the period 1994–1996, to provide technical assistance to Taiwan firms seeking to adopt the PowerPC platform. 11
10 An exception was an attempt to enter the workstation segment of the market on the basis of Sun SPARC-compatible machines, in the late 1980s. 11 Apparently Digital Equipment Corp (DEC) also approached ITRI/CCL with a view to licensing its Alpha processor, a rival to the PowerPC. However, DEC was reportedly not willing to offer the same level of technology support as IBM and Motorola, and so their processor was not chosen for the NewPC consortium.

4.1.2. The consortium process This was one of the more complex ITRI R&D alliances, formed to promote a standard system platform based on the PowerPC microprocessor. Technology transfer from IBM and Motorola was effected through CCL, on behalf of Taiwanese firms generally, in the form of a comprehensive licensing agreement. This agreement set the terms of the development process; it provided for development of products based on the PowerPC processor, but not of the processor itself. Thus, the consortium was designed to produce PowerPC-based products as rapidly as possible. On the original model of the Laptop PC consortium, the NewPC consortium spanned several steps in the system-product value chain, including production of chipsets (platform), add-on cards, components and software as well as final PC system producers. This was a further organizational innovation, spanning several steps in the value-chain, and making the NewPC consortium considerably more complex than its predecessors at ITRI. Given earlier experience with the Laptop PC consortium, membership in each of the working groups was limited to a maximum of nine firms, to avoid excessive competition subsequently. Thus, the alliances learn from each other, from one generation to the next. Overall 40 companies were involved. The structure of the consortium is shown in Scheme 1. The NewPC consortium was formally established between CCL and the 40 participating firms, in November 1993, following the signing of a Memorandum of Understanding (MoU) between CCL and IBM in July 1993. Product development proceeded rapidly, overseen by the Platform working group, under the technical advice of IBM and Motorola who placed representatives in Taiwan. A motherboard built around the PowerPC was exhibited by CCL at the CeBIT trade fair in Hanover, to considerable acclaim. It was followed by a fully functioning PC system based on a PowerPC 601 motherboard, exhibited at the June 1994 Computer Show in Taipei. This was just a day after IBM had announced its own first PC based on the PowerPC 601. A subsequent phase was focused on extending the market opportunities for Taiwanese firms. It was initiated with the signing of an agreement between CCL and Apple to open up its operating system for licensing by Taiwanese firms, in January

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Scheme 1. The structure of the NewPC consortium.

1995. 12 This was followed by an agreement between CCL and IBM to license IBM’s PowerPC system firmware to Taiwan producers (in addition to the hardware already licensed). This opened the way for Taiwan firms to produce their own PC systems based on PowerPC platforms, utilizing Apple and IBM software and firmware and “shaping” their product offerings with their own software refinements. All the funds needed for development of the NewPC consortium products were provided by member companies, through their contributions. 13 It represented a “coming of age” where the consortia were expected to be financially self-supporting. 4.1.3. Consortium outcome By March 1997, two Taiwanese firms—Umax and Tatung—had developed product lines based on PowerPC platforms, and licensed PowerPC-compatible software from IBM, Motorola and Apple. Umax led the way with its licensing of Apple hardware and software rights, and its production of PowerMac PCs in Taiwan. Since then other IT products have been produced based on the PowerPC processor rather than the conventional “Wintel” systems. Of course, as things turned out, the PowerPC processor did not displace the Intel-Microsoft system dominance, and
12 Apple had never before opened its operating system to licensing—a momentous decision. 13 These increased as the project evolved—from NT$ 1 million in Phases 1 and 2, to NT$ 2 million in Phase 3. Thus, the total budget was over NT$ 100 million (around US$ 5 million). Apart from CCL’s “in-kind” contributions, in terms of engineering input, there was no external public funding of the NewPC consortium.

so the business success of these Taiwan product offerings has not been great—apart from the Apple cloning, which was growing fast in the later 1990s. Some leading companies such as Acer did not join— presumably for fear of offending Intel. 14 Thus, the consortium must be rated a qualified success. But there were several highly significant indirect effects. It equipped major firms with the technological capabilities to develop products based on a major microprocessor, and gave them insights into the workings of the operating systems based on this processor. It generated profitable product lines for the companies, both through their own PowerPC-based products and through the opening up of Apple PowerBook clones. It raised the international profile of the Taiwan PC industry so that it was seen to be a player in the technological development of the sector. 4.2. Ethernet data switch (1992–1996) 4.2.1. Background and rationale The 1980s saw the emergence of computer networks, and with them digital data transmission systems based on new data architectures. Ethernet (developed originally at Xerox PARC) was the dominant open standard by the end of the 1980s. Taiwan firms were quick to become involved in these technologies, with the assistance of ERSO. For example Accton (an unofficial ERSO spin-off of 1988) was
14 Other participants kept a low profile for similar reasons; for example, First International Computer participated via its subsidiary, Formosa Industrial Computing, while Umax sent its subsidiary, Prolab Technology, to the software working group.

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an early participant with its ‘Etherhub’ products, while D-Link also emerged as a specialist supplier. In the 1990s, computer networks became sufficiently complex that switching systems needed to be introduced, together with drastically increased capacity ‘bandwidth’ for data flow. This represented a ‘quantum leap’ in data network technology which it was essential for Taiwan firms to master if they were to be industry players. So CCL took the initiative in acquiring the data switching technology, and forming a consortium for its dissemination. 4.2.2. Consortium process The technological core of the emerging Ethernet switch technology was threefold: (a) a set of open Ethernet standards themselves (as published by IEEE in the USA); (b) a chipset embodying these standards; and (c) hardware providing the physical switching link between computers. In 1992, CCL initiated a project to build-up technological capability in these three areas, and accelerate its diffusion to private firms. No external source of technology transfer was needed in this case, as Ethernet technology had previously been mastered (e.g. through the earlier Ethernet hub-based systems). In 1993, CCL let the industry know of this project, and established joint administrative arrangements with the trade association, TEAMA. At various stages between five and eight companies were involved, some of which were relatively new to the industry. 15 This is a characteristic of the Taiwan consortia, one of whose aims is to ensure that there are always new entrants coming into technologically demanding industries. This is a distinctive characteristic, and one where Taiwan differs from the Japanese experience. The first versions of the Ethernet switch were embodied in a customizable chipset, later reduced to a single Application Specific chip (ASIC) that could be manufactured locally by Taiwanese IC firms. Condensing the chipset to a single chip was the critical technology challenge—spurred by US companies such
15 Initially five companies enrolled in a product development consortium: D-Link; Accton; CNet; RPTI and Long Shine. Of these, D-Link and Accton already had prior technological capabilities, which they wished to extend and upgrade through this project. Three further companies joined the project at a later date. Long Shine later dropped out, due to financial difficulties not linked to the project.

as VLSI Technology that led the way with this kind of innovation. The CCL used its own funds to develop the ASICs, on the ‘fast follower’ strategy, and provided them for a fee to the Taiwan industry. The consortium participants took over this technology, and developed their own adapted or improved versions of the ASIC technology for themselves. 4.2.3. Outcome This was one of ITRI’s most successful R&D alliances. The data switching business based on Ethernet standards has been growing fast world-wide in the 1990s, and Taiwan has produced at least two leading specialist suppliers, in Accton and D-Link. Both companies were internationally successful at the end of the 1990s, and both benefited considerably from their involvement in the CCL alliance(s). Accton in the mid 1990s embodied its own ASIC chips in Ethernet switch products, such as its ‘backbone switches’ and ‘segment switches’. These are profitable, high value-adding products that represent a considerable advance on Taiwan’s accustomed role as supplier of the least value-adding components in high technology systems. The MoEA-funded phase of this project ended in 1996. After that CCL continued to maintain and develop its own expertise, further improving its ASICs, and developing expertise in rival technologies to that of Ethernet, such as ATM standards. 16 This led to continuing close relations between CCL and the companies—one of the less visible outcomes of successful R&D alliances. 4.3. Four-cylinder automotive engine (1992–1997) 4.3.1. Background and rationale The automotive industry in Taiwan has been characterized by a large number of participants each of which is quite small and incapable of making the investment needed to develop self-sufficiency in critical components like engines and powertrains. 17 The industry was based mainly on local companies—China
16 Asynchronous Transfer Mode (ATM) standards represent a rival for Ethernet switching standards for intra-network operation. At the time of the study (1996–1997) CCL was developing a new project designed to develop an ATM Internet switch, thus, giving Taiwan firms technical competence in both standards. 17 There were 11 companies in the early 1990s producing 400,000 cars a year, i.e. on average only 40,000 each.

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Motor Co. (CMC), Yulon Motor Co. (YMC) and San Yang Motor (SYM)—which teamed up with Japanese partners to assemble and market their vehicles. 18 Some success had been achieved in developing local branded products, such as the VARICA van and small delivery truck line produced by CMC, which used a Japanese 1 l engine. But efforts to develop the core engine and powertrain components by these firms have been frustrated—and some attempts, as in the case of the Yulon group’s “Feling” branded car, with its own engine, failed in the marketplace. 19 Thus, by the 1990s the automotive companies were anxious to find a way to develop their own capabilities in the core components of engine and powertrain. The driving influences were, firstly their own desire to become fully fledged automotive companies; the prospects of the opening China market, from which they would likely be excluded if they did not have their own components; and the looming prospects of tariff protection being wound back under GATT and then WTO rules. Thus, the three companies were prepared to find common ground through their trade association, the Taiwan automotive industry association (the TTVMA), which made an approach to the government and ITRI in 1990. 4.3.2. Consortium process The project was initiated at the instigation of the TTVMA, whose members (and particularly the CMC) would provide the customers for a collaboratively developed engine. Thus, this was a relatively simple—albeit large and important—consortium, where the participants were clearly identified, and the expected market for the product was foreseen. The years 1991 and 1992 saw ITRI/MIRL undertake a feasibility study, in which a group of engineers from the companies and ITRI undertook overseas study missions. They identified three leading engine companies as potential sources of technology: Lotus (UK) then independent, but subsequently taken over; Porsche (Germany) and Ricardo (UK). In the end, Lotus made the most attractive offer. A formal
18 CMC has a 35% equity tie-up with Mitsubishi Motor; YMC a 25% tie-up with Nissan; and SYM likewise a 25% tie-up with Honda. 19 The Feling car had a fuel injection engine upgraded by YMC from a Nissan carburetor engine.

Technical Assistance Agreement (TAA) was signed between ITRI/MIRL and Lotus in January 1992. The consortium got underway at once. In an initial phase, Lotus provided training to the four companies’ and ITRI’s engineers and developed more precise specifications for the engine. In Phase 2, the engine design was completed and simulated, largely in the UK, and in Phase 3, the engine was actually built and tested at the MIRL laboratories in Taiwan. In this latter phase, there were up to 80 engineers working on the project within MIRL, plus 20 from the companies— so that the project was by far the largest undertaken within MIRL, and dominated the life of the Power Machinery Division for 3 years. A prototype engine was produced in record time—by the end of 1993. 20 At the beginning of 1994, the prototype engine was passed to the four company participants. Rather than each company then seeking to develop and commercialize the engine on its own, a proposal to form a joint (common) engine company was mooted. This was a momentous proposal, that promised to put the Taiwan automotive industry on the solid technical foundations that had been sought but not attained over the previous two decades. The companies studied this proposal for 18 months (while undertaking their own market and technology feasibility studies) and eventually agreed to form the joint engine company in July 1995. The consortium successfully launched the China Engine Corporation (CEC) in 1995, and it became operational in 1996. 21 The venture was capitalized to a level of
20 The leader of the project was Dr. J.P.H. Shu, who had lengthy prior experience in the USA working with NASA and Ford Motor in Michigan. He was able to call on his world-wide network of contacts to provide the essential technical input for the project’s success—the TTA with Lotus, and the supporting TTAs with such companies as Riteway (pistons); A.L. Dunn (diecasting of cylinder head); Bando (belting); three Bond (sealants) and Litens (tensioner). These are all world leaders in the automotive components industry, and their involvement in the project has been critical to its success. Indeed it was the absence of such international linkages with leading suppliers that accounts for the failure of earlier intra-company engine development efforts such as Yulon’s “Feling” project. 21 The consortium members, CMC, YMC and SYM each took 20% equity, with financial institutions taking 35% (Chiaotung Bank 15%, and the China Development Fund 20%), and an auto parts manufacturer, Sengton Transportation Implements Co. taking the remaining 5%. Yu Tien, while a member of the consortium faced financial difficulties and was not an equity holder in the China Engine Corporation (Hua-Chin Machinery Co.)

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US$ 60 million (which again illustrates the tiny scale of the Taiwanese industry initiatives compared with their counterparts in Europe, the US and Japan). The company’s initial plans were to produce a 1.2 l, four cylinder, eight-valve gasoline engine. The first engines of commercial standard were produced early in 1997, and were being exported into the China market in the same year. 22 The prospects for CEC engines, and vehicles built with CEC engines in China, appear to be promising. 4.3.3. Outcome This was by Taiwan standards a large project, with a total budget of around NT$ 1.4 billion (US$ 50 million). Over the course of the project, there were equal contributions from government and industry— with the MoEA providing over 80% of the budget initially, and the companies increasing their share (and commitment) as the project progressed. The companies had to put up NT$ 50 million (i.e. around US$ 2 million) each to participate in the project. This was a relatively small sum for the profitable automotive companies, with a potentially very large return for them if the project succeeded and opened up the China market as a result. This consortium appears to have been remarkably successful in lifting the collective technological capability of the Taiwan automotive industry to encompass the critical components of engines and powertrains (which follow relatively simply in the wake of the engine). All three of the main automotive industry vehicle producers have participated, and have avoided costly competition through collaborating in a project which was beyond each of them and only possible through a collective effort. 23

4.4. Electric scooter 1991–1996 4.4.1. Background and rationale The motorcycle industry has grown rapidly in Taiwan, along with increasing usage of motorcycles in cities as a means of personal transport. This has also become a major source of air pollution—if not the dominant source, at least in the cities themselves. Thus, there is great pressure to develop alternative urban transport systems, such as metro systems—and electric vehicles. The Taiwan Environmental Protection Agency (EPA) maintained this pressure by issuing stringent emission controls on motorcycle exhausts (stepwise reductions in allowable levels of carbon monoxide and nitrogen oxides in 1988; 1991; and 1998), and requiring that 2% of sales of motorcycles by the year 2000 be electric vehicles. This in itself created the impetus for a new industry with both domestic and export prospects—protected by the emission controls which constitute very effective non-tariff trade barriers. Thus, the Energy Committee of the MoEA targeted an electric motorcycle as a strategic product, and part-funded the formation of a new consortium to produce such a vehicle. 4.4.2. Consortium process The participants in this consortium were drawn from three major parties: government agencies— ITRI/MIRL (MoEA); the industry association—the Taiwan Transportation Vehicle Manufacturers Association (TTVMA); and 10 companies, comprising 6 motorcycle companies and 4 components companies, again spanning several stages in the value chain. 24 This consortium was initiated in 1990 by the Energy Committee of the MoEA, with a feasibility study. A formal consortium was formed in 1992, named ZES 2000 (after “zero emission vehicle”) and ITRI/MIRL produced a prototype vehicle, the EC1, in 1996. 25 Engineering options were chosen from the perspective of local supply and market accessibility (for example, lead acid batteries were adopted because of their
24 The motorcycle companies included Kwang Yang (Kymco); San Yang; Taiwan Yamaha (the three largest, accounting for 90% of sales in Taiwan); Taiwan Suzuki and Giant Yeh. The components companies encompassed firms involved in electric motors and controls (Shih Lin; Taigene); and batteries (GS; Walsin Technology). 25 The vehicle is named after the MoEA Energy Committee, which drove the project.

22 China Motor utilized the locally made engine initially in its popular mini pickup vehicle, previously powered by a Mitsubishi engine. The Yulon group formed a joint venture in China—the South West Motor Company—with full PRC approval, to establish an engine plant with a capacity of 150,000 units per year, i.e. twice the expected capacity of the CEC in Taiwan. This was the first engine plant established in the PRC other than through simple technology transfer by a western multinational corporation. 23 Had one of the Japanese companies offered technology transfer to one of the Taiwan companies, the result would have been rather different.

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availability, leaving more sophisticated batteries to a later stage). The consortium involved an advanced organizational design, in that it spanned several phases of the value chain in producing an electric scooter— namely, batteries, electric motor and final vehicle assembly. This project was driven by market considerations all along, and was unusual in that it involved customer surveys conducted to ascertain the likely acceptance of an electric vehicle produced. The project took a local 50 cm3 scooter as benchmark, and adapted it to improve its electrical and mechanical efficiency; increase its battery density and capacity; reduce the scooter weight and drag characteristics; and improve the scooter’s reliability and safety. Design of a product for ease of mass manufacture was a constant factor. A 6 month test program was initiated at ITRI in July 1995. 26 ITRI/MIRL continued with further development work, for example to extend the charging cycle time (giving scooter riders a longer ride between battery recharging sessions) with a higher density battery such as the EV battery. This resulted in significant changes being made to the propulsion system. Thus, ITRI/MIRL continued to improve the prototype, thus, minimizing the product engineering costs to be borne by the scooter companies if and when they made a decision to produce a commercial version of the scooter themselves. A prototype product, the EC-1, was passed to the consortium members in 1996/1997, who then assessed their technical and marketing options. A further prototype, EC-2, was produced in 1998, after further testing by the EPA for compliance with cleanliness standards. The companies involved have been pouring resources into their own development efforts, demonstrating that their involvement in the consortium enhances rather than depresses their R&D efforts. Kwang Yang Motor Co., now Taiwan’s leading motor cycle producer, announced its intention to launch a new all-electric powered scooter based on the ITRI prototype at the end of 1998. It established a new
26 Over 30 ITRI employees volunteered to drive the ZES 2000 scooter and log their responses on controlled questionnaire forms each week. The test vehicle was rated well for smoothness of ride, low noise and zero exhaust emission; most found the long hours required for charging the battery overnight as acceptable, while some objected to the low acceleration capabilities of the vehicle.

EV subsidiary, recruited specialist staff, and entered into its series of collaborative agreements. 27 These efforts culminated in the launch in 1999 of its first commercial model, the AIR. Kwang Yang and San Yang teamed up with the other members of the consortium to form a joint R&D Center in Taipei which will provide common support for the emerging electric-powered scooter industry. 28 Thus, the initiative has passed to the private sector—which has all along been the goal of these ITRI-sponsored projects. By the end of the 1990s three companies had emerged in Taiwan as suppliers of electric-powered scooters—Kwang Yang (with its AIR model), Shang Wei EV Technology Inc., and Che Mong Electric Motor Company. 4.4.3. Assessment This has turned out to be one of the most prescient and ambitious of the ITRI-MoEA organized consortia, with the clear goal of creating a new industry focused on a 21st century market, not just in Taiwan but around the world. The MoEA has played its role in “shaping” the emergence of a market by judicious incentives. 29 ITRI/MIRL led the way with the development of a consumer-friendly prototype, and the promotion of Taiwan-based components supplies. The market creation initiatives focus on potential bottlenecks, such as the issue of battery charging. 30
It licensed technology from the US firm Unique Mobility Inc. (UQM) and in 1998 formed a strategic alliance with the US-based Electric Vehicle Global Motors Co. (EVGM), founded by former Chrysler chairman Lee Iacocca. 28 Initial capital of NT$ 200 million (US$ 6 million) was subscribed by all participants to the new joint venture, Sam Ever Industry Co. It has plans to produce its own vehicle, the Ever. 29 The MoEA continued to offer supporting incentives, this time in the form of an ‘environmental subsidy’ of between NT$ 16,000 and 20,000 on a new machine, which consequently can be priced very competitively at around NT$ 40,000. In this way, the MoEA was deliberately shaping the market for this emergent product, on the grounds of social desirability as well as industry promotion. 30 One option being considered by the government in the late 1990s was an infrastructure where batteries are owned and operated (i.e. charged, stored and recharged) by a utility, e.g. TaiPower, and leased to motor cyclists. In this system, cyclists could deposit their used batteries at depots located in or near petrol service stations, and pick up a freshly charged battery. Such an infrastructure system would greatly enhance the attractiveness of the electric vehicle (eliminating the need for overnight battery charging at home, and extending the driving range of scooters virtually without limit— similar to the case for gasoline-driven vehicles now).
27

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The most positive assessment is that Taiwan has emerged at the opening of the 21st century with a highly developed electric-powered vehicle industry. The export prospects for such electric scooters would be expected to improve rapidly in the 21st century, as emission controls in polluted cities are implemented, and as countries like China and India switch from manual bicycle transport to motorcycle transport. A negative assessment would be that the consortium has moved ahead of the capacity or the willingness of the private sector to introduce such electric scooters to the market. No final judgment on this point is possible as yet.

5. Benefits conferred by the Taiwan R&D consortia Let us now draw on these case studies to develop a more general understanding of the workings of these R&D consortia in Taiwan, in comparison with those that operate in the USA, Europe and Japan. The pattern of the Taiwan alliances is that a group of firms join with ITRI to establish capability in a new technology or new set of standards for an existing technology. The alliances have evolved from a fairly simple organizational structure, where ITRI identifies the technological issues and develops the specifications and prototype, and hands this over to interested firms; to one where there is a lengthy process of co-development between ITRI and partner firms, spanning several stages in the value chain, and involving development work being conducted partly within ITRI and partly within the firms themselves. The role of the firms has evolved from their being fairly passive recipients, to co-developers (and co-funders) to the point where firms themselves are taking the initiative. 31 All the models involve ITRI securing access to a new technology on behalf of Taiwanese firms— usually a technology source located overseas, in the USA, Japan or Europe. This is common to the operation of all the R&D alliance organizational forms.
31 Very recent consortia, such as SET (Secure Electronic Transmission) in the finance sector, and ASTRO (Advanced Semiconductor Technology Research Organization) have been formed entirely at the instigation of the private sector, with ITRI laboratories playing a monitoring role.

The ITRI thereby acts as the “vehicle” or gateway for Taiwanese firms to access a technology that would otherwise be beyond them. At the same time, it offers a single point of contact for a large advanced firm (such as IBM or Intel or Sun Microsystems) that can license its technology to Taiwanese firms without having to deal with many small firms simultaneously. The consortia, therefore, are of mutual benefit. The key issues involved in forming these alliances are not so much whether they provide benefits, which may be taken as given, but how the difficulties involved in securing cooperation between otherwise competing firms are identified and overcome. We frame our discussion of the Taiwan consortia around five questions: the three questions posed by Aldrich and Sasaki (1995) in relation to Japanese and US R&D consortia, the issue of cost-sharing versus skill-sharing (Sakakibara, 1997a,b); and the issue of the formation of consortia being engineered or emerging from the needs of the firms themselves (Doz et al., 2000). 5.1. What kinds of administrative arrangements are utilized to effect the inter-firm collaboration? The available models are those of formal incorporated cooperative entities, such as the Engineering Research Associations (ERAs) of Japan, or formal joint ventures, with much of the research being done in joint facilities, or a looser arrangement with the participant firms themselves conducting most of the research and sharing the results. The Taiwan consortia are at the latter end of the spectrum. They have made heavy utilization of the public sector laboratories of ITRI as prime instigator of the consortia, initially conducting all the work and passing it across to participant firms (technology transfer). In the 1990s, this has evolved to an arrangement where the ITRI laboratory acts as convenor and coordinator of the project, but the development work is done jointly in participant firms’ laboratories as well as in ITRI. Thus, there is a progression towards the private sector playing an increasingly active role in the consortia. However, there is no incorporated research entity, and no equity participation by the consortium members— other than in the case of the China Engine Company that emerged after the successful conclusion of the research consortium. Moreover, the Taiwan consortia

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are distinctive in enrolling industry associations as joint convenors, in recognition of the superior industry contacts of the association. It is the embodiment of the consortium in a neutral party, namely the ITRI laboratory, that helps to account for the firms being able to work cooperatively and productively on a specific project while remaining competitors elsewhere. 5.2. How are compatible research goals jointly identified? The issue here is whether the consortium works on generic technology issues, or on specifically targeted projects, and how this is decided. In the case of the Taiwan consortia, it is very much the case that the goals are quite specific and well-defined, such as to develop a prototype laptop PC, or CD-ROM drive, or set-top box for interactive video. This is because the Taiwan consortia are largely conceived as instruments of catch-up, targeting known technologies and standards. The case of components and their standardization illustrates the approach taken. One of the hidden barriers to entry into a new field for small companies like those found in Taiwan is that they cannot standardize on components and thereby strike a good deal with potential suppliers. Collective measures are needed to overcome these diseconomies of scale. The R&D alliance can solve this problem by making the component selections (i.e. standardizing on certain components and not on others) and then negotiating supply agreements with vendors on behalf of the firms as a group. This approach enabled the Laptop PC consortium, for example, to transform what would have been a “niche product” into a standardized product suitable for mass production. This is a subtle but effective way of accelerating diffusion of an innovation, and of generating national competitive advantages where at the outset there appear to be none available. Overall then, it is the catch-up character of the short-lived Taiwan R&D alliances that enables them to resolve the issues of technological strategic direction relatively easily. 5.3. How much involvement is allowed for government and public agencies? The issue here is whether the public sector or private sector leads in consortium formation and management, and the degree of financial contribution made from

public sources. In the case of the Taiwan consortia, given their strategic goals of technological catch-up, their formation and governance is a matter of public sector leadership. In some cases, it is the Ministry of Economic Affairs itself which takes the initiative, particularly where there are “market shaping” issues involved (as in the case of the electric-powered scooter and the motor cycle engine). In other cases, it is ITRI that is vested with the responsibility for setting a technological lead. It is ITRI working in consultation with the industry that identifies a feasible goal and then in association with the industry organization assembles a relevant group of firms to achieve it. The consortium is conceived as a transient entity, and is disbanded as soon as the goals have been achieved. Perhaps for this reason the Taiwan research partnerships have not yet involved participation by universities, which are common participants in longer-lived research partnerships in Europe and North America (Hagedoorn, Link and Vonortas, 2000). 5.4. Are the consortia cost-sharing or skills-sharing in organizational design? The Taiwan consortia are created to accelerate the diffusion of technological capabilities across industries. In other words, they are instruments of economic learning, like their predecessors in Japan. While costs are a consideration, they are marginal compared with the learning benefits conferred on participant firms. This is demonstrated in the impact of consortium membership on firms’ R&D expenditures. Far from firms learning to economize on R&D expenditure through joining R&D consortia (a common assumption in the economics literature) the experience in Taiwan indicates that firms rapidly acquire a taste for R&D and an appreciation of its competitive benefits through participating in alliances. They thereby tend to increase the scale of their own R&D activities, even as they participate in the alliances, thereby enhancing their own absorptive capacity (Cohen and Levinthal, 1989). This is what may be termed the “innovation effect” of the alliances. 32 It is enhanced as firms
32 Sakakibara (1994, 1997b) demonstrated such an effect in the case of Japanese consortia; she later quantified it as one of the demonstrable benefits of firms’ participation in R&D consortia (Branstetter and Sakakibara, 1997).

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conduct more and more of the development work within their own facilities—which is one of the reasons why this trend is encouraged in Taiwan by ITRI. 5.5. Are the consortia formed following an engineered process or an emergent process? The Taiwan consortia are formed for eminently pragmatic reasons of technology catch-up through accelerated diffusion of technological capabilities, and in this sense they are formed through hard-edged engineered processes. But there is no coercion involved. Participation by firms is entirely voluntary. Financial and knowledge-diffusing incentives are carefully structured to ensure that firms see it as being in their interests to participate. This is another illustration of the basic principle that in Taiwan—as in Japan—it is not assumed that firms are willing to work together in collaborative processes. Rather it is the case that institutional frameworks are constructed within which firms find it to be in their interests to collaborate on specific projects, while remaining fierce competitors in other markets. Moreover, the Taiwan consortia are not closed to emergent possibilities, either within the lifetime of the consortium, or from consortium to consortium; this is the flexible aspect of their pragmatism. Moreover, the public sector instigated consortia have led to the formation of private sector consortia which are starting to show signs of emergent formation processes. There is an evolutionary process of institutional variation and selection at work. Overall then, the finding of this study is that Taiwan’s R&D consortia have indeed made a positive contribution to Taiwan’s industry development and upgrading—along with other institutional innovations and of course the contributions of private firms themselves. They have contributed to the development of Taiwan’s social capital (Cooke and Wills, 1999) insofar as they have established a replicable organizational form adapted to the purposes of technological learning and diffusion. Of course, not all the Taiwan R&D alliances have been successful. Some have been failures in terms of their own goals and targets. Some have been unsuccessful, not because of lack of effort or coordination on the part of the member firms, but because the world did not behave as expected, or a market did not develop as expected (as in the case of the HDTV

consortium, and the graphics terminal consortium). In other cases, consortia have been unsuccessful because of lack of supporting infrastructure: for example in the case of efforts to launch laser fax machines and hard disc drives. Here, the problem was not so much the alliance itself as the lack of a rich network of precision engineering and machinery firms needed to sustain such industries. Sometimes efforts to mount them have been unsuccessful because of opposition from Taiwan’s own incumbents—as in the case of early efforts to kickstart Taiwan’s optoelectronics industry (Linden et al., 1997). 33 Yet even where R&D alliances in Taiwan have been less than successful, they have contributed their experience and this has been absorbed and applied in the design and implementation of future alliances. Thus, the Laptop PC consortium was recognized as clearly having too many participants with too little experience—but this was corrected in subsequent consortia. Likewise the trade association was not involved in earlier consortia—but its involvement has been found to be so beneficial, in terms of expanding the scope of the potential participation by firms and in securing the legitimacy of the alliances, that its involvement was seen as important in later alliances. Thus, the alliances represent a form of advanced “economic learning” in two senses: in the sense that there is an underlying improvement from one generation of alliance to the next; and in the sense that the knowledge generated is held by a number of firms and agencies in the “space” that exists between firms and agencies, i.e. in inter-organizational space. 34 It is the capability to organize this space, through various forms of consortia, alliances, trade associations and keiretsu, that can be expected to have an increasingly decisive bearing on international competitiveness.
33 ERSO proposed a major Liquid Crystal Display (LCD) project in the early 1990s, which it was anticipated would result in the spin-off of a new world-class LCD producer to match Japanese and Korean capabilities. The proposal was snuffed out due to the objections of industry incumbents which at that time did not have LCD businesses of their own, but entertained plans to enter the industry. (A scaled-down LCD project was launched subsequently in the mid 1990s.) See Linden et al. (1997) for a discussion of this incident. 34 On the concept of “economic learning” as a process of inter-organizational learning within an institutional framework, see Mathews (1996).

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6. Concluding remarks This article is to be interpreted as an appreciative study (in the sense of Nelson and Winter, 1982) of the Taiwan R&D consortia, bringing them to the attention of the scholarly community as an interesting institutional innovation in their own right. The Taiwan R&D consortia both take over some of the most effective features of the consortia found elsewhere and add some distinctive ones of their own. Thus, it may be reasonably concluded that the consortia have been a net benefit in Taiwan’s industry development and upgrading. Furthermore, they provide a model for other newly industrializing countries (NIC) still in the process of seeking to catch-up with advanced technologies—provided that countries can develop the institutional capacity needed to form consortia and manage the diffusion of technology within such an innovative institutional framework. Further analysis of the consortia would depend on the collection of more extensive data, from the companies involved, as well as from those which became players in the targeted industries but elected to stay outside of the consortia. The article will have served its purpose if it helps to spark such further scholarly investigation of these institutional innovations, in Taiwan and elsewhere. References
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