Economic Development: Taipei and Taiwan Reinvent Themselves as Technology Innovators

For Taipei, Community of the Month, the city's wireless initatives are better understood against the backdrop of the technological and economic challenges it faces.

Think of most tech gadgets, from the iPod to the PlayStation, and an engineer on this island of 23 million has probably had a hand in its creation.

While India and China share the spotlight as emerging giants, Taiwan is already a huge behind-the-scenes maker of the world's tech products.

Taiwanese companies produce three-quarters of the world's notebook computers, two-thirds of its personal digital assistants and nearly 70 percent of its liquid crystal display monitors, according to Taiwan government statistics. The island is home to Taiwan Semiconductor Manufacturing, the world's largest made-to-order chip manufacturer. Civic leaders like to point to the jade-green Taipei 101, the world's tallest skyscraper that towers over the densely packed city, as a sign of Taiwan's economic prowess.

Now Taiwan is making strides in moving to a more visible role as tech innovator. As China muscles its way into more and more sophisticated manufacturing, Taiwanese companies are elevating their research and design skills and creating their own brands that can be marketed globally to stay a few steps ahead of its intimidating neighbor.

The Taipei government, as well, is concerned that Taiwan's tech economy -- traditionally strong in chips, PCs and other hardware and electronics -- is at risk. So it is encouraging development of industries new to Taiwan, including digital content and biomedical devices.

And it's looking to its longtime business partner, Silicon Valley, for inspiration and help. Taiwan government officials are working to strengthen relations with the valley, hoping to import its entrepreneurial culture and form new partnerships. Last year, the Taiwan government's Industrial Technology Research Institute, or ITRI, started an incubator in San Jose, Calif., to link Taiwanese venture capitalists and tech suppliers with valley entrepreneurs.

"If we do not come up with a new value, a new business model, a new way of making money for Taiwan or a new way of contributing to the world, we will be marginalized," said Johnsee Lee, president of ITRI, a government-sponsored incubator. "It still remains to be seen if we will be successful."

Indeed, the island's tech industry faces many challenges in this era of shifting global fortunes. Taiwanese companies that try to succeed with their own branded products run the risk of butting heads with foreign companies that hire them to build and design products sold under the brands of the overseas companies. These relations have been key to the island nation's stunning economic rise over the years.

Furthermore, Taiwanese companies don't have the advantages of U.S. companies and, increasingly, those in China, which have large domestic markets that can be a springboard for creating a global brand.

"Innovation is the key to survival," said Yen-Shiang Shih, a deputy minister with Taiwan's Ministry of Economic Affairs. It is, he said, the only way to position Taiwan in the midst of the rising "mega-power" of China. "We need mega-power protection," Shih said.

Taiwan is as worried about the growing economic and tech prowess of its cross-strait neighbor, which claims the island as its territory, as it is seen by China as a military threat. The Taipei government, for instance, permits Taiwan semiconductor companies to operate foundries, which make chips under contract to others, in China only if they produce less sophisticated chips. (However, Taiwanese businesses have invested billions in mainland Chinese factories, and countless Taiwanese have relocated to the mainland to manage companies in recent years.)

Lee's institute, which has offices in the prestigious Hsinchu Science Park on the northern part of the island, recently established the Creativity Lab to ignite innovation and help Taiwan create new products. ITRI, which has spun off 130 Taiwanese tech companies, acts