Morris Chang: the 'King' of Taiwanese Chipmakers

DeepDarkSky writes "This is a general interest story in the NY Times about Morris Chang - the founder and chairman of Taiwan Semiconductor - and the dynamics of semiconductor manufacturing in Taiwan, and how the earthquakes a while back affected it. Since Taiwan is the leading manufacturer of chips, with Intel, Motorola, and IBM (also Transmeta, as I vaguely recall in the press releases) all having chips manufactured in Taiwan, I thought this would be an interesting read. More significantly, also in the NY Times, another story about the U.S. House of Representatives voting to strengthen military ties with Taiwan. Perhaps they are all too aware of the U.S.'s (and the world's) dependence on Taiwan's chip manufacturing prowess (reminded by the earthquakes) and are eager to protect this source against China?" (free NYT reg. req.)

Xenophobia rears its ugly head

Judging from some of the postings on this subject, I think you don't understand why Taiwan has become a huge manufacturer of computer parts.

Remember the old days when "Made in Taiwan" was considered cheap and poor quality? Well, because the government in Taiwan wanted to get away from that image, they heavily invested in the one industry that will bring them into the 21st Century: electronics.

The result is obvious--if you open up a desktop computer, look at how much of the computer is made in Taiwan. I'll almost say that the motherboard, the majority of the surface-mounted chips on the motherboard and peripheral cards, the memory modules, the CD-ROM/DVD-ROM drive, the CPU heatsink/fan and the system case are made in Taiwan. Only the hard disk drive and CPU are not likely to be made in Taiwan. Think about it: if your x86-based computer is using an Abit, FIC, Gigabyte, Supermicro or Tyan motherboard, they are all made in Taiwan.

This is a tribute to the of the people of Taiwan, whose hard work has turned Taiwan into the one of the most influential countries in the computer industry.

By the way, the People's Republic of China are no slouches in the computer industry, either. They have a very popular (and well-made) brand of computers named Legend that runs the Chinese versions of Windows 95/98 and Linux.

Don't forget that one of the most popular commercial distributions of Linux--TurboLinux (formerly Pacific Hi-Tech)--originated in Taiwan.

In short, stop sounding like those protesters at the WTO Summit last year. The xenophobia doesn't work in a world where trade is a fact of life.

Confrontations between China and Taiwan

I take the politically incorrect view that Taiwan and China are two seperate countries. Taiwan has never been ruled by China's communist government, nor China by Taiwan's current administration (who are very different, thankfully, to the Kuomintang who originally set up shop there). Therefore the rest is merely hot air. There is no state of war between China and Taiwan, despite much rattling of sabres, nor any justification for a war beginning - it would cost China a lot more, not only in terms of its international standing, than it would be worth to invade. Thankfully. Therefore China's objections to the arms imports are meaningless, because they do not practically disadvantage China as a nation in any way whatsoever. And if China wants to join the WTO, it had better not object too strenuously to what is in effect an exercise in free trade.

Oh brother

The vote in the House had nothing at all to do with semiconduuctor supplies. The US has been officially committed to the defense of Taiwan for several decades. For much of that time "Made in Taiwan" was a less than impressive distinction. (That's all changed now in the 80's and 90's with the economic boom.)

The House vote just reiterated long-standing US policy that discourages China from invading Taiwan. This commitment has ideological, not economic roots. It has more to do with halting what once feared to be a militaristic expansion of Mao's Revolution off the continent. The vote has much more to do with continued Chinese military exercises, saber-rattling, and trash-talking directly across the sea from Taiwan.

Terminus == Taiwan

Asimov really had it all down, didn't he. Protecting yourself against your big neighbors by making them dependant on your technological exports is straight out The Foundation's traders period.

OK, it's not all that novel an idea, but it struck me in this context for some reason.

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We cannot reason ourselves out of our basic irrationality. All we can do is learn the art of being irrational in a reasonable way.

National Champions

Notice the history of Taiwan Semiconductor. The Taiwan government decided that it ought to have a chip maker, and handed Chang $100M to make it happen. Since then the relationship has remained cosy.

Its exactly this kind of crony capitalism that led to the crash of the Tiger Economies. In the UK we dropped the "national champion" approach to industrial policy when Mrs Thatcher became Prime Minister in 1979, and we are much better off as a result.

The problem with national champions is that they know they are too politically important to be allowed to fail. As a result they don't worry about running up losses because they know the government will bail them out. Sure, they can sometimes be success stories, but frequently they become economic millstones. UK readers who are old enough may remember the old British Leyland car makers. They were the national champions of UK industry during the 60s and 70s. It didn't take the unions there long to cotton on: the government wouldn't close them down or insist on layoffs because of the bad publicity, and hence they could strike for higher pay, shorter hours, or whatever else they wanted with complete disregard for anything else. BL became a byword for industrial strife, and the cars they made were famously bad.

Incidentally, while BL was destroyed by its unions, they are not the only thing that destroys national champions. The management can do just the same. Their primary cash flow comes from the government rather than their customers, and the government will still be there even if the customers go away. Hence their primary goal becomes pleasing the government rather than their customers. This problem is masked during the boom years because the company does not need to make unpopular layoffs, pay cuts or other measures. But when things turn down again, the management concentrate hard on extracting money from the government instead of becoming more competitive.

Remember the film "The Italian Job", a gold heist in Italy where three BL Minis were used as getaway cars? The film studio approached BL and asked if they could have the Minis in exchange for the valuable publicity. The BL middle-management thought about this and then turned them down. The reason was basically ass-covering. Saying "no" was the safe option. Saying "yes" could lead to Questions In Parliment about taxpayers money being wasted giving away cars to film companies. The extra sales that would result from people seeing the Mini as the perfect city car were irrelevant in this calculation.

Sooner or later, Taiwan Semiconductor is going to go the same way as British Leyland.

Paul.

Re:National Champions (slight difference)

Taiwan has never been as bad as the rest of the "Tigers" when it comes to cronyism. Granted, they've been under single-party control since the Nationalists escaped there, but a key differentiating factor in the "crony capitalism" economies is that ownership is concentrated in the hands of the families and friends of the ruling family. Though Taiwan is controlled by a single party, it's not the one-family (like for instance, Indonesia's Suhartos) type of party that is so corruptible. For better or for worse, free-market capitalism is the standard in Taiwan, and the government invests in industries instead of controlling them.

The big difference in Taiwan is that government approaches ownership from a strategic viewpoint, and they aren't investing so much to get family members rich as they are to try and jump-start industries. In Indonesia, Suharto would have pumped $100 million into a chip company and put his nephew in charge. In Taiwan, Morris Chang was able to get the government to invest $100 million in exchange for an ownership stake with the purpose of jump-starting a semicinductor industry. By just about any measure, the effort was a spectacular free-market success. The difference is that in a cronyist system, Chang would have not been concerned with profits - he'd be skimming off the top and not worrying about the details. The Taiwanese semiconductor giants are making profits in a difficult sector of the market - and that's the biggest difference between what happens when government invests in free-market companies versus what happens when government actually owns the company. When the government owns the company, you get Indonesia, Thailand, and the British Leylands of the business world. I'd take the Taiwan approach any day in comparison.

- -Josh Turiel