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SPECIAL REPORT: Asian Miracle II | TAIWAN

Acer's Information Age Lessons

A shift to service industries, however belated, will help Asia recover, CEO says.

June 07, 1998|JAMES FLANIGAN | TIMES SENIOR ECONOMICS EDITOR

TAIPEI — A major obstacle to understanding the Asian crisis as a watershed in world industry and the lives of people is that it's always explained in terms of currency devaluations and bank loans gone bad.

That is why news from Asia roils the stock markets every other day but seems to lack larger meaning.

Yet what is happening in Asia represents a shift of technology and a passage from one industrial era to another. Many of the developments occurred earlier in U.S. industry, but they're new, and traumatic, for Asia.

Some smart people such as Stan Shih, chairman of Acer Group, understand this. Shih, 54, an electrical engineer who founded the Acer computer company 20 years ago, knows that the crisis signals once and for all that the region's reliance on high-volume manufacturing is ending.

Even China with its huge numbers of low-wage workers cannot depend on turning out cheap exports of parts for automobiles, computers and machinery, because mass production too soon becomes surplus production.

"Labor-intensive manufacturing of hardware is not sustainable long-term for any country in Asia," Shih says. "Automation and new materials change the product, and even low-cost producers are left behind."

That is why every country now must move forward to software, by which Shih means "knowledge, education, management skills--these are the elements of intellectual property that now define world industry."

Americans will find such musings familiar. But Shih is making an important point for Asia. The rise of Asian economies in the last 50 years, even that of mighty Japan, has been based on the skilled manufacturing of goods. Cars, televisions, industrial machinery--turned out with great precision--won world markets because of high quality and reasonable price.

The quality is still there; the price is even cheaper now. But something has changed: The skilled manufacturing of Asia has been devalued. New car plants in South Korea aren't worth what it cost to build them, not only because the Korean currency, the won, is devalued but because cars are in surplus everywhere. A plant by itself has no great value unless it's linked with good customer relations, a distribution system, a hard-won brand image--all aspects of the "software" Shih speaks of.

His own company--and his country, Taiwan--illustrate the trends. Shih and a few associates founded Acer in 1976 as a low-priced manufacturer of computer hardware for other companies, IBM among them.

It still makes computers for IBM and many others, but Acer has become a worldwide giant in its own right with $6.5 billion in sales of computers, software and networking systems. In addition to Taiwan, it manufactures in the Netherlands, Texas, the Philippines, Malaysia and China, where it is starting a computer software development center in Shanghai.

With a lead from Acer, Taiwan has become a leading manufacturer of computer systems through entrepreneurial companies working in government-backed high-tech industrial parks. The work is a big step forward in sophistication from turning out low-cost home appliances, Taiwan's chief activity just 10 years ago.

Moreover, the Taiwan economy's blend of government backing and small-company verve helped it weather the crisis better than other countries, and is seen as a model for the rest of Asia.

Meanwhile, Acer (the name is from the Latin word for sharp or acute) is moving on. Shih plans to sell computers custom-made to client specifications.

That's an idea that was pioneered by Dell and Gateway of the U.S., and Shih finds it simply to be the way of the world.

"The American companies have become so competitive in the last five to 10 years because of the way they manage and use information to relate with customers, make investments and create new products," Shih says.

Then he offers a provocative judgment.

"One cause of the Asian crisis is that America has moved into the Information Age while Japan has remained tinkering with automation and mass production."

Surprisingly, leading Japanese businesspeople agree. Tom Arai, a veteran Tokyo consultant who helped build Sony into a global company, laments: "We in Japan are always catching up, never in the vanguard. We have stayed with hardware and mass production. The Information Age is forcing us to move to software and hardware, as America has."

Of course, talk of the "Information Age" doesn't lessen the suffering of Asia's people today. But it does point the way out of the crisis.

The greatest value in business from now on will be in "intangible property. Customers will pay more for knowledge and information," Shih says. "Look at the profit of automobile companies--hardware earns maybe 5% on sales. But software earns 30% to 40% on each dollar of sales--look at Microsoft."

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