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Online Extra: Stan Shih on Taiwan and China

For nearly three decades, Stan Shih was the driving force behind Acer Inc., one of the world's top PC brands and the Taiwanese company that has had the most success moving beyond the contract-manufacturing business and establishing its own name worldwide. A few months ago, Shih retired from Acer and is now running idSoft Capital, a Taipei-based venture-capital firm. He also created headlines recently by revealing that he had a resigned as an adviser to Taiwanese President Chen Shui-bian.

Shih spoke to BusinessWeek's Bruce Einhorn and Matt Kovac in April at his Taipei office about the controversy surrounding that resignation and the role that he sees Taiwan playing as China continues to grow. Following are edited excerpts:

Q: Why did you step down as an adviser to President Chen?

A: I am a citizen, and I always cooperate with the government, [so] in 2000 I agreed to become one of the national advisers to the President [if] Mr. Chen became the President. It's natural. I'm a citizen of the country, and I'm honored to be an adviser to the President.

Q: Then why did you quit?

A: [Being an adviser] created a lot of concern. I had a lot of trouble, because I am neutral. It mislead [people] into [believing] I support the DPP. [President Chen started a] new term last year. Many KMT friends and advisers were not renewed. It looks like I'm supporting the DPP. Looks, looks -- in reality, it's not. I just decided last year, because I was going to retire [from Acer], that I would ask not to renew.

Q: The news caused a bit of a stir, coming so soon after the open letter from Chen adviser Hsu Wen-long that criticized Chen's government. Do you think there's a trend among business leaders to distance themselves from President Chen and his party because of pressure from Beijing?

A: I think [Taiwanese business leaders] are all neutral. As businessmen, they always want to be neutral. Maybe from my personal point of view, I don't think the PRC [would] like us to go against Taiwan. They are not in any position to request that. There is no way. If the Taiwan government asks us to go against China, economic development, it's very difficult. Our position is not against their development, the PRC. It's very difficult, very sensitive. As businessmen, we work with anyone.

Q: Where do you see China's economy moving?

A: China right now is the world factory already. But in many sectors of the industry I think there are two [problems. The first is that China] createa oversupply all over the world. Another is China now consumes a lot of natural resources in an ineffective way. If they don't control these developments, in the long run, China just can't keep continuing to progress this way. They will reach a limit.

Q: What's the answer?

A: Now is a knowledge-based economy. There's a lot of innovation, a lot of knowledge. But to me, my current thinking is really how to integrate the current available resources in an effective way. It's most important right now. We don't need to do something new. We only try to integrate the current resources available in Greater China with the global economic requirements.

Q: Is there a role for Taiwan in that process?

A: Taiwan can play this integration role. We know how to leverage the China resources, we know what the global requirements [are], we have the reputation as integrators, taking the risks. Taiwan can become a hub to integrate.

The beauty is that Taiwan is so small. Nobody is concerned about Taiwan, so Taiwan can become an integrator. Everyone is concerned about the U.S. dominating everything. Taiwan cannot dominate. Taiwan is small, with a small population. [For] China and the Japanese, if they don't conquer the world, they aren't happy. If we can do a little bit more, we are happy.

Q: What do you think is the Taiwan advantage?

A: In many cases, all the new technology developments or business plans from Day One are global concerns, [with a] global view. In the past, many American companies focused on the U.S. only. [But for Taiwanese] from Day One, you have consider that your business model is a global concern. Taiwanese companies because of their small country, an island, their culture is global from Day One.

Q: Lots of people are worrying about the Taiwanese economy hollowing out as manufacturing jobs disappear.

A: Hollowing out -- [the process] starts from Japan, it's their terminology. I try to convince the Taiwan general public that the hollowing out of low-value-added activity is not a critical concern. Hollowing out the future higher-value-added activity is the concern, and those areas are more intangible. Hollowing out of tangible things is not critical. Hollowing out of intangible things is really critical. But this kind of message is not easy to communicate and appreciated by the general public.

Q: What's the answer?

A: The government [should look at] how to reorient human resources [among those who have lost their manufacturing jobs]. If you don't do that, you always create unemployment. If we develop a service industry more aggressively, this more effectively utilizes Taiwan resources. We should not be concerned about hollowing of manufacturing jobs to China, because you just cannot stop it, and even if you could, it's not in the interests of Taiwan at all.

Q: What sort of edge does Taiwan have in services?

A: We can do many things. One-third of the economy is manufacturing, but service is two-thirds. The manufacturing is relatively more global. Service is related to the culture. Service is the future of China, quality of life. In the Chinese community, Taiwan relatively is more complete. Hong Kong is a city. Singapore is a city. They are not really a typical Chinese community. Taiwan is really the future of many of the China communities.

For a lot of service industries [in China], Taiwan practice is more suitable than any other model, American model or Japanese model, to practice in China. The future of Taiwan is technology-based service industry. It's much higher-value-added and more leverages integration capability, and helps Taiwan become more of a leader.

Q: How much of a threat do Chinese companies pose?

A: Chinese companies, if they do this, they need a lot of considerations. No. 1, of course, is that they have to earn the trust from others. Trust sometimes takes time to build.

No. 2, they have to integrate global resources. If you just try to do it by yourself, it's impossible. The Taiwanese, when they move to Dongguan, to Yangtze River, to Suzhou, it's in clusters. The Chinese players, they don't have that.

No. 3 is that China players today [are focused] really [on the] local market. It's not a manufacturing culture for global requirements. They can be good for subcontracting. But their manufacturing is not for global. Their orientation is more for local market requirements.

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