If you thought Japan's blue-chip companies and their billions had the global market for liquid-crystal displays all to themselves, think again. Sure, they supply LCDs for most personal computers. But look closely at the dashboard of a Mercedes-benz 500, an automated parking meter in Germany, or the headheld terminal of a Norwegian lumberjack. Chances are, the tiny LCD was supplied by Varitronic Ltd., one of a new breed of Asian high-tech success stories.
Varitronix can't be found in a glisterning Japanese industrial park. It's holed up on the fourth floor of Liven House, one of countless nondescript, grime-covered commercial buildings packed into Hong Kong's busy Kwun Tong district. There, 30 engineers turn out custom-designed LCDs for thousands of overseas customers, sometimes in as little as two weeks and for an order as small as $1,000. Sales have grown an average of 28% for the last five years and are expected to pass $45 million in 1992.
With little fanfare, Asia's quest for high technology is beginning to apy off. Hong Kong, Korea, Singapore, and Taiwan have long been known only for copycating and low-cost assembly. But now, these Tigers of East Asia have quietly begun scoring successes in Western markets with innovative products in hundreds of niches. Already, they have become a major force in everything from electronic toys and low-end audio appliances to high-performance PCs and memory chips. By the late 1990s, as the digital revolution hits mass consumer markets, the Tigers are certain to become premier manufacturing bases of digital high-definition television and multimedia. And in pockets of such advanced domains as biotechnology, digital communications, and automated chip design, Asians are actually starting to push the technological envelope.
NEW DEFINITIONS. Watch out, Japan Inc.? Not yet. Nobody believes the Tigers will leave the U.S. or Japan in their dust. They lack both the basic science and the capital needed to launch new product standards or to develop whole, emerging technologies. Even so, the hard-charging conglomerates mf Korea and the fleet-footed entrepreneurial wizards of Hong Kong, Taiwan, and Singapore are already having a staggering impact on global high-tech market trends. Rather than competing head-on with the U.S. or Japan, most of them are targeting a surprising array of niches in such fields as aerospace, software, telecommunications, and robotics.
They may even be redefining just what high-tech prowess is all about. Today's Hong Kong, Taiwan, and Singapore, in particular, are switched-on, tuned-in, transnational, hypercompetitive breeding grounds that already have entered a borderless world of which American business school gurus only dream. Their fathers may have been rough-hewn tycoons who built textile and plastics empires in sweatshops. But the new entrepreneurs are armed with years of experience in America's top companies and universities. They are as fluent in California marketing lingo as they are when haggling in Chinese dialects on the mainland.
They are becoming formidable competitors in part because of Asia's massive markets and staggering wealth, fueled by economic growth averaging 8% across the region, combined with a unique Chinese business model that differs as dramatically from Silicon Valley as it does from Japan Inc. Leaving the high-stakes game of technological one-upsmanship to the U.S. and Japan, the Tiger techies dash after sudden openings, where money is to be made by innovating with existing knowhow.
The nimble Chinese entrepreneurs of Hong Kong and Taiwan, in particular, can switch product lines -- say, from calculators to notebook PCs to cellular phones -- in a matter of months. And by paring manufacturing costs, corporate overhead, and product development cycles to the bone, they are ideally suited for the type of price-slashing warfare that is haunting the world's biggest electronics companies.
Doubters need only look at the global computer industry. U.S. companies such as Intel and Sun built the lightning-fast microprocessors that rocked the industry's foundations, bringing mighty IBM and DEC to their knees. But it's the Taiwanese who make the low-priced circuit boards inside 65% of all PCs, setting the stage for the current PC price wars. And it's Korea's Samsung, not Hitachi or Toshiba, that is sewing up the marketfor dynamic random-access memory (DRAM) chips storing 4 million bits of data. All these achievements mean that Asia is likely not only to hold on to its domination of the low end, but also to move up the technological ladder into higher-value products. It could even usurp the next wave of multimedia devices, which the U.S. has been planning to conquer.
SCRAMBLERS. In the process, the Asians are turning on its head a fundamental assumption about industrial development: that national high-tech success requires massive outlays for research and development. Instead, the Tigers are discovering that they are able to suck in new technology from Western multinational corporations that are scrambling to take advantage of Asia's low-cost manufacturing, capital, wealth of talent, and expanding markets.
Adding to their edge, the Tiger techies have also spun out new models for technology management that emphasize a speed and agility that even the Japanese, with their set-piece warfare of massive assembly lines, cannot match. "The Japanese spent gigantic sums automating production," says Varitronix Executive Director York Liao. "But in the meantime, they lost flexibility."
One reason for the Asian strategy is the plain fact that Japanese or Western companies that took huge up-front risks haven't always made money. Given the staggering costs of R&D megalabs and factories of the future, even the cash-rich Taiwanese, with foreign reserves of $88 billion, are concluding they shouldn't compete at that level. "Taiwan can't afford to squander resources on extravagant innovation only to have it rejected in the marketplace," says Stan Shih, chairman of Acer Inc., the island's biggest computer maker. Despite massive efforts, neither Acer nor other Taiwanese have made a dent in the U.S. PC market under their own brands.
STRENGTH. In today's global technology marketplace, is it even necessary for small countries to bother with basic research? Some say perhaps not. "Technology no longer is the bottleneck to development," says Joseph Lung, managing director of Dataquest Inc.'s Hong Kong office. "In fact, there is more technology than we can apply today." With few exceptions, whatever knowhow Asia lacks, it can now buy or obtain through partnerships. "What industry needs today is capital, distribution, and markets," adds Lung. "These are Asia's strong suits."
Asia's own markets are key. The booming region plans to spend $1 trillion on telecommunications and power-generation equipment alone over the next decade. That is making Asia one of the world's most important proving grounds for the latest in everything from computer networks to wireless communication. As telecom giants such as AT&T, NEC, Motorola, Ericsson, and Fujitsu rush there, they create R&D labs and design centers staffed by local engineers. In return, they are soaking up some of the vast cash reserves, totaling $167 billion among Taiwan, Singapore, South Korea, and Hong Kong.
Still, Asia's phenomenal strides will one day have to be backed up by real innovation. Cutting corners on research won't last forever as a strategy. "Why are America and Japan so strong in electronics?" asks Donald W. Brooks, president of Taiwan Semiconductor Manufacturing Co. "Because the guy who creates the system drives the business, all the way down to the components."
Can the Asians make the leap to the technology big leagues? "They have mastered the easy part, the basic manufacturing skills, but those are going to shift to Indonesia and India where labor is in even more plentiful supply," says Steven Schlossstein, a consultant based in Princeton, N.J., and the author of Asia's New Little Dragons. "Now begins the hard part."
In response to that challenge, policymakers across Asia are aiming to push their industries to the next level. Atop their list of priorities is boosting R&D spending, which ranges from 2% of gross national product in South Korea to a stingy 0.05% in Hong Kong.
But they are charting a starkly different course than Japan Inc., which spent the 1970s and 1980s seizing key industries such as automobiles, consumer electronics, semiconductors, and flat panel displays through protection, massive investment, and government-industry collaboration. The Tigers, in contrast, are embracing a new definition of catch-up. Rather than try to leapfrog the advanced economies, the secret is to absorb new technologies that can be quickly applied to niches in the marketplace. And rather than go head-to-head, the idea is to join forces as strategic partners. So while Asian policymakers support basic research in industries where they might have a chance, the emphasis will continue to be placed on applied research to fill selected market openings and on being valuable allies to multinational corporations.
More than the other Tigers, South Korea has closely imitated Japan and achieved the greatest critical mass in electronics. But as that model's risks become clear, Seoul is turning toward the pragmatism of its Asian brethren. Until now, the Koreans have perhaps been best able to squeeze technology out of U.S. and European suppliers who win big-ticket defense and heavy-equipment orders. Through such deals as one with General Dynamics Corp. to co-produce F-16 fighters and thereby gain the knowhow, Korean companies aim to become global suppliers of avionics, engines, androbotics.
COSTS SOAR. But Korean officials want more. The goal: to become an "advanced nation" by early next century. To Korea's east is high-tech superpower Japan. Nearby China is coming on strong in numerous industries just as soaring labor costs eat away at Korea's export base. So Korea is planning to invest nearly $5 billion over 10 years to become leading-edge in 11 areas, including digital telecommunications, factory automation, pharmaceuticals, and even 256-megabit DRAM chips. The government also is expanding the Korea Advanced Institute of Science & Technology.
But to get more for their money, Korean companies are courting foreign corporations for new alliances. Americans are preferred, since they have been more generous in sharing proprietary knowhow in exchange for market access. But the Koreans have a lot to prove. U.S. high-tech executives, suspicious of Korea's record of ripping off intellectual property and milking technology from partners only to compete with them overseas, are now wary of rushing into full-fledged alliances.
Singapore's experience couldn't be more different. No place in Asia is as unabashedly allied with foreign companies. The more than 1,000 multinationals on the island, pampered with tax breaks, government-sponsored staff training, and sometimes subsidies, account for 75% of industrial output and 95% of exports. And even though Singapore is spending lavishly on new R&D institutes, most of its efforts are geared to the needs of multinational corporations.
NEW TARGET. Singapore is also nurturing a handful of industries where it does have a shot at being leading-edge, including telecommunication services and software. Few places on earth are as wired up as Singapore, whose leaders believe world-class infrastructure is critical if the tiny republic of 2.3 million is to be a regional business hub. Already, most documents in Singapore's seaport, banks, schools, hospitals, and trading companies are processed electronically.
Biotechnology is another target, and early results indicate that Singapore has made Asia's first real stabs at original R&D. Since 1987, Singapore has spent $50 million and lured 200 scientists from top institutes in the U.S., Canada, and Europe. The idea is to enter into R&D joint ventures with pharmaceutical companies and share proprietary rights for medicines that are developed. Among the breakthroughs: orchids infused with firefly genes that glow in the dark, proving that molecular transfer methods work, and rats implanted with human DNA, so that specific genes can be tested for links with diabetes.
Taiwan, too, is trying to target industries that play to its strengths, particularly electronics. Once frowned on as low-cost assemblers of calculators and watches, Taiwanese companies now crank out close to $8 billion worth of electronics products annually. What's more, the government's efforts to establish a semiconductor industry are starting to pay off. Although the island still has to import 80% of the chips glued onto those boards, a handful of local firms have broken into the crowded global chip market.
Some, such as Mosel-Vitelic Inc., are installing production lines duplicating some of the most advanced processes found in Japan. A few are even tackling microprocessor design, cloning Intel Corp.'s popular 486 chip. And because so many engineers have spent years in Silicon Valley, "they're very well positioned" in automated design of integrated circuits, says Jan Goodsell, president of the Japanese subsidiary of Cadence Design Systems Inc., the industry leader in this field. Using the same advanced software tools, Acer recently produced the first desktop PC that the user can upgrade simply by yanking out one microprocessor chip and plugging in a new, more powerful version.
Hong Kong contrasts with all the others in at least one respect: Government collaboration with industry is entirely new. The colony's Chinese entrepreneurs have always used a seat-of-the-pants style of management and practically no research and development. Now, in the waning years of British rule, Hong Kong officials are trying to get corporate executives to think longer-term. Hong Kong University of Science & Technology opened last year, and officials are investing $57 million in an Industrial Technology Center.
Not that Hong Kong doesn't have some role models. LCD maker Varitronix, for example, is now moving into innovative end products. One is a handheld terminal with a touch screen that allows gambling-crazed Hong Kong horse-racing fans to place bets from home and trackside at the Royal Hong Kong Jockey Club, where the daily handle can pass $100 million. Johnson Electric Holdings Ltd. is another niche player whose specialty is micromotors, which power everything from door locks to hair dryers. Customers include Chrysler, Black & Decker, Philips, and Singer. In 1990, the company won an exclusive contract to supply General Motors Corp.'s North American division with windshield-washer pumps, a relationship that's expanding to other areas. With 1991 sales of $167 million, Johnson is now the world's second-largest maker of micromotors, behind only Japan's Mabuchi Motor Co.Like other scrappy Asian companies, Johnson's flexibility often gives it a huge edge over Japanese competitors. The company won a recent competition for a Big Three micromotor contract, says Managing Director Patrick Wang, because it was able to turn a concept into a working prototype in less than six months. Its Japanese rival, with a head start, hadn't even finished its design. "We run circles around them," says Wang. Now more and more U.S. manufacturers are farming out design work to companies such as Johnson. "The U.S. has fantastic product ideas, but they have trouble with the nitty-gritty of getting them into production," he says. "Increasingly, they are entrusting the front- and back-end design work to Hong Kong and China."
A huge new boost may lie just over the horizon if Hong Kong, Singapore, and Taiwan are able to tap the China connection. The mainland is stocked with world-class scientists, engineers, and biologists languishing in state-owned industry and research instititutes on salaries of about $300 a month. "They are lacking in knowledge of the market," says Allan Wong, president of Hong Kong's VTech Group of Cos. "But their potential is boundless."
STALKING. With so many frontiers ahead, it's easy to see why folks such as Chen Charng Ning, deputy president of Singapore's Nanyang Technological Institute, think time is on East Asia's side. "It took Japan 50 years to get where they are," Chen says. In only a decade, the Tigers have transformed themselves from nontechnological societies into potentially world-class competitors.
That means the Tigers are destined to reshape the global balance of technological power. By pursuing a different strategy than Japan, the Asians are demonstrating that it's no longer necessary to "catch up." Just as they did in the PC industry, the Tigers are likely to move into fields such as fiber-based telecommunications, HDTV, and multimedia consumer products. That could benefit some heavyweight manufacturers in the U.S., Europe, and Japan that team up with Asian brainpower. But it will force others into the jungle of diminishing margins, where the Tigers rule. Even when they seem to be at a safe distance, Tigers have a way of sneaking up quietly from behind.