Can Taiwan's Hotshots Succeed In Software, Too?

Taiwan's high-tech companies are famous for being able to turn on a dime. Lee Tzeng-ying, founder of software maker Dynalab Inc., demonstrated that ability in 1993, after a breakfast with Bill Gates. As the Microsoft Corp. chairman talked about the software business, Lee scribbled down as much as he could. With three pages of notes, Lee returned to work and immediately made changes: "I said: `Kill this project, fund this project."' Lee scrapped plans to develop business applications and decided Dynalab would focus on software to generate fonts for Chinese characters.

The Taiwanese hope such quick moves will help the island become a software power. They're concentrating on software that uses written Chinese. By tapping the home market as a proving ground, they hope to gain an edge over rivals in creating programs that will allow people to use Chinese as the basis for computer programs. "Our strength is in Greater China," says Wayne Ma, director of research and development for Eten Information System Co., based in Taipei. "The U.S. is our last priority."

SLIM EFFORTS. Efforts to develop software for Greater China got a boost on Feb. 25, when Beijing and Washington reached agreement on measures to improve protection of intellectual property. Besides helping makers of American software, compact disks, and videotapes fend off pirates, the accord should help improve protection of intellectual property throughout China. That will spur demand for more software. But it also means that Taiwan will face increasing competition from mainland rivals.

Developing a software industry is a key part of Taipei's industrial policy. The island has long been a force in hardware, producing $11.6 billion worth of PCs and components in 1994. But it hasn't kept pace in software. It had sales of just $1.5 billion last year. To help the industry grow, the government will spend $300 million over the next three years to build a software park near Taipei. "We want to become a general software hub," says Liu Chao-ning, president of Century Development Corp., the organization handling the park's development. At the same time, some of the biggest names in Taiwan's PC industry are supporting the push into software. Acer Inc., Taiwan's No.1 PC maker, produces some applications for its hardware. It now sells CD-ROM versions of old Chinese stories, and Chairman Stan Shih says Acer will spend more on software development.

Less well-known companies have grabbed a lead over multinationals by focusing on Chinese software. Eten, for example, developed the first Chinese operating system in the mid-1980s, several years before Microsoft's. Eten now commands 85% of the market for operating systems in Taiwan, with some 200 local companies producing Chinese application software based on its standard.

For all their strength at home, such companies have been hampered by Taiwan's small market. Software expenditure per capita is just $57, compared with $526 in the U.S. Further jeopardizing Taiwan's quest to become a major player in Greater China, Beijing may end up locking the Taiwanese out of its lucrative software market. China is planning an ambitious Information Highway-like network dubbed the Golden Bridge. The software used will likely become standard for those who want to be compatible with the network. But Taiwanese companies, for political and technological reasons, are unlikely to land any of these impmrtant mandates, says Lynn Crisanti, China project manager for International Data Corp.'s Hong Kong office.

China's moves against Taiwan extend to foreign companies as well. After Microsoft set up its Greater China headquarters in Taipei in 1992, Beijing showed its displeasure by banning the Chinese version of Windows 3.1, which Microsoft had developed in Taiwan. Now, to repair relations with the mainland, Microsoft is working on a version of Windows 95 with China's Electronic Industry Ministry.

Hostility from Beijing hasn't stopped a number of Taiwanese from succeeding in China. Dynalab is planning to help Chinese companies with desktop-publishing needs. Trend Micro Devices Inc., a Taiwanese company that has licensed its antivirus software to Intel, is working with China's Public Security Bureau to market the software within China. The Taiwanese hope that such faith in their software engineers is contagious.

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