Encouraging Knowledge-Intensive Industries: What Australia Can Draw From The Industrial Upgrading Experiences of Taiwan and Singapore
This report describes and analyzes the industrial and technological upgrading practices of firms and public institutions in Singapore and Taiwan. These two nations are of particular interest because they have weathered the recent Asian financial crisis well. Their institutional strategies are robust and have important lessons for other countries, including Australia.
Overview & Comments
Key Points
In the Asia-Pacific region, some outstanding successes have been registered in advanced technological fields. The case of Taiwan, which has risen to become the world's third largest producer of IT hardware and fourth largest producer of semiconductors, is striking. Singapore too has grown from a poverty stricken former colony to a technology powerhouse, based on judicious attraction of multinational investment and relentless attention to industrial upgrading. Both these cases in Australia's region are all the more striking in that these countries have come through the recent Asian financial crisis more or less intact, suffering a downturn only due to their regional exposure. This means that their technologically sophisticated firms have come through the toughest test of all -- a major economic recession in the region -- and been found resilient and robust.
The lesson to be drawn from this is not that these firms were 'special' in some way, but that they drew strength from their institutional environment, which had been created painstakingly, and renovated and upgraded, continuously over the preceding decade. This study draws on the experience of firms in Taiwan and Singapore, within these institutions and policy frameworks, with a view to formulating some general conclusions as to what kinds of industrial institutional frameworks best suit highly innovative firms.
The study finds that the key to the successful restructuring and upgrading engaged in by firms in Singapore and Taiwan, lies in the institutional environment which shapes their decisions. Both countries have fashioned a set of institutions which drive firms in these economies towards an outward, export orientation and towards endless technological upgrading -- rather than allowing firms to take the easy option of competing on the basis of cost minimisation. The institutions found in these countries shape firms' decisions along the following lines.
- Technology leverage
- Financial leverage
- Nurturing environment for the formation of knowledge-intensive firms
- Industry cluster strategies
- Investment attracting vehicles
- Industrial upgrading incentives and discipline
- Industry self-organisation
- Skills upgrading and technical training
- Market shaping and creation
- Export promotion
- Lead agency
The key to the overall success of the institutional frameworks in Taiwan and Singapore is that they operate not just as individual elements but in a co-ordinated fashion, with a strategic lead being provided by a lead agency - in Taiwan's case, the Council for Economic Planning and Development and in Singapore's case, the Economic Development Board. It is in this systemic co-ordination that the principal institutional capacity of these East Asian technologically upgrading economies resides.
In short, it is firms which generate the wealth in Singapore and Taiwan and they do so through making their own strategic decisions. But they operate within an institutional environment which biases them towards investing in strategically important industries, and in technological upgrading, that has the effect of enlarging their strategic options.
There are no cultural impediments to Australia learning institutional lessons from these successes in our Asia-Pacific neighbours. This study is designed to contribute to the development of such a comparative perspective on the tasks of institution building in Australia in the early years of the 21st century.
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