Innovation in Taiwan: What Is Next?

By Kastelle, Tim; Hu, Mei-Chih et al. | Innovation: Organization & Management, December 1, 2013 | Go to article overview

Innovation in Taiwan: What Is Next?


Kastelle, Tim, Hu, Mei-Chih, Dodgson, Mark, Innovation: Organization & Management


The growth of Taiwan, Singapore, and other Asian economies over the past 50 years is one of the major development success stories. The case of Taiwan is particularly interesting, as GDP per capita has increased more than 20-fold since 1960 (International Monetary Fund [IMF], 2012). While these economic transformations have often been attributed to cheap labor, innovation has in fact played a central role in this growth (Dodgson, Mathews, & Kastelle, 2006). Kim (1997) describes the shift from imitation to innovation in South Korea over this period, and this pattern has been repeated through all of the advanced North-East Asian economies, including Taiwan.

We decided to publish this special issue on innovation in Taiwan for several reasons. The first is that innovation in Taiwan now appears to be mature. Over the past 2 years in particular, this journal has received a large number of papers studying innovation in Taiwan - there is clearly a great deal of research on innovation taking place there. The striking thing about this work is that when you compare this research to that taking place in other parts of the world, the topics seem 'normal.' Researchers are looking at things such as R&D strategy, the impact of human and social capital on innovation, innovation policy and clus- ter formation, the determinants of the determi- nants of innovation success and so on. In other words, innovation in Taiwan now looks like inno- vation in most of the developed world. This is a significant milestone. The maturity of the innova- tion system is reflected in the papers in this issue.

In many respects, Taiwan's success in develop- ing a successful innovation ecosystem is a blue- print for other regions that are trying to improve their innovation capability. What are the factors that led to this? What are the prospects for inno- vation in Taiwan in the future? And what can other countries and regions learn from Taiwan's experiences? These three questions are the other reasons behind this special issue, and our specific concerns in this introductory paper.

WHAT HAS LED TO TAIWAN'S INNOVATION SUCCESS?

Several things have driven Taiwan's innovation success, including: Targeted public R&D fund- ing, successful integration into global supply chains, and the development of a knowledge- based economy. All of this has taken place in an economy that has been dominated by smaller firms - 97% of Taiwan's industry is composed of SMEs. This has had several important conse- quences. First, it has led to a preponderance of process innovation over product innovation, as the rewards are greater for process innovation in small firms (Baldwin & Sabourin, 1999; Cohen & Klepper, 1996). Second, small firms have been able to take advantage of innovation networks in order to overcome disadvantages caused by their size (Kleinknecht & Reijnen, 1992; Sigurdson, 1986/1998). Finally, the state has been played an important role in fueling or deepening the net- working process through resource aggregation, mobilization, and acquisition (Hu & Mathews, 2005; Lee & Hung, 2011).

Targeted R&D funding

It has long been known that the innovative capac- ity of a country is the basic driving force behind its economic performance. The institutional struc- tures and support systems that sustain innovative activity vary from country to country, and are con- sequently important drivers of economic develop- ment (Dodgson, Mathews, Kastelle, & Hu, 2008; Furman, Porter, & Stern, 2002; Hu & Mathews, 2005; Neely & Hii, 1999; Yusuf, 2008). The work of Hu and Mathews extends and modifies Furman et al.'s (2002) approach in advanced countries by applying it to five 'latecomer' countries from East Asia, and in particular to Taiwan, from 1975 to 2000. While the results are in broad agreement with the findings of Furman, Porter and Stern, Hu and Mathews document some important dif- ferences for latecomer East Asian economies: A smaller number of national factors matter, and, in particular, public R&D funding exerts significant influence on the building of national innovative capacity in these countries. …

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