How Taiwan became the 'Republic of Computers' It traces to the moment video games were banned

TAIPEI, TAIWAN — TAIPEI, Taiwan -- This is how Lin Yang-kang, acting on the noblest Confucian principles, inadvertently helped to create the $20 billion Taiwanese computer industry:

In 1980, when he was interior minister under the martial-law Nationalist regime, Mr. Lin grew concerned that Pac-Man and other video arcade games were corrupting Taiwan's youth. Government newspapers joined his crusade. "This spiritual FTC self-abuse must be stopped," preached one editorial.


Although video games were a thriving business, Mr. Lin banned their sale. This forced Taiwan's many game-makers to look for a new line of work. Most went into computer-related products, starting with monitors, keyboards and mouses.

This was only one of several factors -- including an engineering-tilted education system and generous government subsidies for high-tech projects -- that made Taiwan click on computers. But eventually, the former game-makers shifted to manufacturing whole systems: personal computers, laptops and notebooks.


Recently, they have moved into the higher-tech fabrication of silicon wafers used in semiconductors. At least eight semiconductor facilities, each with a minimum investment of $500 million, are under construction in the Taipei suburbs.

Welcome to the R.O.C. -- the "Republic of Computers."

Last year, the tiny Republic of China, with 21 million people on an island roughly the size of Maryland, became the world's No. 1 supplier of computer notebooks. Taiwanese computer-related companies -- more than 4,000 at last count -- also are particularly adept at producing computers that are sold abroad under more famous brand names.

For Taiwan, the computer revolution has come just in time. With an annual per-capita income of more than $12,000, the country has priced itself out of the labor-intensive market that was once its mainstay for exports. Many of the shoe and toy factories, textile mills and other industries that made the island famous as one of Asia's economic "Little Dragons" have moved to the mainland.

But as Taiwan's traditional industrial base "hollows out," it has been replaced by the growing computer and component trade.

Taiwan now ranks No. 3 in the world, behind the United States and Japan, in production of computer hardware. Significantly, its $20 billion in production value this year is roughly equivalent to the value of Taiwanese industry that has moved to mainland China.

Although they generally don't like to talk about it, some Western giants such as IBM, Apple, Compaq and Dell turn to Taiwan to make some of their brand-name product lines.

Houston-based Compaq, which long has prided itself on the in-house content of its products, earlier this year contracted with Taiwan's Mitac International Corp. to produce its Presario 7100 line of multimedia desktop computers. According to a Mitac source, the Taiwanese company will produce between 400,000 and 500,000 personal computers this year for Compaq, accounting for more than $500 million in sales for the American company.


Apple farms out two of its popular PowerBook notebooks to Acer, one of the few Taiwanese manufacturers that also markets computers under its own name. But 70 percent of the 72,000 notebooks Acer produces each month are sold under such foreign names as Apple, Texas Instruments, Mitsubishi and Canon.

In global terms, the Taiwan connection reflects a broader trend toward internationalization in the computer business, in which certain countries, mainly in Asia, specialize in key components. Like the family car, the computer can no longer be considered a one-country product. Computers are not so much manufactured as they are assembled from a United Nations of suppliers. Often, the brand-name company functions only as a marketer and shipper of products assembled entirely abroad to its specifications.

"A lot of leading companies today are computerless computer companies," said Stan Shih, Acer's founder and chief executive. "They mainly concentrate on marketing and have minimal involvement on the components side of the business."

"We call it box-moving," joked Thomas Chen, president of Elite Group, a successful component company headquartered in suburban Taipei.

Companies like Austin Direct Inc., a popular Texas-based mail-order computer operation, buy completely "fitted" computers from Taiwan and sell them in America under their own labels.

Taiwan is the world's No. 1 producer of monitors, scanners, mouses, keyboards and mother boards (the plastic, internal boards filled with electronic components that act as computers' electronic traffic systems).


The Taiwanese also have proved themselves adept at farming out the manufacture of lower-tech parts to other countries, particularly China, and at organizing shipment to Europe and the United States.

Much of the credit for Taiwan's success, experts say, must go to the government's emphasis on education, particularly in engineering. "When I was a kid, Taiwan was known for making shoes, umbrellas and cheap toys," said Abraham Leu, 29, a stock analyst with Jardine Fleming Taiwan Securities. "But about 20 years ago, every high school graduate wanted to be an engineer, especially a 'double E' -- electrical engineer."

The result is that Taiwan has one of the most concentrated pools of electrical engineers in the world.