Taiwan as the perfect hotbed for hardware startups

Mark wrote a great article about why he thinks the French startups should go to Japan and South East Asia for business expansion. With homeland bias, I would like to complement his current view with a bit of information on the one country that he missed and probably shouldn't have: Taiwan.

It's entirely true that the Asian startup news these days mostly come with keywords like China, Japan, Malaysia, Indonesia, Vietnam, Thailand, Hongkong, South Korean and Singapore. You don't see Taiwan's name very often on even those Asia-oriented websites such as the fantastic Tech In Asia. We could however take a forensic view to see why Taiwan has failed to generate similar buzz, which in turn could help us identifying a potentially promised land — especially for hardware startups.

 

Grouping the Asian startup hotbeds

Here's a simplistic grouping of the above mentioned Asian startup hotbeds and the intuitive reasons behind their ascendance:

  1. The largest group comprises those that have enjoyed tremendous macroeconomics growth in the past few years and are poised to continue to enjoy 5%+ GDP growth for the years to come: China, Malaysia, Indonesia, Vietnam and Thailand. Frankly speaking, everything is much easier with a growing economy, as the French presient François Hollande would happily tell you.
  2. Japan and Korea stand out as two relatively mature and slow growing economies with however high penetration of tech application and a large domestic market. Both also boast more than 4 or 5 decades of high-quality advanced education, with highly qualified engineers and business veterans available everywhere.
  3. Hong Kong and Singapore are not really hotbeds for local startups compared to others, but their old roles of capital centers have extended comfortably into the Asian startup frenzy. Singapore in particular funds the fast growing startups in Malaysia, Indonesia, Vietnam and Thailand for obvious geographical advantages.

 

It's quite common for foreigners to confuse Taiwan and Thailand due to the English pronounciations. The nice Taiwanese seldom complain. But if you try that with Taiwan and China ...

It's quite common for foreigners to confuse Taiwan and Thailand due to the English pronounciations. The nice Taiwanese seldom complain. But if you try that with Taiwan and China ...

Why isn't Taiwan on the list?

Taiwan is in many ways the combination of the second and the third groups.

Unlike the first group, Taiwan has suffered from no real GDP growth for almost a decade. With a population of 24m it's also an awkward size for any company to target at. With the ridiculous growth of China over the past 10 years into the 2nd largest economy in the world, more and more international firms consolidated their effort in Taiwan under the Chinese branches, either in Shanghai or in Beijing. In general, market-wise Taiwan is worthwhile for cash-rich giants like Facebook or LINE, who could localize their offering by hiring local engineers and sales/marketing forces. For startups looking for exponential growth, investment in the Chinese aspect naturally could be remunerated much faster if targeting at the humongous Chinese market.

However, like Korea and Japan in the 2nd group, Taiwan has had a very good public educational system that churns out highly qualified professionals every year. Taiwan also has two dominant industries: hi-tech OEM and semiconductor, as TSMC produces a great majority of the integrated circuits in the world while Foxconn is behind every single iphone and iPad that have been purchased in the last 4 years.

TSMC is the runaway leader in semiconductor foundry industry with perennial highly profitability.

TSMC is the runaway leader in semiconductor foundry industry with perennial highly profitability.

The three decades of success in these two industries, however, spell curses for startup eco-system in Taiwan. While it's not exactly Dutch Disease in the original sense, the dedication of government resources and national attentions to these two increasingly high-capex industries mean that for a long time human capital centralises highly around hardwares. Software engineers pale in number and sometimes in quality in front of the huge amount of talent — your humble blogger included, rather humbly — sucked into the two industries, which happen to become increasingly difficult to differentiate and therefore less and less profitable. However, tides are finally changing as new generation of EE/CS-major students got inspired by the success stories of Uber and Airbnb.

As compared to the Hong Kong / Singapore pair, Taiwan has a relatively healthy and active stock market. On the other hand, the venture capitalists in Taiwan, long accustomed to the business models of OEM and semiconductor, have so far failed to sponsor and inspire web and mobile startups. Things are slowly changing with long-term efforts from evangelists such as my good friend from college Dr. I-Chien Jan, who's running the largest accelerator in Taiwan, AppWorks. As a past semiconductor entrepreneur in Taiwan, I look forward to the maturing of local VC/Startup eco-system and am willing to do whatever I could to help it happen.

AppWorks is the largest incubator/accelerator in Taiwan, having raised US$42m and sponsored 150 teams and 350 entrepreneurs over the past 4 years

AppWorks is the largest incubator/accelerator in Taiwan, having raised US$42m and sponsored 150 teams and 350 entrepreneurs over the past 4 years

 

What can Taiwan offer for a hardware startup

While software remains a soft spot for Taiwan, the magnificent hardware environment in Taiwan means it's a perfect place to work on your IoT connected objects. Take the following Taiwanese startup for example:

Even though the Zillian’s team specializes in software, not hardware, sourcing products was a breeze due to their connections in Taiwan. Whereas hardware startups in California can spend years sourcing component manufacturers in Asia, for Taiwanese entrepreneurs, finding the right parts is often as simple as calling up a buddy.
— http://www.techinasia.com/bistro-facial-recognition-for-cats-taipei-startup-feeds-cats/

For Californian or French startups struggling to raise money on Kickstarters or from suspicous angels so that they could pay for the huge prototyping cost, I could testify with my own 10 years of working in Taiwan that you could easily get the prototyping done at a much lower cost.

The reason is exactly the success of OEM and semiconductor industries. Due to decades of hardware focus, there are a mountain of 3rd-party vendors in Taiwan providing hardware services such as module prototyping and crafting. We're talking about family firms of 5~10 employees with molding machines in their small workhouses, taking your order individually at a reasonable contract price and even allowing for back-and-forth modification free of charge or with limited extra cost — to many Cali startups, this sounds like heaven and it truly should be.

And for more complicated designs, sourcing the necessary semiconductor components such as processors, memories, networking chips and even digital camera modules is probably even easier than in California, and surely than in France. You find market leaders of different components within the 100 km of diameter from Taipei to HsinChu. And if you have the right connections, eager and talented engineers in those companies are always happy to help you in debugging your system so long as your projects provide the good old engineering satisfaction of problem solving for them — heck! I personally am open to help startups solve issues with their HDMI or USB interfaces as well as WiFi connectivity, even just for fun!

Last but not the least, if you successfully build your networks through working with component vendors and 3rd party hardware service providers, it's much easier for you to find the small OEM who might be willing to manufacture that 1,000 pilot devices that you need to distribute to your impatient supporters from Kickstarter and test the response of a larger market!

 

But I'm not a Taiwanese startup

Of course you're not. You probably don't want to be, either, given the continued short-term mindset among most Taiwanese VCs. But that does not mean you cannot benefit from the advantages that Taiwan has to offer as I analyzed above.

With the smart money you raised in US or Europe in hand, via proper introduction you shall be able to find turnkey solution providers in Taiwan that can work with you and help you get over the hump.

If you're bold enough, hiring Taiwanese engineers is always the next best thing — they are well trained, diligent and really engaged in works. They're also well connected through their school networks.

And who knows? Maybe this can also be your portal to the Chinese market of 1.351 billion people, by first trying out your offering on the 24m people that speak the same language and share similar cultures!

What are you waiting for?

Why VCs invest? And why not? (Howard Hartenbaum, August Capital)

Risks, uncertainties, smart money & pre-money valuations