Enhancing the Role of Universities in Building National Innovative Capacity in Asia: The Case of Taiwan

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1 World Development Vol. 35, No. 6, pp , 2007 Ó 2007 Elsevier Ltd. All rights reserved X/$ - see front matter doi: /j.worlddev Enhancing the Role of Universities in Building National Innovative Capacity in Asia: The Case of Taiwan JOHN A. MATHEWS Macquarie Graduate School of Management, Sydney, Australia and MEI-CHIH HU * Feng Chia University, Taichung, Taiwan Summary. Taiwan has already demonstrated how a Newly Industrializing Economy can build an export-oriented manufacturing system driven by catch-up strategies linked to knowledge leverage via public institutions. In the 1990s, Taiwan moved toward building its innovative capacity, and in the 2000s it is drastically upgrading the role of universities in providing fundamental R&D, in acting as incubators of new, knowledge-based firms, and in building the country s innovative potential through IP protection and commercializing activities. This study examines how these new approaches are being implemented in three universities, in National Chiao Tung University (NCTU), National Tsing Hua University (NTHU) both located in the Hsinchu high-tech belt and National Taiwan University (NTU) located in the Taipei metropolitan area, as well as in the Industrial Technology Research Institute (ITRI). ITRI has been the engine that drives Taiwan s technological upgrading, and continues its role through new emphases on patenting and entrepreneurial technology transfer. Ó 2007 Elsevier Ltd. All rights reserved. Key words Asia, Taiwan, national innovative capacity, university industry linkage 1. INTRODUCTION Innovation in the case of latecomer countries needs to be understood in a way that is rather different from innovation in the case of leaders. The lead countries are interested in maintaining their lead through new-to-the-world innovations, in products, or processes or abstract knowledge generally (such as the human genome). For the latecomer countries whose primary strategic goal is to catch up, innovation means new-to-the-country innovation, which involves the management of accelerated diffusion of technologies from advanced to catchup countries (Amsden, 2001; Hobday, 1994; Kim, 1997; Mathews, 2001). While the significant effect of public R&D expenditure emerges as an important determinant of the degree of 1005 specialization of the East Asian countries, it can be seen both as a source of innovative capacity in itself and as a guide to steer the utilization of limited resources in latecomer countries. Taiwan provides an excellent study in the way that a country can move quickly from imitation to innovation through sophisticated use of institutions such as Public Research Institutes (PRIs), dedicated Science Parks that favor companies with high levels of R&D, novel systems for adapting and adopting technologies and disseminating them to the private sector (such as R&D consortia) and new emphases * Final revision accepted: May 18, 2006.

2 1006 WORLD DEVELOPMENT on patent applications in the USPTO and strategies for the utilization of patent portfolios in international high-tech competition. All of these features may be found in Taiwan in the early 2000s, including systems for the transfer of patent portfolios from the public to the private sector. Amongst this mix of institutions, universities are also being seen in Taiwan as a source of knowledge flows, and steps have been taken since the late 1990s to enhance the role that universities play in the knowledge diffusion process. New incentives are being provided to universities to capture their know-how in patents and intellectual property rights (IPRs), and to take active steps to diffuse these to industry through technology transfer offices, and through spinoff of new companies, frequently incubated on-campus through newly established incubators. Two metropolitan areas in Taiwan have played a major role in these developments, namely the capital, Taipei, which now has several high-tech enclaves and parks (such as Nangang software park and the Neihu technology park), and the high-tech area around Hsinchu, one hour south of Taipei, which boasts Asia s largest concentration of high-tech industry in such areas as electronics and semiconductors (Mathews & Cho, 2000). Here may be found the Hsinchu Science Park, as well as two science-oriented universities (National Chiao Tung University (NCTU) and National Tsing Hua University (NTHU)) and the campus of the Industrial Technology Research Institute (ITRI), Taiwan s technology powerhouse. The competitiveness of the industries generated by these high-tech concentrations derives from the availability of a significant pool of welltrained workers and technical and managerial personnel who now stand in comparison with the concentrations of talent in other R&Dintensive locations. Significant changes were enacted in Taiwan in the late 1990s to the legal framework governing the research activities of universities and of PRIs, which continue to play a central role in Taiwan s innovative capacity. Taiwan has sought to raise the innovative potential particularly of universities, by adopting changes modeled on the US Bayh Dole Act of These changes have freed up institutions to more effectively generate and protect intellectual property while contributing more directly to the nurturing of new high-tech firms. At the same time, the city administration of Taipei has become much more interventionist in promoting high-tech concentrations of firms, such as software firms in the Nangang software park and medical and health-related firms in the Beitou-Shilin technology park. It is these changes in Taiwan s innovative capacity, and their link to the country s overall strategy of transition as a latecomer from imitation to innovation that are the focus of this study. The analytical lens we utilize in examining these issues is that of Taiwan s national innovative capacity. In common with a now expanding literature, we see universities and PRIs such as ITRI as contributing not just their own innovation results but more fundamentally to the country s innovative capacity, that is, to its ability to sustain innovation and enhance it as the country s industrial structure becomes more knowledge based. 1 We are concerned to examine the efforts of Taiwan s academic innovation through institutional and organizational reforms, and evaluate its impact in assisting Taiwan in moving beyond the phase of being a catch-up manufacturing fast follower to that of an innovation-based technology developer. The paper is organized as follows. In the next section, we provide a setting for this activity by analyzing Taiwan s innovative capacity, from the perspective of inputs (R&D expenditures) and of outputs (in the form of patenting rates at the USPTO). In Section 3 we illustrate the recent universities-oriented policies on technology transfer and enterprise, and in Section 4 we then utilize four case studies of current technology transfer activities and entrepreneurial commercialization activities at three national public universities and a PRI, focusing on the institutional details and policies that have been put in place, and the results achieved so far. The three universities are NCTU and NTHU both located in the Hsinchu high-tech belt in Taiwan, next to the Hsinchu Science-based park and National Taiwan University (NTU) located in the capital, Taipei. The PRI is the ITRI, located again at Hsinchu, which since its founding in 1973 has been the engine driving the high-tech industrial development of Taiwan. In the last few years, ITRI has been actively promoting spinoffs through its Incubator and OpenLab initiatives, as well as promoting technology transfer through institutional innovations such as its R&D consortia and its patent auctions, conducted by the newly created Technology Services Office. These case studies are then discussed, along with developments in the national capital, Taipei, in the light of comparable developments in other countries, and

3 ENHANCING THE ROLE OF UNIVERSITIES IN BUILDING NATIONAL INNOVATIVE CAPACITY 1007 the final section presents some preliminary conclusions and lines for further work. 2. TAIWAN S NATIONAL INNOVATIVE CAPACITY The innovative capacity of a country is the basic driving force behind its economic performance; it provides a measure of the institutional structures and support systems that sustain innovative activity. National innovative capacity may be broadly defined as the institutional potential of a country to sustain innovation. It has been investigated by numerous scholars, at least since Suarez-Villa (1990) formulated a clear definition of the concept and a measure of it in terms of patenting rates. The notion can be formulated at regional and other subnational levels (Neely & Hii, 1999). Thus the capacity to innovate is not concerned with any single aspect of innovation performance, but with the sources of its sustainability. Recent studies of national innovative capacity in advanced countries, such as that by Furman et al. (2002) (FP&S), utilize patenting rates as a measure of national innovation, and then seek to establish the determinants of national innovative capacity by linking these patenting rates at the US PTO with national factors such as public and private R&D, and numbers of science and engineering graduates. FP&S utilized the group of 17 OECD countries for their study. Hu and Mathews (2005) extend and modify the FP&S approach by applying it to five latecomer countries from East Asia, and in particular to Taiwan. While the results are in broad agreement with the findings of FP&S, Hu and Mathews document some important differences for latecomer East Asian economies: a smaller number of national factors matter, and there seems to be an important (though subtle) role for public R&D expenditure to act as a steering mechanism for the private sector, while university-based R&D (a basic research resource) does not show a significant effect over the past two decades. Hu and Mathews (2005) demonstrate that the public R&D funding in East Asia greatly strengthens the contribution of specialization in the hightech industries but this effect will only be registered where a latecomer country is pursuing a targeted strategy of catch up, as in Taiwan. The national innovative capacity of a country may be measured in many different ways. In this paper, we shall begin by examining inputs, in the form of R&D expenditures, and outputs, in the form of patenting rates at the US PTO. In each case, we are interested in observing overall trends, and changing institutional forms from the perspective of the catch-up efforts being made by the country as it negotiates the difficult transition from imitation to innovation. (a) R&D expenditure Taiwan s commitment of resources to R&D has been relentlessly increasing over the course of the past decade. As shown in Figure 1, total R&D expenditures reached NT$241 billion by 2003 (nearly US$10 billion) a doubling from the level reached 10 years earlier. During that time, private industry expenditure had increased fastest; from being comparable to public expenditure in 1993 it has pulled away. This is one sign to show that Taiwan is moving toward enhancing its innovative capacity. Within the sphere of public R&D expenditure, which drove Taiwan s innovative efforts in its transition years, the role of public R&D institutions (PRIs) has continued to grow, doubling over the years , while that of universities has grown a little more slowly, doubling over the period to Universities still account for around 28 30% of public R&D expenditure, a proportion unchanged over the course of the past decade. Within the universities, there has been a gradual but observable shift from applied kinds of R&D to basic R&D, as shown in Figure 2. This reveals a trend where the universities are taking on more of a role as generators of fundamental knowledge an essential complement as the country moves from rapid imitation to innovation. (b) Patenting rates On the output side, we may measure the fruits of these increased levels of R&D inputs through international patenting rates at the USPTO. Over the course of the past decade, Taiwan has demonstrated an astonishing increase in patenting rates, both absolutely and particularly in per capita rates, taking it to the lead amongst East Asian countries and on a par with Israel and Finland, the two high-performing middle-income countries as shown in Table 1. The table reveals that for the period, Taiwan reached the position of third highest per capita patenting rate in the world, reaching 17.2 per hundred thousand

4 1008 WORLD DEVELOPMENT R&D expenditure by the sector of performance, NT$million Research institutes Universities Public industry Total public Private industry Foreign funds Figure 1. Taiwan s R&D expenditure, by source of funds Source: Indicators of Science and Technology, ROC (1995, 1999, 2004). Note: Research institutes include public research institutes and non-profit research institutes. Figure 2. R&D expenditure by universities, by type of R&D, Source: Indicators of Science and Technology (1998, 2004). population behind only the United States and Japan. Taiwan is outstripping other East Asian countries in its patenting performance, both absolutely and especially on a per capita basis, as shown in Figures 3a and b. Given these high levels of R&D expenditures found for Taiwan, and the very high patenting levels that have emerged as an outcome, we focus now on the central question: to what extent are the universities playing a role in these fundamental transitions in Taiwan? To what extent are the universities moving from being providers of specialized training (highly targeted to the few industries where Taiwan has made its mark, such as electronics, semiconductors and now flat panel displays), and instead becoming sources of knowledge generation in the new knowledge-intensive sectors where Taiwan will wish to make its mark in the 21st century? 3. RECENT UNIVERSITIES-ORIENTED POLICIES ON TECHNOLOGY TRANSFER AND ENTERPRISE CREATION Inspired by the US Bayh Dole Act of 1980, many Asian economies (e.g., Japan, Taiwan, and Korea) have sought to free up their univer-

5 Table 1. Country statistics: Averages for 5- and 30-year periods (utility patent only) Country Patents per year Patents per capita (2) Success rate Annual growth rate (%) G7 United States 44,850 56,683 79, Japan 11,216 22,433 29, Germany (1) 5,806 6,895 9, France 2,432 2,881 3, United Kingdom 2,492 2,427 3, Canada 1,380 2,119 3, Italy 855 1,215 1, Reference group Israel Finland Ireland Spain East Asian 5 Taiwan 437 1,535 3, Korea 267 1,134 3, Hong Kong Singapore China Source: USPTO; World Development Indicators database, Note: (1) The data for Germany include West Germany only before (2) Patents per hundred thousand population. ENHANCING THE ROLE OF UNIVERSITIES IN BUILDING NATIONAL INNOVATIVE CAPACITY 1009

6 1010 WORLD DEVELOPMENT Case International Patent Granted Year Taiwan S. Korea Singapore Hong Kong China Figure 3a. Patents granted, : Taiwan, Korea, Singapore, Hong Kong, China. Source: Hu and Mathews (2005). 250 International Patents Per Million Persons Patents per Million Persons Taiwan S. Korea Singapore Year Hong Kong China Figure 3b. Patents granted, per million population. Source: Hu and Mathews (2005). sity and PRIs and endow them with greater capacity to benefit from their own intellectual property generation initiatives. In this spirit, the Taiwan government (Executive Yuan) laid down a general Basic Law on Science and Technology in 1999, which reorganized the management of IPRs in public institutions in approximately the same manner as the Bayh Dole Act in the United States. This Taiwan law laid down that for those IPRs and achievements of science and technology research and development that are funded and subsidized by the government, the whole or a part of them will be given or authorized to research institutes or enterprises as not being constrained by the National Property Law. To implement the Executive Yuan s Basic Law for Science and Technology and the regulations governing scientific and technological IPRs, Taiwan s National Science Council (NSC) transferred all such rights from the state to the relevant institutions. To promote the programs related to intellectual property and technology transfer, the NSC called on universities and PRIs to examine their frameworks for dealing with IPRs and technology transfer. In order to integrate academic resources and effectively manage R&D results, the Department of Industrial Technology of the Ministry of Economic Affairs (MOEA) launched a new set of policies relating to Encouragement of Industrial Innovation and R&D. These were adopted in 2001 after discussion at the Economic Development Conference staged earlier that year. Three mechanisms for technology dissemination between industry and universities were put into practice: Technology Transfer Centers (TTCs) and universities; Technology Trade Centers (usually web-based systems); and incubators. These are all models of public private interaction that have been developed in the advanced countries, now being emulated by Taiwan. (a) Technology transfer centers While the internalized management and exploitation of IPs is suggested to enhance economies of scale and minimize transaction costs in patenting and licensing, Taiwan s enacted policies and subsequent institutional reforms enabled universities to claim patent titles. In addition, in the face of declining and changing government funding support (from support without specific criteria to credit evaluation based on publication rates and industry

7 ENHANCING THE ROLE OF UNIVERSITIES IN BUILDING NATIONAL INNOVATIVE CAPACITY 1011 linkages), the universities and other tertiary institutions are encouraged to establish TTCs for licensing of technology and know-how generated, in order to increase linkage with industry and to gain more funding support from both industry and government. The NSC was granted a budget of NT$28 million (around US$1 million) in 2001 to set up the program and seven institutions were chosen to establish initial TTCs. 2 (b) Technology trade centers Taiwan s industry is composed of many small medium size enterprises, in which there are sometimes significant disparities in information available to small and larger players. In order to enhance business opportunities in the supply and demand for technology, an initiative aimed at establishing healthy technology trading markets in Taiwan, as well as a cadre of competent technology traders, has been launched. The responsible authority is the Industrial Development Bureau (IDB) of the MOEA, with funding of NT$13 million for the first year (2001), that is, approximately US$0.45 million. The aim is to promote such technology trading centers through the creation of an integrated service center for technology trading markets across industries in Taiwan. This was created by ITRI as Taiwan Technology Marketplace, which since 2002 has been staging annual Taiwan Technomarts. It is currently the largest integrated technology trading platform in Taiwan. (c) Incubators Under this program, the Small and Medium Enterprise Administration (SMEA) of the MOEA is funded to encourage the creation of a series of incubators in Taiwan since 1996, many of which are linked with, and located within, leading universities. The performance of these incubators is impressive. Up to 2003 they created 2,100 employment jobs, were awarded 413 patents from TIPO and USPTO, developed 539 new products and induced 88 technology transfers. The SMEA has been equipped with an overall budget of NT$1.83 billion (approximately US$61 million) over five years from 2001 to 2005 to drive this program to be expended mostly in the form of credit guarantees for incubated firms and an incubator investment fund. In 2002, the SMEA paid out subsidies of NT$190 million (approximately US$6.5 million) for incubator centers established by 51 universities and by ITRI (SMEA, 2003, 2004). Overall, then, three agencies have been entrusted with promoting these new universityoriented initiatives the NSC for TTCs; the IDB for technology trade centers; and the SMEA for incubation of new high-tech spinoffs from the universities. Table 2 shows the impact of these new policies, in terms of licenses awarded by universities and licensing revenues achieved by universities. The number of technology licensing agreements leapt to 1,341 in 2004, up from only 40 in 2001; while licensing revenues have also increased dramatically, to reach NT$137.9 million in 2004 (approximately US$4.6 million). The number of patents awarded through the NSC funding stream does not show the same dramatic increases it is estimated that this reflects the reality that many patents are being taken out by university faculty outside the NSC system, in addition to those represented in Table 2. Table 3 reveals the industrial specialization of patents awarded under the NSC scheme, and again we see the strategic significance of new sectors such as optoelectronics and electrical engineering, as well as core upstream technologies in chemical engineering and new materials, which feed into numerous downstream industries. This reveals that the NSC policies continue to be successful in keeping the R&D output of the universities and PRIs in close accord with the country s strategic industrial directions. This is characteristic of Taiwan over Table 2. Technology transfer outcomes under NSC, Before Technology licensing number ,341 Technology licensing revenue (NT$million) Patents awarded (1) 985 (408) 171 (86) 288 (117) 271 (97) 222 (83) 137 (34) Source: NSC, Note: (1) The number in brackets stands for foreign patents awarded (mainly from the USPTO).

8 1012 WORLD DEVELOPMENT Table 3. The top five patenting technologies supported by NSC Optoelectronics 253 Chemicals 204 Chemical engineering 201 Materials 137 Electrical engineering 133 Source: NSC, Note: The technology is assorted from the patents granted in the TIPO, USPTO, JPO, and EPO. the past few decades, and characteristic of a latecomer strategy. A small country like Taiwan cannot hope to develop evenly across all industrial sectors. But with judicious policies it can specialize and build up its capabilities to the world frontier in certain sectors and this is just what we see in Taiwan. The NSC funding is targeted in a way that clearly extends this sectoral specialization from production activities to innovation activities. But note that there is also a striking absence from this table, namely semiconductor and electronics patenting. This is because these are now mature sectors in Taiwan, and most of the patenting is being undertaken by the leading firms such as TSMC and UMC as well as ITRI; the NSC has not attempted to duplicate what these institutions are already doing well. While the role of universities in R&D is aimed at generating ideas and innovation, the PRIs such as ITRI are focused on fostering innovative activity and new ventures. Once the firms in a well-developed industry have established their own R&D capabilities, ITRI turns its R&D projects over to new industries, which indicates that the role and task of PRIs is adjusting from an industry infrastructure provider to the linkage between infrastructure and industrial clusters facilitator. ITRI is wellknown as the technology engine of Taiwan, while the technology licensing offices in NTU, NCTU and NTHU, under their grants from the NSC, are now starting to make their contribution. These are the four cases we have elected to study at a greater level of detail, in the remainder of the paper. 4. FOUR CASE STUDIES (a) National Chiao Tung University One of Taiwan s oldest universities, NCTU, had by the 1970s matured into a comprehensive university with a strong emphasis on courses and research in all fields of advanced engineering. By the time that ITRI was established in 1973 at Hsinchu, NCTU was able to supply much of the R&D staff needed, and when the Hsinchu Science Park was established in 1980, and high tech businesses started building new fabrication facilities, again it was NCTU that was able to provide much of the skilled engineering talent needed. To further the cooperation of NCTU with industry, an Office of Research and Development, under the Dean of R&D, was established in , and under this Office all activities relating to the commercialization of NCTU research, the licensing of NCTU know-how, bequests to the university from companies established by NCTU alumni, and the building of the NCTU portfolio of IPRs have been concentrated. Under rules laid down in the Taiwan Basic Law on Science and Technology, and regulations issued by the NSC governing research projects and the intellectual property fruits of this research, NCTU operates a liberal policy with respect to patents arising from the research of NCTU faculty. There is a sliding scale of returns from royalties and licensing income, with faculty receiving up to 100% of the income for small projects, and no less than 40% of the income from large projects (bringing in more than NT$10 million) and on average receiving up to 70% of the income generated by the IPRs. This compares very favorably with comparable policies and practices in advanced institutions in the United States, Europe, and Japan. This liberal policy has been implemented only since 2004, in a clear bid to raise the level of patenting conducted through the NCTU s TLO. Unofficially many NCTU faculty have been taking out patents, or consulting to industry, without going through the formal NCTU channels. The success of the new policy has yet to be seen. (i) Patent application process supported by the university The process through which a patent is applied for is laid down in the NCTU Technology Licensing Manual. Faculty interested in taking out patents on an invention are required to fill in a form that details their invention, the research project under which it has been generated, the lab records on which the invention is based, the prior art in this area, and where patents are to be applied for (usually within

9 ENHANCING THE ROLE OF UNIVERSITIES IN BUILDING NATIONAL INNOVATIVE CAPACITY 1013 Table 4. Patenting and licensing performance at NCTU, Patent applications Licensing revenues (NT$ million) Total Source: NSC (2004). Table 5. NCTU s patenting performance in the USPTO, Patent awarded 2 8 Inventor no No. of forward citations by patent No. of forward citations by paper 4 35 Average citation rate by patent Average citation rate by paper Source: USPTO. Taiwan IPO and the USPTO). This form is then subjected to two reviews, one by an internal committee consisting of NCTU faculty, and then if it survives this initial review by an external committee consisting of industry and IP experts. Any invention that survives this review process is then supported by NCTU and patents are applied for, as shown in Table 4. If we turn to patents awarded as opposed to patents applied for, as a measure of the quality of the research in NCTU, we find that the results are still modest: two patents were awarded by the USPTO in 2003, rising to eight in Table 5 reports the overall results (in a form that is comparable for other universities) covering patents, citation rates, and papers published and their citation rates. Through examining the patent classes, we also find that the research outcome in NCTU is very concentrated in Taiwan s strategic industries (such as electronics). Moreover, the increasing forward citation counts may imply that the pure scientific contents are increasing in these patents and indicate that Taiwan is moving from fast follower to developer of new technology. The NCTU TLO is currently in charge of a research project funded by the NSC to create a National Research Platform consisting of a database of patents held by all Taiwan universities and public research institutions, with some level of organization of this patent database into industry-relevant classifications. This is an ambitious project, and if successful, would take Taiwan into the first rank of countries with sophisticated IPR national management systems. (b) National Tsing Hua University The NTHU is the premier research university in Taiwan (or at least is on a par with NTU) and traces its lineage back to the founding of Tsing Hua in China in the early years of the 20th century. It has the highest citation rate for papers published by faculty in Taiwan or in China, and nearly 50% of the university budget is accounted for by grants received by NTHU faculty. The NTHU operates a Research and Development Office that manages the affairs of the large number of specialized research institutes at the university, as well as technology licensing and patents applications, and the spinoff of new entrepreneurial ventures. An Incubator has been established at the NTHU campus in Hsinchu to promote the spinoff of new enterprises. In 1998, an Office of Technology Service and Licensing (OTSL) was created at NTHU to take charge of all activities related to the University s IPRs and their commercialization and licensing. Starting in 2001, a grant of NT$5 million per year for five years has been provided by the NSC to NTHU to assist in building the operations of this Office, and to create a specialist Office of Technology Licensing (OTL). The OTL was opened in October 2000 and is responsible for intellectual property and technology licensing activities at NTHU. Thus the OTSL at NTHU is similar in operation to the TLO at NCTU. For patent filing at NTHU, a two-part review process is utilized. An invention is submitted to OTL for initial internal review (subject to appropriate protection and non-disclosure) and if it survives this internal review, it is submitted to the University s Technology Rights and Interests Committee (TRIC), the key committee that recommends whether patents are to be applied for in the University s name. For technology licensing, the OTL takes an activist role, together with the faculty member responsible for the patent, to develop commercial interest. Key tasks involved in licensing concern the pricing of the royalties, the licensing agreement, exclusivity or non-exclusivity issues, licensee s

10 1014 WORLD DEVELOPMENT qualifications and suitability, and royalty and payment procedures. As at NCTU there is a sliding scale according to which revenues received from licensing are returned to the inventor (faculty member) and NTHU. This is a liberal approach that is designed to encourage faculty to declare their inventions (particularly those related to NSCfunded research programs) and to utilize the auspices of the University for the filing of patents. The breakdown of these patents by NTHU Departments is as follows: chemical engineering (47%), materials science (25%), pneumatic and mechanical engineering (11%) and others take 17%. This is a strikingly different pattern from that revealed by ITRI, which is Taiwan s premier patenting public research institution focusing substantially on the strategic sectors such as optoelectronics and communications. The divergence reflects the specialization of NTHU faculty, where they have a high reputation in advanced scholarship in chemical and chemical engineering matters and materials science, moving now into nanotechnology. The record in terms of patents issued and papers published and cited at NTHU is impressive. Patents issued are numbering around 50 per year. In terms of publications, Science Citation Index papers published now exceed 1,000 per year, while the number of Social Science Citation Index papers published each year is rising from 20 to 30-plus (Table 6). If we use NTHU s own track to examine the quality of the research, it is found that the research concentration is on electronics and chemicals areas, while chemical engineering is one of the major specialties in NTHU. When we look at USPTO patenting records, as shown in Table 7, we find a similar situation to that at NCTU, with small but increasing numbers of patents being awarded to a rising number of inventors, and with numbers of citations of patents awarded rising rapidly. The changes have accelerated particularly since the beginning of the 2000s when Taiwan s government provided incentives to the academic faculty. An innovation incubator was founded at NTHU in September The goals of the Incubator are to assist in the development of new ventures; to reduce the costs and risks involved in founding new ventures; to provide a platform for cooperation between NTHU faculty and industry; and to provide a feedback loop from the enterprises established and the research programs of the NTHU. Funding for the Incubator comes from the SMEA of the Taiwan government, as well as from rents received from tenants and subsidies from the University. A total of 34 companies have graduated from the Incubator to date, while 24 companies are currently in residence. This is a good record by international standards. All companies have survived until their graduation, and following graduation, the survival rate has been 85% again, a very high level of survival by international standards. Seven firms have moved to the adjoining Hsinchu Science Park on graduation, and six have already gone public through an IPO. (c) National Taiwan University NTU is Taiwan s premier university, for both teaching and research. It was founded under the Japanese occupation of Taiwan as Taihoku (Taipei) Imperial University, in In 1996, NTU placed a new focus on its R&D efforts and their significance for Taiwan s national development, by establishing a Commission on Research and Development, charged with the mandate to promote, integrate and Table 6. Academic achievements of NTHU, Patents awarded SCI papers a SSCI papers b EI papers c Total 1,262 1,330 1,317 1,208 1,467 1,369 1,664 Source: NTHU, website a Science citation index. b Social science citation index. c Engineering index.

11 ENHANCING THE ROLE OF UNIVERSITIES IN BUILDING NATIONAL INNOVATIVE CAPACITY 1015 Table 7. NTHU s patenting performance in the USPTO, Patent awarded Inventors number No. of forward citations by patent No. of forward citations by paper Average citation rate by patent Average citation rate by paper Source: USPTO. elevate the programs and quality of academic research at the University. Under the Commission were developed programs to help faculty members and students commercialize their research results and to create a friendly environment toward the development of mediumand small-sized business. The innovation and incubation division offers management solution packages, technical and infrastructure consultation, as well as assistance in the steady growth and expansion of knowledge-based medium- and small-sized business. The Commission also assists teaching and research staff to obtain and maintain IPRs including patents, copyrights, and technical know-how, and to take charge of the technology transfer and licensing processes, through its Service Division. A formal Office of IPRs was set up in the year NTU s record on advanced research publication and issuing of patents is excellent. In the year 2002, a total of 2,347 science and technology papers were published in SCI-cited journals, and 70 social science-related papers in the SSCI-cited journals. Altogether, 3,368 papers were published in internationally and domestically renowned journals, while 4,375 papers were delivered at conferences at home and abroad. In addition, there were 1,164 technical reports, as well as 605 other publications. NTU s patent applications filed in 2001 numbered 40, while 46 were filed in 2003 and 33 in The decline could mean that better quality patents are being filed, or that more activity is taking place outside the formal channels of the university. The latter is the likely explanation, as personal contacts between faculty and the industry play an important role in academia-industry technology transfer, at least before the official channels (i.e., through the help of TTCs) were established. A total of NT$3.7 million in licensing and royalty fees were collected from technology transfer by the university to industry in 2001, rising to $39 million in 2003 and falling to $26 million in 2004 (nearly US$1 million), and totaling NT$84.7 million (US$3 million) over the four years. These are by far the highest figures of any university in Taiwan, and they show how rapidly NTU has responded to the new NSC policies. Of these revenues, 50% are returned back to inventors (faculty), 10% are returned to Schools, and 40% are retained by the university. The performance of NTU over the three years is summarized in Table 8. Like its counterparts in the Hsinchu area, NTU has also been raising its level of activity in taking out patents in the USPTO. As shown in Table 9, it has been rapidly increasing these activities in the last two years. As in NCTU and NTHU, the effect of government incentives is demonstrated in the patents awarded from the USPTO, which have risen from two in 2003 to 12 in 2004, with number of inventors increasing rapidly, as well as patent citation rates and, in the most recent year, paper citation rates. This also clarifies the above argument that personal Table 8. Patenting and licensing performance at NTU, Patent applications Licensing revenues (NT$ million) Total Source: NSC (2004).

12 1016 WORLD DEVELOPMENT Table 9. NTU s patenting performance in the USPTO, Patents awarded Inventor number No. of forward citations by patent No. of forward citations by paper Average citation rate by patent Average citation rate by paper Source: USPTO. contacts between faculty and the industry are more important and have become one of the primary channels before the government incentives were implemented. 3 Moreover, with the most abundant resources in Taiwan s academia, NTU s research outcome in terms of international patent classification in the USPTO shows the broad development of technology, but is still found to be concentrated in the strategic industries. The NTU Innovation and Incubation Center (NTU IIC) was formally established in 2001 on a new campus near the main NTU campus. Funded by the MOEA, the Center aims to assist medium- and small-sized companies in the areas of electronic, information technology, information management, automation, and biotechnology industries, in accordance with the specialty and research programs of related colleges of the University. The NTU IIC sets a formal three-year limit to tenancy on the part of companies, subject to negotiated extensions. The advantages of incubating company at NTU are sixfold: (1) there is the prestige of the address being associated with NTU; (2) there is close cooperation with NTU faculty, and in particular with the Department of Geography; (3) there is assistance with securing contacts and networking with government; (4) there is assistance with the creation and protection of Intellectual property; (5) there is free training provided in such areas as intellectual property and business management; and (6) there is a low rent, which saves costs and reduces risks. These features provide a good summary of just what university-based incubators are about. (d) Industrial Technology Research Institute Since its founding in 1973, the ITRI has been an engine of Taiwan s high-tech development. It was founded by the country s leaders at the time, including K.T. Lee, with the explicit aim of driving Taiwan s move up the technology ladder. But it was not through blue-sky research that ITRI has accomplished these goals, but by a sophisticated strategy of fast followership, through which ITRI identifies key technologies and builds expertise and capabilities in these technologies, before spinning off the technology and associated capabilities as rapidly as possible to the private sector. Thus ITRI has been the guiding engine that powers the technological component of Taiwan s development strategy. As such, it provides a model for all aspiring developing countries in the 21st century. ITRI R&D takes place at 12 campuses around Taiwan and focuses on such critical technological areas as semiconductors, flat panel displays, biomedical devices, broadband/ mobile communications and nanotechnology. Since 2001, its research has generated more than 800 granted patents each year. At the end of 2003, ITRI employed almost 6,200 staff and had funding from the government and industrial contacts totalling US$500 million. Today, partly thanks to the research carried out at ITRI, Taiwan is a leading manufacturer of semiconductor chips, computers and optoelectronic products. More than 100 new firms have been spun out of ITRI, including wellknown firms such as UMC, TSMC, MIRLE (in industrial automation), TEC (Taiwan Engine Company) and most recently, Phalanx Biotech. ITRI is continuing with its program of spinoffs from the R&D conducted within its laboratories, as well as sponsoring technology transfer through its formation of highly targeted R&D alliances (Mathews, 2002) and industrial consulting projects. (i) ITRI patent portfolio A measure of ITRI s innovative strength is its steadily expanding patent portfolio, and its development of new ways of disseminating these, such as through patent auctions and the creation of a TechnoMart for technology trade. ITRI s current patent portfolio (as of December 2004) shows that the total number of patents is nearly 3,000, with a strong emphasis on communications and optoelectronics systems as well as on precision machinery, automation technology, and new materials such as composites. While ITRI remains far and away the most important PRI in Taiwan for patenting purposes, the universities are also starting to become active on the patenting front

13 ENHANCING THE ROLE OF UNIVERSITIES IN BUILDING NATIONAL INNOVATIVE CAPACITY 1017 Table 10. ITRI s patenting performance in the USPTO, Patent awarded Inventor number No. of forward citations by patent in IPC Class A: 95, Class B: 1285, Class C: 495, Class E: 106, Class F: 559, Class G: 2218, Class H: 3029 No. of forward citations by paper Class A: 192, Class B: 27, Class C: 35, Class E: 0, Class F: 3, Class G: 208, Class H: 438 Source: USPTO. through technology licensing offices and incubation centers, both focusing on catalyzing strong entrepreneurship from Taiwan s SMEs, as described above. Of all the PRIs in Taiwan, ITRI has by far the most impressive record in patenting at the USPTO with patents awarded hovering around 200 per year. Table 10 shows the impressive citation rates by patent as well as by paper in the USPTO since 1999, particularly in the fields of Taiwan s strategy industries (i.e., international patent classifications G and H). This again demonstrates how Taiwan is moving from fast follower to developer of new technology only in its strategy industries, as shown in the above three institutes. (ii) ITRI incubator A new phase in ITRI s cooperation with Taiwan industry and its capacity to set new directions was reached with its founding of the Open Lab in 1996, and the creation of an Incubator facility within the Lab the first incubator in Taiwan. In the decade since then, the Incubator has graduated 89 high-tech startups. Of these, more than 20 have gained entrance to the adjacent Hsinchu Science park, and five have gone public through Taiwan s stock market and through the over-the-counter market. Four of the high-flyers (the first three of which have gone through IPOs) include Phison Electronics Groups (world s first USB flash removable disk maker); Prolific Technology (a system-on-chip producer); Taiflex Scientific (an electronic materials manufacturer); and Phalanx Biotech (a bio-chip company spin off from ITRI). Collectively these graduating firms have raised capital investment of over NT$12 billion (US$400 million), and employed more than 2,500 people. Thirty-four companies have received a total of US$4.4 million funding support from the government s SBIR (Small Business Investment Research) program, and several companies have received government awards for outstanding accomplishments (Chen, Chang, Chiou, & Yu, 2003). Thus, the ITRI incubating experience stands in comparison with comparable examples in the developed world (Callan, 2001; Debackere & Veugelers, 2005). 5. DISCUSSION It is undeniable that Taiwan s universities and PRIs are paying more attention to IP protection activities with efforts such as the establishment of internal incentive systems and IP education and training, intending to encourage researchers awareness of protecting and exploiting research results. University industry interaction (even if still in its infancy) can be expected to contribute to the building of Taiwan s innovative capacity. Three further issues remain to be discussed. (a) Changing role of public R&D Amongst the total of 122 higher education institutions listed by the Directory of Higher Education Institutions (Ministry of Education in Taiwan), the top four patenting universities and PRIs from 1999 to 2004 are all publicsponsored and account for two-thirds of the patent applications. The concentration of innovative activities on public-sponsored institutions testifies to two facts in Taiwan. First, academic innovators remain focused on technologies utilized in strategic industries. This is complemented by a trend toward institutional innovation within the universities (triggered via decreasing subsidization from the government) as evidenced in the technology transfer offices, technology licensing offices and incubators in the universities. Second, Taiwan s public universities continue to enjoy the highest reputation, which increases the scale and scope of public universities technology interactions with the private sector, thus broadening industry and business reliance on external R&D. While university R&D in the

14 1018 WORLD DEVELOPMENT advanced countries plays a role of linking a country s innovation infrastructure and industrial cluster (Furman et al., 2002; OECD, 2001), the impact of academic R&D in the latecomer country like Taiwan is shifting from building the national innovation infrastructure (i.e., training the well-educated manpower to help targeting on high-tech industrial clusters) in the earlier years to now acting as a knowledge platform to link innovation infrastructure and industrial clusters (through technology licensing and incubator centers) beginning in the 2000s. This is evidence that Taiwan s development model is maturing. (b) University industry linkage and entrepreneurship Taiwan s PRIs continue to play the role of R&D agencies for Taiwan s SMEs as they have done for decades to meet their technological and resource insufficiency. The institutional mechanism of university industry linkage provides great incentive and opportunity for commercialization and fosters a stronger spirit of entrepreneurship in Taiwan (where it was already very strong). This is also supported by the evidence of this present study of Taiwan. However, the big firms such as TSMC and UMC, Acer, and Quanta, have either overtaken or caught up quickly with ITRI s international patenting record, demonstrating a different approach of linkage with universities, particularly when R&D professionals become one of the most critical drivers in the economy of rapid technological change. In order to access and utilize the most abundant basic research sources in universities (mainly public universities, especially those that are strong in engineering and the sciences), these big firms will donate money to the public universities (mostly from high-tech CEO alumni) in the form of foundations, so that the university industry linkage is enhanced. For example, TSMC, the world s premier semiconductor foundry, donated NT$150 million to NTHU to establish the School of Technology Management, named as TSMC Hall, to promote the integration of technology and management development; Quanta, the world s third biggest PC manufacturer, donated to NTU the new Electrical Engineering Department building where Quanta itself has a research laboratory; while other big firms such as Acer, UMC, Hon-Hai, and UMax are also forging similar connections with universities. 4 (c) Technology promotion developments in the capital, Taipei Alongside the developments noted above, the Taiwan national innovation system is starting to encompass targeted technology developments within the country s capital, Taipei, under the control of the city administration. In 1999, the same year as the Science and Technology Law was enacted, the city government of Taipei established the Taipei Economic Development Commission (TEDC), with the initial goal of linking the Nangang, Neihu, and Beitou-Shilin developments. This has come to fruition, and at the end of 2003 the city government announced the creation of a Taipei Technology Corridor linking the three separate developments, with combined high-tech output worth in excess of NT$1 trillion. In order to promote this program, the Taipei city government also implemented the Taipei Municipal Self-Governance Ordinance to Encourage Private Investment, which includes provision of low-interest loans and tax incentives for companies to set up in Neihu Technology park and Nangang Software park. 6. CONCLUDING REMARKS This preliminary study, which is designed simply to open up the field of inquiry for Taiwan, demonstrates that already the leading universities are developing systematic policies and programs, with the funding assistance of the NSC and government agencies such as the SMEA, for the promotion of patenting by university faculty, and the transfer of the technology embodied through licensing to the private sector, along with efforts by the universities themselves to promote spinoff enterprises through the creation of incubators both on and off-campus (but always in close proximity to the university). In these ways, Taiwan is moving rapidly to a more sophisticated form of fast followership as reflected in its enhanced national innovative capacity in recent years (Hu & Mathews, 2005). Quantitative evidence has been presented that shows that the universities are engaged in more direct technology promotion activities, in sectors of strategic significance to the country but the results are still modest, and starting from a low base. In developing this study, we are also aware that barely half a decade has elapsed since the new approach to intellectual property protec-

15 ENHANCING THE ROLE OF UNIVERSITIES IN BUILDING NATIONAL INNOVATIVE CAPACITY 1019 tion and knowledge generation in the universities has been promoted. The results, particularly in terms of outputs like patenting rates, are likely to be lagged by several years. But even within these constraints we have observed some clear trends already, in the rate of patenting, in the licensing activities and the revenues generated, and in the spinning-off of new firms particularly after the Science & Technology Basic Law and other incentive policies were enacted. The institutional reforms create the legitimacy of utilizing academic research outcomes, but the effect between technology diffusion and commercialization capability remains underdeveloped. Universities are still lacking faculty promotion policies to complement the spin-offs and licensing activities. Taiwan is thus a latecomer country that demonstrates the potential to move rapidly from strategies of fast followership to innovation, or at least to innovation-led fast followership where the country follows the overall lead of Japan or the United States but seeks to add a certain distinctiveness in the technologies it develops. This is certainly the case in the flat panel display industry, the latest sector where Taiwan firms have demonstrated excellence as reflected in the most recent patenting records. Here we see the universities playing a vital role in conducting R&D and transferring new technologies across to industry. In the optoelectronics sector, the strategic need to build a domestic supply chain calls on Taiwan companies to secure access to specialist chemicals and materials and these are areas where precisely we see the universities playing an important role. We are not making any judgments here about Taiwan s relative success in the flat panel display industry (where it continues to lag Japan and Korea) other than to state the obvious point that it is a remarkable story that places Taiwan firms in the high-tech vanguard (Mathews, 2005). But the evidence from this present study is that the role that universities play in these developments is still limited. Thus the national innovative capacity of Taiwan continues to evolve, and the role of universities can be expected to co-evolve along with the other more traditional institutions such as the technology engine, ITRI, and the ministerial oversight agencies. Taiwan shows an understanding that it will have to move beyond the highly targeted technology diffusion systems of the past, in favor of the more open-ended approaches to technology development where the universities can be expected to play a more significant role. The extent to which these initiatives have been effective in bringing the universities to play a more central role both in knowledge generation and in the diffusion of knowledge to the private sector remains a topic for further research. NOTES 1. On national innovative capacity, see contributions such as Suarez-Villa (1990) and Furman, Porter, and Stern (2002) as well as our own work on NIC in East Asia (Hu & Mathews, 2005). For an overview of recent work on industry-science links and the role of universities in promoting technological initiatives, see Otala (1994) as well as Link and Siegel (2005). 2. The seven institutes are NTU, Cheng Kung University, NCTU, NTHU, Feng Chia University, Kaohsiung Medical University, and Academia Sinica. Notice that except for Feng Chia University, the other six are all public governed institutions. For details of National Science Council programs, see NSC (2003, 2005). 3. The presumably more informal way of university industry linkage may need further study to clarify its effect. 4. Of course we recognize that these links could become sources of abuse, if allowed to run unchecked as in cases currently being reported for the United States and Europe in industries such as pharmaceuticals. It is the role of the national regulatory system to keep any such incipient tendencies in check. REFERENCES Amsden, A. H. (2001). Rise of the rest: Challenges to the west from late-industrializing economies. Oxford: Oxford University Press. Callan, B. (2001). Generating spin-offs: Evidence from across the OECD. STI No. 26. Organisation for Economic Cooperation and Development, Paris, pp

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