Taiwan, year 1983. The plan of the government consisted of 3 simple steps:
- Identify an imported product that you want to produce locally.
- Use red tape to slowdown the import of that product
- Let local firms learn the technology, get good contracts, and start producing that good.
As bad as this story may sound (nobody wants red tape!), the strategy was actually successful:
In the early 1980s Phillips was making TVs in Taiwan, and importing a certain kind of specialized glass from its factory in Japan. The IDB team [Industrial Development Bureau, a Taiwanese government institution].. identified two or three Taiwan glass makers which in their view had the productive capability to make the jump in product quality needed to produce the specialized glass at a price close to the import price. They discussed the possibilities with the firms. The firms said they would invest in the necessary equipment provided they got a longterm supply agreement with Phillips.
Of course Philips didn’t like the idea.
The IDB officials went to Phillips. The Phillips procurement manager said the company was happy with its present arrangement of importing the glass from its factory in Japan, and declined to change suppliers. Soon Phillips found that its applications to import the glass, previously automatically approved, began to be delayed. Phillips contacted the Minister of Foreign Trade, who apologized profusely, and explained that even he was not always able to get the inefficient trade bureaucracy to work quickly. He promised to investigate. The delays lengthened, and lengthened again. The Minister apologized and said he had done all he could. Eventually Phillips got the message, and entered into discussions with one of the Taiwanese glass makers. The upshot was that Phillips offered a longterm supply contract, and the domestic glass maker invested in upgraded equipment. Before long the Taiwanese glass maker was exporting some of the specialized glass.