Requirements for Csce 2002 Conference Papers

Infrastructure Investments and Science ParkDevelopment： Taiwan’s Hsinchu science park

Ching-chin Huang1, Kun-Jung Hsu2 and Wu Cho Fu3

1. Institute of Technology Management, Chung Hua University;

Construction Management Division, Science Park Administration, Taiwan.

2. Department of Construction Technology, Leader University, Taiwan.

3. Institute of Construction Management, Chung Hua University, Taiwan

ABSTRACT: Infrastructure is indispensable to high-tech industries, and is the life support system for the operation of science parks. But does capital budgeting of infrastructure optimize secience park development? How does infrastructure investment accelerate high-tech development in secience parks? These critical issues include the risk of overinvestment, refunding processes, relationships of the capital budget program and characteristics of sciencepark development.Taiwan’s Hsinchu Science Park has become one of the successful science parks in the world. Its brilliant performance in IC industries and its contribution to economic growth are the envy of other countries. This paper examines the relationships of the infrastructure investments and the development of the Park, then reveals the socioeconomic significance they represent. Finally, a practical frame of reference for infrastructure investment and management is developed, as a reference for consultation in the management, evaluation, and policy-making of science park developments in general.

1.Introduction

The Hsinchu Science-Based Industrial Park (HSBIP) is the first science park of Taiwan, and has pursued the mission of fashioning a high-quality base for the development of high-tech industries since its establishment. For the past twenty-four years, the government has invested more than US$1.2 billion in its software and hardware construction. Up to the end of 2004, there had been established 382 high-tech companies, most of which are engaged in such electronic industries as the semiconductor, the computer, telecommunications, and optoelectronics, with more than 113,000 employees. After many years’ vigorous effort, HSBIP has become one of the successfully developed science parks in the world, with the total turnover of the companies for 2004 topping US$32.7 billions, which accounted for about eight percent of the GDP of the country. Its achievement in the original equipment manufacture (OEM) of wafers is a feather in its cap in the world.

Unlike science parks of other countries in the world,HSBIP was created under the guidance of the government that was responsible for the site selection, planning, land acquisition by eminent domain, design, development, and for attracting business investment and leasing land for the construction of factories by high-tech manufacturers to engage in industrial activities. Moreover, the government established an administration for the science park, an agency expressly responsible for the overall operation of the public affairs of the park. Land and infrastructure are essential elements required for the industrial activities by high-tech firms; over the years, about 650 hectares of land has been completely developed, and the construction of the following infrastructure has been finished:

(1)Electricpower supply: The power supply for the park was 947 MW in 2004. At present, Taiwan Power Corporation (TPC) has set up a power substation in the park, as well as four other substations in such surrounding areas as Lungshan, Lungming, Lungsong, and Lunghsiu, to supply power; in addition, it has set up a backup steam turbogenerator power plant to provide electricity for emergency use.

(2)Water supply: The water supply for the park was 116,000 CMD in 2004. To supply the enormous amount of industrial water and its growing demand, besides having set up two water purification plants, five elevated water towers, five water distribution reservoirs, the park has conducted researches in desalination and has taken measures to provide recycled water for reuse.

(3)Wastewater treatment: The expansion project for the wastewater treatment plant (WTP) in the Park has proceeded to PhaseⅢ; the treatment volume amounts to 160,000 CMD or so per day.

(4)Sewerage: The wastewater sewerage runs a total of 65.56 kilometers, while the rainwater sewerage runs 10.39 kilometers.

(5)Telecom and information systems: The systems include the Asynchronous Transmission Mode (ATM) network, the second telecoms (fixed-line network) infrastructure, the establishment of an environment for e-commerce, and the construction of facilities for an electronic hub for joint development purposes.

(6)Others: These include public buildings for service purposes, residential communities, parks and greenery, roads, etc.

Land and infrastructure are the vital elements required for industrial activities by high-tech manufacturers. The purpose of this paper is to inquire into the relationships between the industrial activities, land acquisition, and infrastructure in HSBIP , and to review the efforts at investment in public facilities that have been made all these years, in an attempt to clarify the issues: whether the supply and demand relationship between HSBIP high-tech industrial activities and infrastructure falls within the optimum under the margin of consideration, so that the conclusions might be offered for reference by others when they formulate strategies for the development of infrastructure for other science parks in the future.

2.High-Tech industrial Development and Infrastructure Demand

The purpose for setting up science parks, in a nutshell, is to provide an excellent environment for the development of high-tech industries. And in concrete terms, this excellent environment covers the land and space,the hardware that have the functions in the three aspects of production, services, and living (Michael Luger, 1999).

In terms of demand in the aspect of production, land should be provided for the construction of high-tech plants. Moreover, there should be a life support system that includes water and power supply and the ability to handle properly the waste matter produced in industrial activities, above all, the WTP.

In terms of demand in the aspect of services, science parks should have administrative and service measures that are geared to specific purposes; these measures should be provided through the construction of public buildings, including administration building, convention and display center, customs building, police plant, fire department plant, employees’ infirmary, bank, and post office, etc.

In terms of demand in the aspect of living, in order to provide complete living facilities for the employees of high-tech firms, the park should build residential communities, facilities for business services, experimental high schools, health care facilities, parks and greenery, and such recreation facilities as children’s playgrounds.

Through the geographic information system set up by the Construction Management Division of Science Park Administration (SPA), a table is provided below on the items of infrastructure demand involved in the construction projects that have been implemented over the years since the beginning of the science park:

Table 1. Items of infrastructure demand in thePark

To ensure the normal operation of their production activities in an environment that does not suffer from lack of various vital elements of production, and to enhance their operational effectiveness, high-tech firms in the Park have established the Allied Associationfor Science Park Industries that include a water and power supply section and an environmental safety section, actively urging the government to ensure stables water and power supply, as well as services in environmental protection. All these years, the SPA has responded to the appeals presented by the two sections of the association, regarding water and power supply and environmental protection as essential matters that merit priority handling. It is quite obvious that both users and administrators of the Park regard the production items of infrastructure demand: water supply, power supply, WTP, as key items that satisfy the demands of production activities. In response to the trend of development in the global high-tech market, the semiconductor and optoelectronic industries, since 1993 and 2000 respectively, have manifested their trend of rapid growth. And the manufacturing processes of both of these two industries are characterized by their consumption of water and electricity. More importantly, the life cycles of high-tech industries are relatively short; in order to reduce unit cost and enhance production capacity, the two industries have been devoted to technological upgrading to enhance their competitiveness in the market. For example, in the industry of optoelectronics, the enlargement of TFT-LCD panels has proceeded from G 3.5 to G 5, even to G 6; the amounts of water required per unit area of land have been 1,200 CMD/ha, 1,450 CMD/ha, 1,800CMD/ha respectively. It is very obvious that the upgrading of generations of high-tech processes will need more energy support; correspondingly, the WTP also should enhance its treatment capacity, so as to meet the demand for environmental protection (Horvath, Arpad Matthews, H. Scott. 2004).

Therefore, the items of infrastructure for high-tech production activities that are explored in this paper are mainly water supply, power supply, and WTP that, together with the essential element of production— land, can be regarded as the demand side of infrastructure for high-tech production activities.

3.Infrastructure Management System in the Science Park

In addition to the contributions made by high-tech manufacturers in their economic activities, the successful operation of HSBIP basically can be ascribed to the excellent environment provided by the public sector for investment in the establishment of factories.

The National Science Council of the Executive Yuan (equivalent to the Western Cabinet) selected, in 1980, Hsinchu as the site for setting up a HSBIP, and in 1981 established an administration in accordance with the regulations governing the establishment and management of science parks. Under the administrative authorization by various ministries and councils or commissions, SPA is in charge of various operations of the Park. All the administrative procedure required for the establishment of factories can be rapidly handled through the management model of “one-stop” integrated services, which makes it possible to dispense with the trouble of scurrying among various government agencies or local governments.

SPA, naturally, is responsible for the operation of building the infrastructure, for which purpose the administration, in terms of organizational structure, has set up relevant departments, including planning division, investment division, environmental engineering division, land development division, construction management division, and accounting office. Functions of the relevant departments are as follows:

Table 2. Functions of SPA’s departments in building infrastructure

Note: Organized in accordance with SPA’s organizational chart for 2004.

As the above table indicates, though the construction management division is directly responsible for the construction of infrastructure, organizationally upstream the planning division and investment division have a good grasp of the attributes of high-tech firms to offer timely help and meet the infrastructure demands of high tech firms, and the land development division provides land; downstream the environmental engineering division is responsible for the operation of the WTP. Moreover, as for the funds required for building infrastructure, the accounting office makes arrangements for financing and provides management. As for the operational mode of the operating funds for the Park, first of all, SPA takes out loans from banks to pay for land acquisitions and the expenses of developing public facilities, and then collects land rents from high-tech firms, also collecting 0.2% management fees commensurate with the sizes of turnover of the firms and incorporating them into the revenues of the operation fund, in order to continually meet the financial demands in the operation of the infrastructure.

To strive for more energy supply in response to the growth of high-tech industries, SPA may coordinate affairs of water and power supply with the suppliers and, if necessary, represent the government and high-tech firms to shift the water intended for use by the agricultural sector to industrial use, to satisfy the demands of high-tech development.

4.High-tech Production Activities and Infrastructure Supply

Production activities and infrastructure in the Park necessarily have the relationship of supply and demand, of whichproduction activities are the demand side; and the performance ofproduction activities find its most concrete expression in theirturnover. Therefore, this study uses it as an index for exploring thedemand side. In addition, according to the above-mentioned plansformulated for high-tech firms to engage in production activities inthe Park, the required key items of infrastructure are landprovision, site development, and such public facilities as watersupply, power supply, and wastewater treatment, that is to say, thesupply side of public facilities for production activities in the Park. In operational terms of the Park’s development, after landacquisition, infrastructure has to be built in accordance with thedemandsof industries, in order to constitute land supply. In otherwords, high-tech firms can be induced to engage in industrial activitieshere only through land provision and infrastructure construction; andafter the growth of industrial activities has achieved a certain scale,they surely will stimulate further demand for land and infrastructure.Therefore, industrial activities, land acquisition, and infrastructureconstruction form an interactive triangle as is shown in the followingdiagram:

Figure1. The supply and demand relationship between industrialactivities and infrastructure.

To further clarify the relationship between supply and demand between industrial activities and infrastructure, data on industrial activities and public works investment in the Park from 1986 to 2004 has been organized (Figure 3), to show the data of industrial activities, land production capacity, actual amount of water and power used. In addition, in accordance with Table 3, four figures have been set up on the relationships between the items, respectively, as in Figures 2~5; and an analysis is given below:

Table 3. Industrial activitiesand infrastructureinvestments

Note: Organized in accordance with SPA 2003 annual report and official reports for 2004.

Figure2. Industrial activities and infrastructure. Figure 3. Product capacity per hectare

Figure 4. Industrial activities and water used Figure 5. Industrial activities and power used

4.1.Space provided by land

All production activities must be accomplished in the space of land;the scale of land demanded by high-tech industries and the timelinessin providing it will affect the occupancy of the Park by manufacturers andtheproductioncapacityofindustrialactivities. And demand manufacturers' for the building of factories is connected with theprosperityof the high-tech market; there is uncertainty in theirdemand for land. Therefore, finances and investment benefit have to be considered in making land acquisitions; a phase-by-phasedevelopmental strategy should be adopted to ensure sufficient supplyand prevent overinvestment. According to Figure 2, industrial activities are directly connected with the accumulated amount of infrastructure investment. Beginning from 1993, the revenue of the IC industry in the Park exceeded that of the industry of the computer and its peripherals and has since taken the lead in the operational performance of industries in the Park. Correspondingly, the accumulated amount of investment in infrastructure also has grown rapidly to meet the demands of industries.

It takes one or two years of building infrastructure after landacquisitions before land can be provided to high-techmanufacturers forfactory operations. The areas ofland acquisitions made by SPA from 1978 through 1983 were respectively210 hectares, 57 hectares, and 110 hectares, reaching a total of 377hectares; and land clearing projects for the above mentioned areas werecompleted one by one from 1981 through 1985, including completion,ofsuch major items as piping for water supply, wiring for power supply,and WTP, so as to provide space for occupancy bymanufacturers for factory operations. Afterwards, in order to maintainthe margin of sufficiency in land supply, 192 hectares, 61 hectares,and 27hectares of land were added in 1988, 1990, 1998, respectively,according to the amount of immediately leasable land occupied bymanufacturers. The total of 310 hectares of additional land maintainedabundant land supply so as to keep up the steady growth of industrialactivities. According to Figure 3, the area of land used had reached critical mass around 1990; after the construction of fabs and investment in equipment, IC industrial activities began to grow significantly from 1993. Therefore, the curve of production capacity per unit of land in the Park spiked in 1993. The reason is that IC industry has great demand for large areas of land; under the constraint of limited space at that time, high building coverage and high floor area ratio were adopted to build fabs, in order to maintain its rate of effective order-taking in the global IC market, by means of an around-the-clock three-shift system for manufacturing operations. In other words, the shift in the trends of industries and their development made possible the efficiency of land use in the Park, and has underscored the success of infrastructure investment.