Taiwan has ridden repeated waves of entrepreneurial spirit to emerge as the world's 18th-largest economy and 16th-biggest trading country. From Stan Shih, who invested NT$1 million to start Acer Inc., to Terry Gou, who turned a tiny plastics factory into an electronics empire, to the island's Internet and cultural entrepreneurs of today, these risk-takers have transformed Taiwan into a high-tech innovation center that is the envy of China, South Korea and Singapore.

In contrast to start-up ventures in the past, Taiwan's new generation of entrepreneurs have moved on from the previously popular semiconductor and flat panel sectors to biotechnology, health care, value-added agriculture, Internet service, and cultural industry.

Where having a technical skill was once enough to successfully launch a business, today's entrepreneurs must now extend their interests into new sectors and pursue an even higher level of knowledge-based skill. An even more dramatic change is the need for their start-up model to be more precise and sophisticated.

"Now smart entrepreneurs understand that when they are just beginning, they need to find shareholders who can bring value, instead of simply raising a few million Taiwan dollars among relatives and friends," observes WK Technology Fund managing director Frank Ho.

When Dr. Chin-Yao Tsai, one of the main movers behind Taiwan's solar power industry, founded Auria Solar three years ago, he based his shareholder structure on strategic alliances, bringing in key customer Lite-On Technology Corp., key equipment supplier Hermes-Epitek Corp. and strategic investment partner WK Technology.

New enterprises have not only been the kindle fueling Taiwan's economy, they are also the key engine of social mobility in the country. In recent years, however, statistics indicate that enthusiasm for launching businesses, at least on the surface, has turned cold.

The ratio of new enterprises to total enterprises, which hit a historical high in 1992 at 13.3 percent, has since declined to 5.5 percent. Not only have start-ups become fewer in number, they've also been smaller than in the past. The total paid-in capital of these new enterprises as a ratio of the paid-in capital of all companies plunged from 5.9 percent in 1995 to 0.6 percent last year. (See Table)

"Everybody in society now hopes for stability for their children, which means that children are more timid," observes Epoch Foundation president Paul Hsu. An entrepreneurial society is like a pearl necklace, Hsu explains. Every pearl in the chain – from venture capital, capital markets, new enterprises, and an enterprising spirit to small- and medium-sized enterprises, globalized enterprises, R&D, intellectual property, technology transfer and back to venture capital – is connected together, and not a single pearl can be left out.

Today, however, the pearl of enterprising spirit on this necklace pales in comparison with the past, and the once-bright pearl of venture capital is utterly lacking in luster. 

Between 1995 and 1999, 144 venture capital companies were created in Taiwan, but during the past four years, the number of new venture capital companies dwindled to just eight. The amount invested annually by venture capital firms has dropped precipitously from NT$30 billion in 2000 to NT$13.6 billion.

The good news in this otherwise bleak picture is that Taiwan's large corporations are finally understanding how to start businesses from within and have absorbed many of the start-up enterprise opportunities.

Trends Behind 50 Fastest Growing Companies

U.S. think tank The Brookings Institution has called these high-growth, high-potential small- and medium-sized enterprises "gazelles," because gazelles run fast and for a long time and have nimble reflexes. Only 5 percent of new companies eventually fall into the "gazelle" category. America's most competitive multinational companies, such as Google and Apple Inc., were once gazelles running wild on the pastures of entrepreneurship.

From CommonWealth Magazine's list of "Taiwan's 50 Fastest Growing Enterprises," new flames of the entrepreneurial spirit can be seen. Among these 50 enterprises, 20 of them, or 40 percent, were established in the past 15 years. These Taiwanese gazelles have common characteristics reflecting the latest trends in building a business – low capital injection, a high technology threshold, flexibility, and cross-sector collaboration. (See Table)

Trend No. 1: Smaller – Limited Capital, Powerful Technology

Among the CommonWealth Magazine Top 50, only three companies have paid-in capital exceeding NT$1 billion, but every company relies on knowledge and technology to generate earnings in high entry threshold sectors.

Ten biotechnology and medical supply companies have made this year's list, reflecting the sector's status as one of the hottest in Taiwan. Biotechnology is one of the six emerging industries being promoted by the government and represents one of the classic new entrepreneurial sectors where high knowledge content has replaced labor-intensive processes.

The current environment has accelerated interest in biotechnology. Extreme climate swings and new viral epidemics have prompted companies to vie for a spot in the "fastest growing companies" winners circle.

In 2009, swine flu set off a major global health scare, packing pediatricians' offices with flu-stricken children. The biggest winner from the H1N1 outbreak in Taiwan was pharmaceutical company Center Laboratories Inc. As one of Taiwan's important makers of flu medicines, it has an almost 70-percent share of the domestic market for children's oral medications, from which it derives over 90 percent of its revenues.

Center Laboratories has also become involved in medications for psychiatric conditions. Through investments in other businesses, it is pursuing research in protein-based drugs, monoclonal antibodies, and other cutting-edge forms of medication. The company's potential has yet to be fully unleashed.

With the H1N1 scare, ear thermometers also became essential equipment in every Taiwanese household, and virtually every commercial building and company felt compelled to prepare a number of forehead thermometers to monitor the many people entering their premises every day. Radiant Innovation Inc., which mass-produces infrared ear thermometers able to display a person's temperature within one second, saw a surge in revenues, bucking the downward trend.

Senior citizen health care also provides a commercial opportunity with considerable potential, especially in the areas of chronic disease and home care. Apex Biotechnology Corp., which produces blood glucose monitoring systems for diabetes patients and other monitoring devices, and Bioteque Corp., a maker of urological and angiographic catheters, IV and nutrition bags, and other medical disposables, both have gross margins approaching 40 percent and have risen to become fast growing "gazelles."

Trend No. 2: Mixed Blood Gives Birth to New Niches

Reaching across industry boundaries is another important feature of emerging businesses. Aero Win Technology Corp., ranked 22nd in the survey, is a "mixed blood" company, with expertise in both aerospace engineering and machine tooling in its genes. This potent mix has enabled the company's fan blade cooling inserts – which are welded together by veteran technicians in its Tainan plant – to become part of the supply chain for the engines used on Airbus aircraft.

Jau-Ho Jean, the president of 30th-ranked Advanced Ceramic X Corporation (ACX), has been involved with ceramic materials for over 30 years, first as a graduate student in National Tsing Hua University's (NTHU) Department of Materials Science and Engineering, then as a doctoral student at MIT and then with U.S.-based aluminum giant Alcoa Inc. When he decided to focus on ceramic powder at NTHU, his classmates laughed at him.

"If you're studying ceramics, why not go to Yingge?" Jean recalls his friends joking. (The small town of Yingge is the center of Taiwan's pottery industry.)

But the joke may be on Jean's former classmates. ACX, which integrates ceramic materials and circuit design, is capable of producing an antenna module for cell phones that is a tenth the size of the fingernail on someone's little finger, by using an exclusive ceramic material formula and low-temperature co-fired ceramics technology. This capability has made ACX one of chip giant MediaTek's indispensable suppliers.

It has also led to the development of high-margin items – a soup pot full of ACX wave filters can buy a Toyota Camry – making ACX the leader in net after-tax income among the 50 Fastest Growing Enterprises.

Trend No. 3: Faster – Eschewing Standardization

What is noteworthy is that Aero Win and ACX both have avoided the traditional large-volume production model common to high-tech start-ups, opting instead for businesses with low volume, a high entry threshold, and high net profit.

The aircraft engine for which Aero Win supplies parts is the CFM 56, used on the Boeing 737 and Airbus aircraft. About 1,000 of the engines, which cost US$5 million apiece, are produced per year, meaning that only 100,000 of Aero Win's cooling inserts are required, a typical example of the company's low-volume, high-customization approach. There are many benefits to producing such highly sensitive parts, including low substitutability, five-year (i.e. long-term) contracts, and prices that rarely fluctuate over a decade.

As for ACX's strength, its ceramic components for high-frequency communications, the vast majority are non-standardized products. As soon as MediaTek's cell phone circuit standards change, ACX must follow suit. A handset's communication module has more than 20 kinds of components, and if a customer wants a new handset antenna, the company can deliver it along with the circuit design that matches the earphones within three days.

"I only produce what others can't make. Life isn't about looking to be number one. It's about looking to be the unique one," Jean says.

Another advantage of these "gazelles" is their ability to quickly identify new niches for their products and move rapidly to seize the opportunity. Eight years ago, one of these "fast" enterprises, 44th-ranked Leadtrend Technology Corp., did just that. The company not only chose the IC design sector – which is a niche itself, with only a 5-percent share of the more than US$200 billion semiconductor market – it also chose to carve its path in the analog power management IC design field, a relatively obscure area at the time.

In recent years, however, with a growing emphasis on saving energy and reducing carbon emissions, electronic products have placed a growing premium on efficiency. To reduce the power consumption of home appliances and consumer electronic goods, the demand for power management ICs has soared.

"This may seem like a limited area in which to create a new business, especially with power management ICs selling for only about 15 US cents, but the interesting part is that power management can be applied in almost any field, so it will be in demand for a long time," says Leadtrend president Tony Lee.

At its inception, Leadtrend almost exclusively shipped parts for Gigabyte Technology's motherboards, but as long as the company has a foothold in the power management niche, the technology can be applied in the future to digital cameras, LED lights and televisions as well.

The dream to start a new business will continue to burn. Whether it be in Taiwan or China, or in the high-tech, biotechnology or creative industry sectors, the legend of Taiwan's gazelle enterprises will surely continue.

Translated from the Chinese by Luke Sabatier

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About the Survey

CommonWealth Magazine's survey of Taiwan's 50 Fastest Growing Enterprises only evaluated enterprises that were not ranked among CommonWealth Magazine's top 1,000 publicly listed companies.

The ranking criteria for "Taiwan's 50 Fastest Growing Enterprises" and the annual "Top 1,000" surveys are different. The "Top 1,000" survey, which ranks companies by revenues, stresses company size. The survey of "Taiwan's 50 Fastest Growing Enterprises" relies on companies' revenue growth and return on equity to ascertain their relative growth potential and strength.

Companies are evaluated based on their results over the past three years. To qualify for the list, they were required to have had revenue growth in all three years and not post a loss in any of the years.

The companies were ranked based on the compound average growth rate of their revenues and return on equity between 2007 and 2009.