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Rick: Good afternoon.



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I appreciate the energy level



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for those of you who have



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made it through a long and reasonably intense program.



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So I thank you for that.



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It is now my distinct pleasure



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to introduce Dr. Morris Chang,



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Founder and CEO of Taiwan Semiconductor Manufacturing Company,TSMC,



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the largest silicon foundry in the world,



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and a global leader that builds chips



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for everything from PCs to mobile phones.



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I was mentioning to Morris that I'm talked at the start of this convocation with an alumnus



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who is a veteran of the semiconductor industry.



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And he said,



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You know,when this whole notion of a foundry came up,



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I was convinced,



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as was everybody else,



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that it was one of the truly crazy ideas.



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Well,that crazy idea has turned into a very interesting,successful and innovative company,



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about which,



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you will no doubt hear a bit.



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Morris holds three MIT degrees in mechanical engineering,



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and had an extensive career



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with Texas Instruments and General Instrument Corporation



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before founding TSMC



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in 1987,



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and playing a major role



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in creating Taiwan's semiconductor industry.



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Dr. Chang is a recipient of many awards



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for outstanding achievement



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including the Nikkei Asia Prize in 2005,



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the IEEE 2000 Robert Noyce Award,



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for exceptional contributions to the micro-electronics industry,



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the "Exemplary Leadership Award" of the Fabless Semiconductor Association in 1999.



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He was selected by Fortune Magazine as one of Asia's Power 25 in 2003,



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and by Time Magazine and CNN,



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as one of the Top 25 Most Influential CEOs in 2001.



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He is a loyal alumnus,



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a member of the MIT Corporation,



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a great friend of MIT Sloan.



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He's going to speak to us today about innovation,



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business models,



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and business model innovation.



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Please join me in welcoming



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Morris Chang.



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Morris Chang:  Thank you very much



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for that gracious introduction,Rick.



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And I also want to thank all of you,



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all the audience,



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for staying



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with your stamina



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til the end



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of this convocation.



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I can't adequately describe how honored and pleased I felt



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when Rick Schmalensee asked me to give a talk here.



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As Rick mentioned,



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I was an undergraduate and graduate student at MIT,



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from 1950 to 1955,



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in mechanical engineering.



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I had transferred from Harvard,



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after my freshman year there.



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And at that time,



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MIT was arguably



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the leading technology institute in the world,



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and I was naturally very proud



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of the technology education I got.



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But a few years later,



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as I entered the industry,



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and gradually became a manager,



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I asked myself the question,



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Would I have been better prepared to be a manager



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if I stayed with Harvard,



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and got a liberal arts undergraduate education?



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But then I asked a second question.



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Would I even have had the chance to get into a technology industry,



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if I didn't have an MIT education?



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And the answer to that second question



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was a very [definite].No.



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I would not have gotten into the technology industry at all



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if I had not



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if I had stayed



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at Harvard



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and got my liberal arts undergraduate education.



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So,



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certainly the No?to the second question.



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sort of negated the importance of the first question.



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And decades later,



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I readily accepted



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former Provost Bob Brown's pronouncement on me.



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He said,



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Well,Morris,



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you had the best of both worlds.



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You got your excitement at Harvard



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and a real education at MIT.



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At any rate,



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MIT today is a very much broader university



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than it was fifty years ago.



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Certainly,a very important development



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was the maturing



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of the Sloan School.



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I was,



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in fact,



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reminiscing with the dean at lunch.



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And he told me that in 2002,



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you had the 50th anniversary,



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as a school.



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So that means that in 1952,



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although I didn°b realize it,



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as a junior at that time,



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in 1952,



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the School of Industrial Management



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became the School of Industrial Management.



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Of course,



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only later did they become Sloan School.



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But the maturing of Sloan School,



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and the rise to prominence among business schools of Sloan School



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was certainly a very important development,



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a very important broadening of MIT



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as a world-class university in the last fifty years.



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Putting aside the fact that Sloan School is a part of MIT,



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yet just standing alone,



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I think it's already one of the best business schools



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in the world.



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Its relationship with MIT,



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linking it to the technology education that MIT provides,



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certainly makes it [the best business school]



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that produces the most promising technology industry managers.



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And as president Hockfield continues to say often these days,



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that technology is just going to be more and more important in the future world.



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Today I want to talk about innovations,



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business models,



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and business model innovations.



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Now,let's talk about those two terms,



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Innovations?and business models?



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The term Innovation?should be simply understandable.



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The dictionary definition is,in fact,sufficient.



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o innovate is to make changes,



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or do something in a new way.



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Still,even with that simple definition,



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I think three points should be made.



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First,the practice aspect is important.



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An idea alone,



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just an idea,



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hardly qualifies as an innovation in business.



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After all,in business



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you look for bottom line improvement,



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or any bottom line at all.



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And if you don't practice a new idea,



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even if you have it,



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it doesn't bring any benefits to the bottom line.



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So,the practice aspect of innovation is very important.



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Now,the second point that needs to be made about innovation



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is that innovations often fail.



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And even more often,they only bring incremental benefits.



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A third point that should be made,



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is that innovations can be large and small.



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Small innovations,of course,sometimes only bring incremental benefits.



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But when they all add up,



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small innovations can result in perhaps even more benefits



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than a big,major innovation.



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As far as a company is concerned,



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the trick about innovations is that



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you need to build a company infrastructure.



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And by that,I primarily mean the soft infrastructure.



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You need to build a soft company infrastructure



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that encourages and rewards successful innovations



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without punishing unsuccessful innovations.



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You reward it.



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You encourage them,



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and the way you encourage them



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is to reward the successful ones



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but not punish the failed ones.



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Because the failed innovators have already been punished enough.



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They have lost time.



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I have seen a lot of people,young people



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that started the push in innovations,



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and they didn°b succeed,



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and they lost a few years.



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Those people have been punished enough.



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Don't punish them anymore.



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Well,incidentally,maybe that's why the young people are more innovative,



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or at least,bolder than the older people.



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Because the older people have less time to lose.



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Now,investing in innovations,



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in my mind,



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is not unlike venture capital investing.



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In venture capital investing,



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out of every ten investments,



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maybe you have one home run,



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one investment with very big returns.



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And maybe you have three or four



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that have very modest returns.



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And maybe you have five,or even six,that don't have any return at all.



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They have negative returns.



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And if you have that kind of batting average with your investments in innovations,



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I think you are already doing very well.



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Now,let's talk about business models.



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That's a relatively new term.



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I lived in the United States until 1983.



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I'm sorry,1985.



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Until 1985.



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And back then,I didn't hear the word,the term,business model?at all.



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I was,in fact,checking with Dean Schmalensee on this subject also.



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At lunch,I asked him,when did people start talking about business models.



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And he said he really couldn't remember.



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What I could remember was that we didn't talk about business models twenty years ago.



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Not in literature,or in board rooms.



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We didn't?talk about business models.



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The term became popular,I think,only in the last ten or fifteen years.



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I think the internet revolution had something to do with that.



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I like the definition of business model?



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that the business model of a company is the way a company conducts its business with its customers and its suppliers.



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Business model of a company



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is the way the company conducts its affairs



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with its customers



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and its suppliers.



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Now,Dean Schmalensee has a simpler definition of business model?



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He says,it's how you make money.



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I think his definition is actually simpler,



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and perhaps more elegant than mine.



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And I think the two actually amount to the same thing,



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how a company conducts its business with its customers.



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Now,the emphasis is on how a company conducts its affairs



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with its customers and suppliers,



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and not on the company's products or services.



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That's the important new insight that the term tausiness model?gave us.



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See,twenty years ago,all we talked about in annual reports,in stockholders?meetings,



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were a company's products and services.



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We didn't talk about business models.



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In the last ten or fifteen years,suddenly,suddenly,



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people started talking about business models.



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And that's because,how a company conducts its affairs with its customers and its suppliers



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is often just as important,



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if not more so,



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than what its products and services are.



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When we started TSMC,frankly,



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I didn't know the term business model.



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I just thought that we were starting a new way of doing business.



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But it was a business model innovation.



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Now,so when you start thinking about the definition of business model?



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and when you start shifting your emphasis



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from a company's products and services to how it does business with customers and suppliers,



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you begin to realize that very,very few companies have original business models.



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Very,very few companies have business model innovations.



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And there,you think some more.



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Well,look,I'm going to talk about the semi-conductor industry in a while.



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But let's talk about a few other industries.



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Back in the 80s,or even in the early 90s,or even now for instance,



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you can say that almost all the auto companies have had the same business model.



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All the traditional industries,



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all the companies in an industry will share the same business model,



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even though they may have different products or services.



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Now,but who has made the most money?



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Well,I'll just give you a few examples.



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Dell.



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Dell didn't have any real innovations in technology,



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but they had innovation in business model.



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And in the whole PC industry,there have been a lot of technical innovations.



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But Dell was the one that made the most money.



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Because of their business model innovation.



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Technology innovations have become too common.



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And usually when there's a technology innovation,



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a lot of companies get to enjoy them.



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They catch up if they are behind,



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and they catch up pretty quickly.



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But a business model innovation is often harder to emulate.



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And the reason that's so,I think,differs by company.



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In Dell's case,and everybody has known for a long time,



269

00:18:38,280 --> 00:18:46,920

that they got their customers to order in a different way than all the others.



270

00:18:46,920 --> 00:18:55,990

But nobody really has entirely,successfully emulated Dell yet.



271

00:18:55,990 --> 00:19:02,570

While new microprocessors,new software,new designs can be emulated very quickly.



272

00:19:02,570 --> 00:19:06,960

And another good example



273

00:19:06,960 --> 00:19:12,130

I think the business school faculty likes to talk about,



274

00:19:12,130 --> 00:19:12,910

is Starbucks.



275

00:19:12,910 --> 00:19:14,150

Starbucks.



276

00:19:14,150 --> 00:19:18,690

Do they have technological innovation?



277

00:19:18,690 --> 00:19:20,990

No,I don't think so.



278

00:19:20,990 --> 00:19:29,810

But they made a three dollar cup of coffee out of a fifty cent cup of coffee.



279

00:19:32,100 --> 00:19:39,530

And,I mean,they are the ones that have made the most profit



280

00:19:39,530 --> 00:19:43,970

in this business of coffee shops.



281

00:19:43,970 --> 00:19:48,240

And you look at the airlines.



282

00:19:48,240 --> 00:19:55,540

The innovation was by the low-cost airlines.



283

00:19:55,540 --> 00:20:05,530

And they have the same planes,pretty much the same,everything technologically the same,but with a different business



284

00:20:05,530 --> 00:20:19,100

So,the birth of the term tausiness model?



285

00:20:19,100 --> 00:20:26,540

I think should make us pause and take stock.



286

00:20:26,540 --> 00:20:27,200

It's not



287

00:20:27,200 --> 00:20:30,330

it wasn't just the birth of a new term.



288

00:20:30,330 --> 00:20:32,990

It was really an insight.



289

00:20:32,990 --> 00:20:35,180

The insight is that,



290

00:20:35,180 --> 00:20:36,420

fellows,



291

00:20:37,680 --> 00:20:48,410

technology drives the birth of new business models.



292

00:20:48,410 --> 00:20:52,720

But technology is not enough anymore.



293

00:20:52,720 --> 00:20:56,720

You're got to have innovations in business models



294

00:20:56,720 --> 00:21:03,890

to really create wealth.



295

00:21:03,890 --> 00:21:08,580

That's,of course,an oversimplified way of putting it.



296

00:21:08,580 --> 00:21:09,930

But I think that,



297

00:21:09,930 --> 00:21:17,310

I don't plan to talk for a long time



298

00:21:17,310 --> 00:21:19,940

so I'll just oversimplify it that way.



299

00:21:19,940 --> 00:21:21,780

I think business model innovation,



300

00:21:21,780 --> 00:21:25,020

I think,is quite often,



301

00:21:25,020 --> 00:21:29,790

even more important than technology innovations.



302

00:21:29,790 --> 00:21:31,050

But of course,



303

00:21:31,050 --> 00:21:36,140

a lot of it is still owed to technology innovations.



304

00:21:38,270 --> 00:21:49,210

Now,when I first entered the high-tech industry fifty years ago,



305

00:21:49,210 --> 00:21:53,450

what was then called the high-tech industry fifty years ago,



306

00:21:53,450 --> 00:21:58,990

we thought all innovations were technological.



307

00:22:00,940 --> 00:22:05,450

And indeed,



308

00:22:05,450 --> 00:22:09,300

in the first twenty to thirty years of my career,



309

00:22:09,300 --> 00:22:15,810

technological innovations drove much of the wealth creation in society.



310

00:22:15,810 --> 00:22:19,540

But in the last fifteen to twenty years,



311

00:22:19,540 --> 00:22:23,610

I think business model innovations have driven



312

00:22:23,610 --> 00:22:27,590

perhaps just as much wealth creation



313

00:22:27,590 --> 00:22:33,570

as pure technological innovation.



314

00:22:33,570 --> 00:22:41,600

You look at the hot companies in the last ten or fifteen years.



315

00:22:41,930 --> 00:22:48,470

Microsoft,Cisco,Amazon,Yahoo,eBay,Google.



316

00:22:48,470 --> 00:22:56,210

Every one of them was more a business model innovation



317

00:22:56,210 --> 00:22:58,810

than a technological innovation.



318

00:22:58,810 --> 00:23:08,700

Now,at this point,I guess I better start talking about my company TSMC.



319

00:23:08,700 --> 00:23:12,340

I promise you it won't be a commercial,



320

00:23:12,340 --> 00:23:20,930

because pitching my company to a business school audience is not part of our business model.



321

00:23:24,840 --> 00:23:28,510

We did start in 1987,



322

00:23:29,920 --> 00:23:32,880

and it was a new business model.



323

00:23:32,880 --> 00:23:38,080

And I think that this is a very sophisticated audience.



324

00:23:38,080 --> 00:23:43,100

You probably all know what the semiconductor industry is like.



325

00:23:43,100 --> 00:23:47,620

But just to explain it to



326

00:23:47,620 --> 00:23:50,310

maybe some of you who don't know it too well.



327

00:23:50,310 --> 00:23:55,940

As the semiconductor industry existed in 1987,



328

00:23:55,940 --> 00:24:03,970

the industry was dominated by maybe twenty to thirty large companies.



329

00:24:03,970 --> 00:24:05,900

Quite a few of them Japanese,



330

00:24:05,900 --> 00:24:09,360

quite a few of them American,



331

00:24:09,360 --> 00:24:11,040

a few European.



332

00:24:11,040 --> 00:24:21,840

Every one of those twenty to thirty companies shared the same business model.



333

00:24:21,840 --> 00:24:25,390

Everyone designed its ICs



334

00:24:25,390 --> 00:24:29,740

By the way,ICs are synonymous with semiconductors,almost synonymous.



335

00:24:29,740 --> 00:24:34,410

Everyone designed its ICs



336

00:24:34,410 --> 00:24:37,200

and manufactured its ICs,



337

00:24:37,200 --> 00:24:44,890

and then sold the products to the end equipment makers,



338

00:24:44,890 --> 00:24:47,330

in the computer industry,



339

00:24:47,330 --> 00:24:49,080

consumer industry,



340

00:24:49,080 --> 00:24:51,710

defense industry,



341

00:24:51,710 --> 00:24:54,040

or communications industry.



342

00:24:54,040 --> 00:25:01,310

The design part was technology intensive,



343

00:25:01,310 --> 00:25:03,290

but not capital intensive.



344

00:25:03,290 --> 00:25:05,220

It still is.



345

00:25:05,220 --> 00:25:14,270

And the manufacturing part was both capital intensive and technology intensive.



346

00:25:14,270 --> 00:25:15,340

It still is.



347

00:25:16,450 --> 00:25:21,790

Also,both design and manufacturing technologies advanced rapidly.



348

00:25:21,790 --> 00:25:23,400

They still do.



349

00:25:23,400 --> 00:25:28,540

So each company had to devote considerable R&D efforts



350

00:25:28,540 --> 00:25:31,940

to both design and to manufacturing,



351

00:25:31,940 --> 00:25:33,760

in order to keep up.



352

00:25:33,760 --> 00:25:41,920

There was a very small nascent part of the semiconductor industry



353

00:25:41,920 --> 00:25:43,800

that called themselves design companies.



354

00:25:43,800 --> 00:25:47,400

Later on they were called fabless?companies,



355

00:25:47,400 --> 00:25:49,770

that didn°b have manufacturing.



356

00:25:49,770 --> 00:25:54,090

They just designed ICs,



357

00:25:54,090 --> 00:25:58,700

and then they called on the companies that had manufacturing



358

00:25:58,700 --> 00:26:01,470

for help on manufacturing.



359

00:26:01,470 --> 00:26:05,920

And clearly,they didn't get very much help,



360

00:26:05,920 --> 00:26:08,420

because of competitive reasons.



361

00:26:08,420 --> 00:26:14,960

What TSMC did was to take the manufacturing part



362

00:26:14,960 --> 00:26:19,110

and make that our business,



363

00:26:19,110 --> 00:26:21,810

our only business.



364

00:26:21,810 --> 00:26:28,110

So we just took designs from our customers.



365

00:26:28,110 --> 00:26:31,330

We manufactured the designs,



366

00:26:31,330 --> 00:26:32,790

and then we gave the designs,



367

00:26:32,790 --> 00:26:36,480

we gave the products back to our customers,



368

00:26:36,480 --> 00:26:40,420

for them to sell to the end equipment manufacturers.



369

00:26:40,420 --> 00:26:44,400

So our customers were a completely different set



370

00:26:44,400 --> 00:26:48,670

from all the other semiconductor companies.



371

00:26:48,670 --> 00:26:52,530

Their customers were the communications industry,



372

00:26:52,530 --> 00:26:56,200

the computer industry,and so on.



373

00:26:56,200 --> 00:27:02,080

And our customers are the semiconductor manufacturers themselves.



374

00:27:03,930 --> 00:27:06,890

Well,



375

00:27:07,280 --> 00:27:09,440

and also,one other point,



376

00:27:09,440 --> 00:27:12,120

which is important,



377

00:27:12,120 --> 00:27:17,690

we declared that we would not do any IC designs ourselves,



378

00:27:17,690 --> 00:27:19,050

and therefore,



379

00:27:19,050 --> 00:27:21,370

we would not compete with our customers.



380

00:27:21,370 --> 00:27:25,950

Well,that sounded pretty good.



381

00:27:25,950 --> 00:27:35,110

In fact,when I was making the pitch,it sounded pretty good to me,too.



382

00:27:35,110 --> 00:27:36,720

However,



383

00:27:36,720 --> 00:27:39,680

we immediately ran into difficulties



384

00:27:39,680 --> 00:27:42,590

that seemed insurmountable at the time,



385

00:27:42,590 --> 00:27:44,100

three difficulties.



386

00:27:44,100 --> 00:27:55,530

One was that a new business model usually doesn°b have a market.



387

00:27:55,530 --> 00:27:57,250

They're got no customers.



388

00:27:57,250 --> 00:28:00,390

So when we started TSMC,



389

00:28:00,390 --> 00:28:04,270

we really had no customers.



390

00:28:04,270 --> 00:28:11,060

There was almost no market.



391

00:28:12,170 --> 00:28:18,200

I mean,that's why a lot of people said that this wouldn°b work at all.



392

00:28:18,200 --> 00:28:24,650

The big companies,they had their own manufacturing.



393

00:28:24,650 --> 00:28:27,500

So why would they want us to do their manufacturing for them?



394

00:28:27,500 --> 00:28:30,470

Well,as it turned out,



395

00:28:30,470 --> 00:28:33,600

they sometimes did in those early years.



396

00:28:33,600 --> 00:28:39,190

They did ask us to do a little part of their manufacturing,



397

00:28:39,190 --> 00:28:41,090

when they ran out of capacity themselves,



398

00:28:41,090 --> 00:28:43,970

or when they got tired of some products,



399

00:28:43,970 --> 00:28:48,850

some obsolete products that they had to make over and over again,



400

00:28:48,850 --> 00:28:55,600

and they decided to let us try our hands on that.



401

00:28:55,600 --> 00:28:58,100

Now,as soon as they got enough capacity,



402

00:28:58,100 --> 00:29:06,260

or as soon as they needed to fill their fabs?



403

00:29:06,260 --> 00:29:08,600

they would take that business back.



404

00:29:08,600 --> 00:29:13,960

So what market we had from the big companies



405

00:29:13,960 --> 00:29:15,990

was both small



406

00:29:15,990 --> 00:29:18,090

and very erratic.



407

00:29:18,090 --> 00:29:24,870

Now,as I said,there was this nascent design industry.



408

00:29:24,870 --> 00:29:27,860

But they didn't really trust us.



409

00:29:27,860 --> 00:29:30,180

Yeah,they knew that we wouldn't compete with them



410

00:29:30,180 --> 00:29:35,940

but we didn't have a reputation at all at the beginning.



411

00:29:35,940 --> 00:29:38,220

And our technology was way behind.



412

00:29:38,220 --> 00:29:41,860

So they wouldn't let us do,



413

00:29:41,860 --> 00:29:43,040

for the most part,



414

00:29:43,040 --> 00:29:46,990

they wouldn't let us do the manufacturing for them either.



415

00:29:49,800 --> 00:29:52,300

Now,a few years later,however,



416

00:29:52,300 --> 00:29:53,920

suddenly,



417

00:29:53,920 --> 00:29:54,980

suddenly,



418

00:29:54,980 --> 00:30:02,960

it really happened over only a one or two-year period of time



419

00:30:03,010 --> 00:30:04,850

in 1991,1992.



420

00:30:04,850 --> 00:30:08,100

Within a short period of time,



421

00:30:08,100 --> 00:30:13,420

suddenly the number of start-up design companies multiplied,



422

00:30:15,540 --> 00:30:20,810

and a design industry,



423

00:30:20,810 --> 00:30:22,280

IC design industry,



424

00:30:22,280 --> 00:30:24,680

was created.



425

00:30:24,680 --> 00:30:30,430

And they became our main customers.



426

00:30:30,430 --> 00:30:34,190

Now,why did they suddenly get up?



427

00:30:34,190 --> 00:30:39,560

Why did they suddenly multiply?



428

00:30:39,560 --> 00:30:46,310

I think that at least one of the reasons,



429

00:30:46,310 --> 00:30:48,050

perhaps a very important one,



430

00:30:48,050 --> 00:30:54,740

was that we had gradually made a reputation



431

00:30:54,740 --> 00:30:58,620

that we were a very reliable manufacturer.



432

00:30:59,560 --> 00:31:04,260

So,in fact there were a lot of companies that started up then,



433

00:31:04,260 --> 00:31:12,950

and when they pitched their proposals to the venture capitalists for funding,



434

00:31:12,950 --> 00:31:16,330

they told the venture capitalists



435

00:31:16,330 --> 00:31:22,520

that there is now a pretty reliable manufacturer called TSMC.



436

00:31:22,520 --> 00:31:26,850

And so all we have to do is to design the right products



437

00:31:26,850 --> 00:31:28,410

and they will do the manufacturing.



438

00:31:32,810 --> 00:31:38,280

And that was a very,very nice development for us.



439

00:31:38,280 --> 00:31:39,420

We needed it.



440

00:31:39,420 --> 00:31:40,980

We needed it.



441

00:31:42,590 --> 00:31:49,090

We were really having a very difficult time in the first few years,



442

00:31:49,090 --> 00:31:59,070

doing business only a very erratic and small basis



443

00:31:59,070 --> 00:32:03,200

with the big companies that had manufacturing.



444

00:32:03,200 --> 00:32:10,780

The second difficulty we almost immediately ran into,



445

00:32:10,780 --> 00:32:12,290

after we started of course,



446

00:32:12,290 --> 00:32:13,840

was the technology.



447

00:32:13,840 --> 00:32:15,330

We were two generations behind.



448

00:32:15,330 --> 00:32:17,870

So we had to catch up there.



449

00:32:17,870 --> 00:32:21,640

And it took us about ten years to catch up.



450

00:32:21,730 --> 00:32:23,660

87 to 97.



451

00:32:23,660 --> 00:32:26,530

But fortunately,



452

00:32:26,530 --> 00:32:28,690

in the semiconductor business,



453

00:32:28,690 --> 00:32:34,270

there are a lot of designs using older technology



454

00:32:34,270 --> 00:32:37,300

that still had a market.



455

00:32:37,300 --> 00:32:44,440

So the new design companies [didn't] need the most advanced technology.



456

00:32:45,380 --> 00:32:49,230

They could just use the technology that TSMC had,



457

00:32:49,230 --> 00:32:51,420

which was at first,



458

00:32:51,420 --> 00:32:52,710

two generations behind,



459

00:32:52,710 --> 00:32:55,320

and gradually became one generation behind,



460

00:32:55,320 --> 00:32:56,770

half a generation behind.



461

00:32:56,770 --> 00:33:01,930

We sort of grew together.



462

00:33:01,930 --> 00:33:08,940

And the third problem was that in manufacturing,



463

00:33:08,940 --> 00:33:10,640

we had to be highly competitive.



464

00:33:10,640 --> 00:33:13,990

Because obviously,



465

00:33:13,990 --> 00:33:25,840

if the big companies could provide the same price that we did offer to the design companies,



466

00:33:25,840 --> 00:33:30,860

we might be outcompeted.



467

00:33:30,860 --> 00:33:38,200

So our manufacturing has had to be very competitive in cost,cycle time,quality,



468

00:33:38,200 --> 00:33:39,640

and everything.



469

00:33:39,640 --> 00:33:51,440

Well,we gradually surmounted these difficulties.



470

00:33:51,440 --> 00:33:56,690

But,the challenges,



471

00:33:56,690 --> 00:33:56,630

indeed,



472

00:33:56,630 --> 00:33:58,960

are every continuing.



473

00:33:59,670 --> 00:34:06,340

So innovations of all kinds are needed for us to survive,



474

00:34:06,340 --> 00:34:07,920

let alone,prosper.



475

00:34:09,470 --> 00:34:14,910

I think we'll need future business innovations



476

00:34:14,910 --> 00:34:16,100

in order to keep growing



477

00:34:16,100 --> 00:34:17,860

at a healthy rate.



478

00:34:17,860 --> 00:34:28,430

Now,I think that's happening to a lot of these new companies that started up



479

00:34:28,430 --> 00:34:31,770

on the basis of new business models,too.



480

00:34:31,770 --> 00:34:34,410

They have all had to extend



481

00:34:34,410 --> 00:34:38,550

or revise their original business model



482

00:34:38,550 --> 00:34:39,900

in order to keep going.



483

00:34:39,900 --> 00:34:47,150

I understand that one third of their business is not auction business anymore.



484

00:34:47,150 --> 00:34:52,760

It's based on fixed price.



485

00:34:57,650 --> 00:35:00,310

However,I feel pretty sure



486

00:35:00,310 --> 00:35:11,540

that once you have grown to a certain extent with your new business model,



487

00:35:11,540 --> 00:35:15,220

or the business model that was new when you started it,



488

00:35:15,220 --> 00:35:19,190

once you have grown to a certain extent,



489

00:35:19,190 --> 00:35:24,330

then you are pretty much burdened with it also.



490

00:35:24,330 --> 00:35:29,360

And your core strength were built on that business model,



491

00:35:29,360 --> 00:35:32,180

and to make any revisions,



492

00:35:32,180 --> 00:35:36,990

you still have to keep pretty close to your core strength.



493

00:35:39,180 --> 00:35:40,160

That,of course,



494

00:35:40,160 --> 00:35:46,260

is the challenge of the business model innovators.



495

00:35:47,050 --> 00:35:49,820

I think I will end here.



496

00:35:49,880 --> 00:35:51,020

Thank you very much,



497

00:35:51,370 --> 00:35:52,620

for listening to me.



498

00:36:02,150 --> 00:36:02,730

Rick:  Thank you,Morris.



499

00:36:02,730 --> 00:36:04,170

A small token of thanks.



500

00:36:04,170 --> 00:36:05,350

Morris:  Thank you.



501

00:36:05,350 --> 00:36:06,980

Rick:  And we will proceed as we have before.



502

00:36:06,980 --> 00:36:08,960

If you would write down questions.



503

00:36:08,960 --> 00:36:12,650

I assume there are cards in circulation or available.



504

00:36:12,650 --> 00:36:17,990

In the meantime,let me pose a question.



505

00:36:17,990 --> 00:36:23,420

We're had a lot of discussion in this convocation



506

00:36:23,420 --> 00:36:25,480

about leadership and leadership styles.



507

00:36:28,260 --> 00:36:31,480

And,you're been in companies pursuing established business models,



508

00:36:31,480 --> 00:36:34,830

and you started a company with a new model.



509

00:36:34,830 --> 00:36:38,660

Are there different requirements of leadership



510

00:36:38,660 --> 00:36:40,770

or different successful styles of leadership



511

00:36:40,770 --> 00:36:42,950

in those two settings?



512

00:36:42,950 --> 00:36:44,590

Morris:  Yes.



513

00:36:44,590 --> 00:36:53,440

I was in the audience listening to Carly Fiorina yesterday.



514

00:36:53,440 --> 00:36:57,160

And I think the same question was asked of her also.



515

00:36:57,160 --> 00:36:58,390

Now,



516

00:36:58,390 --> 00:37:03,230

my concept of leadership is that



517

00:37:03,230 --> 00:37:06,740

it really requires only two things.



518

00:37:06,740 --> 00:37:17,190

First,a leader has to know what direction he is taking his followers.



519

00:37:17,190 --> 00:37:23,250

I mean,a leader that doesn°b know the direction



520

00:37:25,190 --> 00:37:27,330

leads his group in circles.



521

00:37:28,700 --> 00:37:29,880

And that¯b not a leader.



522

00:37:30,680 --> 00:37:36,000

The second requirement is that a leader has to have a following.



523

00:37:36,000 --> 00:37:40,440

If a leader doesn't have a following then,



524

00:37:42,020 --> 00:37:46,270

it's just like what Winston Churchill said,



525

00:37:48,910 --> 00:37:50,610

after the war,



526

00:37:50,610 --> 00:37:51,990

after the second world war.



527

00:37:51,990 --> 00:37:52,630

He said,



528

00:37:52,630 --> 00:37:55,150

Great Britain leads the world,



529

00:37:55,150 --> 00:37:58,320

but the world does not follow Great Britain.



530

00:38:02,470 --> 00:38:05,400

Now,so a leader needs just those two things.



531

00:38:05,400 --> 00:38:07,490

He needs to know the direction,



532

00:38:07,490 --> 00:38:09,030

he needs to have a following.



533

00:38:09,030 --> 00:38:16,620

Now,my concept of leadership is that,



534

00:38:16,710 --> 00:38:18,290

usually,



535

00:38:18,290 --> 00:38:24,060

it's a strong style.



536

00:38:24,060 --> 00:38:26,620

It's not an authoritarian style.



537

00:38:26,620 --> 00:38:33,920

Because authoritarian style may work in a political system,



538

00:38:33,920 --> 00:38:34,970

in some countries.



539

00:38:34,970 --> 00:38:36,710

But in business,



540

00:38:36,710 --> 00:38:39,200

it doesn't work.



541

00:38:39,200 --> 00:38:43,000

But a strong style is called for.



542

00:38:43,000 --> 00:38:48,920

Strong style means that you need to persuade,



543

00:38:48,920 --> 00:38:52,130

you need to convince the people to follow you,



544

00:38:52,130 --> 00:38:56,580

that your direction is the direction that



545

00:38:56,580 --> 00:39:01,820

that whole group needs to go.



546

00:39:03,270 --> 00:39:04,180

Now of course,



547

00:39:04,180 --> 00:39:09,380

then here comes the part I think Carly answered.



548

00:39:09,380 --> 00:39:11,450

She said that communication was very important,



549

00:39:11,450 --> 00:39:13,000

and I agree with her completely.



550

00:39:14,280 --> 00:39:18,670

Now,does business model innovation require



551

00:39:14,280 --> 00:39:18,980

Now,does business model innovation require



552

00:39:18,980 --> 00:39:21,510

a different style of leadership?



553

00:39:21,510 --> 00:39:22,390

Morris:  I doubt it.



554

00:39:22,390 --> 00:39:23,280

I don't think so.



555

00:39:23,280 --> 00:39:31,520

I think a good leadership style,



556

00:39:31,520 --> 00:39:32,590

which in my mind,



557

00:39:32,590 --> 00:39:33,850

is a strong leadership,



558

00:39:33,850 --> 00:39:36,720

a persuasive leadership style,



559

00:39:36,720 --> 00:39:40,060

I think will work in almost any situation.



560

00:39:40,060 --> 00:39:40,670

Rick:  Okay.



561

00:39:40,670 --> 00:39:45,920

You talked about the Harvard MIT issue.



562

00:39:45,920 --> 00:39:46,920

Here is a question.



563

00:39:46,920 --> 00:39:50,890

You also talked about a number of obstacles that you had to overcome



564

00:39:50,890 --> 00:39:52,820

to set the company on its course.



565

00:39:52,820 --> 00:39:55,830

What did you learn at MIT that helped you overcome



566

00:39:55,830 --> 00:39:58,090

the obstacles that you faced?



567

00:39:58,090 --> 00:40:01,100

And if you didn't learn it at MIT,



568

00:40:01,100 --> 00:40:02,580

where did you learn it?



569

00:40:05,850 --> 00:40:15,830

Morris:  MIT gave me an education that let me get into the semiconductor industry.



570

00:40:15,830 --> 00:40:18,300

I was a mechanical engineering student.



571

00:40:18,300 --> 00:40:20,960

But the basics,



572

00:40:20,960 --> 00:40:21,860

physics,



573

00:40:21,860 --> 00:40:22,580

math,



574

00:40:22,580 --> 00:40:25,660

and basic engineering,



575

00:40:28,200 --> 00:40:33,080

allowed me to get into the semiconductor industry.



576

00:40:33,080 --> 00:40:34,270

Oh,in fact,



577

00:40:34,270 --> 00:40:37,790

the reason they hired me was that



578

00:40:37,790 --> 00:40:38,840

they thought,



579

00:40:38,840 --> 00:40:42,860

it was a company in Boston,in fact,



580

00:40:42,860 --> 00:40:45,970

and they were starting out in semiconductors.



581

00:40:45,970 --> 00:40:49,240

Nobody knew much about semiconductors at that time



582

00:40:49,240 --> 00:40:50,600

in 1955.



583

00:40:50,600 --> 00:40:56,940

And the managers were from the vacuum tube business.



584

00:40:56,940 --> 00:41:00,560

And the top manager thought that



585

00:41:00,560 --> 00:41:08,310

pretty soon they would have to automate their transistor production line



586

00:41:08,310 --> 00:41:10,340

in order to be competitive.



587

00:41:10,340 --> 00:41:13,360

So here I was,



588

00:41:13,360 --> 00:41:15,970

right out of MIT



589

00:41:15,970 --> 00:41:18,300

with a mechanical engineering degree.



590

00:41:18,300 --> 00:41:21,630

So he thought that I could help



591

00:41:21,630 --> 00:41:23,930

in the automation effort.



592

00:41:23,930 --> 00:41:26,050

What he did not know



593

00:41:26,050 --> 00:41:31,950

was that automation came only twenty or thirty years later.



594

00:41:31,950 --> 00:41:35,800

See,the process was so erratic



595

00:41:35,800 --> 00:41:37,670

that it was not automable.



596

00:41:37,670 --> 00:41:43,330

It could not be automated



597

00:41:44,190 --> 00:41:46,040

for at least another twenty or thirty years.



598

00:41:46,910 --> 00:41:48,060

But I got in anyway.



599

00:41:50,780 --> 00:41:53,040

Now,as to management skills and so on,



600

00:41:53,040 --> 00:41:55,350

I believe that those could be learned,



601

00:41:55,350 --> 00:41:57,420

leadership skills,if you will,



602

00:41:57,420 --> 00:42:02,980

I think they can be learned in your career,



603

00:42:02,980 --> 00:42:04,660

on the job.



604

00:42:04,660 --> 00:42:08,200

Rick:  But people should still come to business school



605

00:42:08,840 --> 00:42:08,840

because



606

00:42:08,840 --> 00:42:11,790

we have to make a living.



607

00:42:11,790 --> 00:42:12,550

Morris:  Oh yeah. Oh yeah.



608

00:42:12,550 --> 00:42:14,040

I wish I could have come to business school.



609

00:42:14,040 --> 00:42:14,710

Rick:  Thank you.



610

00:42:15,460 --> 00:42:16,450

I hope everyone heard that



611

00:42:16,450 --> 00:42:18,390

and paid attention.



612

00:42:19,460 --> 00:42:22,510

Here are a couple of questions about TSMC.



613

00:42:22,510 --> 00:42:24,550

What is TSMC's strategy



614

00:42:24,550 --> 00:42:26,840

to compete with emerging foundries in China?



615

00:42:26,840 --> 00:42:28,410

And of course,



616

00:42:28,410 --> 00:42:29,170

the corollary to that,



617

00:42:29,170 --> 00:42:29,970

what are their weaknesses?



618

00:42:31,700 --> 00:42:36,860

Morris:  As long as there's a level playing field,



619

00:42:38,030 --> 00:42:43,060

I fear no competition from mainland China.



620

00:42:43,060 --> 00:42:45,670

The level playing field,



621

00:42:45,670 --> 00:42:47,950

I'm mainly talking about



622

00:42:47,950 --> 00:42:49,620

funding,



623

00:42:49,620 --> 00:42:52,580

and protection,



624

00:42:52,580 --> 00:42:55,710

or respect for intellectual property.



625

00:42:55,710 --> 00:42:59,330

As far as funding is concerned,



626

00:42:59,330 --> 00:43:01,590

we,



627

00:43:01,590 --> 00:43:05,050

all of the world's semiconducting companies,



628

00:43:05,050 --> 00:43:06,270

almost all of them,



629

00:43:06,270 --> 00:43:12,280

I think operate in a market economy.



630

00:43:14,410 --> 00:43:15,290

Now,we don't want



631

00:43:15,290 --> 00:43:30,840

any government to subsidize its companies in a particular industry



632

00:43:30,840 --> 00:43:32,490

because that will constitute,



633

00:43:32,490 --> 00:43:33,810

I think,



634

00:43:33,810 --> 00:43:35,300

an unlevel playing field.



635

00:43:35,300 --> 00:43:38,540

And with respect to intellectual property



636

00:43:38,540 --> 00:43:39,770

I think it's the same.



637

00:43:42,100 --> 00:43:44,120

Yeah,I think all the rest of the world respect it.



638

00:43:44,120 --> 00:43:47,580

And I think the Chinese government,



639

00:43:47,580 --> 00:43:51,370

certainly has repeatedly expressed their



640

00:43:51,370 --> 00:43:59,000

intention to respect intellectual properties too.



641

00:43:59,000 --> 00:44:02,590

So,if the playing field is level,



642

00:44:02,590 --> 00:44:05,120

then China,



643

00:44:05,120 --> 00:44:07,610

the Chinese companies,



644

00:44:07,610 --> 00:44:12,330

have no advantage over TSMC.



645

00:44:14,470 --> 00:44:15,390

It's not



646

00:44:15,390 --> 00:44:17,300

the labor cost,



647

00:44:17,300 --> 00:44:19,860

that's nothing.



648

00:44:19,860 --> 00:44:20,960

Labor cost,



649

00:44:20,960 --> 00:44:22,230

total labor cost,



650

00:44:22,230 --> 00:44:24,070

including my salary,



651

00:44:24,070 --> 00:44:31,720

is about 14% of our cost.



652

00:44:31,720 --> 00:44:34,890

It's about 7% of our revenue.



653

00:44:34,890 --> 00:44:40,340

So it's not a labor-intensive thing.



654

00:44:40,340 --> 00:44:43,270

And also,



655

00:44:43,270 --> 00:44:52,360

while China does offer low labor cost for the basic labor,



656

00:44:52,360 --> 00:44:58,210

the engineers are not low-cost in China.



657

00:44:58,210 --> 00:45:01,980

Particularly the productive engineers,



658

00:45:01,980 --> 00:45:03,520

the experienced engineers,



659

00:45:03,520 --> 00:45:04,710

are higher-cost



660

00:45:04,710 --> 00:45:07,050

than in Taiwan.



661

00:45:08,410 --> 00:45:13,080

Rick:  Because there are so few of them relative to the demand,huh?



662

00:45:13,080 --> 00:45:13,680

Morris:  That's right.



663

00:45:13,680 --> 00:45:15,900

So they hire Taiwan engineers.



664

00:45:15,900 --> 00:45:15,900

They hire a lot of Taiwan engineers



665

00:45:15,900 --> 00:45:18,970

And those people make more money in China



666

00:45:18,970 --> 00:45:21,520

than they made in Taiwan,you know.



667

00:45:21,520 --> 00:45:24,190

And the Chinese companies have to pay them more



668

00:45:27,230 --> 00:45:28,450

to get them to China.



669

00:45:31,140 --> 00:45:32,180

Rick:  That's interesting.



670

00:45:32,180 --> 00:45:33,670

And we could play with that for a while.



671

00:45:33,670 --> 00:45:35,560

But let me move to a related question.



672

00:45:35,560 --> 00:45:36,210

No,



673

00:45:36,210 --> 00:45:37,230

it's interesting economics.



674

00:45:37,230 --> 00:45:40,870

The question here,



675

00:45:42,100 --> 00:45:43,390

it's also a compliment.



676

00:45:43,390 --> 00:45:48,280

Why is TSMC so excellent at building relationships with customers?



677

00:45:48,280 --> 00:45:53,890

Morris:  That was actually



678

00:45:54,960 --> 00:45:56,070

in my mind



679

00:45:56,070 --> 00:46:00,620

the most important extension of our business model



680

00:46:00,620 --> 00:46:03,090

that we made



681

00:46:03,090 --> 00:46:05,920

after we started it.



682

00:46:05,920 --> 00:46:09,230

We started in ?7



683

00:46:09,230 --> 00:46:13,190

and our business model was very simply what I just told you.



684

00:46:13,190 --> 00:46:15,190

And it worked fine,



685

00:46:15,320 --> 00:46:17,960

until competitors began to appear.



686

00:46:17,960 --> 00:46:24,370

Then we realized that it took more than just being a foundry



687

00:46:24,370 --> 00:46:26,780

to keep our customers.



688

00:46:26,780 --> 00:46:31,560

We really had to have a,



689

00:46:32,740 --> 00:46:34,270

almost,



690

00:46:35,290 --> 00:46:36,630

die-for-customer



691

00:46:38,090 --> 00:46:38,780

culture,



692

00:46:39,480 --> 00:46:40,360

spirit.



693

00:46:40,360 --> 00:46:44,750

So there's a good Chinese proverb.



694

00:46:44,750 --> 00:46:48,610

Translating into English,it is,



695

00:46:48,610 --> 00:46:50,230

you would



696

00:46:50,230 --> 00:46:55,400

jump into boiling oil,



697

00:46:55,400 --> 00:46:58,020

walk through fire,



698

00:46:58,020 --> 00:47:02,240

for the person you love.



699

00:47:02,240 --> 00:47:04,680

And the person we love is our customer.



700

00:47:04,680 --> 00:47:11,380

So we started to tell our customers



701

00:47:11,380 --> 00:47:12,680

and show them



702

00:47:12,680 --> 00:47:18,640

that we would jump into boiling oil



703

00:47:18,640 --> 00:47:20,240

walk through fire for them.



704

00:47:20,240 --> 00:47:23,020

Now,that became a corporate culture.



705

00:47:24,570 --> 00:47:31,170

Now,we don't evaluate our managers by how much money they make for us,



706

00:47:31,170 --> 00:47:32,470

incidentally.



707

00:47:33,860 --> 00:47:34,430

I mean here,



708

00:47:34,430 --> 00:47:36,580

here's an interesting anecdote,



709

00:47:36,580 --> 00:47:38,270

I think.



710

00:47:38,270 --> 00:47:44,440

I had dinner with a big company executive one time.



711

00:47:45,180 --> 00:47:50,460

And he is one of the big companies,



712

00:47:51,100 --> 00:47:52,520

the CEO of one of the big companies.



713

00:47:52,520 --> 00:47:56,680

So,in the middle of dinner



714

00:47:56,680 --> 00:47:59,810

he sort of half-jokingly told me that



715

00:47:59,810 --> 00:48:01,920

maybe he should get into the foundry business



716

00:48:01,920 --> 00:48:02,950

to compete with us.



717

00:48:02,950 --> 00:48:06,230

And I let it go at the time.



718

00:48:06,230 --> 00:48:09,180

But a few minutes later I asked him,



719

00:48:09,180 --> 00:48:12,680

how he evaluates his production managers,



720

00:48:12,680 --> 00:48:14,200

his fab managers,



721

00:48:14,200 --> 00:48:15,020

production managers.



722

00:48:15,020 --> 00:48:17,200

So he told me,well



723

00:48:17,200 --> 00:48:18,170

obviously,



724

00:48:18,170 --> 00:48:20,020

yield,



725

00:48:20,780 --> 00:48:21,970

cost,



726

00:48:22,580 --> 00:48:24,030

productivity of the people,



727

00:48:25,110 --> 00:48:26,450

the cycle time?



728

00:48:27,640 --> 00:48:28,600

A list of things.



729

00:48:29,830 --> 00:48:31,040

And he said,



730

00:48:31,040 --> 00:48:33,650

Won't you do the same thing?



731

00:48:33,650 --> 00:48:36,440

Won't you evaluate your production managers the same way?



732

00:48:36,440 --> 00:48:38,400

And I said,



733

00:48:38,400 --> 00:48:41,230

Wo.  I evaluate them,



734

00:48:41,230 --> 00:48:46,570

we evaluate them by how the customers think of them.



735

00:48:46,570 --> 00:48:48,440

And that's true.



736

00:48:48,440 --> 00:48:49,480

That's a fact.



737

00:48:49,480 --> 00:48:50,980

We do evaluate our production manager



738

00:48:50,980 --> 00:48:55,990

by how many problems he solves for our customers.



739

00:48:55,990 --> 00:49:00,280

And I get those inputs,



740

00:49:00,280 --> 00:49:02,050

systematically,



741

00:49:02,050 --> 00:49:03,590

from our customers,



742

00:49:05,510 --> 00:49:07,530

all the time.



743

00:49:07,530 --> 00:49:09,660

And so,



744

00:49:09,660 --> 00:49:12,710

that's the corporate culture difference.



745

00:49:15,050 --> 00:49:15,500

Rick:  Thank you.



746

00:49:15,500 --> 00:49:16,060

That's interesting.



747

00:49:16,060 --> 00:49:18,870

Two questions about founding TSMC.



748

00:49:18,870 --> 00:49:19,960

Two related questions.



749

00:49:19,960 --> 00:49:21,100

The first,



750

00:49:21,100 --> 00:49:23,100

since nobody would invest in you,



751

00:49:23,100 --> 00:49:24,270

how did you get the capital?



752

00:49:24,810 --> 00:49:25,620

And second,



753

00:49:25,620 --> 00:49:27,080

since nobody thought it would work,



754

00:49:27,530 --> 00:49:28,450

how did you get the talent?



755

00:49:30,420 --> 00:49:35,580

Morris:  Oh. The first part was easy.



756

00:49:36,540 --> 00:49:42,120

It wasn't nobody that thought it would work.



757

00:49:42,120 --> 00:49:47,080

I would say most people thought it wouldn°b work.



758

00:49:47,080 --> 00:49:50,260

But the government,



759

00:49:51,950 --> 00:49:58,820

they didn't know anything aboutthe Taiwan government didn°b know anything about the industry.



760

00:49:58,820 --> 00:50:02,440

But they had faith in me.



761

00:50:02,440 --> 00:50:06,950

And so they said,



762

00:50:06,950 --> 00:50:12,680

well,this guy is supposed to be a semiconductor industry veteran



763

00:50:12,680 --> 00:50:15,240

So we'll do whatever he says,



764

00:50:15,240 --> 00:50:16,160

we'll fund what he says.



765

00:50:16,160 --> 00:50:20,150

So they put up about 48% of the capital.



766

00:50:20,680 --> 00:50:24,440

And then there was a very important investor,



767

00:50:26,660 --> 00:50:29,140

Philips of Holland.



768

00:50:31,200 --> 00:50:35,700

Among the fifteen or so companies that I contacted for investments,



769

00:50:36,600 --> 00:50:38,880

and those fifteen companies included



770

00:50:40,120 --> 00:50:44,330

all of the big semiconductor companies in the world at that time,



771

00:50:45,400 --> 00:50:46,560

they were the ones,



772

00:50:46,560 --> 00:50:53,110

Philips was the only one that became interested in investing.



773

00:50:53,900 --> 00:50:54,540

And then



774

00:50:55,260 --> 00:50:58,010

So Philips put up about 27%.



775

00:50:58,010 --> 00:50:59,940

The government had put up 48%.



776

00:50:59,940 --> 00:51:02,210

Philips put up 27%



777

00:51:02,990 --> 00:51:06,100

And then I started a three-month,four-month campaign,



778

00:51:06,900 --> 00:51:10,890

to round up the other 25% or so.



779

00:51:13,330 --> 00:51:15,950

And those were smaller ones.



780

00:51:17,520 --> 00:51:18,680

And their stakes were smaller,



781

00:51:18,680 --> 00:51:20,400

Their risks were smaller



782

00:51:20,400 --> 00:51:23,580

because the amount of money they had to put up was smaller.



783

00:51:23,580 --> 00:51:27,260

But still,it took three or four months.



784

00:51:27,950 --> 00:51:34,410

Now,as far as why the people worked for TSMC.



785

00:51:35,360 --> 00:51:37,450

Well,back then,



786

00:51:38,280 --> 00:51:45,220

we were the second semiconductor company in Taiwan.



787

00:51:46,240 --> 00:51:49,470

And we hired the Taiwanese engineers,of course,



788

00:51:49,470 --> 00:51:52,170

and Taiwanese operators.



789

00:51:52,790 --> 00:51:54,840

And we paid quite well,



790

00:51:54,840 --> 00:52:01,010

so they just wanted to experiment.



791

00:52:01,620 --> 00:52:02,820

I mean,



792

00:52:03,720 --> 00:52:07,880

if the company wasn't very successful,



793

00:52:07,880 --> 00:52:11,290

they would probably leave in a year or two,you know.



794

00:52:12,310 --> 00:52:13,530

We managed to hold on.



795

00:52:14,580 --> 00:52:17,110

Rick:  That's a nice segue into this next question.



796

00:52:18,920 --> 00:52:24,940

It says,you speak of customers and suppliers in your definition of business models.  Where do you place,



797

00:52:24,940 --> 00:52:28,280

or how do you think about employees and managers



798

00:52:28,280 --> 00:52:31,040

when you think about the way you do business?



799

00:52:31,630 --> 00:52:34,920

Is how that relationship is handled part of the model?



800

00:52:36,850 --> 00:52:43,110

Morris:  I don't include the employer-employee manager relationship



801

00:52:43,680 --> 00:52:45,820

in my definition of business model.



802

00:52:45,820 --> 00:52:52,080

But if you talk about how a company can succeed,



803

00:52:52,520 --> 00:52:57,970

certainly,the employee-manager relationship,



804

00:52:58,470 --> 00:53:02,990

the total employee relationship certainly is very,very important.



805

00:53:08,080 --> 00:53:12,200

Rick:  It's a question about international politics,



806

00:53:13,250 --> 00:53:17,050

particularly US-China-Taiwan politics.



807

00:53:17,050 --> 00:53:19,740

How has that situation,



808

00:53:19,740 --> 00:53:21,760

or that political dynamic,



809

00:53:21,760 --> 00:53:24,970

affected your company's business models over the last twenty years,



810

00:53:24,970 --> 00:53:27,590

and what do you see going forward?



811

00:53:27,590 --> 00:53:29,510

Morris:  How is it



812

00:53:29,510 --> 00:53:31,000

Rick:  How is the political,



813

00:53:31,000 --> 00:53:33,980

the international political situation,particularly the



814

00:53:35,410 --> 00:53:36,120

Morris:  Well,I'm an optimist.



815

00:53:36,910 --> 00:53:44,480

I think that whatever problems we have will be solved peaceably.



816

00:53:44,480 --> 00:53:45,080

Peaceably,



817

00:53:47,070 --> 00:53:48,210

in the future.



818

00:53:51,470 --> 00:53:56,480

I don't think that anything really bad will happen.



819

00:53:58,500 --> 00:54:01,250

And,how has that affected us?



820

00:54:01,250 --> 00:54:03,530

So far,not too much.



821

00:54:03,530 --> 00:54:05,420

Because again,



822

00:54:05,420 --> 00:54:07,130

let me emphasize,



823

00:54:08,480 --> 00:54:11,640

we don't need the low-cost labor in China.



824

00:54:11,640 --> 00:54:14,760

We are very much interested in China



825

00:54:14,760 --> 00:54:20,150

because it's an emerging market for us.



826

00:54:21,590 --> 00:54:25,270

It's an emerging market for a foundry like us.



827

00:54:25,270 --> 00:54:29,210

And it will be a very important market.



828

00:54:29,210 --> 00:54:30,980

There will be pretty big business.



829

00:54:31,700 --> 00:54:33,050

But the business now,



830

00:54:33,050 --> 00:54:35,380

the foundry business now in China is still pretty small.



831

00:54:35,380 --> 00:54:39,020

The acceleration is infinite,



832

00:54:39,020 --> 00:54:41,580

but the velocity is still almost zero.



833

00:54:43,560 --> 00:54:48,440

Rick:  .



834

00:54:48,440 --> 00:54:49,920

Okay,that's too hard.



835

00:54:53,610 --> 00:54:55,330

How do



836

00:54:55,330 --> 00:54:55,400

We may get to it.



837

00:54:55,400 --> 00:54:58,550

But he has a plane to catch to we can't go on forever.



838

00:54:58,550 --> 00:55:02,810

How do you see regulatory,governmental,and institutional environments



839

00:55:02,810 --> 00:55:05,940

as restricting business model innovation?



840

00:55:05,940 --> 00:55:06,910

Or put another way,



841

00:55:07,820 --> 00:55:10,510

are their needs for changes in institutions



842

00:55:10,950 --> 00:55:11,820

or policies



843

00:55:11,820 --> 00:55:14,320

to facilitate business model innovation?



844

00:55:15,640 --> 00:55:17,970

Morris:  I think,well,in America



845

00:55:18,450 --> 00:55:24,210

I think that you really have big,big freedom.



846

00:55:25,100 --> 00:55:28,440

Yeah,I'm sure that regulatory requirements and so on



847

00:55:28,440 --> 00:55:32,910

puts some limits on business model innovation.



848

00:55:33,610 --> 00:55:37,300

But relative to some other countries,



849

00:55:38,530 --> 00:55:43,210

I think the limits are minimal.



850

00:55:46,180 --> 00:55:47,730

But in some other countries,



851

00:55:48,970 --> 00:55:52,500

I do believe that there's a lot that has to be done,



852

00:55:52,500 --> 00:55:58,020

in order to encourage business model innovations.



853

00:55:59,410 --> 00:56:03,080

Rick:  I think we can combine these last two a little bit.



854

00:56:03,080 --> 00:56:09,730

There was some discussion yesterday about innovation in established firms.



855

00:56:10,580 --> 00:56:15,900

And,at this stage,TSMC counts as an established firm.



856

00:56:15,900 --> 00:56:17,050

So the question is,



857

00:56:17,050 --> 00:56:17,720

how do you,



858

00:56:17,720 --> 00:56:20,090

or any other established firm,



859

00:56:20,090 --> 00:56:23,520

deal with a major innovation,



860

00:56:23,520 --> 00:56:25,990

or the possibility of a major innovation,



861

00:56:25,990 --> 00:56:28,880

that might disrupt your business model,



862

00:56:29,500 --> 00:56:31,290

or render



863

00:56:31,450 --> 00:56:33,440

It might disrupt your model.



864

00:56:33,440 -->