ProfetAI is an artificial intelligence software company based in Taipei. Founded in 2018, the firm provides machine learning solutions for for semiconductor, electronics, chemicals and textile manufacturers to manage their operations more efficiently.
“There are three main challenges faced by manufacturers today: they want to reduce costs, speed up their production, and improve quality. Therefore, manufacturing companies are investing heavily in digitization as an effort to embrace Industry 4.0, but many of them don’t know how and where to start the journey,” Jonathan Yu, sales director of ProfetAI, said to KrASIA.
The startup offers four key features in their solutions—fully automated prediction modeling, which can enable clients’ user to create their own machine learning model without programming; simulation and optimization functions to support users’ decision-making processes; integration prediction models for real-time analysis; and product lifecycle management software. Yu said that 90% of the startup’s clients are located in Taiwan, while the rest are in mainland China.
Although industrial manufacturing is still the main driver of the island’s economy, Taiwan is reinventing itself as the next global hub of tech innovation, especially in deep tech and AI. Southeast Asia is one of the primary markets.
“The Taiwanese startup ecosystem is still pretty nascent, we’ve had great success with entrepreneurs in the 70s and 80s, when companies like Taiwan Semiconductor Manufacturing Company (TSMC) and United Microelectronics Corporation (UMC) shot Taiwan to the world fame. However, those trees didn’t seem to bear many fruits that turned into a force of entrepreneurs like in Silicon Valley,” Yan Lee, founder and managing partner of Taiwan-focused venture capital firm Hive Ventures, said to KrASIA.
“Now we have a new wave of young entrepreneurs that are focused less on hardware but more on the software side of things. There are about 150 to 250 data companies, software, and internet-of-things (IoT) related startups per quarter that are on our internal radar,” Lee said.
Taiwan has a solid foundation upon which to build deep tech and AI. Its information and communication technology (ICT) ecosystem and manufacturing infrastructure are comprehensive, wooing large investment sums from global tech giants.
In 2020, Microsoft said it will pour in up to USD 10 billion until 2024 to build a data center and create 30,000 jobs in Taiwan. The investment also includes research and development for AI-powered hardware, according to a media report.
Google said last year that it will build a third data center in Taiwan after the acquisition of 200,000 square meters of land in the Yunlin Technology-based Industrial Park in the city of Douliu.
And Nvidia has established a partnership with Taiwan’s administration since 2018 to cultivate local deep learning and AI technologies over the next decade. The GPU inventor’s Deep Learning Institute is set to train thousands of Taiwanese developers in the latest AI capabilities.
Top-down support
In a speech after her reelection, Tsai Ing-wen spoke about the importance of six core strategic industries—information and digital technology, cybersecurity, medical technology and precision health, green and renewable energy, national defense and strategic industries, and strategic stockpile industries.
The Taiwanese administration has been steadfast in its commitment to support the local tech ecosystem in recent years, with the ambition to transform Taiwan into “Asia’s Silicon Valley.”
“There are multiple funds that invest in local startups. The most active is the National Development Fund, a sovereign wealth fund that, instead of focusing on private equity deals and big-league acquisitions, it is very involved in the startup space,” Lee said.
Between 2015 and the second quarter of 2020, there were 1,589 early-stage investment deals in Taiwan, totaling over USD 4.4 billion, according to the “2020 Taiwan Startup Investment Scene” report published by the Taiwan Institute of Economic Research. Corporate venture capital firms are the largest investors, followed by local VC firms, Taiwan’s own National Development Fund, and then international VCs.
From 2018, the Taiwanese administration had also been launching several programs like the Taiwan Tech Arena and the Taiwan Innovation and Technology Arena to give local tech startups a leg up in attaining visibility in global markets.
Other major accelerator programs are AppWorks, SparkLabs Taipei, and StarFeb, which focus on areas like AI and robotics solutions. More recently, Taiwan’s policymakers said they will shape initiatives to train 10,000 people every year to work in AI and technical R&D.
Although this all sounds promising, there are at least three major challenges for local startups—securing funding, hiring talents, and business and market expansion, according to the 2019 Taiwan Startup Ecosystem Survey conducted by PwC.
These problems remain relevant in 2021, according to ProfetAI’s Yu. “The overall amount of investment activity is low in Taiwan, especially for pre- and Series A funding rounds, compared to what we see in China or the United States.” He pointed out that Taiwan needs to develop and retain a robust talent pool in software product design, global business operations, statistic and mathematics at a time when tech hubs around the world are racing to build the next disruptor.
“Although there are many engineers here, most of them build customized software and project for internal users or other companies, or maintaining existing ERP(Enterprise Resource Planning) or Manufacturing system, but they don’t have their proprietary branded software products, which makes it a bit difficult for a local tech ecosystem to compete with other global tech hubs,” Yu said.
Taiwan’s southbound tech
With only 23.8 million inhabitants on the island, Taiwanese startups can’t rely on the domestic market to expand their businesses. PwC’s survey suggests that 48% of local startups target mainland China as their main overseas market, followed by Southeast Asia and North America.
“Southeast Asia has a very similar economic structure as Taiwan. A large part of our economy consists of agriculture and manufacturing, which is the same across many countries in Southeast Asia,” said Lee. He added that this similarity works in Taiwan’s favor for businesses like cloud data, AI, and smart manufacturing.
“For example, most data startups in the US or Europe focus on cloud-only infrastructure, whereas companies from Taiwan, Japan, and Southeast Asia mostly use on-premise cloud infrastructure and hybrid cloud. Tech companies also must be able to understand the nuances of manufacturing in Southeast Asia in order to offer services for smart manufacturing,” he continued.
To deepen Taiwan’s connections with Southeast Asian countries, the Taiwanese administration has formulated the New Southbound Policy (NSP), which promotes collaborations in science and technology to form closer economic ties and cultural exchanges. It has also established Science and Technology Innovation Centers (STICs) in the region to encourage R&D collaboration and talent flows. This includes professional cooperation through the Taiwan-Thailand Medical Tech, Science, and Humanities Development Center, as well as science and tech talent cultivation and exchanges through the Taiwan and Malaysia Digital Technology International Center.
With a large pool of tech professionals as well as strong science and tech capabilities, various Southeast Asian tech companies like Singapore-based Carousell and Malaysia-headquartered Shopback have established engineering and research and development (R&D) teams in Taipei, according to AppWorks. In January, Singapore’s DBS Bank opened its fintech R&D center in Taiwan. The bank plans to recruit at least 30 IT experts by end of the second quarter.
Meanwhile, many Taiwanese startups have a presence in Southeast Asia or plan to expand to the region. For instance, AI startup iKala has a presence in Malaysia, Singapore, the Philippines, Thailand, and Vietnam. Social media data and analytics platform Picsee, which is backed by Hive Ventures, has millions of monthly active users in Vietnam, Thailand, and Malaysia, according to Lee.
ProfetAI also expects to set up new operations in Southeast Asia. “International expansion is also a challenge for startups here. For instance, we plan to work with at least the top ten manufacturing companies outside of Taiwan this year, including in Southeast Asia, but we need to find partners that understand the market and culture in the region,” Yu said. “For startups like us that work with manufacturers, we target to expand business operations to mainland China, Japan, and Southeast Asian countries like Thailand and Malaysia because they have a similar [manufacturing] environment as Taiwan.”
Hive’s Lee characterizes the relationship between Taiwan and Singapore tech ecosystems as “mutually beneficial,” because innovation in Taiwan is traditionally centered on hardware, while Singapore’s talent has strong software capabilities. His firm is exploring collaborative moves with incubators and accelerators in Singapore to bridge partnerships between Singaporean startups and Taiwanese manufacturers.
“Singaporean startups have a big interest in IoT. However, there is no manufacturing know-how there, while Taiwan is really good at that. So we want to help Southeast Asia, starting from Singapore, to tap into this segment and find the right manufacturing and design partners,” Lee said.
Several accelerators have organized programs to bring Taiwanese tech firms into Southeast Asia. Taiwan-based AppWorks startups across the markets, while a 5G-focused accelerator led by the Asia Pacific Telecom (APT) provides assistance and guidance for Southeast Asian startups looking to find their place in Taiwan’s tech scene.
Taiwan is well-positioned to be the next hub for tech innovation. With stakeholders from all corners endeavoring to make this a reality, and with specific outreach stretching into Southeast Asia, we’ll likely see many fresh collaborations between tech companies from the two regions.