Defense conversion and systems architecture: challenges to Taiwan's aircraft industry

Abstract

How to establish a complex high-tech systems engineering industry is crucial for many newly industrializing countries to further their economic development beyond efficient manufacturing of relatively simple products. Because the aircraft industry is a user and driver of advanced product and process technologies, in 1990 Taiwan's government officially designated this industry as a national strategic area to receive policy support. The ultimate success of this endeavor depends on the transformation of a combat aircraft producer into a commercial champion and the sustainability of the supporting industries. However, the prospect of defense conversion is dismal. The commercial benefits of military work are minimal because military and civilian needs of design are very different and so are scale economies, scope economies, and experience curve. Moreover, neither spin-off nor dual-use strategy can apply effectively, leaving the focal company an enclave isolated from the local industry. Another insurmountable barrier is the integral architecture of the aircraft and engine systems. In this industry, most functional and design specifications and standards are imposed by the upper-tier buyers and integrators. This implies that the lower-tier firms cannot pursue their own engineering and production competence rather independently and flexibly as most other local firms in Taiwan do in the fields of highly open components and easily adjustable interfaces. This case typifies a government's futile efforts in a global industry of complex proprietary technological systems and points to the criticality of defense conversion and systems architecture in the commercial world of systems engineering.