A wealth of skilled, loyal and sometimes low-paid engineers is motivating a series of global tech firms to expand in Taiwan. Google has visibly bumped up its R&D headcount over the past two years, for example, and American memory chip designer Micron Technology plans to grow its Taiwan staff this year by 1,000 people to about 8,000, local media reports say.

Microsoft is part of that pack. It’s expanding here because Taiwan has the right talent for developing artificial intelligence (AI) and the internet-of-things (IoT).

There’s enough labor for now, yet valuable enough that Microsoft pays people enough to keep them loyal, says Michael Chang, the AI R&D center director general. “The reason why we come here is because of talent,” Chang said in an exclusive interview for this post. “Microsoft has always had this philosophy of we bring the work to the talent.”

The firm passed up China and the United States for a lot of the same work because both are short of the software talent the fits the company’s needs, Chang says. Microsoft salary guidance also makes it hard sometimes to hire software engineers in China, because of widely varying employee expectations, he added.

The right brains for artificial intelligence

The American software giant picked Taiwan last year to grow its global artificial intelligence business. The firm best known for its Windows operating systems will recruit 100 people through 2020 and 200 people within five years for a $34 million Taiwan R&D center. This team is leading R&D for Windows Hello, a feature that eventually will let PCs log on users based on recognizing their faces, Chang says. Microsoft Surface PCs can use this feature already.

Windows Hello could eventually apply to other security systems, the director general adds. “We’re thinking about how to bring this to the general masses,” he says.

Microsoft has also run its Asia internet-of-things hub out of Taiwan for the past three years. The IoT side’s Taiwan staff is focusing heavily now on ways to standardize software for dongles, gateways and other hardware the way it once did with plug-and-play PC peripherals, says company IoT Innovation Center director Cathy Yeh.

Taiwan has gotten real about its artificial advantage: Premier Su Tseng-chang said in May that 10,000 people will be trained every year for work in AI R&D. The government is trying to make the most of this edge as other types of tech work go over to China where factory wages are lower than in Taiwan. Chang calls Taiwan’s engineering education “solid.”

“Taiwan’s talent sources are rather easy to find,” says Tracy Tsai, research vice president with tech market analysis firm Gartner in Taipei. Engineers in Taiwan, a world tech hardware manufacturing hub since the 1980s, are migrating skills of the past to “system integration”, she adds. They still accept pay that’s lower than what engineers make in Hong Kong, Singapore and even Beijing, she says.

Microsoft, with $110.4 billion in 2018 revenue and $35.1 billion in operating income, already had deep business relations in Taiwan because its operating systems end up on PCs that Taiwanese hardware manufacturers make on contract.

The American company is gaining from Taiwan’s “unique position” based partly on a “complete supply chain and infrastructure,” says Shirley Tsai, research manager with fellow market analysis firm IDC. Microsoft hopes to find clients among Taiwanese developers, startups and other companies that are working on uses for artificial intelligence, she says.

Talent traps in China

Microsoft has found a shortage of software engineers in China over the past two years, Chang said. The supply has grown thin because Chinese tech firms are hiring those people instead, he adds. “I think China domestically by itself is having a software engineer shortage of engineers,” he says.

Fewer than 300,000 employees were working in China’s integrated circuit industry in 2017 despite a need for 400,000 to reach the country’s official industry growth goals by 2030, state-run China Daily reported. Chinese officials will invest more in research and bring in foreign talent, the report says.

China also lacks a regular salary calculation structure, he says. Microsoft has set guidance on pay packages, he says, but companies based in China sometimes pay more even if they’re relatively small–meaning that applicants coming from those firms demand salaries that might not line up with their skills. “Salaries can be super high, but is that the right salary for the person?” Chang asked. “Probably not. Microsoft does not want to do that.”

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