Defense conversion into a global system of proprietary technologies: The case of Taiwan's aircraft industry

To further industrial development, Taiwan's government has officially targeted the aircraft industry, specifically the Aero Industry Development Center (AIDC)—producer of Taiwan's combat aircraft with a two-and-a-half-decade history. However, despite AIDC's experience in aerodynamics, structure, and engines, redirecting its engineering and production capabilities for commercial jets poses many difficulties. Because military and civilian needs of aircraft design are very different, the commercial benefits of military work on airframes are minimal. In contract manufacturing, one critical factor is efficiency, but AIDC is still relatively weak in scale economies, scope economies, and experience curve. Another critical factor is technology, but most functional and design specifications and standards are imposed by the upper-tier buyers and the integrators. Moreover, neither spin-off nor dual-use strategy can apply effectively, leaving AIDC an enclave isolated from local industry. Overall, the prospect of AIDC's defense conversion is dismal. The military does not have the capability to endorse the transformation; the civilian government is not familiar with the commercial practices; the local firms are not interested in entering this industry; the commercial businesses are largely controlled by the world leading integrators; and, most important, AIDC's core competence is fairly weak. The case typifies a government's futile efforts in a global industry of complex proprietary technological systems.