2.2.1 Research Questions and Literature Review
Many studies of Taiwan’s semiconductor industry have been published.
Th e work has focused on the unique development processes in individual sectors. In the fabrication sector, studies have addressed the pure-play foundry model, illustrating its crucial contribution to Taiwan’s semicon- ductor industry and its profound impact on the global industry. Mathews and Cho ( 2000 ) showed the model’s eff ect on promoting technology introduction. Chen ( 2003 ) and Lin ( 2010 ) regarded it as a pivot in the industry’s network. Breznitz ( 2007 ) highlighted the huge contribution of the model to the transformation of the industry’s global value chain.
Additionally, some studies have also examined why and how the model was created. Sato ( 2007 ) investigated the behavior and mindset of various participants in the process of the model formation including the state, the Industrial Technology Research Institute (ITRI) as well as the managements of United Microelectronics Corporation (UMC), and Taiwan Semiconductor Manufacturing Company Limited (TSMC),
and others and showed their contributions. Business studies have explained the emergence of the model as a product of changing technolo- gies (Yunokami 2008 ; Tatsumoto et al. 2009 ). Fuller et al. ( 2005 ), Fuller ( 2005 ), and Breznitz ( 2007 ), on the one hand, referred to interaction with the global industry by the global value-chain approach, and, on the other hand, argued for the state’s role by following the developmental state approach.
However, prior studies still off er only vague answers to the following key questions: Why did other nations not adopt the pure-play foundry model (Fuller et al. 2005 , p. 83)? In other words, how was Taiwan able to adopt pure-play foundries even before advanced countries? Fuller et al.
explained the reasons: the choice seemed risky in the late 1980s and the existing integrated device manufacturers (IDMs) had been so success- ful that they did not risk venturing into the business. Th ese reasons are not satisfying because they explain only other countries’ failures; they do not indicate why and how Taiwan succeeded in capitalizing this chance.
Furthermore, considering the model’s outstanding innovativeness and the fact that in the late 2000s many IDMs abandoned the integrated model and subcontracted fabrication to TSMC and other foundries, how and why Taiwan has sustained its leadership in the foundry market should also be investigated.
In the design sector, the literature describes two important fi ndings.
First, the sector has developed by continuously exploiting the advantages of backwardness. Th e sector has grown by imitating and substituting the existing products that advanced enterprises developed earlier. Taiwan’s fol- lower strategy was encouraged by its rapidly growing original equipment/
design manufacturing (OEM/ODM) of personal computers (PCs) and other information technology (IT) hardware since the late 1980s (Chang and Tsai 2002 ; Fuller 2005 ; Breznitz 2007 ; Wang 2010 ). Breznitz ( 2007 , pp. 118–20) regarded this type of development as a refl ection of the lim- ited innovation capability of Taiwan’s design sector. Although Chang and Tsai ( 2002 ) and Wang ( 2010 ) took a similar view to Breznitz’s, they also appreciated Taiwan’s ability to follow the forerunners immediately, term- ing the sector a ‘quick follower’.
Second, MediaTek’s innovation in China and other emerging econo- mies attracted much interest. It is credited with founding the shanzhai cellular phones market, which is a market for low-end products in China
and other emerging economies. Studies have shown that the chipsets provided by MediaTek function as a platform for these cheap prod- ucts (Breznitz 2007 ; Hsu and Imai 2010 ; Wang 2010 ; Asamoto 2014 ; Kawakami and Sato 2014 ).
However, these two fi ndings are not closely connected. Consequently, it is unknown how MediaTek could have accomplished such a remarkable innovation despite the whole sector continuing the catching-up strategy.
2.2.2 Analytical Approach
Th is chapter addresses the questions set out above, focusing on the back- wardness of Taiwan’s semiconductor industry. Th e catching-up approach, which was fi rst described by Gerschenkron ( 1962 ), suggests the impor- tance of the advantages of backwardness, particularly the technological opportunities that latecomers can exploit. According to this approach, a latecomer can use a backlog of standardized technologies without spending the time and resources that advanced countries had to invest in standardizing these technologies. Th is allows a latecomer to acceler- ate technological progress and economic growth. For instance, Amsden ( 1989 ) attributed South Korea’s rapid economic growth to its success in technological learning.
However, because Taiwan’s semiconductor industry is characterized by its subsectors’ unique business models, the technology-centered idea of the conventional catching-up approach is too limited to analyze the development of the industry fully. For this reason, this chapter extends the concept of the eff ects of backwardness beyond the advantage of tech- nological opportunities and includes market opportunities.
Some market opportunities are similar to technological opportuni- ties. For instance, latecomers can save initial costs to enter a market that advanced countries have already cultivated by spending lots of resources.
However, other opportunities are quite diff erent from technological ones and much more signifi cant for a latecomer’s development. Th ese oppor- tunities did not exist at the birth of the industry and have emerged as the industry developed. Accordingly, advanced countries were unable to use these opportunities when they created the industry, whereas a latecomer
can exploit these opportunities and set up industries more easily. For instance, because a fi rm in a latecomer economy can enter part of a sup- ply chain with a small investment, its initial investment would be much smaller than that of a fi rm in an advanced country that had to construct the whole chain at once. Furthermore, owing to the expansion of a market for a product developed by an advanced country, the market diverges into multiple segments. Th e low-end segment is easy to enter for a latecomer that is behind on technology but competitive on cost.
Emerging market opportunities can also help latecomer economies to build a business model that assumes a certain level of innovativeness to pave the way for further development. First, in addition to the initial demand, a new model can meet latent demand that the business models of advanced countries have not been able to access. Second, the model can play a new, unique part in the global supply chain. Moreover, the model may also evolve into a radical, innovative model that the models of advanced countries cannot evolve into.
In summary, this chapter examines the discovery of new market oppor- tunities generated from backwardness, the building of business models for exploiting these opportunities, and the expansion and upgrading of the models. Two additional points merit attention in the following analysis.
First, new opportunities in a market and future courses of business models are mostly potentials. As a result, the analytical focus is the actors’
search for them. Potentials are not necessarily discovered and realized according to a plan, but are often an unexpected outcome. 1 Th e second- best choices that latecomers reluctantly make owing to their limited capa- bilities can produce success beyond initial expectations. Th ese behaviors and uncertain results that this chapter looks at are diff erent from those examined in conventional studies of catching up. Because the technologi- cal advantages of backwardness are considered to be explicit, the actors do not need to strive to fi nd it. Th e arguments concentrate on how the actors are capable of exploiting the advantage. 2
1 Takeishi et al. ( 2012 ) describe many cases where innovation was an unexpected outcome.
2 For instance, Abramovits ( 1986 ) pointed out that a latecomer’s social capability is important in exploiting the advantages of backwardness, and Amsden ( 2001 ) and Amsden and Chu ( 2003 ) considered the project execution capability/skill of enterprises in a latecomer to be essential.
Second, in contrast to the technological advantages of backwardness that are inherent to latecomers, an emerging demand is not in princi- ple exclusive to latecomers and can be accessed by advanced countries.
Th erefore, supplementary reasons are required to explain why a latecomer can exploit this opportunity ahead of advanced countries. 3
Th is chapter examines the behaviors and thinking in the enterprises and their management by using the author’s interview data and articles from newspapers and periodicals. Most important is the information about leading companies’ top management such as M. Chang of TSMC and M-K Tsai of MediaTek. However, because it is extremely diffi cult to interview these people directly, 4 their remarks and related information are collected from newspapers, periodicals, and other sources. Th e author’s interviews with others, such as upper and middle management at other companies and ITRI’s researchers, are used as supplementary evidence and background information for the argument. Research literature and mate- rials are also important sources. In particular, Bandaoti Gongye Nianjian (Semiconductor Industry Yearbooks) , edited by Th e Industrial Economics &
Knowledge Center at ITRI, are very informative.