Tiger Technology (Mathews and Cho, 2000)

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Tiger Technology: The creation of Semiconductor Industry in East Asia John A Mathews and Dong-Sung Cho (2000)

TABLE OF CONTENT

PART I: THE REAL EAST ASIAN MIRACLE

1. TIGER CHIPS: THE RISE OF EAST ASIA IN THE GLOBAL SEMICONDUCTOR INDUSTRY

2. TECHNOLOGY LEVERAGE AS LATECOMER STRATEGY

PART II: NATIONAL INSTITUTIONAL PATHWAYS

3. THE TANGUN BOOM AND THE CHAEBOL: HOW KOREA DID IT

4. A CAT CAN LOOK AT THE KING: HOW TAIWAN DID IT

5. JACK AND THE BEANSTALK: HOW SINGAPORE AND MALAYSIA ARE DOING IT

PART III: THE TECHNOLOGY LEVERAGE STRATEGY

6. EAST ASIAN SEMICONDUCTOR INDUSTRIES: NATIONAL STRATEGIES AND SUSTAINABILITY

7. LIMITS TO TECHNOLOGY LEVERAGE STRATEGIES

8. NATIONAL SYSTEMS OF ECONOMIC LEARNING: LESSONS FROM EAST ASIA

East Asians have been extremely innovative in creating successful high-technology (knowledge-intensive)

industries based on the most advanced technologies available in the US, Europe and Japan. No one

welcomed them into the exclusive club. (Mathews and Cho, 2000: 7)

PREFACE

The real ‘Asian’ economic miracle is the survival of Asian semiconductor firms from the Asian crisis of

1997 and slowdown in global semiconductor market during late 90s. The book is a result of the curiosity

to discover how latecomer firms could establish themselves in the most technologically demanding

industries. The work, starting 1994, asked the following ‘genesis’ questions to these companies: how

firms there got started, how they acquired their technological capabilities, and how they improved and

enhanced their capabilities and the strategies they pursued in order to say alive in such competitive and

technologically demanding environments.

INTRODUCTION

In the space of a decade, Korea, Taiwan, Singapore, China and Malaysia entered the high-technology

world of chip fabrication. For instance, Samsung took the work lead in chip manufacturing in 1993, just a

decade after it launched its first memory chip product. The dominance of firms from these countries

didn’t rely on traditional technology support, such as investment in R&D or innovation activities. Firms,

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like Taiwan Semiconductor Manufacturing Corporation, Samsung, and Singapore Technologies Group,

developed technology capabilities though various forms of linkages with advanced firms, through

contract manufacturing, licensing, joint ventures, and inter-firm collaborations. This acquisition of

technological capabilities can’t be explained through macroeconomic frameworks. These firms have

perfected the strategy of leveraging advanced technologies as a principle of participating in hi-tech

industries. The technology capabilities were robust in the face of Asian economic crisis.

The authors deem that the rise of high-tech industry in Asian economies is a story of ‘market-enhancing’

interventions by governments concerned, mostly by institution creation. Asian tigers developed an

institutional system enabling rapid transmission and propagation of technology knowledge from advanced

countries to themselves, and between firms. Apart from the role of institutions, most successful firms

have been integrators of received technologies, adopting sophisticated leverage devices for acquisition

and internalization of knowledge. The diffusion of technology knowledge follows a multipolar process

involving active dissimilation and leverage of resources. Hence, diffusion management is a source of

competitive advantage which stems from Developmental Resource Leverage. Institutions (governments,

research institutes, and consortia) of diffusion management enable accelerated uptake of technology,

spreading dissemination of new techniques, and hastening the process of enhancing technological

capabilities, not at the level of individual firm, but at the economic level. The authors call such systems as

– National Systems of Economic Learning. The success is a case of ‘technological transformation through

knowledge leverage by indigenous firms and institutions’ (p.12).

The authors dismiss the conventions justifications of East Asian miracles, including a pure low-cost

advantage (which fades away with time), cheap labor and high levels of investment (serves as necessary,

but not sufficient condition), government funding (instead most fabs were setup by private players), or

Asian firms acting as Japanese international networks or US-sponsored international networks (but

doesn’t identify the impulse of success and technology upgradation of Asian companies). Rather,

technology import and diffusion by firms and institutions defines the success of such companies. The

authors propose five key insights. Firstly, high-tech industries are a result of deliberate act of policy

design and implementation, which include institutions for technology leverage. Secondly, is a result of

management of technology diffusion, including imitation, leverage, and learning, through an institutional

framework developed by nations. Thirdly, technological capabilities are built through resource leverage

through collaborative networks. Fourthly, this was a result of active nurturing, instead of protection, by

public agencies. Lastly, in these countries transition to hi-tech industry was a state’s overriding goal, and

that the process of leveraging and learning is an iterative one. Japan has military-like focused on role of

state-agency; Korea and Taiwan pushed private players to global markets; Singapore and Malaysia

invited direct foreign investment by MNEs to specific sectors. There is a clear role of supra-

organizational structures in institutional learning.

CHAPTER- 1: TIGER CHIPS

The semiconductor fabrication industry (particularly memory chips) in East, which started in Japan in

70s, moved to Korea in 80s, and then Taiwan in 90s and Singapore in late 90s, is not accidental, but is a

deliberate planting and nurturing act of public policy. Companies in these countries survived the double

crisis of Asian economic downturn and slowdown in global semiconductors market. Between 1975 and

1995, East Asia grew in terms of semiconductor output, shared of semiconductor market (consumer), and

market for fab equipments. During the same time, these countries accounted for around 30 percent of

world’s total investment in semiconductors; hence becoming a leader in production, consumption, trade

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and investment in the field. Apart from Japan, all the East Asian countries made the entry into

semiconductor value chain through ‘packaging of chips’, as it is the most labor intensive step. In terms of

segments of chips, DRAM (introduced by Intel in 1971) has grown the most during 90s. Further, the

technology has short cycle life, of two to three years.

In the case of Korea, three companies led the market- Samsung, LG Micro, and Hyundai Electronics.

These companies invested heavily and ploughed back quickly to get to the next wave of technology

advancement. They were keen followers of trends and efficient producers; developed value-adding

devices, such as synchronous DRAMs and flash memories; and were driven by a sense of national

achievement and economic learning.

Taiwan moved from labor-intensive to knowledge-intensive work from 80s to 90s. Fab was a push from

state-run Industrial Technology Research Institute (ITRI- 1973), which later in 1980 created United

Microelectronics Corporation(UMC) after signing a technology transfer agreement with RCA in 1976.

The case of Taiwanese industry is well balanced (ranging from TSMC, UMC and Winbond, to smaller

players) and spreading all phases of value adding in ICs. Through rapid capacity expansion, and public

sector technology leverage (ITRI and Hsinchu and Tainan Industrial Parks), Taiwan grew rapidly, with a

focus on technology research than fundamental research. No tariff protection as imposed in Taiwan.

The transformation of Singapore was a result of single-minded concentration on electronics and

semiconductor (and data storage) manufacturing. By late 90s, Singapore has 11 fabs operated by leading

MNCs, and a host of domestic supplies for testing, assembly and packaging. Technology and knowledge

transfer from these MNCs led to growth of indigenous fabs and testing facilities, through cluster

formation, and supplier upgrade programs. Institute of Microelectronics supported this knowledge

transfer and growth of domestic firms, and construction of technology parks.

From an import-substitution stance, Malaysia moved to inviting MNCs, following the lead of Singapore

in 80s. Most work was on packaging and assembly of chips by local contractors, with a focus on forming

technology parks, on the lines of Taiwan. Philippines, Thailand, and Indonesia followed similar models.

Hong Kong, on other hand, focused on finance and trading, rather than on manufacturing, as it lacked the

institutional means for building capabilities. However, authors deem that China has the highest potential

of leading the world’s semiconductor market in years to come (which didn’t really happen up till 2014).

CHAPTER-2: TECHNOLOGY LEVERAGE AND LATECOMER STRATEGY

Industrialization through learning is the accelerated acquisition and adaptation of product and process

technologies. This happens through ‘institutions of economic learning’ instead of the conventional

‘institutions of R&D’. Companies like Samsung from Korea, Winbond from Taiwan, and STG from

Singapore have witnessed a rapid uptake of existing technology opportunities- recombining, absorbing,

adapting and ultimately improving them (p.72). Diffusion has taken prominence over knowledge

generation- called industrialization by technology acquisition and adaptation.

One of the important capabilities is to be able to ‘read technological trajectories’ that provides a critical

point of leverage that latecomers need for entry (p.75). Samsung selected 64K DRAM, then a technology

frontier, as a point of entry in the mainstream semiconductor market in 1983; while ERSO (Electronics

Research Service Organization) of Taiwan selected CMOS general logic chip technology to enter into the

market.

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In Japan, since 1950s MITI (Ministry of International Trade and Industry) played an important role in

supporting and nurturing heavy and chemical industrial growth, followed by hi-tech industries. The model

of industry creation in Japan could be looked as technology leverage, instead of creating technology from

scratch. Initial model was on ‘infant industry’ protection terms, but soon Japan was forced to liberalize,

followed by phased opening of the market, reducing of tariff barriers, all with an aim of creating strong

companies that could stand competition, and a continuous upgradation of technology. MITI would

identify industries with highest innovative and spin-off potential, build future scenarios, and make it

attractive for private investment after providing initial levels of protection.

While latecomer firms have obvious extreme disadvantages linked to lack of technological resources, they

also have an advantage of being able to start from a ‘clean slate’ without any commitment to a technology

or approach; and a goal of ‘catching up’ with their competitors. Their intrinsic advantages are low wage

and low costs in general, which comes handy in offering sub-contracting support to OEMs. Newcomers

see incumbents not just as competitors, but also as source of knowledge transfer (or collaborators),

through adopting appropriate business mechanisms. Resource leverage is defined as ‘the tapping of

resources and their use to build up capabilities that can be used to develop products and markets much

more sophisticated and extensive than would have been feasible without such a process’ (p.79). Some

exemplars are multinational import, licensing, OEM production and eventually, joint collaborative

development efforts. The enabling institutions comprise of public agencies, government departments and

their organizational structures, trade associations, keiretsu and chaebol inter-firm linkages, and novel

structures such as the collaborative engineering research associations developed by the Japanese.

The most important mechanisms of technology leverage are: 1) sub-contracting; 2) OEM original

equipment manufacturing (manufacturing and assembly); 3) ODM own design and manufacturing

(includes design and scheduling also); 4) licensing; 5) technology transfer agreement; 6) joint

development agreement; 7) purchase of a company; and 8) joint venture. [Explained on page 81]

Hence, four mechanisms of competitive advantage for catch-up economies are: 1) clean-slate approach

(turning initial disadvantage into advantage); 2) resource leverage (with an over-riding objective of

enhancing ‘inner resources’ and capabilities); 3) absorptive capacity (having a basic platform of

competency to be able to built on it; and 4) combinative capability (combine the old with new). Authors

call the process as Developmental Resource Leverage (DRL) at an industry level, instead of at a firm

level, through public agency building institutional framework [note the level of analysis here; industry

and not firm].

Authors discuss four important attributes of DRL:

Pathways of technological diffusion, as characterized on two dimensions: enhancement of technological

capabilities (deepening and broadening); and enhancement of access to or linkage with customer in

advanced markets. Based on this matrix, four possible levels of capabilities are there: starting with OEM

(original equipment manufacturer) to move to ODM (own design and manufacture), to GLC (global

logistics contracting), and finally OBM (own-brand manufacture). Table 1 depicts the diffusion map.

The dynamics of capability development includes the stages of developmental resource leverage 1)

preparation, 2) seeding/ implanting, 3) propagating, and 4) sustainability. Table 2 depicts the stages in

detail. The key is formation of an industrial cluster, instead of competence formation at a firm level.

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Another important component of capability development is institutional vehicles of leverage, rather than

instruments of innovation. Three institutional forms are importance: 1) large, already established firms, in

industrially upgrading countries (dominant Koran approach to prod large firms), 2) public sector

laboratories and institutions linked to consortia of small firms (Taiwanese approach), and 3) external

leverage via linkage with multinational corporations (Singapore inviting MNCs and resulting tech

transfer). The third model is most preferred, especially in face of economic slowdown and lack of local

large firms.

As for the strategic goals of leverage process, the authors identify three: 1) indigenization (building

domestic sources of technology), 2) diffusion (public goal to making technology accessible to large

number of firms), and 3) nurturing (enabling internalization of technologies).

CHAPTER:3- THE TANGUN BOOM AND THE CHEABOL

In 1983, Korea’s most famous businessmen- Lee Byung-Chull declared that his firm- Samsung will

become the world player in memory chip production. First it was launch of 64K DRAM in 1985 and then

256K DRAM two years later that shock the world. Within next ten years, the company became a world

leader in DRAM production. Koran leaders always adopted Japanese strategy for growth and industrial

development.

The Korean semiconductor industry could be seen as evolved through four stages.

Stage 1: Pre 1974- preparation

Korea shifted from import-substitution policy of 1950s to developmental efforts in 1960s. Under military

regime of Park Chung-Hee the focus was on export-led growth. The government had a heavy hand in

everything except for running the companies. In 1965, Ministry of Commerce and Industry (MCI)

selected thirteen industries to lead export-oriented growth. Komi was the first US based company to setup

transistor production facility in Korea in 1965, followed by Fairchild in 1966 with a wholly-owned

subsidiary, and Motorola in 1967. The US investments were driven by- 1) cheap labor required in chip

assembly and packaging, 2) relaxed conditions for foreign-investment, including fully-owned

subsidiaries, and 3) exemption from US tariffs for Korea’s exports. As for Japan, Toshiba and Sanyo

entered in 1969.

In 1966, Korea Institute of Science and Technology (KIST) was founded, helping build country’s

absorptive capacity. Other policies included, Electronics Industry Promotion Law passed in 1969. Anam

Industries, started in 1967, became the first contract assembly operator.

Stage 2: 1974- 81- Seeding/ implanting

In 1973, National Council of Science and Technology was established, to focus on building domestic

capabilities in electronics, and LSI. The overhaul of public sector telecom system in 80s also offered a

chance for domestic companies to develop capabilities and learn from foreign players. Anam and Korean

Electronics were the two leading players till then with limited involvement of cheabol

Stage 3: 1982- 88- Propagation/ VLSI capability

Korea’s MTI directed its focus in 1981 towards promoting following sectors: VLSI semiconductor,

computers, communication equipment, and electronic components. Samsung committed investment of

$133 million in 1982, Hyundai up to $400 million shortly after, and same was with Goldstar, introducing

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tough competition among cheabol for building VLSI capabilities. In December 1983, Samsung shocked

the world by releasing its 64K DRAM chip. Engineers were recruited from US and Japan, and paid three

times the salary of chairman. Samsung developed both product and process technology with help of

Micro from US and Sharp from Japan, at a breakneck speed. Even before 64K was ready for sales, Lee

ordered development of 256K DRAM chips, requiring an overhaul of investment. Two separate teams,

one is Korea with Micron, and one in Silicon Valley, were developing the product.

The leverage strategy was – a focus on soaking up expertise through the hiring of engineers, the licensing

of product design and purchase of process technology from advanced firms, offering in exchange either

cash (for cash-starved but technology rich startups), or fabrication capacity (for firms without it), or

second sourcing and OEM contracts for established players (p.125). Each of the major cheabol followed

a different model. Samsung followed the corporate models of Mitsubishi, NED, Hitachi and Toshiba to

focus on memory chips, backed by its expertise in LSI chips and logic products. Goldstar followed a

‘wait and watch’ strategy, following Samsung. Hyundai focused on advanced memory chips, and

leapfrogged to VLSI MOS chips. Daewoo got into microprocessors instead of memory chips, and

eventually had to cede the market. As for financial leverage, government banks provided as much as $350

million of low-interest credit, along with raising foreign capital through Eurodollar bonds of Korean

companies. Between 1983 and 1989, the four firms invested $4 billion into capacity building.

After acquiring design from US and Japan companies for DRAM chips, the Korean engineers developed

their own designs in no time. After the 1M DRAM was released by Toshiba, Korean government formed

a 1M DRAM development consortium, comprising of Samsung, Goldstar, and Hyundai, which was later

extended to encompass 4M DRAM, aimed at developing product designs and manufacturing processes.

However, most efforts came from companies themselves. Goldstar, for its 1M DRAM project, got into a

technology transfer agreement with Hitachi, giving rise of LG. The story of Korean companies has been

to ‘bet on a new technological standard and then to ‘leapfrog’ ahead of established players.

Equipment purchase and technology licensing from various vendors was the biggest source of technology

transfer, which was a very costly affair.

Stage 4: 1989- 98- Roots of sustainability

By 1994, Korean firms occupied 40 percent of world market in 16M DRAMs. Sustainability resulted

from global alliances, deepening private sector commitment to innovation, diffusion of wafer fabrication

beyond Big Three, large domestic market, creation of support industries, joint R&D, and evolution of

institutional framework. Key alliances included: Samsung (Mitsubishi, Toshiba, SGS Thomson, Intel,

NED, Oki, TI, IGT, General Electric, Apple, Array Microsystems, Micron, Harris Microwave

Semiconductor); LG Semicon (Compaq, Rambus, Siemens, Compass, Sundisk, TI, Micron, Motorola,

Hitachi); Hyundai (Metaflow, Fujitsu, AT&T, IBM, Maxtor, Image Quest Technologies, Laser Byte,

BMI).

CHAPTER: 4- HOW TAIWAN DID IT

In mid-80s Taiwan had two LSI chips semiconductor plants- one operated by ERSO and another by its

spinoff UMC. Industrial Technology Research Institute (ITRI) was founded in 1973 in Hsinchu by YS

Sun, the Minster of Economic Affairs. Electronics Research Service Organization (ERSO) was later

created in 1974 in advisory with Princeton University, where in 1976 RSA transferred its obsolete 7-

micron IC fabrication technology to ERSO (with 40 engineers trained in RCA). The Hsinchu/ ITRI/

Tsinghua University complex (Hsinchu Science-based Technology Park) was launched in 1980, playing

an important role in technology development in Taiwan. UMC was launched by ERSO in 1980 to

graduate from testing and packaging to chip-building capabilities. Later TSMC was founded in 1986 in

collaboration with Philips as the world’s first pure-play silicon foundry. ERSO continued spinning off

technology ventures. Following are the stages of developmental resource leverage

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Stage I: Pre-1976 – Preparation

Taiwan in 1960s was dominated by small and medium sized firms acting as contract manufacturers. The

world’s first export processing zone was setup in Taiwan in 1965, encouraging back-end jobs in

semiconductor space. ITRI was setup in 1973.

Stage II- 1976- 79- Seeding

Early private efforts included Tatung and Sampo, but real push came from ITRI in 70s. CMOS was the

choice of technology trajectory, with capabilities built in collaboration with Japan and the US. Eventually

RCA played the role of technology transfer.

Stage III- 1980-88- Technology absorption and propagation

With private players reluctant to get into the risky semiconductor space, the government decided to step

in. one was creation of UMC at the newly built Hsinchu Park. In 80s, ERSO expanded into multiple IC

technologies, and allowed liberal spinoffs. Soon a push was given for ITRI to achieve 1-micron VLSI

capabilities, which it did by 1988. TSMC was set to exploit this capability. TSMC introduced production

technologies such as Standard Mechanical Inter-Face, design geometry, and series of design rules to

efficiently design and manufacture chips.

Stage IV- 1989- 98- Sustainability

Winbond, Macronix, UMC and TSMC became the mainstay of Taiwanese semiconductor industry

indicating a lot of private capability development. Strategic alliance, PowerPC Consortium, and MNC

support helped sustained the enterprise.

CHAPTER: 5- HOW SINGAPORE AND MALAYSIA ARE DOING IT

Since 60s and 70s, Singapore and Malaysia turned to MNCs for technology transfer and continuous

improvement. Economic Development Board (EDB) was setup in Singapore in 1961 to promote

investment deals for MNCs, as a result in 1968 Texas Instruments and National Semiconductors setup up

assembly units in Singapore. One of the strong public enterprise Singapore Technology Group, launched

Chartered Semiconductor Manufacturing in 1988. Malaysia developed Penang Development Corporation

on lines of EDB in early 70s, leading to Intel setting up its fab there.

CHAPTER: 6- EAST ASIAN SEMICONDUCTOR INDUSTRIES

The authors present the case of the semiconductor industry growth in each of the countries, identify

unique features and similarities.

Japan

Japan was the first non-Western country to industrialize to knowledge-driven economy, and experience a

fast growth in 1960s and 1970s. Through a trial-and-error and remarkable foresight, Japan accelerated

diffusion of new techniques, instead of R&D driven innovation, and combined this with an uncanny detail

in manufacturing quality and efficiency. Japan’s goal was to ‘catch-up’ at any cost, mostly by adopting a

closed market approach of heavy political intervention. Some of the drivers of Japan’s success are: 1)

strategic industry and technology identification (betting on semiconductors since 1950s); 2) industrial

grouping creation (close coordination between a group of companies and public agencies, instead of

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leaving diffusion to market forces); 3) institutionalization of technological collaboration (self-

organization of private companies, supported by MITI); 4) catch-up technological goals (presence of both

crisis and opportunity for public institutions to select a goal and mobilize private players; while

containing competition); 5) industry creation measures (government funded technology acquisition, and

selective companies by MITI to work on those to build competencies); 6) strategic selection of

semiconductor products (most amicable for standardization and commoditization).

Japan’s model is based on very high degree of coordination or orchestration of a range of public and

private sector agencies by MITI, by channeling technology and knowledge onto carefully selected firms;

but Japan’s dominance in DRAM didn’t allow the firms to get into IT-related technologies (trapped into a

technology trajectory)

Korea

The basic strategy was – emulation of Japan. The model started by formation of export-oriented industry

conglomerates, supported by state-rationed credit, and technology leverage under the leadership of Park

Chung-Hee. The firms excelled in systematic and rapid creation of new businesses and integrate

knowledge from a variety of sources. By 80s the government oversight and benchmarking was done

giving the firms a platform to get into the VLSI space. However, Korea lagged Japan on two fronts.

Firstly, the Korean firms weren’t as sophisticated as Japanese firms while getting into VLSI space, hence

a lot of technology was still to be imported; and secondly, the public-private coordination spearheaded by

MITI in Japan was far superior than anything seen in Korea. Most development was led by the trio of

Samsung, LG and Hyundai.

Unlike in Japan, in Korea cheabol substituted the role played by state agencies to a large extent in

building absorptive capability. FDI was the leading mechanism of technology transfer in 1970s, followed

by technology licensing in 80s, and followed by technology consultants and capital goods purchase (to

get access to codified knowledge). Capital goods purchase became the dominant model of knowledge

absorption in later years.

Taiwan

Taiwan has been a case of public sector agencies working closely with small and medium sized firms.

The early stage knowledge acquisition and capability creation was spearheaded by ERSO (Electronics

Research Service Organization) of ITRI (Industrial Technology Research Institute) established in 1973. In

1976, an LSI fabrication pilot was built in association with RCA of US, at the time Korea and Japan were

getting into VLSI. Hsinchu Science-based park was formed in 1980, and UMC was spun-off from ERSO

to create private participation in semiconductors, when large firms were not capable of absorbing the

technology. TSMC was created in 1986 for IC fabrication through a JV with Philips, as public sector

enterprise. UMS and TSMC also served as a demonstration effect, apart from diffusion of technology

capabilities from ERSO to the industry. The public-private system was capable of renewal on technology

on a sustained basis by the public institutions. The outstanding feature of Taiwan is its diversity, in size

(TSMC, UMC, Winbond), along with smaller firms, and an ecosystem nurtured by Hsinchu and Tainan

Science-based Industry Parks.

Taiwan also have a model to recover the investment made in setting up TSMC or UMC, by collecting the

taxes paid by foreign companies, and that private R&D investment will exceed public R&D investment

eventually.

Singapore and Malaysia

Leverage from internal and external MNCs became a distinctive feature of Singaporean and Malaysian

semiconductor growth, starting in Singapore in 1965 and Penang in 1970. This calls for rapid and

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decisive dealing with MNCs, state provision of basic training and skill development, liberal financing

schemes. There were backward linkages formed between MNCs and domestic firms, and later more

restrictive conditions were set foe MNC investment to ensure upgradation of domestic skills. Some of the

significant cases of Singapore successes are: Chartered Semiconductors for manufacturing, TriTech for

IC design, and STATS for test and assembly.

Some of the common factors across the country cases is technology leverage – securing access to

knowledge and technologies held in advanced firms in advanced countries in order to create viable firms

and viable industries (p.263). Knowledge transfer in Korea happened through capital goods acquisition,

Japan through building indigenous supply base, Taiwan through licensing and building domestic base,

and in Singapore and Malaysia through MNCs domestic operations.

Korean companies have distinctive capabilities of 1) sourcing of technologies, and 2) combining

equipments from different sources. Korea however has been a top heavy model (Samsung, LG and

Hyundai), and fewer smaller firms. The role of the government has been that of 'governed

interdependence’, where government agencies need the private sector for implementation of policies,

while private sector needs government agencies for coordination of catch-up activities, in financial

allocation, risk-sharing and technological upgradation (p.277).

CHAPTER: 7- LIMITS TO TECHNOLOGY LEVERAGE STRATEGY

The limits to the resource leverage model are shown by failure of Taiwan and Korea to apply the insights

on to biotechnology, automobile (in Taiwan) and aerospace industries. The electronics industry is

characterized by short product lifecycle, many competitors, and rapid company turnover, conditions not

met in automobile or aerospace sectors. These limits are posed by absence of requisite technological

foundations (absorptive capacity), and public technological learning infrastructures and associated

industrial clusters.

Capabilities required for successful technology leverage include: 1) Adequate cash reserves and cash

management; 2) Organizational agility; 3) Production capability; 4) Localization; 5) Institutional

capability (supply of skilled persons); 6) Core R&D services; and 7) Financing of high-technology

initiatives.

The earlier competencies in basic semiconductor fabrication and marketing- leveraged through public

sector- serve as a platform for later, more specialized and sophisticated devices leveraged through public

and private sectors. Successful examples include CDMA telephony in Korea, and LCDs in Taiwan.

Industry characteristics favoring resource leverage are:

Rapid product turnover (offering new opportunities) and high levels of competition

Predictable technology trajectories in semiconductors (clumping and path-dependent properties

of trajectories)

Availability of product and process technologies (not held proprietary by incumbents; less

susceptible to time compression economies)

Availability of leveraging trade-offs (offering complementary services/ subcontracting)

Strategic factors necessary for leveraging to work (firm level learning and combinative

capabilities, and supportive institutions; and capability to identify resources globally)

Underlying reliance by firms on their organizational learning (calls for systems level learning,

double-loop learning, and ability for bringing about continuous technology improvement)

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There are clear limits of resource leverage. Some of the marquee ones are:

Availability of technology trajectory (trap of ‘path dependence’, and getting ‘locked-in’ into a

particular trajectory)

Permanent state of fast-followership (call for continuous innovation once being a follower)

Here is a summary of the three models of institutional enabled diffusion of knowledge

Model A: Based on role of large firms to leverage resources and finance to learn and dissipate quickly, as

was the case with Koran cheabol. Emphasis is on large investments and risk taking. But the model

neglects the role of small and medium-sized firms. Firms, developed in industrialization era, in

developing countries must follower diversification and resource leverage strategy, instead of ‘sticking to

the knitting’ approach.

Model B: Role of small and medium-sized firms, actively supported by public funded institutions for

gradual accumulation of technological capability, as was the case with Taiwan. Pivotal role played by

ITRI (Industrial Technology Research Institute) as a ‘collective entrepreneur’ enabling capability

diffusion through innovation alliance.

Model C: Looks at leverage of multinationals, in absence of large domestic firms, or small and medium-

sized firms. Experience of Singapore and Malaysia fits this model, as direct foreign investment from

MNCs were used as vehicles for leveraged skills and technologies. This calls for state capacity to play a

balancing act between invitation of MNCs and development of domestic industries, in a symbiotic

manner.

China seems to be building capabilities in semiconductor space adopting all three models, leveraging

large firms, participation of village and town enterprise, and following an open-door policy of inviting

investment from foreign firms.

The authors argue that even in advanced firms, resource and technology leverage is a norm. They cite

consortiums and alliance formations, such as Sematech in 90s, Extreme Ultraviolet Limited Liability

Company in late 90s, US Display Consortium, imitating the Japanese style catching-up in high-tech

industries.

CHAPTER: 8- NATIONAL SYSTEMS OF ECONOMIC LEARNING

The Asian Tigers didn’t create new knowledge, but accelerated leverage and diffusion of existing

knowledge. The authors’ account is Schumpeterian, in the sense that high-tech industrialization lies in

restless turnover of technologies, destroying power of incumbents- provides newcomers can learn to read

technology trajectories and work with constraints of technology and product life-cycles. It is

Gerschenkronian, from the perspective of how latecomers turn their disadvantage into advantage with the

help of public institutions, not necessarily aping the Silicon Valley model. Chandlerian on the role of

large firms in enabling capability building (large firms in Japan and Korea; small firms in collaboration

with public agencies in case of Taiwan; and in Singapore and Malaysia through MNCs) through

entrepreneurship; and finally Johnsonian on how public-private institution build has co-evolved.

To sum-up, some of the key features of the success of East Asian industries are: 1) Technology leverage

(built on public-sector R&D institutions, and then rapid diffusion); 2) Financial leverage (domestic banks

identifying worldwide fund raising opportunities); 3) Nurturing environment for formation of knowledge-

intensive firms (through tech parks and public labs); 4) Investment-attractive vehicles (setting up of

Economic Development Boards); 5) Industry self-organization (moderated through technology bodies); 6)

industrial upgradation incentives and discipline (technology scanning and continuous movement

forward); 7) Skills upgradation and technical training (specialist institutions for training); 8) Market

shaping and creation (public intermediaries shaping public and private markets); 9) Export promotion (for

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entering new markets); and 10) Lead agency (focal agencies to support institutional learning and

institutional capacity).

Some of the features of the National Systems of Economic Learning are: 1) Core public institutions

providing wellsprings of sustainable industrial learning and technological upgrade; 2) Complementing

firms that commercialize new technologies and engaged in own leverage activities; 3) Institutional

capacity accelerate the diffusion or uptake of new technological capabilities; 4) Complementary efforts to

being FDI in MNCs, and capability to ensure technology transfer; and 5) Institutional capability to decide

a technology strategy, and steer development towards the technology trajectory.

Economic learning is ability of an economy to react intelligently to new circumstances and experiment

with new organizational forms; and is driven by interlocking series of institutional capacities involving

public agencies, networks of firms, and industry associations. The failure of Hong Kong to master

semiconductor industry could be attributed to missing institutional capacity.

APPENDIX

Table 1: Diffusion Map- leveraging strategy

GLC

(global logistics

contracting)

OBM

(own-brand

manufacture)

OEM

(original equipment

manufacturer)

ODM

(own design and

manufacture

Technological Capabilities

Market expansion

of 13

Table 2: Steps in developmental resource leverage

Table 3: Critical events in the history of Samsung, from a capability development standpoint

1969: Samsung enters into electronics manufacturing business

1969, December: Signs at JV with Sanyo of Japan

1970, January: Signs a JV with NEC of Japan

1982: Start of development of 64K DRAM

1983, February: Lee Byung-Chull declares Samsung’s intention of becoming a world player in

memory chip production and betting on VLSI memory ships, committing $133

million

1983, December: Completion of 64K DRAM project with support from Microntechnology and

Sharp Inc.

1985: Unveiled its fabricated 64K DRAM

1984: Develops 256K DRAM in collaboration with Microntechnologies

1986: Finished development of 1M DRAM

1986: Japan and US sign Semiconductor Trade Agreement, restraining Japanese

exports to the US. Samsung started supplying to IBM and HP.

1987: Lee died as a national hero

1994: Strategic alliance with NEC to develop 256M DRAM

Stage 1: Preparing the ground (Ensuring that skills, knowledge, contracts, companies

are all in place)

Stage 2: Seeding/ Implanting (Technology acquisition and resource leverage, leading

to adaptation and improvement)

Stage 3: Propagation (Financial resources, enterprise development, product

development, and infrastructure support to encourage firms to take up the new

technologies)

Stage 4: Sustainability (Deepening industry structure, R&D, capabilities, social

structure of innovation)

Tiger Technology (Mathews and Cho, 2000)

Business

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