Atlanta - A Case of Seeking Growth by Organizational...

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1 A Case of Seeking Growth by Organizational Innovation – How Policy and Market Joined to Buttress Taiwan’s High Tech-based Growth An-Chi Tung, Institute of Economics, Academia Sinica, [email protected] and Henry Wan, Economics Department, Cornell University, [email protected] Dec. 2009 preliminary draft 1. Introduction This paper studies how organizations decide task-trading (Grossman and Rossi-Hansberg (2008) and how policies shape development in today’s globalized world. Attention is focused on the sub-industry of the ‘dedicated foundries’ for semiconductors. This industry emerged only in 1987, but covers about 80% of the foundry service market, which continues to expand over time. 1 While the top four firms account for 80% for the world market of foundry service (See Figure A1 in the Appendix), the largest two, with a combined share of over 60%, are both from Taiwan, spearheading the rapid expansion of not only the semiconductor industry (Figure A2) but also the electronics sector of that economy (Figure A3 and Table A1). Ours is an era in which IC (integrated circuit) has brought about paradigm shifts in economics, society and world politics. Various classes of semiconductors are complementary to 1 The percentage of foundry service, provided by either integrated device manufacturers or dedicated foundries, in world IC production rose from 14% to 24% between 2000 and 2006 (Yeng, 2007, p.17) .
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2 one another, but it is the diversified and flexible ASICs (Application-Specific Integrated Circuits), 2 in contrast to the indispensable but standard products such as DRAMs, that made the IC into a GPT (General Purpose Technology), with ubiquitous and profound impact (Helpman, 1998; Lipsey et al., 2005). Finally, it is those ‘dedicated foundries’ that have played a crucial and growing role in the design and production of the ASICs. By tracking the brief evolution of a few firms at a critical link of the modern technology, this case study seeks insight into the basic forces shaping the current world economy. Hopefully, this study would complement theoretical and econometric analysis in both international trade and economic development. To amplify the above theme, Section 2 characterizes the IC technology , highlighting the role of the ASICs, and Section 3 presents some stylized facts about the evolution of the semiconductor industry, focusing on the increasing importance of the dedicated foundries. Section 4 supplies an analytic framework in which technology drives evolution : the rise of dedicated chip foundries appears to be inescapable. Section 5 explains how the policy environment has caused Taiwan to host the first and largest dedicated semiconductor foundries and whether such policies are beneficial to Taiwan. This is viewed in the perspective of the dualistic character of Taiwan today: a middle-income economy with stable growth and thriving high-tech sectors, as well as a crucial intermediary among the world’s top three economies – the
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Atlanta - A Case of Seeking Growth by Organizational...

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