Thursday, June 14, 2007

Leading, Following, or Cooked Goose?

Leading, Following, or Cooked Goose?

In this chapter of Global Taiwan, we look at three different high tech industries in Taiwan and examine the differing levels of success of each. The title of the chapter comes from an analogy made by Akamatsu of firms resembling a flock of migrating geese, with some firms being leaders (innovators of new technology), while others are followers (playing technological “catch-up”). The authors of the chapter added a third category: cooked goose. This category represents firms that waste resources on segments in which they cannot be competitive, much less advance to innovator, or “lead goose,” position.

The authors contend that the reason that the different industries have had different levels of success is that each was able to leverage different strengths of the Taiwan economy. The first industry, CMOS logic fabrication, is the lead goose because the firms were able to establish a high level of granularity and they did not need a high level of patient capital in order to maintain profit margins. In addition, the creation of the pure-play foundry model made it possible to focus efforts narrowly, thus enabling them to achieve innovation in process, instead of dividing attention between process and products.

The next industry, DRAM, is at the other end of the success spectrum. Because of the necessity of large amounts of patient capital—something lacking in the Taiwanese economy—the DRAM industry has not been able to maintain profits and produce the next generation of DRAM technology. This is in contrast to South Korea, whose DRAM industry was able to absorb extended periods of losses in order to build up market share and fund R & D to stay on the cutting edge of innovation.

The follower goose is exemplified by the AMLCD firms, who received the technology mainly from the Japanese. Because AMLCD production is much simpler than DRAM or CMOS, and because the technology doesn’t change as fast, Taiwanese firms were able to leverage their strengths in manufacturing to establish a solid foothold in the industry.

Moving Along the Electronics Value Chain

This chapter is another look at the electronics industry in Taiwan. It begins by stressing the importance that the electronics industry has had in the Taiwanese economy, and it describes the evolution of policies within the electronics sector that has caused it to be successful. There are four features that characterize the development of the industry: the state’s fostering of domestic industrial competencies by linking local firms to large international firms; the model of state-led and partially state-financed R&D through organizations like ITRI; the emphasis on manufacturing over branding and R&D; and the positioning of Taiwanese firms as suppliers to international lead firms.

In examining the electronics industry, the authors look at two main segments: the IC industry and PC systems manufacturing. As in the previous chapter, it is shown that the varying success of the industries derives to a great deal from the ability of the sectors to leverage strengths of the Taiwanese economy.

The IC industry is shown, for reasons illustrated in chapter 3, to be highly successful and to have achieved a high level of interdependence with its customers. By following the pure-play model, it has been able to benefit from granularity and learning from its customers. The PC system industry, on the other hand, has been less successful, and is highly dependent on its international branded customers. Because of shrinking margins, PC systems producers are challenged to find new ways to remain profitable. Two product options they could pursue are the AMLCD and wireless segments.

Expanding into China is another route that both industries are actively pursuing, with differing results. For the IC industry, opportunities in China strengthen its already strong position. For the systems industry, it is merely a way to help relieve downward pressure on costs.

The authors also emphasize the importance of state and industry policies in the development of the electronics industry, especially in encouraging R&D and the focus on leveraging the various sectors strengths while limiting the focus on elements that have proven to be unsuccessful.

Post a Comment