HSIP was a state-led development project that the state wanted to use it to upgrade Taiwan’s economy.
HSIP was located 100 KM south of Taipei that was started operation in 1980. This place was selected due to its geographic adjacency to two prestigious universities, Tsinghua and Chiaotong, and one major state-sponsored R&D institute, the Industrial Technology Research Institute (ITRI, established in 1973) that might provide necessary human capital and knowledge transfer to local firms. HSIP was designed as a science park that targeted at IT industry, including computer and peripherals, as well as semiconductor. In its initial stage, the state collaborated with RCA to build experimental facilities in the park, transfer knowledge to local engineers, providing technical training overseas in order to initiate the IT industry. In the process, ITRI collaborated closely with RCA and began to design memory chips, as well as to manufacture chips. Moreover, HSIP provided good investment environment for firms to locate, therefore more and more firms, foreign and domestic, resided into the park. In the process of its development, HSIP was regarded by Castells and Hall (1994: 100-110) as a a successful cluster even in the early 1990s.
The successful story of HSIP and its learning capability has been documented by many studies (Saxenian and Hsu, 1999; Hu, et al., 2007; Mathews and Cho, 2000). The major findings of the above studies includes:
the closer relationship between Silicon Valley and HSIP which facilitates the global-local linkages and knowledge diffusion; the closer network relationship between R&D institutes and local firms that provide valuable contribution to technological learning; the closer networking relationship among firms, especially the upstream and downstream firms in the production chains in PC-related and semiconductor industries in the areas; and most of all, the informal network relationships exist in HSIP that help to disseminate information and knowledge (including university alumni, peer in MNCs in the US, and peers in ITRI before working in private firms in HSIP). All these elements contribute HSIP as a learning region. Not to repeat the above research findings, this paper will use semiconductor in general and the IC design sector in particular to
illustrate how HSIP sustain its development and innovation.
HSIP has evolved from producing mainly PC and related peripherals in the 1980s and early 1990s to mainly semiconductor industry after the late 1990s. In terms of proportion of sale value in HSIP, Computer and peripherals changed from its highest 72.1% in 1988 to only 8.3% in 2007; whereas semiconductor (Integrated Circuit) increased from 19.3% to 71.6% during the same period. It is because many of Taiwanese IT hardware firms already moved their production facilities to China (the last production line of notebook PC move to China in 2005), the related semiconductor industry in HSIP however is still continued to grow over the years. Clearly, the semiconductor industry has not followed the outward migration route of the computer and peripheral industries and has become a predominant sector in HSIP.
Table 1. Sales ratio of HSIP by industry, 2007
Year Total Integrated
2007 100.0 71.6 8.3 3.3 15.6 1.0 0.2
Souce: MIC, (2008)
3.1, The emergence of an innovative semiconductor cluster
The emergence of the semiconductor industry in Taiwan was almost a state creation (Mathews and Cho, 2000, Amsden and Chu, 2003, Breznitz, 2005, Chen, 2003). In a nutshell, beginning in the late 1970s, the state decided to establish the semiconductor industry as a tool to deepen its industrialization and to upgrade its technological level. Rather than to depend on MNCs for transferring technology, the state established experimental factories through technology acquisition from abroad (mainly RCA), and then later spun off to the private sector (late became UMC). During the process, the ITRI was the main actor and later became a facilitator in accessing new technology and then transferred to local firms.
The most significant contribution of Taiwan’s semiconductor industry in the world was the establishment of Taiwan Semiconductor Manufacturing Company (TSMC), which was the first pure play foundry in the world. Foundry companies in the semiconductor industry do not design chips, but only manufacture the chips designed by other companies. Before the emergence of TSMC, the standardized feature of the semiconductor companies was to keep all activities, including IC design, fabrication, and test and assembly, in-house. This is also referred to as the IDM (Integrated Device Manufacture) model, notable examples such as Intel, Motorola and Texas Instruments.
The establishment of TSMC thus became a catalyst in Taiwan’s semiconductor industry that enabled many domestic fabless IC design houses to emerge and take advantage of existing fabrication facilities. The emergence of a vast number of small IC design houses led Taiwan to become one of the major IC design countries in the world that eventually caused Taiwan’s semiconductor industry to concentrate on the area of application-specific integrated circuits (ASIC) that could be used in various areas of the PC system. This in turn largely enhanced the competitiveness of Taiwan’s PC industry. Currently, Taiwanese firms have taken over 70% of the world market share in the activity. On the other hand, the concentration of pure play foundry also generated effect on the increasing of IC design houses in Taiwan. Now Taiwan has 261 IC design firms whose sale value reaches over U.S. $10 billion and has about 23% of world market share, secondary only to
the U.S. (MIC, 2007). These IC design firms are clustered in HSIP and nearby areas. The related semiconductor firms, from IC design to foundry and Mask are densely located in the area that takes less than 30 minutes by car or by motorbike.
3.2 local networking in HSIP
The booming of Taiwan’s IC design houses in HSIP in a large degree has to do with the prosperity of two related industries: the first is the strong production capability of Taiwanese computer industry (Dedrick &
Kraemer, 1998; Wang, 2007). Currently, Taiwanese PC firms produce over 80% of notebook PCs for the world market (MIC, 2007). Although all the major PC manufactures have moved their production bases to China (Wang and Lee, 2007), the headquarters are still located in Taiwan (mainly in HSIP or nearby area) whose design teams are working closely with Taiwanese IC designers that provide most of the chips to the formers’ end products. Secondly, in addition to the PC firms, IC design firms in HSIP are also closely connected with nearby foundries. It is imperative for the IC designers to collaborate closely with engineers of the foundry in each stage of the chip design to avoid the possible low yield rate. Therefore, the spatial proximity of IC design houses and foundry not only largely reduces the transportation and transaction cost, but also benefits the IC design firms in learning new knowledge and technology. According to a survey (Deng, 2005), Taiwanese IC design firms use as high as 85% of local foundry service for their own products. This shows that spatial proximity matters for the IC design industry and this in turn creates a cluster effect.
The semiconductor cluster in HSIP has created an environment that facilitates collective learning and continuing upgrading. This in turn sustains HSIP’s innovation and competitiveness in the semiconductor industry. There are at least three mechanisms that are favorable for HSIP to constitute an innovative environment.
First of all, the state continues to play an important role in facilitating learning (Wade, 1990; Mathews and Cho, 2000; Mathews, 2002; Amsden and Chu, 2003). Currently, ITRI has transformed from knowledge transmitter to platform builder that assisted smaller firms to learn and develop new products. For example, in the 1990s, ITRI developed IC design software and standards as well as set up ‘Common Design Center’ to assist the IC design industry to diffuse the knowledge and to develop sophisticated IC components (Chang and Tsai, 2002:109). It also facilitates the formation of R&D consortium in developing new 3D IC and memory chips for next generations. The members of these consortiums share the knowledge and new technologies being developed, which largely help the IC design firms to upgrade their technology capability.
Secondly, the networking and collaborations among the PC firms, IC design houses, and foundries, and most of all the dense linkages between HSIP and Silicon Valley (Saxenian and Hsu, 2001) are mechanisms that facilitate collective learning. The engineers in HSIP are flying back and forth between HSIP and Silicon Valley for business and technological exchanges. All these are beneficial for HSIP’s collective learning as a whole and link the local to the innovation center in the world.
Thirdly, the adjacent elite universities, Tsinghua and ChiaoTong, also play the role of knowledge mediators that facilitate collective learning. As documented by Chen (2003) and Hsu (2000), because many of the founders of PC and IC design firms were graduates from the above universities, they constantly engage in formal and informal activities that disseminated market information and technological knowledge. Moreover, these universities not only supply necessary technological manpower for the firms, but also serve as the bridge that disseminating knowledge as well as forming alliance for co-developing new technologies.
In sum, the above networking among firms, R&D institute and universities, together with the networking between Silicon Valley and HSIP , contribute HSIP as a learning region of the semiconductor industry as a whole in upgrading its technological level. Nevertheless, the development of HSIP still has its weakness. That is, its innovation pattern is mainly based on fast follower model which is very much in engineering technology. If HSIP wants to upgrade further to frontier innovation, it needs more R&D in basic sciences which it currently lacks.