This paper is concerned with one of the most dramatic economic transitions tohave occurred in the modern era, namely the emergence of high-technology semiconductor industries in Korea and Taiwan. The creation of these industries, which by 1994 had become the third and fourth largest in the world, is a quite remarkable success for public policy in these countries. It shows that the East Asian ‘tiger’ economies have been able to extend their industrialisation efforts into the deepest reaches of high-technology sectors, where the comparative advantages of low costs and wages which drove their earlier industrialisation efforts have only minor, if any, significance. The paper argues that the key to their strategic success has been a clear focus on the need to import advanced technology, and to create an institutional framework, involving both public and private sectors, that provides a capacity not justto ‘receive’ the imported technology, but to absorb it, adapt it, and ultimately improve it through the efforts of indigenous technologists and engineers. It is the emphasis on ‘active’ technology leverage (as opposed to the notion of’passive5 technology transfer) that seems to characterise the Korean and Taiwanese approaches, which are now being emulated, with different emphases again, and with different institutional frameworks, by other East Asian countries such as Singapore, Malaysia, China and Thailand.
The paper argues that this process of ‘developmental resource leverage’ moves through four phases. There is an initial preparatory phase, where the preconditions needed for successful technology transfer are established. There is an implantation phase, when real technologies are imported and developed, either by public agencies or by firms. There is a diffusion phase, when firms take up these new technologies and begin the process of developing their own core competences, bringing advanced manufacturing skills to the production of the new products. This is followed by efforts to create the roots of sustainability in the new sector, such as through firm-level R&D, public coordination of innovation programs, and the development of supportive industries and infrastructure.
Korea and Taiwan have shared many features of this process, such as in their strong dependence on the framing of a set of institutions which have enabled firms to leverage themselves abreast of world standards. But they have also made strikingly different choices at each step in the developmental process? In Korea, the vehicles for the development of the new high-technology sector have been large, established conglomerate firms (the chaebol) which have made enormous capital investments in leveraging themselves into semiconductors, through the purchase of product designs, manufacturing equipment, and marketing outlets. Coordinating and shaping their activities have been public agencies which have shared risks, facilitated access to finance, infrastructure, and contacts with foreign companies. An overwhelming focus on commodity-like standardised memory chips has allowed three Korean firms, Samsung, Goldstar and Hyundai, to achieve a quite remarkable penetration of the world market in less than a decade.
In Taiwan, public agencies have taken the lead in implanting the technologies, and in facilitating their diffusion through the private sector via spin-off ventures. Over the course of a decade this has been a remarkably successful approach to the creation of a vibrant industry, where one of the spin-off ventures, a ‘silicon foundry’ has sparked the formation of dozens of high-tech semiconductor design houses that give the Taiwanese industry extensive reach and responsiveness. Public infrastructure such as the Hsinchu Science-based Industry Park has provided an enduring platform for the industry’s growth and expansion.
The semiconductor industries in the two countries in the mid-1990s reflect the different options chosen and strategies pursued. The Korean industry is decidedly successful in terms of revenues and exports, but is still relatively ‘shallow’ in terms of its indigenous innovation capacities and support structures, and it is still highly concentrated in the three founding firms. The Taiwanese industry is much more broadly based, with deeper roots in its own R&D capacities, but has until recently been weak in commodity DRAM production. This is now changing. Korea’s industry is diversifying, while Taiwan’s is building its strength in terms of large companies and commodity memory chips.
In considering the dynamics of developmental resource leverage, existing models such as ‘product life cycle’ theories (Vernon) or their Japanese variant in the form of the ‘flying geese model’, again fail to account for the speed of the shift and the uptake of advanced technologies by these East Asian countries. On the other hand, notions such as technological ‘leapfrogging’ in the IT industry fail to do full justice to the immense amount of preparatory work involved in successful entry into high-technology businesses. A more accurate picture is held to be a developmental ‘escalator’, in which countries both raise themselves to new levels through their investment in developmental resource leverage infrastructure (skills, firms and intellectual infrastructure) but pull others after them through various methods of leverage such as OEM contracting and components supply. This whole process, which is conventionally described in terms of ‘technology diffusion’, is better characterised as systematic and purposeful ‘economic learning’.
The paper utilises the experience of Taiwan and Korea in semiconductors to evaluate the options available for firms and other countries which are seeking to establish, or re-establish a presence in high-technology sectors. The lessons to be learnt from Korean and Taiwanese success are captured in a set of propositions which are tested for their generality and applicability elsewhere. The point is made that aspects of the strategies pursued in Korea and Taiwan are relevant not just for countries moving up the development ladder (such as China or Thailand) but for countries which already have advanced R&D activities but weak high-technology manufacturing sectors. The developmental resource leverage strategy, with its various national forms, turns out to be a wealth-enhancing tool of quite remarkable power and application.
