The comparison of semiconductor industry between Taiwan and South Korea

Abstract

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This study aims at analyzing the causes of the different policy outcomes in the semiconductor industry between Taiwan and South Korea. Taiwan and South Korea have been considered two successful cases in developing the semiconductor industry, which is essential in all high-tech industries.\r\n Taiwan and South Korea have been regarded as archetype of the capitalist developmental state, and both countries, the government has utilized various policy instruments to influence the pattern of resource allocation to accelerate the pace of industrial development.\r\n Taiwan and South Korea have followed similar paths of economic development. Taiwan went through the ‘Primary Import Substitution’ was in 1950-62, the ‘Primary Export Substitution’ was in 1962-70, and the ‘Secondary Import Substitution’ was in 1970-83. Taiwan entered into the ‘Secondary Export Substitution’ phase in mid-1980s. In South Korea, the ‘Primary Import Substitution’ in 1953-64, and the ‘Primary Export Substitution’ in 1964-72. The ‘Secondary Import Substitution’ occurred in 1973-83, and the ‘Secondary Export Substitution’ began in 1984. In both countries, the government has intervened in the allocation of investment funds.\r\n However, in spite of this structural similarity between Taiwan and South Korea, each approached the semiconductor industry differently. The state in South Korea has been more cooperative with the private sector than Taiwan. In order to explain the causes of this variation, this paper examined the differences in business structure, state structure, and international political economy, by adopting a comparative institutional approach as its theoretical framework.\r\n First, from the business structure perspective, South Korea consists of a few “Chaebols,” whereas Taiwan Small- & medium-sized enterprises (SMEs). Thus, big Korean electronics firms were able to enter the semiconductor industry with large financial and organizational capacity of the conglomerate. On the other hand, small-size private firms in Taiwan could not enter the semiconductor industry easily. Second, in the state structure, the bureaucratic cleavage between the liberalization and technology in South Korea made science and technology policy-making system incoherent, and limited the state’s ability to help the semiconductor industry, while Taiwan was able to have an autonomous science and technology policy-making system thanks to personal involvement of politically powerful figures, which supported the semiconductor industry. Third, South Korea has suffered from United States pressure due to the mass production capability of Dynamic Random Access Memories (DRAMs), whereas Taiwan has not due to the absence of a mass production capacity.\r\n In sum, this study argued that Taiwan and South Korea have taken different policies due to the institutional differences caused by differences in business, state, and international political economy. It means different institutions affect the interaction between the policy-making process and the interest group, with different political and economic outcomes.