Abstract
The characteristic of Taiwan's semiconductor industry is that it is operated under a corporative and contract system, in which the chips are manufactured and finished by several companies. In this article I will explore the type of inter-firm structure the system has and the type of working system that stimulated the development of the semiconductor industry.
After entering the 1980s, along with technology progress, the capital intensity of semiconductor increased. However, at the same time, the number of design house was increasing, as well the reason for the design house to continue to increase even under high entry cost can be explained with the capital structure. In the five stages of making a chip, the foundry stage and the packaging stage requires the most capital, and the design house stage requires the lowest capital. This capital structure of the manufacture process of chips is the factor that allows design house to use the lowest cost to enter the industry while other companies may be involved in other stages that requires higher capital. Due to this factor, after the 1990s, the ratio of capital expenditure to sales of design house had a dramatic decrease. This shows that the design house has not been influenced by the increase of semiconductor capital intensity caused by technology progress mentioned earlier.
Because the contract system lowers the entry cost of the design houses, this lowered entry line created intensive competition. Not only does competition exists among design houses, but companies within different stage are also in competition with each other. This competition brought effective results, as shown by the increase of number of companies and sales within the companies in each stage. For example, the number of design house increased from 8 houses in 1987 to 250 houses in 2003; at the same time, the sales growth increased 237 times, by the rate of 112 percent each year. As the result of this increase in design houses and sales, by 2003, the total sale of Taiwan's design house dominated 28 percent of total sale of the world's design houses. In addition to this, in terms of revenue, from 1995 to 2003, the net revenue rate of design house was kept within 10 to 20 percent each year.
