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The Mediating Role of Human Capital in the Semiconductor Industry in Taiwan

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The Mediating Role of Human Capital in the Semiconductor Industry in Taiwan sustainability Article The Influence of R&D Intensity on Financial Performance: The Mediating Role of Human Capital in the Semiconductor Industry in Taiwan Tsung-Chun Chen 1,2 and Yenchun Jim Wu 3,* 1 Department of Business, Putian University, Putian 351100, China; [email protected] 2 College of Business, Chihlee University of Technology, New Taipei City 22050, Taiwan; [email protected] 3 Graduate Institute of Global Business and Strategy, National Taiwan Normal University, Taipei 24449, Taiwan * Correspondence: [email protected]; Tel.: +886-27-749-3996 Received: 15 May 2020; Accepted: 22 June 2020; Published: 23 June 2020 Abstract: Knowledge transfer is a strategy used by high-tech companies to acquire new knowledge and skills. Knowledge can be internally generated or externally sourced. The access to external knowledge is a quick fix, but the risks associated with reliance on external sources are often overlooked. However, not acquiring such knowledge is even riskier. There have been a slew of litigations in the semiconductor industry in recent years. The acquisition and assurance of intangible assets is an important issue. This paper posits that internal R&D should take into consideration the knowledge intensity and capital investment in the industry. This study focuses on the relationship between intangible assets and financial performance. It sourced the 2004 to 2016 financial data of semiconductor companies in Taiwan for panel data modeling and examined case studies for empirical validation. This study found that the higher the R&D intensity (RDI) in the value-added component of human capital, the better the financial performance of the company. RDI has a positive influence on the accumulation of human capital and financial performance metrics, and such influence is deferred. Meanwhile, human capital is a mediating factor in the relationship between RDI and financial performance. RDI is integral to the semiconductor industry’s pursuit of business sustainability. Keywords: R&D intensity (RDI); human capital; knowledge transfer; financial performance; semiconductor industry 1. Introduction Knowledge is power. In the age of the knowledge economy, companies seek to quickly acquire new knowledge and competences via acquisitions, strategic alliances, patent licensing or technology transfers. However, this approach to pursuing innovations comes at the cost of control by others. The frequent occurrence of litigations associated with intellectual property infringements in top industries speaks of the importance of intangible assets. For example, MediaTek (a semiconductor company from Taiwan) was sued by ESS and Oak from the U.S. in 2003 and 2004, respectively. Another semiconductor company from Taiwan, United Microelectronics Corporation (UMC), sued Silicon Integrated Systems (SiS) for the infringement of its advanced processes. It eventually acquired SiS. In 2019, GlobalFoundries, headquartered in the U.S., sued Taiwan Semiconductor Manufacturing (TSMC) in the U.S. and Germany for the infringement of a few dozen patents, demanding that TSMC stop using the infringed technology in their manufacturing processes and refrain from selling the produced products. These litigations are strong indicators of the cost of failing to develop intangible assets internally. Paying for patents or taking a cut in profitability due to infringement expenses may Sustainability 2020, 12, 5128; doi:10.3390/su12125128 www.mdpi.com/journal/sustainability Sustainability 2020, 12, 5128 2 of 19 still be manageable, but reputation may be at stake, the worst result of acquisition. In brief, it is risky to operate solely on externally sourced knowledge. Jordão and Novas (2017) argued that the operating process of corporate entities is subject to the influence of two factors, i.e., knowledge management (KM) and intellectual capital (IC). In fact, these two factors are closely related. They are the catalysts of the innovation, competitiveness, value creation, financial performance, and sustainability pursued by companies [1]. IC is a new type of capital that provides new skills and competences for innovation [2]. Human capital (HC), as a component of IC, is the precondition and guarantee of a firm’s technological innovation [3]. R&D in the high-tech industry is an innovation activity. RDI is integral to the development of corporate sustainability. Its influence is one of the key factors because tech companies are in a constant state of transformation driven by technology and are at the forefront of innovation. These changes urge companies to continuously adjust their business structure and capital assets in response to competitors [4]. This is the case with the semiconductor and other tech sectors when it comes to the pursuit of new knowledge and technology. The global semiconductor market was valued at USD 412.221 billion in 2017, up 21.6% year-on-year. This growth was driven by the demand for smart electronics and artificial intelligence products [5]. The semiconductor industry in Taiwan is strongly connected with the supply chain in China and the U.S. The industry grew by just 3.56% in 2018 due to various macroeconomic factors [6]. According to a 2019 survey on the global semiconductor industry conducted jointly by KPMG and Global Semiconductor Alliance (GSA), innovations and R&D expansions remain the most important strategy for companies. However, the increasing cost of R&D is one of the biggest obstacles to further development. Talent risks are considered the greatest threat to growth [7]. The semiconductor industry is a multi-disciplinary technology domain, specifically a knowledge-intensive industry [8]. The construction of an organization is based on creativity and innovation. Given the rapid development of science and technology, large companies should gear their R&D management toward the internal circulation of knowledge. R&D projects in prominent industries require a cross-disciplinary approach and rapid development of new products and workflows. The creation of new knowledge and the resolution of complex problems in a fast-paced environment is challenging [9]. The economic policy in the European Union for the development of tech industries is closely related to the emphasis on R&D and human capital, which are the two key drivers of technological advancements, and human capital has a direct (not indirect) effect on innovation, making it important for regional growth [10]. In the field of economics, knowledge accumulation is the most important element of innovation [11]. Knowledge has become the most important strategic resource [12]. The accumulation of knowledge required by a company stems from the dynamic interaction between internal competences and external knowledge. External knowledge is one of the important sources for R&D and innovation activities [13]. It is necessary to effectively utilize the existing knowledge base and skillsets of management and employees to continue operations or enhance competitiveness. Under this circumstance, a detailed analysis of the functioning of human capital is in order. This is because human capital is one of the most important internal resources in a company and it is pertinent to its capability in innovation, profitability and competitiveness. R&D and human capital are key factors in the continued growth of a macro-economy [14]. R&D education and competences should serve as an internal mechanism to create value from an open sourcing strategy of new knowledge (information) [15]. Managers should enhance R&D investment and capacity, integrate/transcend the established external knowledge, lower the industry boundaries and enhance the absorption and transfer of knowledge going forward [16]. Corporate RDI drives knowledge transfer activities within a company and eventually orients it toward commercialization and profitability. In sum, companies, as the entity of innovations, need to absorb, extract, and apply new knowledge and technology, whether internally generated or externally sourced to bring such knowledge and technology in line with the operational status. Therefore, companies should emphasize the value adding options of intangible assets with internal RDI and human capital in the pursuit of innovation performance and corporate sustainability. Sustainability 2020, 12, 5128 3 of 19 Hence, this paper seeks to explore the relationship between internal R&D activities, human capital, and financial performance in organizations from the perspective of knowledge transfer. A panel data model is constructed to analyze financial data, and a case study is conducted to verify the empirical findings with financial analysis. The research takes into consideration the following: (1) the deferred effects of R&D are defined as the knowledge transfer in a semiconductor company and the waiting period for the outcomes to be reflected in financial performance; (2) RDI is one of the major activities in knowledge transfer in semiconductor companies. It enhances overall knowledge and builds up technical momentum in an organization. Eventually, the benefit of knowledge transfer is translated into financial performance. This paper intends to explore the role of human capital (as an intangible asset) in the organization. 2. Literature Review and Research Hypotheses 2.1. Deferred Effects of R&D and the Influence of Knowledge Transfer on Financial Performance R&D activities are a strategy of knowledge acquisition and learning [17]. The effects are widespread and they are seen at the corporate level, as well as in the economic performance of
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