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Article Global M&A and the Development of the IC Industry Ecosystem in China: What Can We Learn from the Case of Tsinghua Unigroup?

Yunhao Feng , Jinxi Wu * and Peng He

School of Social Sciences, Tsinghua University, Beijing 100084, China; [email protected] (Y.F.); [email protected] (P.H.) * Correspondence: [email protected]; Tel.: +86-010-6279-8443-235

Received: 12 September 2018; Accepted: 20 December 2018; Published: 25 December 2018

Abstract: The integrated circuit (IC) industry is the foundation of the information industry, and its level of development is an important manifestation of the economic and technological strength of a country. At present, the IC industry is primarily monopolised by developed countries. Although China is the world’s largest consumer of semiconductors, it has a disproportionately small international market share of production and a very low domestic chip self-sufﬁciency rate, lagging far behind Europe, the United States, Japan, and South Korea. The process of promoting the development of China’s IC industry ecosystem is discussed based on a case study of Tsinghua Unigroup and the observation and analysis of its recent international mergers and acquisitions. The resulting conclusions suggest valuable mechanisms that could beneﬁt the technological improvement of late-developing countries and help them close the gap with more developed countries. Relevant theory for the industrial ecosystem is enriched, providing a useful reference for the development of the IC industry in late-developing countries.

Keywords: IC industry; innovation ecosystem; catch-up; M&A; Tsinghua Unigroup

1. Introduction The integrated circuit (IC) industry is the foundation of the information industry, and its level of development is an important manifestation of the economic and technological strength of a country. With the arrival of waves of global information, networking, and knowledge, the state of the IC industry has become increasingly important. The IC industry is a fundamental industry that involves economic construction, people’s lives, and information security. At present, however, the IC industry is primarily monopolised by developed countries such as the United States, Japan, and Korea. For developing countries, a major challenge is how to narrow the gap with developed countries. In the past, most domestic IC companies in China were small, weak, and characterised by low competitiveness. The links and cooperation between upstream and downstream companies and other related companies were weak, as the IC industry in China had not successfully established a dynamic industrial ecosystem. In 2000, the Chinese government began to focus on the shortcomings of its IC industry development. The State Council of the People’s Republic of China issued “Several Policies to Encourage the Development of the Software Industry and the Integrated Circuit Industry”, leading the Chinese IC industry to enter an initial stage of development. In 2014, the “Outline of National Integrated Circuit Industry Development Promotion” was released, further expanding the development of and policy focus on China’s IC industry. Tsinghua Unigroup is a high-tech enterprise of Tsinghua University. In recent years, it has rapidly become an inﬂuential IC company worldwide through a number of mergers and acquisitions (M&A)

Sustainability 2019, 11, 106; doi:10.3390/su11010106 www.mdpi.com/journal/sustainability Sustainability 2019, 11, 106 2 of 16 with IC companies at home and abroad; it has thereby established an initial ecosystem for promoting the IC industry in China. This study uses the case of Tsinghua Unigroup as the research object and considers the following questions:

(1) How did Tsinghua Unigroup build the IC industry ecosystem through a series of M&A? (2) What are the important roles played by Tsinghua Unigroup’s M&A in China’s IC industry ecosystem? (3) Considering the aim of late-developing countries to catch up in industrial technology, what is the signiﬁcance of Tsinghua Unigroup’s case?

2. Theoretical and Literature Review Through M&A behaviours, many enterprises in late-developing countries have not only bridged the gap in technological innovation, but also have further played technological catch-up, built their own industrial ecosystems, and achieved international competitiveness. Although the literature has reported on related issues, such as technological catch-up and cross-border M&A, it still lacks sufﬁcient theoretical explanatory power for the new phenomenon in which enterprises in late-developing countries build and develop industrial ecosystems in the form of M&A.

2.1. The Theory of Technological Catch-Up for Late-Developing National Enterprises Current theories of technological catch-up in late-developing enterprises are based mainly on Hobday’s (1995) OEM–ODM–OBM (original equipment manufacturer–original brand manufacturer–original design manufacturer) reverse product life cycle curve model [1]. Kim (1980, 1997) proposed the representative three-stage introduction–digestion–improvement model [2,3]. Subcontracting and OEM mechanisms play the role of a training school in the process of technological catch-up for late-developing enterprises (Perez & Soete, 1988; Hobday, 1995) [3,4] by enabling these firms to overcome barriers to entry and absorb design and manufacturing technologies. Customers need to promote the pace of learning, leading late-developing enterprises to focus on technology digestion, adaptation, and innovation. Unlike those leading the way in research and development (R&D) and design, latecomers gradually improve the manufacturing process through incremental product innovation. With continuous catch-up efforts, numerous late-developing enterprises begin to acquire product design capability, supporting their evolution from an OEM system to an ODM system (Hobday, 1995; Cho & Lee, 2003) [1,5]. However, because of the weak R&D capacities and the low visibility of late-developing enterprises, they tend to continue to rely on hybrid catch-up through growth based on imitation and incremental innovation (Hobday, 1995; Mathews, 2002; Dutrenit, 2004) [1,6,7]. To overcome the problems of the OEM–ODM system, some enterprises begin to increase their R&D investment and adopt OBM to improve their brand image. As these late adopters approach the technological frontier, they begin to establish strategic partnerships with the world’s leading companies to acquire more advanced technologies (Hobday, 1995, 2005; Mathews & Cho, 1999) [1,8,9]. Kim (1980, 1997) believed that the innovation process of late-developing countries was fundamentally different from that of developed countries [2,3]. He proposed a three-stage model to describe the process experienced by developing countries from technology introduction to digestion and absorption and, ultimately, to improvement (Kim, 1980) [2]. Based on Kim’s (1980) model, Lee et al. (1988) further proposed that in the early stage of technological catch-up, the speed of product innovation was high and that of technological innovation was low. In the transition phase, the market buyer dominates the design, while the supplier focuses on the specific technology. In the third stage, the product design matures, and the competition mainly focuses on process improvement [10]. Kim and Lee (1987), Kim (1997), and others have also clearly identified catch-up patterns for different technical characteristics. They found that product innovation was most important for catch-up in small batch products, such as those produced by large shipbuilders and machine makers. In mass production Sustainability 2019, 11, 106 3 of 16

(such as electronics and car production), hybrid technological innovation and product development capabilities are important [3,11]. Later, Lee and Lim (2001) extended these models and proposed a possible jump in the technological catch-up phase for late-developing enterprises. In their opinion, late-developing enterprises do not simply follow the technological development path of developed countries, but may skip certain stages or even create their own unique path [12]. At present, research on the IC industry’s technological catch-up is mainly based on the above two models. For example, Dezhi Chen, Xiangtang Chen, and Guoheng Yang (2005) found that the South Korean semiconductor industry is undergoing a process of technology introduction, digestion, and innovation, and the Taiwan semiconductor industry is gradually realising an OEM–ODM–OBM technological catch-up growth path [13]. However, these theories focus on the technical ability of backward enterprises to engage in progressive accumulation processes, and they give insufficient attention to overseas acquisitions and other ways in which firms might engage in technological catch-up (Chang et al., 2006) [14]. In the above two models, enterprises in developing and developed countries hold a completely unequal status, and only through technology transfer, joint ventures, and OEMs can they approach the technology held by the multinational enterprise and slowly climb the ladder from OEM to ODM to OBM. A literature review that is focused on the development of international M&A identifies challenges to the technological catch-up model and framework. Many scholars take the perspective of enterprise internationalisation, and representative theories have been offered by Mathews (2006), who introduced the linkage–leverage–learning model [15], and Luo and Tung (2007), who suggested the springboard perspective [16]. Mathews believed that Dragon multinationals have many common innovations, such as engaging in rapid internationalisation, accelerating the process through organisational change rather than technological change, and establishing a dominant position in the international market through strategic change. Mathews summarised the challenge of multinational enterprises as the repeated application of the connection-leveraged use-learning process, which is necessary to overcome the disadvantage of earliness and to establish a strong competitive position in the global market. Luo and Tung (2007) tried to describe the internationalisation behaviour of emerging market enterprises from the springboard perspective. They argued that backward enterprises use international expansion as a springboard to engage in a series of aggressive and adventurous actions on the global stage, purchasing key assets or mature multinationals to make up for their lack of competitiveness and to overcome the disadvantages of backwardness. In a sense, this effort is systematic and requires a grand plan and an intentional design with both recursive and revolving characteristics.

2.2. Industrial Ecosystem Theory The industrial ecosystem (IE) is the new paradigm of innovation ecosystem development; in particular, it refers to ﬁrms connecting through industrial agglomeration and inﬂuencing each other to constitute a network system, sharing information between different participants, circulating resources, and promoting the sustainable development of the IE. The existing research is related to the connotation, main body, structure, and characteristics of IEs. For example, Moore (1996) believed that the IE was centred on enterprises, particularly enterprises with core capabilities [17]. Korhonen (2001) noted that the IE has the characteristics of circularity, diversity, gradualism, and regionalism [18]. Iansiti and Levien (2004) believed that the measures taken by enterprises will affect the health of the ecosystem to varying degrees, which in turn will affect the performance and behaviour of enterprises [19]. Hearn and Pace (2006) focused on frontier development and technological innovation in the creative industry and showed how enterprises continuously create value through the ecosystem [20]. Iansiti and Richards (2006) noted that platform providers play a key role in the ecosystem [21]. Adner (2006, 2010) believed that enterprise innovation is often not completed independently by a single enterprise, but rather created through complementary cooperation with a series of partners to establish an ecosystem strategy [22,23]. Sustainability 2019, 11, 106 4 of 16

There have been many studies on innovation ecosystems in China. Ling Lu (1996) proposed the enterprise ecology theory, defining enterprise ecology as the study of the relationship between the enterprise and its environment; proposed the “enterprise ecological chain”, “enterprise ecological network”, and “enterprise ecological countermeasures” concepts; and further discussed the relationship between enterprise management and enterprise ecology from the ecology viewpoint [24]. Xiangju Li and Yongfei Zhan (2008) believed that the essential function of an innovation ecosystem was to integrate knowledge to complete innovation subjects and proposed the concept of an innovation ecosystem management matrix [25]. Yuhui lv (2011) argued that enterprise technical innovation forms a dynamic ecosystem, which is composed of the sum of the institutions, systems, and environmental elements that implement and influence technology innovation activities, and which, therefore, has some similarities with the natural ecosystem [26]. On this basis, Chunlai Wu et al. (2013) believed that the industrial technology innovation ecosystem was interwoven with different industrial chains and formed an open, multidimensional, and complex network structure [27]. The IE perspective has influenced the development of industrial organisation theory and enterprise strategic management. From this research perspective, researchers mainly focus on the coordination and evolution processes between internal network entities in the industry, which are characterised by cooperation and competition [28,29]. Jacobides et al. (2006, 2007) organised the research into different levels of bilateral relations, industrial background, and even the entire IE to reflect the interaction process between enterprises [30,31]. At present, an increasing number of researchers believe that competition between enterprises has become competition between ecosystems [23,32–34]. Jinxi Wu (2014) introduced the importance of the innovation ecosystem, taking the case of Nokia’s decline and discussing its essence, connotation, characteristics, and policy implications in depth [35]. The advantage of an enterprise depends on its position in the ecosystem and the ability level of the total ecosystem [36–39]. However, the study of IEs has not yet matured, as there are major differences between IEs, such as mature IEs versus emerging IEs and IEs of developing countries versus those of developed countries. Further exploration of these and other aspects of IEs is needed in the future [40–42].

2.3. Brief Literature Review Although the theory of technological catch-up for late-developing national enterprises provides insightful explanations for the rise of late-stage enterprises, most of these explanations only focus on the stage of technological catch-up, ignoring the construction of IEs in this process. Because the position of the enterprise in the IE and the intention and role of M&A are overlooked, it is difﬁcult for these theories to systematically explain the process of catching up with developed countries. In IE theory, the current research pays more attention to the existing industrial ecology and to the interactions between different subjects, ignoring the establishment, development, and improvement of IEs in time series. On the basis if the theory of technological catch-up in late-stage countries, this study focuses on the case of Tsinghua Unigroup International’s M&A, considering how developing countries’ enterprises can achieve the goal of leap-forward development through the layout of IEs, thus exploring new discoveries.

3. The Current Circumstances of China’s IC Industry

3.1. Basic Information In recent decades, Europe, the United States, Japan, and South Korea have dominated the global IC industry. Europe, the United States, Japan, and South Korea represented 9%, 50%, 11%, and 17%, respectively, of the global IC industry output value share in 2015, while mainland China accounted for only 4% (Figure1). China is currently the world’s largest consumer of semiconductors, accounting for one-third of the world’s demand for chips, but imports account for more than 90% of its chip Sustainability 2019, 11, 106 5 of 16

consumption. According to statistics from China’s semiconductor association, since 2013, China’s imports of ICs have been valued at more than $200 billion (US) for four consecutive years; China’s imports of ICs for 2016 were $227 billion, and it had exports of just $61 billion (Figure2). In 2016, sales theexceeded simultaneous $430 billion, and ancoordinated increase of development approximately of20% three over industries: the same design, period themanufacturing, previous year. and It is sealingSustainability and 2018testing., 9, x FORIn general, PEER REVIEW China’s IC industry is developing rapidly at present, but its domestic5 of 17 estimatedSustainability that2018, the9, x FOR domestic PEER REVIEW IC industry will grow by approximately 25% in China in 2018 under5 of the 17 chipsimultaneous self-sufficiency and coordinated rate is seriously development inadequate of, three and there industries: remains design, a relatively manufacturing, large gap andcompared sealing the simultaneous and coordinated development of three industries: design, manufacturing, and withand Europe, testing. the In general, United States, China’s Japan, IC industry and South is developing Korea. rapidly at present, but its domestic chip sealing and testing. In general, China’s IC industry is developing rapidly at present, but its domestic self-sufﬁciency rate is seriously inadequate, and there remains a relatively large gap compared with chip self-sufficiency rate is seriously inadequate, and there remains a relatively large gap compared Europe, the United States, Japan, and South Korea. with Europe, the United States, Japan, and South Korea.

17% 17%

47% 14% 47% 14%

13% 13% 9% 9%

China Mainland Japan Europe United States Asia Pacific China Mainland Japan Europe United States Asia Pacific Figure 1. Global share of China’s integrated circuit (IC) industry market (2020 forecast). FigureFigure 1.1. Global shareshare ofof China’sChina’s integrated integrated circuit circuit (IC) (IC) industry industry market market (2020 (2020 forecast). forecast). Source: authoritative andSource: ofﬁcial authoritative information on and the Internet.official information on the Internet. Source: authoritative and official information on the Internet. 3000 3000 2601 2601 2500 2313 2300 2271 2176 2500 2313 2300 2271 1921 2176 2000 1921 2000 1702 1702 1500 1500 1000 877 1000 877 693 669 534 609 614 609 693 614 669 500 326 534 500 326 0 0 2011 2012 2013 2014 2015 2016 2017 2011 2012 2013 2014 2015 2016 2017 export volume import volume export volume import volume Figure 2.2.Import Import and and export export volume volume of China’sof China’s IC industry IC industry (unit: (unit: US $100 US million).$100 million). Source: China SemiconductorFigure 2. Import Industry and export Association. volume of China’s IC industry (unit: US $100 million). Source: China Semiconductor Industry Association. Source: China Semiconductor Industry Association. 3.2 IC Industry Ecosystem 3.2 IC Industry Ecosystem The IC industry can be subdivided into the upstream chip design industry, the midstream chip manufacturingThe IC industry industry, can beand subdivided the downstream into the chip upstream packaging chip anddesign testing industry, industry, the midstreamwhich together chip constitutemanufacturing the core industry, of the andvalue the chain downstream (Figure 3). chip Of packagingthese, the chipand designtesting industryindustry, has which technology- together intensiveconstitute attributes, the core of chip the manufacturingvalue chain (Figure is capital 3). Of and these, technology the chip intensive,design industry and the has encapsulation technology- testingintensive industry attributes, tends chip to bemanufacturing more labour andis capital capital and intensive. technology intensive, and the encapsulation testing industry tends to be more labour and capital intensive.

5 5 Sustainability 2019, 11, 106 6 of 16

3.2. IC Industry Ecosystem The IC industry can be subdivided into the upstream chip design industry, the midstream chip manufacturing industry, and the downstream chip packaging and testing industry, which together constitute the core of the value chain (Figure3). Of these, the chip design industry has technology-intensive attributes, chip manufacturing is capital and technology intensive, and the encapsulationSustainability 2018 testing, 9, x FOR industry PEER REVIEW tends to be more labour and capital intensive. 6 of 17

FigureFigure 3. ICIC industryindustry chain. chain.

MuchMuch of of the the IC industryIC industry takes takes advantage advantage of an internationalof an international division ofdivision labour, suchof labour, as Qualcomm, such as Broadcom,Qualcomm, AMD, Broadcom, Intel, AMD, and Samsung, Intel, and which Samsung, are European, which are US, European, and South US, Korean and South enterprises, Korean respectively,enterprises, usingrespectively, a technology using a monopoly technology to monopo create aly lucrative to create business a lucrative focused business on the focused chip design on the process.chip design Domestic process. enterprises Domestic mainly enterprises focus on mainly wafer manufacturingfocus on wafer (primarilymanufacturing OEM manufacturing),(primarily OEM packaging,manufacturing), testing, packaging, and other testing, relatively and low-profit other relatively links; the low-profit competition links; among the competition this group among is fierce. this group is fierce. 3.2.1. Chip Design Industry 3.2.1Chip Chip design Design is Industry the core part of the IC industry. The R&D cost of this link is high, with high technicalChip barriers. design Becauseis the core it does part not of requirethe IC investmentindustry. The in theR&D production cost of this line, link it does is high, not havewith highhigh capitaltechnical requirements, barriers. Because but does it does require not require a high numberinvestme ofnt skilledin the production employees. line, The it key does factors not have needed high tocapital be competitive requirements, in the but market does arerequire product a high creativity, number performance, of skilled employees. quality, and The service. key factors Qualcomm, needed Broadcom,to be competitive and Mediatek in the market of Taiwan are haveproduct been creati leadingvity, theperformance, pack in chip quality, design. and China’s service. domestic Qualcomm, chip designBroadcom, industry and hasMediatek developed of Taiwan rapidly have in recentbeen leadin years,g and the Huaweipack in chip HiSilicon design. and China’s Tsinghua domestic Unigroup chip Spreadtrumdesign industry have has ranked developed among rapidly the top in 10 recent globally year (Tables, and1). Huawei However, HiSilicon domestic and enterprises Tsinghua generallyUnigroup lackSpreadtrum independent have intellectual ranked among property the rights, top 10 and globally there are (Table still bottlenecks 1). However, in high-end domestic chip enterprises design. generallyQualcomm, lack independent Broadcom, andintellectual AMD, from property the United rights, States, and there have maintainedare still bottlenecks a high market in high-end share inchip the design. global rankings of chip design manufacturers in recent years. Driven by the international fabless model,Qualcomm, the number Broadcom, of China’s and domestic AMD, from chip the design United companies States, have has reachedmaintained more a high than market 600, but share the overallin the scaleglobal is rankings relatively of small, chip withdesign sales manufacturers accounting forin recent only two-thirds years. Driven and one-fifthby the international of those of Taiwanfabless andmodel, the Unitedthe number States, of respectively. China’s domestic China’s ch chipip design design companies industry is has still reached in its infancy, more withthan less600, thanbut 10%the overall of the localscale supply, is relatively and high-value small, with chips sale ares accounting almost entirely for only imported. two-thirds Because and local one-fifth Chinese of companiesthose of Taiwan are faced and withthe United problems States, such respectively. as a weak R&DChina’s foundation chip design and industry a lack of is human still in its resources, infancy, thewith early less investments than 10% of andthe riskslocal ofsupply, chip designand high-value enterprises chips are are higher almost than entirely those in imported. other industries. Because Inlocal recent Chinese years, companies international are M&A faced have with gradually problems become such as the a weak main R&D choice foundation for developing and thea lack chip of designhuman industry resources, for the latecomers early investments in China; the and acquisitions risks of chip of Spreadtrumdesign enterprises and RDA are are higher typical than examples. those in other industries. In recent years, international M&A have gradually become the main choice for developing the chip design industry for latecomers in China; the acquisitions of Spreadtrum and RDA are typical examples.

3.2.2 Chip Manufacturing Chip manufacturing (mainly wafer manufacturing) processes include lithography, etching, oxidation, deposition, diffusion, and flatting. Highly integrated semiconductor device fabrication is a very sophisticated process. So far, the state-of-the-art technology node involves intricate generation and manoeuvring of extreme ultra-violet (EUV), which requires high-end technical equipment. Meanwhile, the development and manufacturing of such equipment is very costly, often requiring billions of dollars of investment. Accordingly, the advanced semiconductor device fabrication industry builds capital barriers that are hard to overcome. For example, in recent years, the scale of

6 Sustainability 2019, 11, 106 7 of 16

Table 1. Ranking of global integrated circuit (IC) enterprises.

Chip Design Companies Chip Manufacturers Chip Sealing and Testing Enterprises Sales Sales Sales Enterprise Headquarters (millions of Enterprise Headquarters (millions of Enterprise Headquarters (millions of dollars) dollars) dollars) United Taiwan, Taiwan, Qualcomm 15,436 TSMC 29,488 ASE 4896 States China China Global United Amkor United Broadcom Singapore 15,322 5545 3894 Foundries States Technology States Taiwan, Taiwan, MediaTek 8610 UMC 4582 JCET China 2874 China China United Taiwan, Apple 6493 SMIC China 2921 SPIL 2626 States China United Taiwan, Taiwan, Nvdia 6340 Powerchip 1275 Powertech 1499 States China China United AMD 4272 TowerJazz Israel 1249 Huatian China 823 States Mainland Taiwan, Hisilicon 3978 VIS 800 Tongfu China 689 China China United Huahong Taiwan, Marvell 2318 China 712 KYEC 623 States Grace China United Dongbu South Xilinx 2311 672 UTAC Singapore 689 States HiTek Korea Mainland Taiwan, Spreadtrum 1912 X-ray Fab Germany 510 ChipMOS 568 China China Source: authoritative and ofﬁcial information on the Internet.

3.2.2. Chip Manufacturing Chip manufacturing (mainly wafer manufacturing) processes include lithography, etching, oxidation, deposition, diffusion, and flatting. Highly integrated semiconductor device fabrication is a very sophisticated process. So far, the state-of-the-art technology node involves intricate generation and manoeuvring of extreme ultra-violet (EUV), which requires high-end technical equipment. Meanwhile, the development and manufacturing of such equipment is very costly, often requiring billions of dollars of investment. Accordingly, the advanced semiconductor device fabrication industry builds capital barriers that are hard to overcome. For example, in recent years, the scale of capital spending for TSMC reached up to $10 billion a year. At the same time, this industry has high technical barriers: the chip manufacturing process has a long learning curve, and as processing precision improves, R&D costs also increase. At present, wafer foundries have formed an oligopolistic competition pattern because they have high requirements for technology and capital, and the industry threshold is high. In 2016, the world’s number one wafer foundry enterprise, TSMC, had sales reaching $29.488 billion, up 10.97% from a year earlier, after two years with a monopoly and a global market share of nearly 60%, which is five times larger than that of the second-ranked Global Foundries and ten times that of the fourth-ranked Chinese SMIC wafer foundry enterprises. In 2016, the total operating revenue of the top ten wafer OEM enterprises worldwide was $47.754 billion, an increase of 11.49% over 2015, accounting for 94.68% of total annual wafer OEM sales and showing an obvious oligopolistic pattern. China’s chip manufacturing industry has experienced a compound growth rate of 15% over the past 10 years, and China’s domestic enterprises have seen rapid growth in terms of production scale, but in terms of technical strength, there is still a significant gap between China and other advanced enterprises worldwide. At the same time, overseas firms, including those in Taiwan, have restricted the investment of their chip manufacturers in mainland China. Therefore, in terms of advanced chip manufacturing technology, mainland chip manufacturing is experiencing a talent shortage and a weak industry foundation; in mainland China, only SMIC and Huahong Grace are among the top 10 in the industry.

3.2.3. Chip Sealing and Testing Industry The chip packaging test link is the last step of the IC industry chain. In this step, the silicon wafer is connected with wires to the pins of its packaging devices to connect with other devices. To be speciﬁc, the packaging device is the shell that encapsulates the semiconductor IC. The technical threshold of this link is relatively low, and it is labour intensive. Encapsulation testing enterprises are Sustainability 2019, 11, 106 8 of 16 mainly in OEM mode, the scale effect is obvious, the service customer is mainly the upstream chip design and manufacturing enterprises, and high-quality customer resources are necessary; therefore, the expansion of market share is vital for promoting the operating performance of encapsulation testing enterprises. The countries and regions engaged in semiconductor packaging testing worldwide are mainly Taiwan, Malaysia, mainland China, the Philippines, South Korea, and Singapore. Because of the comparative advantage of labour cost, China’s packaging and testing industry developed most quickly in the IC industry chain and has the highest industry maturity. Domestic sealing and testing enterprises have gradually developed to offer high-end sealing and testing services, and their technical strength and scale have been further improved through extensive M&A. Currently, the mainstream of chip packaging technology is still in the era of surface packaging; 3D lamination, 3D through-silicon vias (TSVs), and other 3D packaging technologies are still under development. International IC packaging technology has adopted ball grid array (BGA) and chip scale packaging (CSP) as their mainstream technology routes, whereas local packaging testing manufacturers in China mainly use the dual in-line package (DIP), small out-line package (SOP), and quad ﬂat package (QFP). With the development of the domestic component of packaging enterprises, domestic enterprises have obtained advanced packaging technologies (copper technology, wafer level packaging, 3D stack size) and have already begun to batch orders, improve the domestic technology level, and gradually achieve the international mainstream level. Domestic enterprises are also actively seeking overseas M&A to further enhance competitiveness in global markets, such as Jiangsu Changjiang Electronics Technology (JCET) in Singapore acquiring STATS ChipPAC, raising it in the industry rankings from six to four worldwide and increasing its global market share from 3.9% to 10%.

4. Research Methods This study primarily adopted the case study method. Relative to other research methods, the case study method adopts a detailed description of the case and understanding of the system, allowing a dynamic process of interaction with the research context to obtain a more comprehensive overall point of view. First, a case study is more appropriate for studying a “how” problem using induction [43]. The key problem addressed in this study was how the acquisition behaviour of Tsinghua Unigroup affects its IC industry ecosystem and helps it achieve technological catch-up. Second, analytic generalisation from case to theory [44] is more suitable for exploring and explaining this phenomenon. Because the relationship between international M&A and the IC industry ecosystem is complex and because relevant factors and processes are not completely clear, it may have been difficult to solve the above research problems with quantitative methods. Third, the case study method is highly suitable for problems of theoretical and practical significance, especially those pertaining to overall and long-term organisational strategy [44]. In this study, Tsinghua Unigroup, a representative leader in China’s IC industry, was selected as the case study object. Tsinghua Unigroup has engaged in a series of international M&A behaviours in recent years and has significantly improved the environment for China’s IC industry ecosystem. Evolving from a general enterprise to a top domestic enterprise, the growth of Tsinghua Unigroup exemplifies a very successful experience, especially in the ecosystem of the IC industry, which is of great importance at both the theoretical and the practical levels when considering enterprises in a late-developing country. Following the relevant literature review and preliminary data collection, the basic structure of this study was as follows. First, it was based on an investigation into the context and problems of China’s IC industry from the three aspects of chip design, manufacture, and testing, and discussed the developmental path of the IC industry ecosystem. Second, it focused on analysing the contribution of the international M&A of Tsinghuaof Tsinghua Unigroup to China’s IC industry and its role. Third, the paper discussed and summarised insights from the case of Tsinghua Unigroup to apply to the Sustainability 2019, 11, 106 9 of 16 technological catch-up of enterprises in late-developing countries, and thereby enriched the theories of innovation ecosystems, technological learning, and technological catch-up.

5. Case of Tsinghua Unigroup

5.1. Basic Information Tsinghua Unigroup was established by Tsinghua University in 1988 and was officially formed in 1993. Over the past 10 years, Tsinghua Unigroup has taken advantage of global trends in the development of the information industry and its own advantageous features to gradually establish itself in the IC industry as a leading firm in memory chips, memory manufacturing, mobile Internet, cloud computing, and cloud services, following the information industry’s direction in the development of its core areas of focus. In 2017, its operating revenue reached 39.071 billion yuan, reflecting a year-on-year increase of 41%. As the core force of independent innovation in China’s IC industry, Tsinghua Unigroup has applied for more than 10,000 patents so far. The patents cover the entire industrial chain, and the number of effective invention patents is at the forefront, laying the foundation for China’s information industry strategy. To build an ecosystem for the IC industry and to narrow the gap with IC firms in Europe and the United States, Tsinghua Unigroup used the 2013 acquisition of Spreadtrum to enter into the field of integrated circuits, with “international M&A + independent innovation” driving the process, and its aim being to become the core strength of the domestic IC industry. At present, Tsinghua Unigroup is China’s largest comprehensive semiconductor company, the world’s third-largest mobile phone chip design company, and the largest firm in enterprise IT services in China and second in the world; it engages in strategic cooperation with Intel, HP, Western Data, and other global IT giants.

5.2. The Course of Tsinghua Unigroup’s International M&A and the Construction of its IC Industry Ecosystem By organising the M&A cases of Tsinghua Unigroup (Table2), we can obtain a general understanding of its growth path in establishing its domestic IC industry ecosystem. First, through a series of international M&A, Tsinghua Unigroup attempted to compensate for gaps in the domestic IC industry in chip design and manufacturing, especially in terms of promoting the international competitiveness of its memory chips and shortening the cycle of industrial upgrading. Second, M&A allowed it to integrate domestic and foreign resources, to invest in building an R&D and manufacturing base for memory chips, and to open up and build a complete industrial chain from design to manufacturing to sealing and testing. In the future, Tsinghua Unigroup will increase its investment in product R&D, its localisation of technology, and its clustering of manufacturing to focus on building a system for the storage chip industry (Table3).

5.2.1. Chip Design Industry The Tsinghua Unigroup bought Spreadtrum and RDA, two of the top three chip design companies in China, and thereby became one of the most influential performers in the domestic market. In September 2014, Intel invested 9 billion yuan in Tsinghua Unigroup’s Spreadtrum and RDA, and the two sides planned to jointly develop mobile phone solutions based on Intel’s architecture and communications technology. Through the acquisition of Spreadtrum and RDA, Tsinghua Unigroup received 10 billion yuan of investment from the IC fund and 20 billion yuan in loans from the National Development Bank. In terms of its positioning in the IC industry, Tsinghua Unigroup started with mobile communication chip layout and design, which not only stabilised the design process of mobile communications chips, but also enhanced the global market position of Chinese enterprises in that field through effective cooperation between RDA and Spreadtrum on technology and products. These first acquisitions represent milestones for China’s IC industry. However, Tsinghua Unigroup’s high-end chip design had not reached the international first-class level. Sustainability 2019, 11, 106 10 of 16

Table 2. Tsinghua Unigroup’s mergers and acquisitions (M&A) process

Acquisition/Investment Form of Investment Time Purpose Note Target Investment Amount December 2013 Spreadtrum Acquisition $1.78 billion Chip design July 2014 RDA Acquisition $910 million Chip design September 2014 Intel Investment over 9 billion yuan Chip design National Integrated Circuit Industry February 2015 Investment Fund and Investment over 30 billion yuan National Development Bank H3C, a wholly owned Acquisition and May 2015 $3 billion Memory chip design subsidiary of HP participation in 51% Mobile operating Acadine Technologies of July 2015 Acquisition $100 million system software Hong Kong development Memory chip July 2015 Micron Technologies Acquisition $23 billion Unrealised manufacturing Memory chip September 2015 Western Digital 15% stake $3.8 billion manufacturing October 2015 Powertech 25% stake $600 million Chip sealing industry November 2015 Mediatek Merge Chip design Unrealised 56.8 billion Taiwan December 2015 SPIL 24.9% stake Chip sealing industry dollars 11.97 billion Taiwan December 2015 ChipMOS 25% stake Chip sealing industry dollars Wuhan Xinxin July 2016 Semiconductor More than 50% $24 billion Chip manufacturing Manufacturing

Table 3. IC industry system of Tsinghua Unigroup

Chip Design Chip Manufacturing Chip Sealing Industry Unigroup Guoxin Original (self-established) Microelectronics UNISOC (Spreadtrum + RDA) Micron technology Powertech Now (through acquisitions, Intel Western Digital SPIL investments, etc.) H3C Wuhan Xinxin ChipMOS Nanjing Semiconductor Mediatek Industry Base In the future Chengdu IC International City Suzhou Super SSD Factory Source: based on the Tsinghua Unigroup case study.

5.2.2. Chip Manufacturing After the acquisition of Spreadtrum and RDA, Tsinghua Unigroup began to engage in layout chip manufacturing. With the development and popularisation of the Internet, cloud computing, and big data, the storage chip has taken an increasingly prominent role as an important piece of infrastructure. Memory chips can bring scale economy benefits and advanced manufacturing technology to the IC industry. According to statistics, memory chips account for more than 25% of the overall chip market and will reach approximately 45% in the future. As a result, Tsinghua Unigroup has focused its manufacturing footprint on memory chips. China entered the memory chip market late, developed slowly, and lacked core technology. Currently, several companies such as Samsung, Hynix, and Intel hold a practical monopoly, with over 90% of the global storage market. Memory chips represent a heavyweight technology + manufacturing field. At one time, China had no real capacity to produce memory chips. In 2015, Tsinghua Unigroup became the shareholder of Hewlett-Packard Co.’s H3C company, Western Digital, and SanDisk. Western Digital is competitive with Seagate in mechanical hard drives, but relatively weak in the emerging field of solid state disk (SSD). SanDisk, owned by Western Digital, is the world’s third-largest producer of flash memory, with 27 years of rich experience in the areas of solid-state hard drives, memory cards, and Udisks. By acquiring a 15% stake in Western Digital, Tsinghua Unigroup began to break into the storage chip market, with a further bid from Western Digital to acquire flash. Sustainability 2019, 11, 106 11 of 16 Sustainability 2018, 9, x FOR PEER REVIEW 12 of 17

ranksThe second acquisitions in the world of H3C, in terms Western of Digital,IC packaging and SanDisk and the aimed testing at capacity breaking of the LCD foreign drivers. technology monopoly, allowing Tsinghua Unigroup to produce memory. However, after the failure to acquire Micron Technologies, TsinghuaTable Unigroup3. IC industry began system to integrate of Tsinghua resources Unigroup with domestic enterprises and local governments to construct a manufacturing base and perfect memory chip manufacturing.Chip Sealing In July Chip Design Chip Manufacturing 2016, Tsinghua Unigroup acquired a majority stake in Wuhan Xinxin and registeredIndustry and established the new Changjiang Storage, which turned Wuhan Xinxin into its wholly owned subsidiary. Tsinghua Unigroup Guoxin Unigroup,Original meanwhile, (self-established) cooperating with local government, invested nearly $100 billion successively Microelectronics in Wuhan, Nanjing, Chengdu, and other areas to build a memory chip and memory manufacturing UNISOC (Spreadtrum factory, shifting from M&A to the independent constructionMicron of its manufacturingtechnology base. Powertech + RDA) Now (through 5.2.3. Chip Sealing and Testing Industry acquisitions, investments, Intel Western Digital SPIL etc.)Taiwan’s chip sealing and testing industry has always played a leading role worldwide. Because of this, Tsinghua Unigroup aimed to absorb Taiwan’s technology and talent while expanding the H3C Wuhan Xinxin ChipMOS chip sealing and testing industry. In October 2015, Tsinghua Unigroup invested approximately US $600 million in Licheng Technology for an approximateNanjing 25% stake, becoming its largest legal shareholder. Licheng TechnologyMediatek is in the leading positionSemiconductor in memory chip sealing and testing in Taiwan. It is also the largest storage sealing and testingIndustry factory Base in the world. At that point, Tsinghua Unigroup had constructed the complete industry ecology of memory chips from design to In the future Chengdu IC package testing. At the end of the same year, Tsinghua Unigroup became the ﬁrst- and second-largest International City shareholder of SPIL and ChipMOS, respectively, at a total price of 13.5 billion yuan. As the third-largest sealing and testing factory in the world, SPIL follows ASE inSuzhou the Taiwan Super market. SSD ChipMos is similar to Factory SPIL and ranks second inSource: the world based in termson the of Tsinghua IC packaging Unigroup and thecase testing study. capacity of LCD drivers. 6. Case Analysis of Tsinghua Unigroup 6. Case Analysis of Tsinghua Unigroup The sound development of the IC industry requires a proper industrial environment and The sound development of the IC industry requires a proper industrial environment and ecosystem. One of the key problems in China’s semiconductor industry is that there are shortages in ecosystem. One of the key problems in China’s semiconductor industry is that there are shortages in the industrial chain. A large number of supporting products, including materials, are imported, and the industrial chain. A large number of supporting products, including materials, are imported, and local enterprises cannot provide effective support. Through a series of international M&A, Tsinghua local enterprises cannot provide effective support. Through a series of international M&A, Tsinghua Unigroup initially constructed an IC industry ecosystem and effectively enhanced the international Unigroup initially constructed an IC industry ecosystem and effectively enhanced the international competitiveness of China’s IC industry (Figure4). competitiveness of China’s IC industry (Figure 4).

FigurFiguree 4. 4. GlobalGlobal mergersmergers and and acquisitions acquisitions (M&A) (M&A) and IE and from theIE casefrom of the Tsinghua case Unigroupof Tsinghua Unigroup 6.1. Company Strategy, Sense of Mission, and Entrepreneurship are Crucial Factors Prior to M&A. 6.1 CompanyResearch Strategy, ﬁndings Sense show of that Mission, company and Entrep strategyreneurship and a sense are Crucial of mission Factors were Prior preconditions to M&A. for the development of Tsinghua Unigroup. The strategic positioning of the company is the core issue for Research findings show that company strategy and a sense of mission were preconditions for business management. As early as 2012, Tsinghua Unigroup established the strategic goal of “building the development of Tsinghua Unigroup. The strategic positioning of the company is the core issue

1 Sustainability 2019, 11, 106 12 of 16 a world-class high-tech enterprise”. A year later, through international cooperation, Tsinghua Unigroup quickly completed the acquisition of Spreadtrum and RDA. In addition, entrepreneurship has had an irreplaceable influence on the strategic positioning of the company. As an important and intangible production factor, it is one of the sources of an enterprise’s core competitiveness. Tsinghua Unigroup’s international acquisitions cannot be separated from Chairman Zhao Weiguo’s efforts. Since 2009, Tsinghua Unigroup’s chairman, Zhao Weiguo, has spent nearly $6 billion on the acquisition of Spreadtrum and RDA and has led Tsinghua Unigroup to remarkable achievements in becoming a Chinese communication company with a global influence. Tsinghua Unigroup has effectively integrated talent, technology, and capital to form an IC industry chain, becoming a global giant in the field of integrated circuits and the mobile Internet. The future strategic direction of Tsinghua Unigroup is to build a world-class enterprise group in China’s high-tech field.

6.2. Domestic M&A Can Generate Scale Effects, Which is the Foundation for Conducting International M&A. Tsinghua Unigroup bought Spreadtrum and RDA, two of the top three chip design companies in China, and became one of the most influential performers in the domestic market and the third-largest mobile phone baseband chip supplier in the world, following Qualcomm and Mediatek. In 2016, Tsinghua Unigroup integrated the acquired Spreadtrum and RDA into UNISOC, committed to the integration of mobile chip technology and the improvement of the firm’s independent R&D capacity. Based on the powerful advantages of low-end chips (2G/3G), UNISOC has been catching up in 4G, which is essentially the same speed offered by Qualcomm and Mediatek. Initially, Tsinghua Unigroup’s independent international M&A produced positive results, attracting national attention. In 2014, when the outline for national IC industry development and promotion was released, a national investment fund for the IC industry was established. In February 2015, the national IC industry investment fund invested 10 billion yuan in the chip business of Tsinghua Unigroup, the first large-scale investment since the fund’s establishment. At that time, Tsinghua Unigroup’s chip business primarily included Spreadtrum and RDA. Because of its achievements through domestic M&A, Tsinghua Unigroup gained the support of the government and the public and became an influential enterprise in the IC industry, which was the necessary preparation to conduct international M&A.

6.3. International M&A Helped Tsinghua Unigroup to Realise the “Leapfrog Effect”, During Which Technology Localisation Played a Vital Role. To a certain extent, international M&A help enterprises quickly obtain the advanced technology of developed countries. However, gaining independent innovation ability and ascending to international competitiveness requires the enterprise to absorb, integrate, and optimise the technology gained through M&A. According to statistics, UNISOC has more than 5000 employees (more than 90% of whom are R&D personnel) and 16 technology R&D centres worldwide. After a series of international M&A focused on chip manufacturing, Tsinghua Unigroup’s industry is entering a new era of “inside and outside improvement”; namely, it is focusing on acquired technology localisation and attempting to explore the technology path to improve the ability to engage in independent innovation.

6.4. After an Enterprise Owns Mature Technology and Benefits From the Scale Effect, It Can Help Build and Improve the IE in a Country. For the manufacturing of memory chips, Tsinghua Unigroup invested in Wuhan, Hubei Province, to build a world-class semiconductor base to break through weaknesses in the Chinese IC industry. This investment also had a significant impact. The establishment of Changjiang Storage and the construction of a 12-inch chip project have successfully led to the concentration of the upstream and downstream semiconductor industries. China currently has more than 20 IC design companies, 10 Sustainability 2019, 11, 106 13 of 16 global semiconductor equipment suppliers, more than 10 raw materials production enterprises, and more than 10 chemical suppliers, forming a good IE. This is a major step forward in an IE. The Chinese government provides a favourable policy environment for the development of the IC industry, and Tsinghua Unigroup is also actively responding to the national “Five-Year Strategic Emerging Industry Development Planning” and “independent innovation, safety control” of the development strategy of the IC. The powerful national IC industry investment and financing platform provides Tsinghua Unigroup with an important source of hundreds of millions of dollars in funds for international M&A. When the industry is in the technology reserve and accumulation stage, in addition to relying on large enterprises, a large number of key technology R&D activities guided by national will or government planning will assume heavy responsibilities. Generally, the development of China’s IC industry is indispensable to the construction of an IE; the key is to rely on an enterprise, such as Tsinghua Unigroup, to serve as the backbone for enterprise progress and success. Chinese enterprises were small in scale and weak, but Tsinghua Unigroup was able to independently use M&A along the IC industry chain, and after the mergers, it conducted a series of integrations to promote the healthy development of the of the IC industry ecosystem.

7. Conclusions and Discussion By studying the merger of Tsinghua Unigroup, we found that the rise of IC industry M&A is a general trend in economic restructuring. Tsinghua Unigroup, as the forerunner of the IC industry in mainland China, has also started a new wave of M&A in the domestic IC industry. The growing IC industry in China will have a profound impact on the global IC industry. This work analysed the process and experience behind Tsinghua Unigroup’s capital operations and explored how domestic and foreign enterprises were acquired in succession and how their strength increased so that the Chinese IC industry’s ecosystem could grow stronger and healthier. At the same time, it provided a beneficial reference for late-developing countries in the development of the IC industry. In terms of theory, based on a summary of the OEM–ODM–OBM and introduction–digestion– improvement models, it is believed that the current increased international M&A is playing an important role in the catch-up of enterprises in developing countries. However, this catch-up is not a process of accumulating progressive technological capabilities, resembling a step-like climb, but instead has leapfrogging characteristics. This study also focused on the development of IEs as enterprises catch up in post-developed countries. The case of the Tsinghua Unigroup shows that the process of catching up for enterprises in emerging countries is inseparable from the construction of their IE. The establishment and improvement of IEs are fundamental if a technical enterprise is to succeed in the international market. In practice, for enterprises in late-developing countries, it requires too much time and cost to break through the monopoly held by developed countries based completely on independent R&D. Therefore, Tsinghua Unigroup acquires technology and related companies through international M&A and then realises the transfer of technology localisation, which can accelerate the process of technology improvement. It is much easier for firms to use international M&A to become stronger, to have an equal right to speak, and to engage in independent innovation on the basis of equal cooperation with international giants. Companies in post-commercial countries also need to focus attention on the integration of technologies after international M&A. If firms cannot use the technology acquired from M&A, it greatly increases the difficulty of catching up with technology. Because of the restrictions of international politics, there have been some M&A failures for Tsinghua Unigroup. However, in building the domestic IC industry ecosystem, Tsinghua Unigroup has made important contributions and has provided lessons to be learned. In addition to entering into IC design, manufacturing, packaging, and testing to develop an IC industry ecosystem, it is necessary not only to follow up with supporting equipment and materials, but also to gradually improve personnel training and the industrial environment. Sustainability 2019, 11, 106 14 of 16

In the construction of the domestic IC industry ecosystem, especially in the context of national policies that fully support the domestication of semiconductor chips, the government can lead the joint IC Industry Association and leading companies to create an open innovation platform and actively attract firms. The addition of resources includes scientific research institutions, IC industry materials, equipment suppliers, system service providers, multinational companies, mobile phones, and automotive electronics, as well as other end-consumer manufacturers and venture capital institutions, among others. This is a large problem in the IE. In such an ecosystem, core enterprises, supporting enterprises for raw materials and equipment, scientific research institutions, financial systems, personnel training systems, downstream and end-user needs, government policy support, and sound international political and economic systems are indispensable. Through its M&A activities and with the help of the government, Tsinghua Unigroup is encouraging joint innovation on the basis of open management, realising the sharing of knowledge and technology, and creating an IC industry innovation ecosystem.

Author Contributions: Conceptualization, Y.F.; Methodology, J.W.; Validation, Y.F. and J.W.; Formal Analysis, Y.F.; Investigation, Y.F.; Resources, J.W.; Data Curation, Y.F.; Writing-Original Draft Preparation, Y.F.; Writing-Review & Editing, J.W., Y.F. and P.H.; Visualization, Y.F. and P.H.; Supervision, J.W. and Y.F.; Project Administration, J.W. and Y.F. Funding: This research received no external funding. Acknowledgments: This paper had been presented at SOItmC & DEMI of the UNINA 2018 and won Good Paper Award. Conﬂicts of Interest: The authors declare no conﬂict of interest.

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