sustainability 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