The development of the flat panel display industry in Taiwan: The ‘Triple-alliance’ perspective Jen-wei (John) Liu This thesis is presented for the degree of Master of Philosophy at The Australian School of Business (School of Organisation and Management) The University of New South Wales November 2009 Abstract This study examines what role three institutions in Taiwan – state bureaucracy, local business groups and multinational corporations, played in the development of the flat panel display (TFT-LCD) technology. The thesis adopts the ‘Triple-alliance’ conceptual framework to understand how these three institutions cooperated to develop TFT-LCD; it argues that it is vital to understand the interactions among these three institutions in order to map the development of a high technology industry in a late industrializing country. Both quantitative and qualitative approaches are adopted in order to validate the utility of the ‘Triple-alliance’ conceptual framework. The qualitative part of the study employed five semi-structured interviews to gain first hand understanding of the development of the TFT-LCD industry. The interviews were supplemented with secondary sources from annual reports, newspapers, and trade journals. In the quantitative part of the study, data was collected from 100 information technology related firms listed on the Taiwan Stock Exchange. Hierarchal multiple regression analysis investigated the relationships between institutional factors and firm performance. The findings reveal that there exists a strong relationship between institutional alliances and firm performance. The positive relationship highlights the significance of the ‘Triple-alliance’ framework in helping explain the institutional mechanism often adopted by late developing nations and firms to help develop indigenous technologies. ii Contents Abstract ii List of tables vi List of figures vii List of appendices vii Originality statement viii Copyright statement ix Authenticity statement ix Abbreviations used in thesis x Acknowledgements xi Chapter One: Introduction 1 1.1 Introduction 1 1.2. Background of the TFT-LCD industry in Taiwan 2 1.3 Structure of the thesis 4 1.4 Synopsis of the thesis 5 Chapter Two: Theoretical underpinnings 9 2.1 Introduction 9 2.2 The ‘neoclassical economics’ perspective 10 2.3 The ‘developmental state’ perspective 11 2.4 The ‘modernization’ or neo-technology perspective 13 2.5 The ‘public-private nexus’ perspective 16 2.6 Conclusion 21 Chapter Three: Conceptual framework 23 3.1 Introduction 23 3.2 Analytical framework 23 3.3 Characteristics of the state 25 3.4 Characteristics of East Asian business groups 27 iii 3.5 Characteristics of multinational firms 29 3.6 The mechanism of foreign-owned technology transfers in Taiwan 30 3.7 Conclusion 32 Chapter Four: The development of the microelectronic industry in Taiwan 34 4.1 Introduction 34 4.2 The development of the microelectronic industry (1960s−1980s) 35 4.3 Motivation for the creation of and indigenous TFT-LCD industry 39 4.3.1 Trade deficit with Japan 40 4.3.2 Emergence of Korean electronic firms 41 4.3.3 Rising demand for Information Technology products 42 4.4 Contribution of the state 44 4.4.1 Industry-specific policy 45 4.4.2 The creation of TFT-LCD specific industrial park 46 4.4.3 Provision of human resources 49 4.5 Conclusion 50 Chapter Five: Firm-specific case studies 52 5.1 Introduction 52 5.2 Case study methodology 52 5.3 First round of consortia (1990−1998) 54 5.3.1 Background of first consortia 54 5.3.2 Formosa Plastic Group (FPG) 55 5.3.3 Discussion 58 5.4 Second round of consortia (1999−2005) 59 5.4.1 Background of second consortia 59 5.4.2 Acer group 62 5.4.3 Chi Mei group 64 5.4.4 Contribution of multinational electronic corporations 66 5.5 Conclusion 68 iv Chapter Six: Statistical analysis 70 6.1 Introduction 70 6.2 Proposed hypotheses 70 6.2.1 The role of the multinational corporations in ‘Triple- alliance’ 71 6.2.2 The role of the state in ‘Triple-alliance’ 71 6.2.3 The role of the local business groups in ‘Triple-alliance’ 72 6.3 Research methodology 74 6.3.1 Characteristics of selected firms 74 6.3.2 Construction of variables 75 6.4 Analytical approach 79 6.5 Regression results 81 6.6 Summary 83 Chapter Seven: Conclusion 85 7.1 Introduction 85 7.2 Summary of major findings 85 7.3 Contributions of the study 87 7.4 Limitations of the study 88 7.5 Future directions 89 References 90 Appendices 104 v List of tables Table 1.1: Type of display production in Taiwan 4 Table 4.1: Taiwan’s electronic manufacturing industry 43 Table 4.2: Worldwide increase in Information Technology products 44 Table 4.3: Tainan Science Industrial Park investments overview 47 Table 4.4: Survey of TFT-LCD firms in Tainan Science Industrial Park in 1996 48 Table 5.1: First round of consortia 1990–1998 59 Table 5.2: Second round of consortia 1999−2005 67 Table 6.1: Distribution of companies by LCD activities 74 Table 6.2: Distribution of companies by respective industries 75 Table 6.3: Definition of dependent variables 76 Table 6.4: Definition of independent variables 77 Table 6.5: Qualitative variables and descriptive statistics 78 Table 6.6: Quantitative variables and descriptive statistics 78 Table 6.7: Pearson correlation coefficients 80 Table 6.8: Collinearity statistic table 80 Table 6.9: Regression results table 81 vi List of figures Figure 3.1: The ‘Triple-alliance’ model 25 List of appendices Appendix 1: List of interviewees 104 Appendix 2: Participant information statement and consent form 105 Appendix 3: Alphabetical list of one hundred firms 109 vii Originality statement I hereby declare that this submission is my own work and to the best of my knowledge it contains no materials previously published or written by another person, or substantial proportions of material which have been accepted for the award of any other degree or diploma at UNSW or any other educational institution, except where due acknowledgement is made in the thesis. Any contribution made to the research by others, with whom I have worked at UNSW or elsewhere, is explicitly acknowledged in the thesis. I also declare that the intellectual content of this thesis is the product of my own work, except to the extent that assistance from others in the project’s design and conception or in style, presentation and linguistic expression is acknowledged. Signed ……………………………………………........... Date …………………………………………….............. viii Copyright statement I hereby grant the University of New South Wales or its agents the right to archive and to make available my thesis or dissertation in whole or part in the University libraries in all forms of media, now or here after known, subject to the provisions of the Copyright Act 1968. I retain all proprietary rights, such as patent rights. I also retain the right to use in future works (such as articles or books) all or part of this thesis or dissertation. I have either used no substantial portions of copyright material in my thesis or I have obtained permission to use copyright material; where permission has not been granted I have applied/will apply for a partial restriction of the digital copy of my thesis or dissertation. Signed ……………………………………………........... Date …………………………………………….............. Authenticity statement I certify that the Library deposit digital copy is a direct equivalent of the final officially approved version of my thesis. No emendation of content has occurred and if there are any minor variations in formatting, they are the result of the conversion to digital format. Signed ……………………………………………........... Date …………………………………………….............. ix Abbreviations used in thesis BAIR Bureaucratic-Authoritarian Industrializing Regimes CEPD Council for Economic Planning and Development EPC Economic Planning Council ELD Electro-luminescence Display ERSO Electronics Research and Service Organisation FED Field Emission Display HSIP Hsinchu Science-based Industrial Park ITRI Industrial Technology Research Institutions IT Information Technology IC Integrated Circuit LCD Liquid Crystal Display LED Light Emitting Diodes MNCs Multinational corporations NICs Newly industrialized nations NIEs Newly industrialized economics OBM Original Business Manufacturing ODM Original Design Manufacturing OEM Original Equipment Manufacturer PC Personal Computer PDP Plasma Display Panel R&D Research and Development TFT-LCD Thin Film Transition-Liquid Crystal Display x Acknowledgements This is more than a thesis. It is a milestone of my journey throughout life. There were difficult days during the journey, but because of assistance from my fellow colleagues and my supervisor, the journey was much more satisfying. To my supervisor, Dr. Pradeep Ray, thank you so much for your invaluable comments and support. Your advice, encouragement and much-needed comments throughout the writing of this thesis made the task easier. One paragraph is simply not enough to express my gratitude to you. I would also like to thank my colleague, Mr. Zahid Riaz, for his assistance along the way, especially in the quantitative part of the study. Without Zahid’s assistance, I would still have been hopelessly lost in the dataset. The infrastructure support and job opportunities of Graduate Research School and School of Organization & Management allowed me to complete the thesis without unnecessary trouble. I am grateful for the support of staff from both organizations. No acknowledgement is complete without the mention of one’s family. I am grateful for the support I received from my family members. The thesis is a testament of your commitment to education. Thank you all from the bottom of my heart. xi Chapter One: Introduction 1.1 Introduction This thesis examines the underlying factors behind the establishment of a global ‘Thin Film Transition-Liquid Crystal Display’ (TFT-LCD) industry in Taiwan, despite its latecomer industrializer status. Various types of Thin Film Transition (TFT) display technologies have been developed over the years: Electro-luminescence Display (ELD), Field Emission Display (FED), Liquid Crystal Display (LCD), Light Emitting Diodes (LED), and Plasma Display Panel (PDP).