High-tech has been a lucrative industry. How to enter into this industry has been a strategy question. Although the journey started at the Bell laboratories, many countries are now active in the high-tech sector. Among ASEAN countries alone, there have been high-tech trade of more than $400 billion. There appear to be multiple entry points and growth strategies. Hence, high-tech strategies in perspectives deserve attention.
In the 1940s, AT&T was experiencing difficulty in offering reliable telecommunication services to a growing number of American households. AT&T’s telecom network was suffering from the low reliability and high cost of maintenance of electrotechnical switches. Moving parts of millions of switches used to get stuck or fail to make contact. Hence, AT&T management asked its R&D wing Bell Laboratories to look for a telephone switch having no moving parts. This journey led to the invention of a solid estate electronic switch in 1947. As opposed to changing the physical components’ position, this switch could be turned off or on by applying an electrical voltage. Its name is the Transistor. Subsequently, three scientists who invented the transistor got Nobel Prize.
With this invention, a long journey of high-tech industry started, subsequently fueling the 3rd industrial revolution. Due to growing economic importance, many countries made entries into this industry. And they neither entered through the same door nor did they keep gaining benefit from doing the same kind of activities. Hence, it’s worth taking a look at high-tech strategies in perspective.
Scientific discovery and invention leading to new industry creation
Upon the invention, lead inventor William Shockley envisioned the commercial possibility. Subsequently, he left bell laboratories and went back to native Palo Alto, California, to found his company–Shockley Semiconductor Laboratory. Upon failing to attract his Bell Labs colleagues to join him, he recruited eight bright young Ph.D. graduates. This cohort also included Gordon Moore. However, they found it quite difficult to work under the supervision of Dr. Shockley. Hence, they all left together and started Fairchild Semiconductor Company with plans for making silicon transistors.
Subsequently, the eight later left Fairchild and started companies of their own. By 1976, 65 different companies, including Intel and National Semiconductor, were started by 1st or 2nd generation teams that traced their origins in Silicon Valley to Shockley Semiconductor. In 2014, Tech Crunch figured out 2,000 companies had root traced back to Fairchild’s eight co-founders, claiming 92 public companies of 130 descendant-listed firms were then worth over US$2.1 Trillion.
Despite the tremendous success down the road, however, early initiatives found it quite difficult to find customers for their first-generation semiconductor products like transistor and diode. US military was the primary customer in the early days for primitive as well as highly expensive transistors. For example, Fairchild’s first marketed transistor was the 2N697 in 1958. Mr. Moore developed it using silicon. However, each of the first batches of 100 transistors was priced at $150. IBM bought them for building a computer for the B-70 bomber. They sold more to Autonetics to build the guidance system for the Minuteman ballistic missile. In the absence of these defense customers, it could have been quite difficult for them to get the thurst to take off the silicon industry and form the silicon valley industry cluster.
Early-stage entry, refinement, and Innovation
Without being part of the invention, firms or countries can significantly benefit from commercial exploitation out of innovation. However, the entry should be made at an early stage. As the technology remains in the premature form at the early stage, there is a need for further continued R & D for refinement for creating commercial success. For example, within 5 years of transistor invention, Sony took licenses from Bell Laboratories for its production and refinement. Unlike American start-ups like Fairchild, Sony did not have the military customers to buy highly expensive primitive components.
Hence, Sony embarked on a rigorous R&D for making transistors smaller, less costly, and more capable of handling signals. Sony began commercial exploitation through the innovation of pocket radio. Subsequently, Sony innovated compact TVs. Through relentless refinement, Sony created huge commercial success in consumer electronics innovation within just 20 years. The R & D effort was so deep that one of Sony’s team members got the Nobel Prize in 1974 to contribute to Transistor technology.
Another example is Sony’s journey in turning electronic image sensor invention into a commercial success story. Within just two years of the Charged Coupled Device’s invention for capturing photons as electrons, Sony took the license. However, Sony had to pursue R & D over 8 years to turn a primitive 64-pixel sensor into 120,000 pixels for starting the commercialization in 1979. Subsequently, Sony created a mega success story by releasing an 8 mm camcorder (i.e. single-unit VCR and camera) with a 250,000-pixel CCD chip. Similar examples from Japan include Toshiba’s Flash Memory and Nichia’s LED lighting.
Knowledge-based Service Delivery
Upon developing a strong footprint in semiconductor technology, some senior people take the lead in developing a team for offering design services to chip makers. Fresh graduates with a few months of training often qualify for producing useful design services. In certain cases, they also develop proprietary designs and get the chips produced by 3rd party fabs. This segment of the semiconductor industry is known as a fabless semiconductor. The global revenue of this segment has already crossed $100 billion. The cohort consists of a few people small firms to large firms. Such firms exist even in countries like Bangladesh in offering design services to global high-tech firms.
Labor centric value addition
In addition to knowledge and ideas, High-tech components and products also require labor to manufacture. For example, semiconductor bonding and testing are already generating $30 billion in revenue. Moreover, there is a need to produce printed circuit boards, populated boards, plastic, and metallic parts, and assemble sub-systems into final products. Some countries like Malaysia, Thailand, and Vietnam targeted this opportunity to enter into the global high-tech industry. They liberalized tax structure, developed infrastructure, and established needed training facilities to make their semi-skilled labor force attractive to multinational firms. Many of these firms have also established operations in special economic or high-tech industrial zones in these countries. For example, export from operations of more than 300 high-tech firms from Malaysia is around $90 billion. High-tech strategies in perspectives indicate such an option to be suitable for developing countries. However, the scope of value-added is quite low.
Assembly of consumer products for domestic consumption
In many countries, the consumption of finished products having electronic components has already reached a very high level. Leveraging labor-based value addition in locally producing these products, by assembling imported components, has become target entry points for some countries. For example, India and Bangladesh have been offering tax differential and other incentives to locally assemble them. However, local value addition through the assembling of imported components in producing finished products is extremely low, as low as 5 percent.
Capital intensive manufacturing
Due to the vertical disintegration and uprising of fabless semiconductor companies, offering semiconductor processing services started to emerge in the 1980s. However, setting up state-of-the-art fabs for processing semiconductors is highly capital intensive. Often it takes $5 to $10 billion for a single plant. Among others, Taiwan and Singapore took advantage of this opportunity. There are several such fabs in those countries. Fabless semiconductor companies find them very useful to process wafers as per their designs. In the high-tech strategies in perspectives, such an option appears to be highly risky for new entrants.
Uplifting value addition from assembling to component manufacturing to ideas of the redesign
This last approach appears to be highly challenging. The notable success story is Samsung. In 1969, a trading company Samsung entered into high-tech by offering labor-based assembling services to Japanese electronics firms like Sanyo. However, very soon, it entered into semiconductor component manufacturing, particularly DRAM. Subsequently, Samsung embarked on the redesign of household electronic products like TV, Microwave oven, and telephone sets. Instead of just keeping selling labor to foreign firms, Samsung graduated in producing and redesigning finished products and components under its own brand. Samsung has been adding ideas, in addition to labor and capital, by redesigning products, subsequently making them better and cheaper. Samsung’s success in TVs, DARM, flash memory, and mobile handsets appear remarkable.
It seems that all these seven strategies have been found effective. However, relative opportunities and challenges have been changing. Hence, high-tech strategies in perspectives should be taken into consideration to figure entry points and expansion routes.