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Taiwan Ic Design and the Diamond Model

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The Diamond model of Michael Porter for the Competitive Advantage of Nations offers a model that can help understand the competitive position of a nation in global competition. This model can also be used for other major geographic regions.
Traditionally, economic theory mentions the following factors for comparative advantage for regions or countries:
A. Land
B. Location
C. Natural resources (minerals, energy)
D. Labor, and
E. Local population size.
Because these factor endowments can hardly be influenced, this fits in a rather passive (inherited) view towards national economic opportunity.
Porter says sustained industrial growth has hardly ever been built on above mentioned basic inherited factors. Abundance of such factors may actually undermine competitive advantage! He introduced a concept of "clusters," or groups of interconnected firms, suppliers, related industries, and institutions that arise in particular locations.
As a rule Competitive Advantage of nations has been the outcome of 4 interlinked advanced factors and activities in and between companies in these clusters. These can be influenced in a pro-active way by government.These interlinked advanced factors for Competitive Advantage for countries or regions in Porters Diamond framework are:

1.FACTOR CONDITIONS
-a country creates its own important factors such as skilled resources and technological base.
-these factors are upgraded / deployed over time to meet the demand.
-local disadvantges force innovations. new methods and hence comparative advantage.

2.DEMAND CONDITIONS
-a more demanding local market leads to national advantage.
-a strong trend setting local market helps local firms anticipate global trends.

3.RELATED AND SUPPORTING INDUSTRIES.
-local competition creates innovations and cost effectiveness.
-this also puts pressure on local suppliers to lift their game.

4.FIRM STRATEGY , STRUCTURE AND RIVALRY.
-local conditions affect firm strategy.
-local rivalry forces firm to move beyond basic advantages.

The role of government in Porter's Diamond Model is "acting as a catalyst and challenger; it is to encourage – or even push – companies to raise their aspirations and move to higher levels of competitive performance. They must encourage companies to raise their performance, stimulate early demand for advanced products, and focus on specialized factor creation and to stimulate local rivalry by limiting direct cooperation and enforcing anti-trust regulations.
Porter introduced this model in his book: The Competitive Advantage of Nations, after having done research in ten leading trading nations. The book was the first theory of competitiveness based on the causes of the productivity with which companies compete instead of traditional comparative advantages such as natural resources and pools of labor. This book is considered required reading for government economic strategists and is also highly recommended for corporate strategist taking an interest in the macro-economic environment of corporations.

The Porter's diamond model summarizes the industrial literature and analyze the survey result in order to find out the criteria of competitive advantage our country constructed for the IC design industry based on 6 facts including key talents prerequisites, entrepreneurial strategy and structure and competitors, related industry, and supporting industry.

1."Factor" Conditions - Having technical manpower of superior quality.

- Relatively cheap labor and production costs compared to Europe, U.S., Japan, and South Korea.

- Ease in gathering funding and accessing capital resources.

2.Demand Conditions

The downstream product market such as information, communication, and consumer system manufacturers in Taiwan are also OEM manufacturers for European, U.S., and Japanese major companies. Their products mostly have a significant share in the global market and therefore have the characteristics of huge IC demand.

3.Firm strategy, structure and rivalry

- Once Taiwanese IC design houses achieve a certain level of business, they gradually expand their operations and require their development and expansion to have more resources. They adopt the methods of acquisition or strategic alliance to secure further technology sources in order to bolster their superiority in technology.

- The domestic upper, medium, and lower stream semiconductor industries are closely related to each other and IC design houses can customize their products based on customer’s requirements as they have the advantage of flexible design. Adding the support of methodology in the enterprises, it can furthermore create the competitive advantage of speed in time to market.

- Domestic design houses aggressively invest more R&D capital and concentrate in upgrading product development capability.

4.Related and supporting industries

- The upper, mid, and lower stream industry is becoming more complete through close proximity to foundry and IDM plants. Under the industrial structure of division of work, product support can be obtained immediately which therefore increases the speed of delivery and cost advantage.

- EDA manufacturers can support the IC industry product design speed of and increase the competitive advantage in time to market custom product.

- Close proximity to the downstream customer product market can increase customer service and provide functional planning for new products.

5.The role of government - Further increases in competitiveness through tax incentives and assistance to domestic manufacturers in technology transfer for IC design houses.

- Drives the establishment of a Silicon IP consortium as a platform for technology exchange between manufacturers and explores product innovation as well as increases the added value of chips.

- Aggressive participation in entering the WTO and helping Taiwanese manufacturers in the exploration of new markets on the basis of fair competition. Also drives foreign investors to establish plants in Taiwan and encourages the mutual exchange of domestic and foreign technology.

6.The role of chance

- Although PC growth has stagnated, semiconductor demand from wireless communication applications together with Bluetooth technology, information appliances and network applications, is expected to create another wave of brand new system products.

- Fast growth in TFT-LCD and mobile phone STN-LCD will trigger drastic increases in controller and driver IC’s.

- The market is looking for products with more functions, lower costs and shorter marketing lead-time, etc. The future lies in SOC integration chips, with SOC maturity expected to result in an explosive market.

- In terms of market size, globalization and hiring of engineering talent, Mainland China is by no means the market worth exploring. Taiwanese design houses could increase their competitive advantage through access to the local technical support and marketing and sales by combining with the local mid/lower stream resources or even by hiring local design talent at relatively cheap cost and yet with good quality.

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