Transcript Segmentation and Spillovers in the Chinese Semi

Segmentation and Spillovers in
the Chinese Semi-conductor
Industry
Henry Chesbrough, Helen Liang
Haas School of Business, UC Berkeley
Aug 18, 2007
1
Outline
• Motivation, Background and Previous Findings
of China’s Semiconductor Industry
• Research Questions
• Existing Literature and Hypotheses
• Data, Measurement, and Empirical Strategy
• Empirical Results (To be finished)
– Semiconductor industry
– Other industries
• Conclusion and Discussion
2
Background and Motivation
• Globalization of semiconductor industry
– Expansion of production and R&D to
emerging market
– MNCs compete and cooperate with local firms
• Knowledge transfer
– Channels and effects of knowledge
transfer/spillovers
– Changing landscape of intellectual property
protection regime in developing countries
3
Previous Findings
– A Divided Industry
There are two very different industry segments
operating in the Chinese semiconductor
industry (Chesbrough 2005)
1. A Globally-oriented, globally competitive segment
that employs advanced technologies and is gaining market
share in world markets
2. A Domestically-oriented segment
that employs backward technologies, lacks access to
investment capital and management expertise, where the
government is the largest shareholder of each firm
4
Knowledge spillovers between key
segments of the
Chinese semiconductor industry
MNCs
DomesticallyFocused Chinese firms
Globally-focused
Chinese firms
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Research Objective
• Identify the size and trend of development of the
two domestic segments
• Examine the effects of MNCs on the innovation
and productivity of domestic segments
• Examine the moderating factors of learning and
knowledge spillovers
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Research Question
1. Size and trend
–
–
How big are the two segments of the Chinese semiconductor industry, relative to each other? Is
one growing faster than the other? How profitable are the two segments?
Is there a trend of converging of the two segments within the Chinese industry, or are they
diverging? Are they increasingly targeting the same market/customer base (within China or
internationally) or not? Is the domestic oriented segment improving its technology, productivity,
and profitability, relative to the globally oriented segment?
2. Knowledge spillover
–
–
–
What are the comparative rates of spillover between the MNCs and the globally-oriented firms
and the domestically-oriented firms?
Do the globally focused firms have higher absorptive capacity, and learn more from the MNCs?
How is semiconductor industry compared with other industries, tech-intensive vs labor-intensive,
domestic-oriented vs exporters? Textile, machinery, food processing, etc.
3. R&D efforts and output
–
–
–
What determines the R&D intensity at firm level?
How does R&D input translate into output?
How does R&D activity influence firm productivity and profitability?
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Outline
• Motivation, Background and Previous Findings
of China’s Semiconductor Industry
• Research Questions
• Existing Literature and Hypotheses
• Data, Measurement, and Empirical Strategy
• Empirical Results (To be finished)
– Semiconductor industry
– Other industries
• Conclusion and Discussion
8
Existing Literature I
• Channels of spillovers: the role of industrial linkage
– Within industry (+/-)
• Imitation/Tech transfer (+)
• Personnel turnover and interaction (+/-)
• Negative externalities not related to tech spillovers (-) : input, labor,
land, etc
• Empirical findings on intra-industry spillovers:
– + in developed economies (U.S. and U.K.)
– 0/- in developing economies (Aikton& Harrison99, Javorcik04)
– Downstream  Upstream industries (buyer  supplier) (+)
• Customers provide support to suppliers: technology, mgmt skills
(Javorcik04)
• Export (Blalock and Gertler 04 & 05)
– Upstream  Downstream industries (supplier  buyer) (+)
• Better inputs and equipment  higher productivity
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Existing Literature II
• Moderating factors of spillovers
– Absorptive capacity
• Firms’ previous investment/experience in R&D and
personnel/skilled workers (Cohen&Levinthal, Blalock&Gertler)
– Ownership structure of
• knowledge source: wholly-owned MNC subsidiaries vs Joint
ventures
• knowledge recipient: incentive structure in state-owned vs
private firms
– Geographic distance to knowledge source
• Knowledge transfer is more effective at local level
– Jaffe et al. 93: patent citations in U.S.
– Keller 02: productivity benefit from other countries’ R&D
– Technology Gap between source and recipient
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Existing Literature III
• R&D intensity and output
– R&D production function (Grilliches 1979)
– Chinese firms’ R&D Performance (Jefferson et al,
2002)
• A recursive 3-equation system:
– R&D intensity = previous performance
– R&D output = previous R&D intensity
– Performance/productivity = R&D output + L + K + M
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Hypotheses
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Outline
• Motivation, Background and Previous Findings
of China’s Semiconductor Industry
• Research Questions
• Existing Literature and Hypotheses
• Data, Measurement, and Empirical Strategy
• Empirical Results (To be finished)
– Semiconductor industry
– Other industries
• Conclusion and Discussion
13
Data
• Firm level data:
– Firms operating in China, Semiconductor
industry and other industries, 1998-2005
– Source: Enterprise Survey, National Bureau of
Statistics, China
• Variables:
– Input/output, R&D activities, patent
applications, new products, etc
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Descriptive Statistics
• Size of the two segments vs. MNCs in semiconductor industry
(csic=415, 2002 version)
– Output (v207, current price), employment (v210)
– Export Ratio (v213/v209) to identify domestic-oriented and globaloriented segments (ownership b10=110-190)
• Global-oriented segment: export ratio >=50%
• Domestic-oriented segment: export ratio <50%
– Compare with MNCs (ownership b10=310-340) and overseas Chineseinvested enterprises (b10=210-240)
– Compare with other industries
• Trend of development:
– Growth rate of output, export ratio, and innovation output and input
– Are the two segments following the same trend?
• 2-sample t-test on firm level average growth rate 1998-2005
• Graph: average growth rate of each segment
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Measurement
• Productivity and profitability
– TFP and labor productivity
– ROA
• Innovation activity
– Input of innovation: R&D funding (kj22), expenditure (kj28), personnel
(kj43), scientist and engineer (kj46)
– Output of innovation: # of patent application (kj77), patents granted
(kj79), # of S&T projects (kj85), R&D projects (kj87), new product value
(and as a proportion of output), new product value and export value
• Other moderating factors:
– Absorptive capacity: previous cumulated R&D investment and
personnel?
– Geographic distance to knowledge source
• Same city/province MNCs/global-oriented/domestic-oriented share of
output/labor in own industry sector and vertically related sectors
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Model I: Productivity Spillovers
• A Translog Productivity Function with firm
fixed effects (Liang 2007)
ln Yijrt = α+ß1*lnKijrt + ß2*lnLijrt + ß3*lnMijrt
+ ß4*Horizontal_FDIjrt + ß5*Downstream_FDIjrt + ß6*
Upstream_FDIjrt
+ ß7*Controlijrt + αi + αt + ξijrt
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Model I: Independent Variables -Industrial Linkage
• Horizontal FDI share (+/-):
– The share of sector output by foreign affiliates
• Downstream FDI share (+):
– The share of sector output by foreign affiliates in the downstream
industries weighted by Input/Output coefficients, excluding ownsector
• Upstream FDI share (+):
– Similar as downstream FDI share, excluding export in output
• Note:
– Input/Output coefficients at 2-digit China SIC level
– Obs. at 4-digit China SIC level
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Model I: Control Variables
• Fixed effects: sector fixed effects, year dummies
• Export ratio and export-oriented sector dummy
• Olley-Pakes proxy for un-observed productivity
shocks
– Concern: FDI goes to locations with quick learners
– Use investment conditional on capital to identify un-observed
contemporaneous shocks
– A third order polynomial of investment and capital
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Model I: Moderating Factors
• Moderating factors:
– Ownership of knowledge source and recipient
• Estimate wholly-owned subsidiaries and joint ventures’
impact separately
• Estimate different ownership of domestic segments
– Distance to knowledge source
• Compare city-level coefficients with province-level
coefficients (Liang 2007)
– Absorptive Capacity
• Compare/control firm-level R&D expenditure/personnel
• Proxy Tech gap with cumulative R&D expenditure
(alternatives: patent applications, # or projects) (Blalock and
Gertler)
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Model I: Industry Analysis
• Does Semiconductor industry look like
other industries?
– Compare semiconductor industry result with
other industries
– Compare tech-intensive with labor-intensive
industries
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Model II: Innovation Activities
• A Recursive 3-equation system (Jefferson
et al 2002) (this function form need to be thought through)
– R&D intensity = previous performance
– R&D output = previous R&D intensity
– Performance/productivity = R&D output + L + K + M
– R&D output: to be measured with patent application, new
product value, and export value.
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Empirical Strategy
• Identification
– MNCs and entrants’ selection of industry and
location
• No good instruments so far
• Geographic distance absorbed in FE
• Dynamic panel? Using lagged dependent variables
as instruments
– Survival Bias
• Using balanced panel of firms introduce survival
bias
• Inverse Mills Ratio? Propensity Score?
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Overview of the two segments in
China’s semiconductor industry
•
Size
– The global-oriented segment has outgrown domestic-oriented segment in
number of firms, output, employment, and asset 1998-2005
•
Productivity, Profitability, R&D, and patent activity
– Labor productivity (value-added/employment) in the two segments improve by
similar pace
– Domestic segment has higher R&D intensity in terms of expenditure and
personnel
– But Global segment has more patent application and granted patents
– Entrants in global segment are less profitable, while the opposite is true in
domestic segment
•
Export
– The share of global segment in export increases from 43% to 92% 1998-2005
•
Firm Age
– Firms are younger in global segment, and older in domestic segment
– Overtime firm age decreases in both segments – indicating exit of older firms and
entry
•
Ownership composition
– Domestic segment is dominated by domestic-owned firms and global segment by
foreign-owned firms; in both segments domestic ownership declines overtime
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Size of the two segments in China’s
semiconductor industry – Number of Firms 19982005
Two Segments of China's Semiconductor
Industry 1998-2005: Ratio of Firms
200
150
Ratio of Firms
Total Number of Firms
Two Segments of China's Semiconductor Industry
1998-2005: Total Number of Firms
100
50
0
1998
1999
2000
2001
2002
2003
2004
Year
Number of Firms -- Domestic
Number of Firms -- Global
2005
1.00
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
1998
1999
2000
2001
2002
2003
2004
2005
Year
Number of Firms -- Domestic
Number of Firms -- Global
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Size of the two segments in China’s
semiconductor industry -- output 1998-2005
Two Segments of China's Semiconductor
Industry 1998-2005: Ratio of Output
Two Segments of China's Semiconductor Industry
1998-2005: Total Output (in Billion Yuan)
Ratio of Output
Total Output
200
150
100
50
0
1998
1999
2000
2001
2002
2003
Year
Output -- Domestic
Output -- Global
2004
2005
1.00
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
1998
1999
2000
2001
2002
2003
2004
2005
Year
Output Ratio -- Domestic
Output Ratio -- Global
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Size of the two segments in China’s
semiconductor industry -- Employment 1998-2005
Two Segments of China's Semiconductor
Industry 1998-2005: Ratio of Employment
Two Segments of China's Semiconductor Industry
1998-2005: Total Employment (in persons)
Ratio of Employment
Total Employment
300,000
250,000
200,000
150,000
100,000
50,000
0
1998
1999
2000
2001
2002
2003
2004
Year
Employment -- Domestic
Employment -- Global
2005
1.00
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
1998
1999
2000
2001
2002
2003
2004
2005
Year
Employment Ratio-- Domestic
Employment Ratio-- Global
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Size of the two segments in China’s
semiconductor industry – Fixed Asset 1998-2005
Two Segments of China's Semiconductor Industry
1998-2005: Total Fixed Asset (in Billion Yuan)
1.00
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
Total Fixed Asset
Ratio of Fixed Asset
Two Segments of China's Semiconductor
Industry 1998-2005: Ratio of Fixed Asset
1998
1999
2000
2001
2002
2003
2004
2005
1998
1999
2000
2001
2002
2003
2004
2005
Year
Year
Fixed Asset Ratio -- Domestic
90
80
70
60
50
40
30
20
10
0
Fixed Asset Ratio -- Global
Fixed Asset -- Domestic
Fixed Asset -- Global
28
Productivity
Labor productivity (value-added/employment) in the two
segments improve by similar pace
Two Segments of China's Semiconductor Industry
1998-2005: Labor Productivity
Labor Productivity
(Value-added/em ploym ent, 1,000 Yuan/person, 1998 price)
200
150
100
50
0
1998
1999
2000
2001
2002
2003
2004
2005
Year
Labor Productivity -- Domestic
Labor Productivity -- Global
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R&D and patent activity
Domestic segment has higher R&D intensity in terms of
expenditure and personnel
Two Segments of China's Semiconductor Industry
1998-2005: R&D Expenditure/Sales, R&D
Staff/Employment
0.08
0.06
0.04
0.02
0.00
1998
1999
2000
2001
2002
2003
2004
2005
Year
R&D Expenditure/Sales -- Domestic
R&D Staff/Employment -- Domestic
R&D Expenditure/Sales -- Global
R&D Staff/Employment -- Global
30
R&D and patent activity
Global segment has more patent application and granted
patents
Two Segments of China's Semiconductor Industry
1998-2005: # of Patent Application and Granted
3.00
2.00
1.00
0.00
1998
1999
2000
2001
2002
2003
2004
2005
Year
Patent Application (invention) -- Domestic
Patent Granted -- Domestic
Patent Application (invention) -- Global
Patent Granted -- Global
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Profitability
Entrants in global segment are less profitable, while the
opposite is true in domestic segment; profit plunged in
2001
Two Segments of China's Semiconductor Industry 19982005: Ratio of Profit
Two Segments of China's Semiconductor
Industry 1998-2005: Total Profit (in Billion Yuan)
1.00
6
0.60
0.40
0.20
0.00
-0.20
1998
1999
2000
2001
2002
2003
2004
2005
Total Profit
Ratio of Profit
0.80
4
2
0
-0.40
1998
1999
2000
2001
2002
2003
2004
2005
-2
-0.60
Year
Year
Profit -- Domestic
Profit -- Global
Profit -- Domestic
Profit -- Global
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Profitability
Entrants in global segment are less profitable, while the
opposite is true in domestic segment;
exporting domestic firms are more profitable.
Profitable firm vs loss-making firms in the two
segments
Profitable firm vs loss-making firms in the two
segments -- Firm Age
Firm-year average (in million Yuan, persons)
25
1400
20
1200
15
1000
10
800
5
600
0
400
Firm Age
200
0
-200
Number of firms
Global -- profit
Output
Global -- loss
Employment
Domestic -- profit
Export
Profit
Domestic -- loss
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Profitability
Compare profiting and loss-making firms
Firm-Year Average (in million Yuan, persons)
Global -- Global -- Domestic - Domestic profit
loss
- profit
- loss
Number of firm-year
482
201
705
243
Firm Age
8.75
5.72
16.41
21.19
Output
759.56
506.24
589.39
244.63
Employment
1,286.61
943.17 1,279.82 1,031.42
Export
665.83
426.00
105.68
40.36
Profit
48.28
-59.44
50.06
-35.99
Return on Asset
0.08
-0.07
0.06
-0.05
Export Ratio
0.87
0.89
0.12
0.09
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Export
The share of global segment in export increases from 43%
to 92% 1998-2005
Two Segments of China's Semiconductor Industry 19982005: Ratio of Export
Two Segments of China's Semiconductor
Industry 1998-2005: Total Export (in Billion Yuan)
200
0.80
Total Export
Ratio of Export
1.00
0.60
0.40
0.20
150
100
50
0
0.00
1998
1999
2000
2001
2002
2003
2004
1998
1999
2000
2001
2002
2003
2004
2005
Year
Year
Export -- Domestic
2005
Export -- Global
Export -- Domestic
Export -- Global
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Firm Age
Firms in global segment are younger, and in domestic
segment older; overtime firm age decreases in both
segments – indicating exit of older firms and entry
Average Age of Firms
Two Segments of China's Semiconductor Industry 1998-2005:
Firm Age
30
25
20
15
10
5
0
1998
1999
2000
2001
2002
2003
2004
2005
Year
Firm Age -- Domestic
Firm Age -- Global
36
Ownership composition
Domestic segment dominated by domestic-owned firms
Global segment by foreign-owned firms
In both segments domestic ownership declines overtime
Two Segments of China's Semiconductor
Industry 1998-2005: Ownership Composition
1.00
0.80
0.60
0.40
0.20
0.00
1998
1999
2000
2001
2002
2003
2004
2005
Year
DomesticFirms -- Domestic
OverseasChinese -- Domestic
ForeignFirms -- Domestic
DomesticFirms -- Global
OverseasChinese -- Global
ForeignFirms -- Global
37