Please recommend a good book, or a website/article on this event. Thank you!

jml-ga:

The emergence of 'foreign' competition in the semiconductor market in
the 1980's created, in large part, the current landscape we have
today, where knowledge-intensive semiconductors such as processors are
still very much the domain of US-based firms, while 'simpler'
application-specific chips, DRAM, and basic controllers are almost all
made in Asia.

An excellent study of this piece of history, including the impact that
it had on the direction of Intel as a company, is this article that
was originally published in the California Management Review in 1998:

Macher, J.T., D.C. Mowery and D.A. Hodges (1998). ?Reversal of
Fortune? The Recovery of the U.S. Semiconductor Industry,? California
Management Review 41(1): 107-136.
http://www.msb.edu/faculty/jtm4/Papers/CMR.pdf

In fact, one of the authors, Macher, has specialized in studying this
field, as you can see from his CV and the articles linked from it:

http://www.msb.edu/faculty/jtm4/Macher.CV.htm

His co-author, David A. Hodges, also has some publications you may be
interested in:

http://andros.eecs.berkeley.edu/~hodges/recentpubs.html

I recall reading the CMR article in business school, it was used as a
way to illustrate how natural competition and government lobbying and
interference play out in the real world.

One more view on this can be found in the following article from 1991:

http://www.law.berkeley.edu/journals/btlj/articles/vol6/LeeNLee/html/reader.html

If you scroll down to the case study about SEMATECH (the industry
consortium representing the interests of semiconductor manufacturers
such as Intel, Fairchild, etc.), you will see how the US government
responded to the threat of foreign competition.

I hope that this helps,

aht-ga
Google Answers Researcher

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Request for Answer Clarification by jml-ga on 24 Mar 2004 16:13 PST

Hello aht,

Thanks for the article. I would also like to see this event from
Japanese standpoint. Why did they sell it below cost? What's the long
term effect on their business? Thanks.

JML

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Clarification of Answer by aht-ga on 24 Mar 2004 17:10 PST

If you view the situation from the Japanese perspective in the
mid-70's, you have a situation where it is clear that the future of
high-technology depends on mastery of semiconductor design and
manufacture. At the time, the advantage clearly lay with US firms,
predominantly located in the Silicon Valley.

The Japanese Ministry of Industry and Trade (MITI) launched the VLSI
initiative in the mid-70's, with the goal of improving Japan's
competitiveness in the global semiconductor market. The focus was on
improving design capability, manufacturing capability, and most
importantly, manufacturing capacity. The companies in Japan in the
70's were very loyal to the direction set by the government. Coupled
with easy access to financing as 'requested' by the government of the
banks in Japan, this meant that a concerted effort involving every
major semiconductor firm in Japan was possible.

Again, remembering that this was the 70's and 80's, the largest single
market for semiconductors was the US. In order for Japanese firms to
sell products that were commonly regarded as 'lower-quality' in the US
market, it was necessary for them to engage in pricing tactics that,
in the eyes of the American firms with their higher
infrastructure/labor costs, was "selling below cost". To the Japanese,
the price they sold their chips at was sufficient due to their lower
production costs, and the lower cost of capital as a result of the
government sponsorship.

If you take a look at page 110-112 of the CMR article, you will see a
clear illustration of the effect that this market success had on the
Japanese industry. For a period of almost 10 years, from 1984-1994,
they dominated the memory chip market, only beginning to slip from
1990 onwards as the Korean and Taiwanese manufacturers did unto them,
as they had done unto the Americans in the 1970's: cheaper chips, in
massive quantities.

The long-term effect of all of this on Japan as a whole was that they
achieved the intended competitive edge over the rest of the world, an
edge that they still possess as far as technology goes. Unfortunately,
the part that the government could not control, was the effect that
this success would have on the population, and the reverse effect that
the increased affluence of the population would have on the
manufacturing costs of all Japanese industries.

In closing, here is an article discussing the effect of various
Japanese government incentive programs including the VLSI one:

http://www.wtec.org/loyola/opto/c7_s6.htm

Regards,

aht-ga
Google Answers Researcher