Seoul National University International, Intra-National and Inter-firm Knowledge Diffusion & Technological Catch-up: Japan, Korea and Taiwan in the Semi-Conductor Industry Keun Lee and Minho Yoon Seoul National University

Introduction Many works on the technological success of Japan, Korea and Taiwan; This paper focuses on: concrete mechanism of knowledge creation and diffusion def) Technological innovation = exploiting knowledge flows available and generating new one Two ways of Learning and Catch-ups: 1) productivity benefits associated with the use of imported high-technology goods (machineries ) in production 2) benefits arising because flows of knowledge from advanced economies facilitating R&D -- focus of this paper Using the US patent data in DRAM (dynamic random access memory). Why DRAM? -> clear evolution and catch-up (Kim and Lee, ICC 2003)

Evolution and Catch-up (The Top 7’s) in DRAM Industry 1975 1978 1981 1984 1987 1990 1993 1995 1 Intel Mostek Hitachi Toshiba Samsung 2 TI Fujitsu NEC 3 Mitsubishi 4 Hyundai 5 Motorola IBM 6 Fairchild NS 7 LG SS Firms LD Firms Source: Dataquest, DRAM Market Statistics, various years ; Kim and Lee (2003) in ICC

Figure 1. Life Spans of D-RAM Firms source: Dataquest, DRAM Market Statistics, various years : Kim and Lee, 2003, ICC

Table 1: DRAM-related patents granted by the US PTO Share Total 1985 4 0.01% 71,661 1986 11 0.02% 70,860 1987 45 0.05% 82,952 1988 58 0.07% 77,924 1989 79 0.08% 95,537 1990 116 0.13% 90,364 1991 143 0.15% 96,513 1992 145 97,444 1993 236 0.24% 98,342 1994 319 0.31% 101,676 1995 345 0.34% 101,419 1996 380 0.35% 109,645 1997 513 0.46% 111,983 1998 709 0.48% 147,519 1999 840 0.55% 153,486

11.1% number of patents share Intel 41 1.0% IBM 279 7.1% Micron 477 Table 2 Major Innovators in the DRAM industry number of patents share Intel 41 1.0% IBM 279 7.1% Micron 477 12.1% Texas 196 5.0% Motorola 59 1.5% Hitachi 130 3.3% Mtisubishi 440 11.1% NEC 153 3.9% Toshiba 222 5.6% Fujitsu 61 Samsung 138 3.5% Hyundai 49 1.2% Goldstar 81 2.1% ITRI 45 1.1% United 111 2.8% TSMC Vanguard 117 3.0% subtotal 2,644 67.0% total 3,949 100%

Table 3 DRAM Patents by country and by year US Japan Korea Taiwan Others Sum 1983 1 2 1984 3 6 1985 4 8 1986 7 11 22 1987 28 15 45 88 1988 27 30 58 115 1989 39 35 79 154 1990 47 54 5 116 223 1991 55 67 13 143 278 1992 74 46 17 145 285 1993 83 21 236 460 1994 134 140 25 319 629 1995 132 33 26 345 676 1996 159 141 380 745 1997 256 158 51 513 1008 1998 326 176 52 709 1378 1999 420 185 60 144 840 1649

Literature General: Jaffe and Trajtenberg (1999) studied the flow of international knowledge by investigating patent citations. Semiconductor industry, using the same method as Jaffe et al. (1993), Almeida (1996) examined the phenomenon of knowledge sourcing by foreign firms located in the US to find that foreign multinationals in the US tend to cite significantly more local patents than domestic US firms. Korea and Taiwan: Hu and Jaffe (2003) showed that Korean patents especially tend to cite Japanese patents, whereas Taiwanese tend to cite US and Japanese patents equally. International & intra-national diffusion: Using patent portfolio data, Branstetter (2001) finds that intra-national spillovers are stronger than international spillovers. The study also finds that the Japanese firms benefit positively from research undertaken by American firms but that the opposite does not hold. => none of these studies has specific interests on the issue of catch-up, namely how it occurs and how knowledge diffusion is related to the order of late entry or catch-up (but, we will use the same method, Jaffe et al (1993)

HYPOTHESES (1) : inter-national diffusion Question 1: From which countries the former & current catching economies of Japan, Korea and Taiwan tend to absorb the knowledge required for catch-up, and whether there is any difference among them Hu and Jaffe (2001): Korean patents especially tend to cite Japanese patents, whereas Taiwanese tend to be equally cite US and Japanese patents. Hypothesis 1 (=mini-leapfrogging: Park & Lee 2006, ICC): the entrant firms tend to learn from and rely on the leader which are just ahead of them rather than those far ahead of them. ( = to bypass old patents but to rely on new patents only)  American  Japan  Korean  Taiwan

HYPOTHESES (2): Intra-national diffusion Observation: While the advanced economies tend to create most of this knowledge stock, the late-comer economies typically tap into this stock.  the late-comer economies are constrained by the availability of the institutional channels of both international and intra-national knowledge diffusion and their abilities to absorb and create new knowledge Hypothesis 2: the more advanced a country is, the more active intra-national knowledge diffusion is. We will test whether Japan is characterized by a higher degree of intra-national knowledge diffusion than Korea and Taiwan.

Hypo. 3: Inter-firm Diffusion Four modes of knowledge conversion Tacit knowledge Explicit knowledge To Tacit Knowledge From Explicit knowledge Socialization Externalization Internalization Combination

HYPOTHESES (3) : inter-firm diffusion Question 3: what is the concrete mechanism of knowledge creation in the catching-up economies. Nonaka (1988): the pattern of organizational knowledge creation different across different forms of organizations. Hierarchy-oriented firms, strong in internalization & combination, whereas network-based forms, strong in socialization & externalization Hypothesis 2: Korean firms, biased toward internalization of (foreign) knowledge within their own organizations and toward less socialization (namely localization and less diffusion) across the different firms; Taiwan firms, more across-firm knowledge diffusion or localization

US Patent citations data of American, Japan, Korea & Taiwan Patents Patents data and Documents of the US Patent and Trademark office the assignees, inventor, application date, classifications, abstract of patent, citation data and so on. Sources: data from www.delphion.com NBER data: Hall, Jaffe and Trajtenberg (2001) Definition: “DRAM related patents” refers to all patents registered up to 1999 which include “DRAM” in the title or abstract of the patents documents at the US Patent and Trademark office.

4. Sources of knowledge: shares of countries in patent citations by world patents US Japan Korea Taiwan others 1984 66.7% 33.3% 0.0% 1985 77.8% 11.1% 1986 70.4% 20.4% 9.3% 1987 61.6% 28.6% 9.9% 1988 60.8% 30.0% 9.2% 1989 34.1% 5.1% 1990 58.7% 35.7% 0.1% 5.4% 1991 54.0% 39.4% 0.4% 6.2% 1992 58.1% 36.1% 0.7% 0.2% 4.8% 1993 53.2% 38.9% 2.5% 5.2% 1994 50.9% 40.2% 3.6% 0.3% 1995 50.6% 38.4% 4.9% 1.4% 1996 54.8% 32.4% 5.5% 1.9% 1997 60.6% 27.5% 4.2% 1.3% 6.5% 1998 58.5% 27.3% 5.7% 2.6% 5.9% 1999 56.7% 28.4% 4.4% 5.0%

Table 5: Sources of the Knowledge for American DRAM patent: Shares of each country in citations by American patents US Japan Korea Taiwan others 1984 100.0% 0.0% 1985 87.5% 12.5% 1986 86.2% 10.3% 3.4% 1987 65.8% 26.3% 7.9% 1988 63.5% 23.6% 12.8% 1989 66.0% 27.8% 6.2% 1990 68.2% 5.5% 1991 64.7% 28.2% 0.7% 6.4% 1992 30.0% 0.2% 3.8% 1993 64.8% 1.8% 5.3% 1994 65.1% 27.2% 2.5% 5.0% 1995 61.8% 28.9% 2.6% 0.1% 6.5% 1996 66.9% 24.2% 1.9% 0.3% 6.7% 1997 68.7% 21.8% 0.6% 7.0% 1998 69.5% 21.1% 2.0% 6.8% 1999 65.9% 23.3% 3.1% 5.6%

Propensity of country x’s patent citing country y’s patents = Share of Y in X’s citations / Share of Y in All Citations No. of citations made to country Y’s patents by country X’s patents No. of all citations made by country X’s patents No. of citations made to country Y’s patents by all (country -X)s patents No. of all citations made by all (country –X)’s patents

6: Real sources of knowledge: Relative Citation propensity of American patents US Japan Korea Taiwan others 1984 1.50 0.00 NA 1985 1.13 1986 1.23 0.51 0.37 1987 1.07 0.92 0.80 1988 1.05 0.79 1.39 1989 1.08 0.82 1.22 1990 1.16 0.74 1.02 1991 1.20 0.72 1.85 1.03 1992 1.14 0.83 0.21 0.78 1993 0.71 1.10 1994 1.28 0.68 0.69 0.64 0.99 1995 0.75 0.54 0.10 1.36 1996 0.35 0.17 1.25 1997 0.42 0.49 1.09 1998 1.19 0.77 0.24 1999 0.56 0.46 1.12

Table 7 Citation propensity of Japanese patents US Japan Korea Taiwan others 1984 0.90 1.20 NA 1985 1.80 1986 0.74 1.57 1.73 1987 0.68 1.56 1.41 1988 0.93 1.31 0.45 1989 1.52 0.61 1990 0.67 1.59 3.62 0.57 1991 0.73 1.39 0.00 1992 1.48 1.47 2.57 1.12 1993 0.89 0.88 1994 0.70 1.40 0.63 1.10 1995 0.76 1.45 0.46 0.08 0.71 1996 0.79 1.50 0.54 0.39 0.80 1997 0.58 1.99 1.34 0.24 1998 2.11 0.77 0.33 0.52 1999 0.60 1.98 0.86 0.44

Table 8 Citation propensity of Korean patents US Japan Korea Taiwan others 1990 0.77 1.12 0.00 NA 2.78 1991 0.75 1.35 1.03 1992 0.55 1.48 9.69 1993 0.51 1.57 4.17 0.23 1994 0.53 1.31 4.28 2.85 0.84 1995 1.07 3.42 2.55 0.14 1996 0.46 1.51 3.69 2.38 0.17 1997 0.67 1.37 3.09 2.12 0.92 1998 0.70 1.33 2.10 1.64 1.09 1999 0.57 1.60 2.48 1.15 0.79

Table 9: Citation propensity of Taiwanese patents US Japan Korea Taiwan others 1992 0.57 1.85 0.00 1993 0.79 0.95 4.14 25.54 1.02 1994 0.67 1.01 5.23 17.10 0.34 1995 0.58 0.82 4.82 10.36 0.29 1996 0.68 5.55 7.80 0.13 1997 0.52 7.65 11.30 0.10 1998 0.40 1.09 5.02 6.23 0.37 1999 0.41 0.99 3.92 5.71 0.45

Table 10: Citation propensity of ITRI US Japan Korea Taiwan others 1992 0.57 1.85 0.00 1993 0.79 0.95 4.14 25.54 1.02 1994 0.75 1.10 2.47 19.78 0.58 1995 0.76 0.96 2.74 6.13 0.70 1996 2.96 9.46 1997 1.66 2.60 6.86 1998 0.72 1.54 0.93 4.05

Table 11: Citation propensity of Taiwanese private firms excluding ITRI US Japan Korea Taiwan others 1994 0.55 0.90 8.97 13.45 0.00 1995 0.52 0.77 5.64 12.01 0.14 1996 0.54 0.66 6.07 7.48 0.15 1997 0.51 0.63 8.57 12.11 0.12 1998 0.39 1.08 5.10 6.27 0.38 1999 0.41 0.99 3.92 5.71 0.45

Intra-national and inter-firm Diffusion Degree of (pure) intra-national diffusion in Korea = (tendency of Korean patents citing Korean patents: Part A) – (tendency of non-Korean patents citing Korean patents: Part B) = (% of local citations of country k) – (global influence of k) Part D: inter-firm knowledge diffusion = Part C (intra-national diffusion) – (self-citations). = total local citations (Part A) - ( self-citations) - global influence (Part B)

Table 12: Intra-National Knowledge Diffusion ( localization) in Korea and Taiwan Part A. Ratio of locally cited patents to total citations (eg. Japanese patents citing Japanese patents) 1993 1994 1995 1996 1997 1998 1999 '95-'99 Japan (J1) 57.20% 56.40% 55.60% 48.70% 54.70% 57.70% 56.20% Korea + Taiwan (KT1) 9.60% 11.90% 15.10% 16.50% 13.80% 22.00% 17.50% Korea (K1) 10.60% 15.30% 16.70% 20.40% 12.90% 13.50% 14.00% Taiwan citing Taiwan (T1) 5.30% 5.10% 14.10% 15.20% 14.30% 16.20% 25.10% 18.90% Part B.Global Influence of each country’s patents ( other country's country A's patents) non-Japan citing Japan (Jc) 32.10% 30.50% 30.30% 25.90% 22.60% 23.30% 24.90% 24.40% non-Korea citing Korea (Kc) 2.00% 2.80% 4.20% 5.00% 3.90% 5.40% 4.90% non-Taiwan citing Taiwan (Tc) 0.10% 0.20% 0.30% 0.60% 0.90% 2.10% 1.10% non-(Kor + Taiw) citing Korea or Taiwan (KTc) 1.50% 2.30% 2.90% 3.20% 3.70% 3.10% Japan vs. (Kor + Taiwan) (Jc-KTc) 31.00% 29.00% 28.10% 23.00% 20.30% 20.00% 21.30% 21.40% t-statistics 21.25 21.94 25.68 23.94 33.85 39.01 43 75.79 Korea vs. Taiwan (Kc-Tc) 1.90% 2.70% 4.40% 3.30% 4.50% 3.00% 5.16 7.25 10.44 12.14 14.66 20.64 18.39 35.13

Korea + Taiwan (KT2 = KT1-KTc) Part C. Pure Intra-national diffusion (including self-citations) after controlling quality difference 1993 1994 1995 1996 1997 1998 1999 '95-'99 Japan (J2 = J1-Jc) 25.1% 25.9% 25.3% 22.8% 32.1% 34.4% 31.3% 30.3% t-statistics 6.05 7.72 8.6 12.99 15.37 14.44 12.67 Korea (K2 = K1-Kc) 8.50% 12.4% 15.4% 9.00% 6.50% 8.40% 9.10% 2.55 3.73 3.98 3.95 3.64 3.59 4.73 8.83 Taiwan (T2= T1-Tc) 5.10% 4.90% 13.8% 14.5% 13.7% 15.3% 23.0% 17.8% 1 1.72 5.77 6.97 6.77 13.14 16.77 24.06 Korea + Taiwan (KT2 = KT1-KTc) 10.4% 12.8% 11.5% 11.9% 18.3% 14.4% 2.95 4.26 6.73 7.35 7.33 12.01 16.33 23.78 Comparing (Korea + Taiwan) and Japan J2 - (KT2) 16.5% 15.5% 12.5% 20.6% 22.5% 13.0% 15.8% 3.27 3.74 3.55 2.62 7.04 9.19 5.34 Comparing Korea and Taiwan T2-K2 -3.40% -7.50% 1.30% -0.80% 4.70% 8.90% 14.6% 8.70% -0.56 -1.7 0.34 -0.19 1.48 4.13 6.52 6.82

Part D. Inter-firm diffusion ( excluding self-citations) 1993 1994 1995 1996 1997 1998 1999 '95-'99 Japan: inter-firm citations 40.30% 39.70% 37.90% 34.80% 39.50% 40.10% 37.80% 38.10% ( J3 = J1 - self citations) inter-firm diffusion tendency 8.20% 9.20% 7.60% 9.00% 16.9% 16.8% 12.9% 13.7% ( J4 = J3-Jc) t-statistics 1.77 2.5 2.32 2.81 6.1 6.52 5.12 4.52 Korea: inter-firm citations (K3) 7.10% 9.30% 8.30% 11.1% 8.60% 4.30% 5.30% 6.50% Inter-firm diffusion tendency 5.00% 4.10% 6.10% 4.70% -1.20% 0.20% 1.60% (K4= K3-Kc) 1.79 2.4 1.76 2 2.26 -1.01 0.14 2.16 Taiwan: inter-firm citations (T3) 0.00% 1.70% 11.7% 8.80% 10.7% 9.80% 16.7% 12.4% Inter-firm diffusion Tendency -0.10% 1.50% 11.4% 8.10% 10.0% 14.6% 11.3% ( T4 = T3-Tc) -1.42 0.92 5.18 4.95 5.63 9.49 12.35 18.09

Korea + Taiwan: inter-firm citations 5.80% 6.80% 10.40% 9.40% 9.90% 8.50% 13.60% 10.70% (KT3 = D1 –self citations) KT4 = KT3-Dc 4.70% 5.30% 8.10% 6.50% 7.60% 5.20% t-statistics 2.05 2.79 4.96 4.44 5.58 6.75 10.68 15.41 Taiwan vs. Korea (Taiwan - Korea) (excluding self-citations) T4-K4 -5.20% -4.90% 7.30% 2.00% 5.40% 10.10% 14.40% 9.70% -1.84 -1.55 2.28 0.59 1.96 6.84 8.69 10.04 Comparing Korea + Taiwan and Japan (excluding self-citations) J4 - KT4 3.50% 3.90% -0.50% 2.50% 9.30% 11.60% 3.00% 6.00% 0.68 0.94 -0.14 0.7 3.02 4.31 1.1 4.52 Part E: Self-citations 1995 1996 1997 1998 1999 '95-'99 Ratio of self-citations to total local citations Korea (K1) 50.00% 45.50% 33.30% 64.10% 60.80% 53.80% Taiwan(T1) 16.70% 42.20% 25.60% 39.30% 33.50% 34.40% Japan (J1) 31.80% 28.40% 27.80% 30.40% 32.80%

Part F. Sample Size: No. of D-RAM patents by country and No Part F. Sample Size: No. of D-RAM patents by country and No. of citations made by them 1993 1994 1995 1996 1997 1998 1999 Japan 83 140 141 158 176 185 citations 397 753 886 933 967 1049 1129 Korea 21 25 33 26 30 52 60 85 118 144 108 186 328 377 Taiwan 5 11 39 51 115 19 59 213 297 300 1006 1012

Role of Government and GRI’s in Korea and Taiwan: GRI (=Government/public Research Institute) Contrary to Casual Perception, smaller role of GRIs in Korea, and bigger roles in Taiwan

Table 13: Number of DRAM patents by Korean firms ETRI Samsung Hyundai Goldstar/LG 1990 3 1991 7 1 1992 14 2 1993 5 10 4 1994 13 6 1995 11 1996 9 1997 15 1998 29 1999 28 22 note: Goldstar contains the number of patents by LG as well as Goldstar

Table 14: Number of DRAM patents by Taiwanese firms: role of the government, GRIs ITRI TSMC United Vanguard Mosel 1990 1 1991 1992 3 1993 5 1994 8 2 1995 9 16 1996 13 1997 7 10 19 1998 18 26 46 1999 14 49 39

Table 15: The Sources of DRAM knowledge in Taiwan: whose patents are mostly cited TSMC United ITRI Vanguard Mosel 1995 2 21 1996 3 20 1997 1 9 16 6 1998 18 28 22 1999 17 25 45 note: measured by the number of citation counts per patent

Summary 1 International Diffusion: Entrant firms tend to learn from and rely on the leader which are just ahead of them rather than those far ahead of them. -- ordering of citations = order of entry into the industry: Taiwanese -> Koreans -> Japanese -> Americans. Consistent with mini-leapfrogging hypothesis that bypass the old patents to rely on new patents (Park & Lee, ICC 2006) 2) Intra-National Diffusion: degree of intra-national knowledge diffusion is also closely related with the order of entry into the industry; Japanese firms having higher quality and bigger impact patents than the Korean or Taiwanese firms; although it is also affected by the organizational difference among the firms representing each country

Summary 2 3) Inter-Firm knowledge Diffusion pattern of inter-firm knowledge reflect the organizational difference such that Korean big group firms, pursuing more independent strategies, are less oriented toward socialization, compared to the Taiwanese SMEs pursuing cooperative strategy. 4) Role of the Government: R&D in Korea led by private firms from the beginning, Taiwan’s the initial stages was led by the government; most of Taiwanese patents in the initial stage by the ITRI, a government affiliated research institute. ITRI spin-off many firms => more inter-firm diffusion

Policy Implications National level a) important to promote intra-national (inter-firm) diffusion of knowledge from the NIS perspective b) There is a room for GRI’s in early stage of growth in diffusing knowledge in later-comer economies with SMEs or limited capacities 2. Firm Level Try to target the firms just ahead of you, not those who are far away, at least in sectors with technologies changing quickly