The “Non-Globalization” of Innovation in the Semiconductor Industry

The global semiconductor industry is undergoing several forms of structural change simultaneously. The structure of market demand is shifting from one dominated by personal computers to a more diverse array of heterogeneous niches, largely resulting from global diffusion of the Internet and wireless communications applications. The structure of manufacturing activities is shifting from one dominated by integrated device manufacturers (IDMs) that both design and manufacture semiconductor components to one characterized by vertical specialization, where many firms specialize in either design and marketing (fabless firms) or manufacturing (foundries). Finally, market demand and technical expertise are growing in geographic regions (e.g., Malaysia, Singapore, the People's Republic of China, etc.) that formerly were much less prominent actors in the global industry. We examine the influence of these three overlapping trends on the geographic structure of R&D in this industry, using data on patenting and offshore investment by firms in development fabs from 1994 to 2004.