Change of Governance in the Organization Value Chain: The Case of the High‐tech Industries in Taiwan†

• Published date: 01 March 2011
• DOI: http://doi.org/10.1111/j.1467-8683.2011.00847.x
• Date: 01 March 2011
• Author: Yu‐Chuan Lin,Shaomin Li,Kuang S. Yeh

Change of Governance in the Organization

Value Chain: The Case of the High-tech

Industries in Taiwan†

corg_847169..182

Yu-Chuan Lin, Kuang S. Yeh, and Shaomin Li*

ABSTRACT

Manuscript Type: Empirical

Research Question/Issue: We study the evolution of the governance of the organization value chain in Taiwan’s high-tech

industry, whose pattern seems to defy the prediction of the well-established theories such as transaction cost, resource

dependence, or network perspectives.

Research Findings/Insights: Using the three most important sectors in Taiwan’s high-tech industry as cases, we map out

the evolutionary path each sector took, and demonstrate that the change of governance mode between upstream and

downstream f‌irms is shaped by the interaction of technology, capital munif‌icence, and relative prof‌itability throughout the

lifecycle of these industries. Specif‌ically, we f‌ind that atthe beginning stage with high technology uncertainty and relatively

high prof‌itability, the governance mode in Taiwan’s high-tech industries moves toward a network model. At the mature

stage when technology is certain and capital is abundant, the governance mode moves toward the market model for

technology complexity and high prof‌itability or toward the hierarchy model if the complexity and prof‌itability are low.

Theoretical/Academic Implications: Our analyses suggest that the contingent approach based on the three key factors

(technology,capital munif‌icence, and relative prof‌itability) is more suitable in explaining the change of governancemode in

the value creation chain in a rapidly changing environment, and thus provides a better prediction on the changes of

governance mode than the previously used theories.

Practitioner/Policy Implications: Our study has managerial implications for f‌irms that have evolved from small and

medium-sized enterprises into large, integrated business groups. The latter cannot rely on traditional network relations for

business management and have to move toward the market model or the hierarchy model.

Keywords: Corporate Governance, Governance Environment, Organization Value Chain, High-tech Industries, Taiwan

INTRODUCTION

Organization scholars have increasingly paid attention

to how transactions are governed between upstream

and downstream players in industries characterized by

rapid changes (Exworthy, Powell, & Mohan, 1999; Gereff‌i,

Humphrey, & Sturgeon, 2005). The classical approach to

understanding the mechanism governing transactions

between different stages of the value-creation chain was pri-

marily based on transaction-cost theory, which postulates

that the mode of governing the value chain ranges from the

market to the hierarchy, depending on the transaction cost

(Williamson, 1991). Later, organization scholars proposed

that in addition to and independent of the market and

hierarchy, there is a network-based governance struc-

ture (Powell, 1990). However, the types of governance in

some newly emerging global industries suggest that the

transaction-cost perspective and the network-based view

may be inadequate to explain or predict the evolution of the

governance mechanism. One conspicuous example is the

case of Taiwan’s high-tech manufacturing sector.

It has been widely recognized that Taiwan’s high-tech

manufacturing sector is successful. For example, a 2005 Busi-

ness Week cover story, entitled “Why Taiwan Matters,” notes

that Taiwan acts as a global center connecting the American

market and mass-production centers in China (Business

Week, 2005). This is especially the case for the high-tech

*Address for correspondence: Shaomin Li, Department of Business Administration,

Old Dominion University, Norfolk, VA 23529, USA. Tel: 1-757-683-4883; E-mail: sli@

odu.edu

†This study was partially supported by a grand from Taiwan’s National Science

Council (NSC 99-2511-S-276-002). Thethird author was a visiting professor at National

Sun Yat-senUniversity while working on this study.

169

Corporate Governance: An International Review, 2011, 19(2): 169–182

© 2011 Blackwell Publishing Ltd

doi:10.1111/j.1467-8683.2011.00847.x