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

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 at the 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 governance mode 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.