The growth patterns of firms in the industrial value chain using the hidden markov model: Evidence from the Korean semiconductor industry

Abstract

Having steadily grown over the last 40 years, the semiconductor industry in South Korea has emerged as one of the leading industries in the world. However, it has recently entered a period of great change because of the volatility in the global value chain caused by trade conflicts and protectionism in the pursuit of technological sovereignty by countries. To cope with these changes, the South Korean government has endeavoured to strengthen the competitiveness of domestic materials and equipment segments, which are the backbone of the semiconductor industry. Nevertheless, most previous studies on the semiconductor industry in South Korea focused on the downstream of the value chain (which means the manufacturing of finished components). However, only a few attempts were made to investigate the upstream part of the industry, that is, materials and equipment segments. Therefore, this study analyses the growth patterns of firms engaged in the Korean semiconductor industry value chain, including finished components, materials, and equipment. For this objective, we applied the Hidden Markov Model to time-series sales data collected from 1998 to 2019 for 1,259 firms in the value chain. The analysis results indicated that the growth of these firms could be modelled using six stages, based on which nine patterns of growth were identified. This study proposes a novel data-driven approach for tracking firm growth across the domestic industry value chain from a longitudinal perspective. Thus, we provide valuable policy insights for nurturing the domestic industry’s value chain.