The comparative and competitive advantage of semiconductor industry : a case study of Thailand, Malaysia, and Indonesia

Abstract

This study focuses on IC and parts in the theory of comparative and competitive advantages of semiconductor industry in Thailand, Malaysia, and Indonesia. The “revealed” comparative advantage theory developed by Bela Balassa was applied to the study to measure the comparative advantage in these countries. While, the theory of comparative advantage “Diamond Model” be Michael E. Porter was also applied to the study by using SWOT analysis. After applying the cconcept of RCA and Porter’s “Diamond Model” analysis, the results show that a comparative advantage in Thailand exists while the competitive advantage does not. However, the decreased trend during 1980-1996 shows that Thailand was not able to catch up with the world export of IC and parts growing very rapidly despite the fact that the Thai export value of IC had been increasing continuously. Moreover, Thai export of IC and parts have lost its market share to our neighboring countries as the Thai government does not provide a favorable policy toward IC industry. In Malaysia, both the comparative and competitive advantages have been existed for years. The reason is that die Malaysian government provides very attractive policies and frameworks for the industry to become a regional production base for IC assembling. Indonesia has neither the comparative nor competitive advantages in the semiconductor industry in terms of the RCA and Porter’s “Diamond Model” analysis. Indonesia is still behind her neighboring countries despite the fact that she has an increased value in the export of IC and parts. Indonesia does have good basic factors for developing the industry; the lack of attractive policy has made the development less likely. The suggestions on how to develop Thailand’s semiconductor industry are follows: 1) The Thai government should directly support the development of local suppliers by providing fiscal incentives for local firms or companies to undertake appropriate research and development aimed at improving the quality and reliability of their products and to assimilate foreign technology into their production processes 2) An increase in the value added of Thai IC industry’ ร input is needed due to the high import of raw materials in the IC industry. For this reasons, a selective import substitution policy should be adopted so that the government would be able to identify which products could be effectively produced by loci supplier. This selective import substitution offers protection for suppliers who choose to innovate and upgrade their production.