The technological environment changes rapidly, which increases uncertainty in the marketplace. In environments of high uncertainty, firms would not expect to achieve high performance due to high competition. The semiconductor industry is one of the most highly competitive industries in the development of new technologies and products [1
]. The semiconductor industry invests a lot of capital and requires a certain amount of time from investment to production, and the risk of investment is high due to rapid technological change and short product life cycle [3
]. Therefore, the ability of a firm to accurately forecast demand, timely investment, and timely market entry is critical. In addition, the semiconductor industry shows a strong first mover advantage in that firms that possess the prior art and that introduce new products ahead of their competitors enjoy more profits [4
In recent years, the semiconductor industry’s sales have increased globally, as shown in Figure 1
. Sales of the semiconductor market in 2008 were $
248,603 million but increased by 53.6% to $
463,412 million in 2018. The recession in the global economy, which began in 2008, caused global semiconductor firms to suffer deficits, and many went bankrupt. By 2010, with the recovery of the global economy, semiconductor prices rose, and surviving semiconductor firms reorganized their market position and expanded production. Due to this global environment change, in 2010, sales increased sharply (31.8%) from 2009.
In Korea, semiconductors have been ranked number 1 in the amount of total export for the past five years and have always been ranked top-tier in the export category since the 1990s [5
]. In particular, Samsung Electronics and SK Hynix are increasing their market share in the global semiconductor market. Those two firms have been in the top 10 of the world’s semiconductor sales for the past decade. As shown in Figure 1
, the firms’ market share in sales increased to 26% in 2018 compared with a less than 10% share in the global semiconductor market in 2008. This rapid growth of Korean firms began with the replacement of the Double Data Rate 3 (DDR3) generation in memory semiconductor dynamic random access memory (DRAM) in 2010. In the DDR3 mass production technology war, Korea’s Samsung Electronics and SK Hynix first entered the 40nm class 2GB DDR3 production, gaining technological power and market advantage.
The future prospect for the semiconductor market is not optimistic. Falling prices of semiconductor products, short life cycles of products, and the global economic recession are depressing the growth rate of the semiconductor industry. Furthermore, Korean firms are constantly competing with US and Japanese firms, and recently the sales of Chinese firms in the world market have been rapidly rising. In addition, Korea’s semiconductor firms are concentrated in the memory sector, and it is another task to expand their business and compete in non-memory sectors. Korean firms, which must compete in this internal and external challenge, are pursuing steady research and development (R&D) and innovation activities to maintain their competitive advantage.
Schumpeter argued that technological innovation is the most fundamental element of competition and is a major driving force in the development of firms and industries [8
]. The key factor influencing innovations is the firm’s knowledge assets [9
]. Improving a firm’s performance based on strategies of cost advantages and differentiation does not guarantee high performance in intensified competition and a rapidly changing market environment. As the technology and information era began, firms began to focus on the development of knowledge assets. Therefore, what kind of knowledge assets a firm has and how it manages them influence the success of the firm [10
]. Previous studies have shown that investment in knowledge assets has a positive impact on firm performance [13
]. However, because the types of knowledge assets vary, the value of the firm will depend on which knowledge assets are possessed.
Another reason knowledge assets do not have a positive effect on firm performance is the path of knowledge transfer. A firm’s existing knowledge can affect the creation of new knowledge in two ways: First, it contributes to the knowledge creation of other firms. This occurs when firms acquire new knowledge from firms other than themselves when creating new technologies. Second, it contributes to the creation of knowledge by the firm itself. Firms can create new knowledge using their existing knowledge. Technology developed by a firm is the best technology that can be created by the firm using its resources, such as the knowledge, assets, and culture of the firm. If this technology is outstanding and another firm attempts to create new technology by embodying it through learning, it will be difficult to guarantee a successful result. Thus, uncertainties in processes and outcomes increase innovation costs. On the other hand, such uncertainty can be reduced if a firm uses path dependence in innovation, using its own knowledge rather than others’ new technology [17
]. Continued development of related technologies based on existing technologies also represents the sustainable growth potential of the firm [20
]. Thus, path dependence in innovation will have a positive impact on firm performance.
The purpose of this study is to suggest an effective strategy to the firm to sustain its competitive advantage in the high-technology industry by analyzing the effect of the path dependence of the firm’s technological innovation on the firm’s value. To examine the effect, this study was based on two research questions: First, do a firm’s knowledge assets affect the value of the firm? Second, if a firm’s technological innovation follows path dependence, does it affect firm value? To address these questions, I analyzed the value in 2013 of 37 Korean semiconductor firms that had filed patents in Korea in 2010. The dependent variable was measured as return on assets (ROA) representing the value of the firm, and the variable for the knowledge asset and path dependence of the firm was measured by the number of patent applications and forward citation of the patent. The model was estimated using ordinary least squares (OLS) regression. I found that a firm’s knowledge assets have a positive effect on firm value. In addition, the innovation by the path dependence of the firm has a positive effect on the value of the firm. However, this effect occurred in the short term and was not effective in the medium term.
The contribution of this study is in its finding that not all knowledge resources of a firm influence firm value. In other words, how knowledge assets are disseminated to create new knowledge is more important. For this, I have compared the two ways in which firm knowledge has influenced innovation and found that technological innovation by path dependence has a positive effect on firm value.
The rest of this paper is composed as follows: Chapter 2 describes background information and the main theoretical perspectives. In Chapter 3, I review the dataset, sampling methods, measurement of variables, and estimation model. Chapter 4 presents the empirical results of the hypothesis testing. Chapter 5 provides concluding remarks.
Rapidly changing technologies have a significant impact on a firm’s survival and performance. To achieve better performance, a firm should consider what learning method is suitable to conduct its innovation. The purpose of this study was to investigate the effect of technology on firm value when a firm develops new technology through innovation activities.
According to the evolutionary theory, the acquisition of new knowledge follows path dependence, which has a positive effect on the firm’s performance. Therefore, I examined the firms engaged in the semiconductor industry, in which innovation is most active in South Korea, and analyzed whether the path dependence of innovation affected the value of these firms. The results show that path-dependent innovation has a positive effect on firm value. However, although these effects persisted in the short term, they were not observed in the medium term. The creation of new knowledge plays a critical role in firm value. However, such new knowledge assets have a positive impact on firm value only in the short term. These results indicate that the impact of the technology on firm value is limited to shortly after the new technology is developed. The higher firm value cannot be maintained for a long time by one new technology in the rapidly changing semiconductor industry. This implies that firms should continuously develop new technologies to strive to maintain the high value of the firm for a long time.
Internal and external instability should continue for Korean firms in the semiconductor industry. The strategy under these circumstances will be key for determining whether the firm can maintain its competitive advantage and high performance. The effect of patents in the semiconductor industry is arguable. On the one side, managers insisted that patents can expect only minimal appropriating returns on R&D investments [56
]. While keeping with technological secrecy, entering the market quickly with new products can be more effective for a firm’s profits [58
]. Nevertheless, the patent applications of semiconductor firms have increased rapidly in the United States since the 1980s and have recently become a global trend. In the semiconductor industry, the exclusive right of a patent allows the firm to use the patent as a strategic mechanism, although other factors may have a greater impact on the firm’s profitability. Firms can use their own patents quickly and usefully when developing new knowledge, thus reducing the hold-up that arises when other firms have patents. As a result, firms can quickly enter the market with new technologies and products and maintain technology lead times with other firms. Thus, firms pursue more patents, and patents become a critical resource for the firm’s continuous development.
The path dependence of a firm’s technological innovation shows that the firm pursues incremental innovation according to its routine rather than pursuing radical innovation. In other words, it is a process of development by exploiting the resources inside the firm rather than exploring the resources outside the firm in innovation activities. This study proved that this strategy has a positive effect on firm value, and it offers strategic implications for how managers should utilize the path dependence in their technology development portfolios.
Finally, this study has some limitations, which can lead to the proposal of future research topics. First, I used two sources of technology procurement to test the path dependence of a firm’s innovation activities: internal and external. However, more specifically, if I check the transfer of knowledge by industry, I could understand which industry closely interacts with the semiconductor industry. Moreover, future research will also be able to examine the country’s technological dependence by analyzing the firm’s technology sources by country. Second, I examined the semiconductor industry, the leading innovation area. In future studies, it may be possible to examine which industries’ firms are more strongly influenced by path dependence in technology innovation by simultaneously analyzing various industries. Those research attempts could lead to expansion of theories and derive more diverse implications.